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What I Learned From the Single Best Investment of My Life

What I Learned From the Single Best Investment of My Life

Ivaylo Sarayski | Dreamstime.com

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Friday, 07 September 2018 09:29 AM Current | Bio | Archive

“Well, good luck.”

That’s about all I got in the way of congratulations when I became a first time homebuyer. The closing agent sounded a bit jaded, as though she expected the property to be foreclosed on within a year or two.

To be fair, the year was 2009, and there was still a ton of fear about the overall economy. Would there be another wave of refinancing foreclosures? Would the stock market give up the modest recovery it started to have?

I’ll be honest, I was nervous too.

While it seemed like a bad time to be taking on mortgage debt, I had crunched the numbers. It was better than renting. The home had last sold in 2005 for more than double what I paid for it—exposing how severe the housing market had pulled back from its bubble.

And thanks to a generous first-time homebuyer credit from Uncle Sam and an FHA-backed mortgage where I only had to put 3.5 percent of the purchase price down, I was really doing the patriotic thing!

I dutifully paid my mortgage, took the interest deduction on my taxes, and made plenty of repairs. The roof, hurricane shutters, all sorts of things big and small. I rounded up my mortgage payments to the next $100 level so I’d have an even payment as well.

It took another three years of bouncing around near the 2009 lows before home prices in my neighborhood started to rise. I refinanced—rates ended up being lower a few years later—and dropped private mortgage insurance (PMI). That’s a toxic product where you pay insurance premiums on behalf of your lender in the event you get foreclosed on. That’s like paying for someone else’s life insurance policy when you’re not the beneficiary!

Despite the financial annoyances, my first home has morphed into my first rental property.

Rising rents and rising home prices have led to a situation where I can clear a little bit each month over costs. And now those costs are deductible on my taxes. The property can also be depreciated, where a little bit of my purchase price is paid off over time. So once you factor in the tax advantages of being called a landlord, things look even better.

Best of all, thanks to price appreciation and my extra mortgage payments, my loan-to-value is now closer to 50 percent. That’s a great jump from the 3.5 percent equity I started with! On a dollar basis, this makes my modest little first home one of the single best investments of my life.

I’m not relaying this story to brag. This didn’t happen overnight. Rome wasn’t built in a day (and it didn’t collapse in a day either). This process was nine years in the making, largely while I was off investing and writing about financial markets. But as an “all of the above” kind of investor, the returns have ended up making owning far better than renting. And as a result, I didn’t need good luck. I made my own.

As with most investments, time is your friend. I was fortunate to buy at a depressed price (even though many thought it would go lower). And I got an extra immediate tax break at the time. That heavily put the numbers in my favor from the start. Most investments aren’t so fortunate.

But it also worked because expectations were low.

You see, one of the truisms I’ve discovered over the years about investing is this: The trades you expect to go well won’t. The trades you make that you don’t expect much from will tend to do well.

That could just be because our emotions creep in to our decision-making, no matter how objective we try to be. The hot tech stock may indeed do well—but if it does poorly first and you sell out, then you lock in a loss when you could have had profits down the road.

It could also just be because “boring” is a four-letter word in the world of investing—but it works. The world still needs mundane products like paint. Or hardware. Or clothing like shoes. Some of the best-performing companies over time are those in boring industries that just regularly produce cash for shareholders like clockwork. They don’t have a sexy story that makes it a hot trade now, but like the tortoise and the hare, it pays out over time. But the key words are just that. Over time.

At this stage in the market rally, which started just a bit before I started buying my first home, it can certainly feel like time is no longer on your side. And while readers of the Financial Braintrust and Insider Trader Alert have done well on call options on oversold stocks year to date, it’s important to remember that time lasts longer than any bear market. Bear markets last 12-18 months. Even the Great Recession, which will likely prove to be one of the worst of our lifetime, fell into that timeframe.

Just as my first home was backstopped by a government loan and an immediate tax break, this market rally was immediately backstopped by government bailouts and years of interest rates below zero. It has more room to run. Time is still on your side. Even better, despite stocks being near all-time highs, many individual names aren’t. It’s when everything starts to all move in the same direction (or correlate, to use Wall Street speak), that we’ll likely be near the final end of this bull market.

So stay bullish. But still look for bargains. Story stocks will still rise and fall on their own merits regardless of what the overall economy is doing. Wherever you are in your investment journey, there’s still ample time to build on and expand your wealth in this market.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

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So stay bullish. But still look for bargains. Story stocks will still rise and fall on their own merits regardless of what the overall economy is doing.
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2018-29-07
Friday, 07 September 2018 09:29 AM
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