“Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.” – Robert Frost
I don’t have a lot of rules in life, but one of them is: If I can quote a famous Massachusetts person born on March 26, I will. Since half my life’s in books written pages, I’ll do what I want :-).*
This past weekend my mother brought me a postcard that she got in the mail. It was from real estate agent announcing the selling of this home. I’m sure you’ve gotten similar mail, right?
What makes this special is that I had seriously considered buying a condo in the same complex in 2004. I dug up an old spreadsheet that I had from that time. It’s hard to be 100% sure because I used MLS numbers instead of addresses, but it looks like the owners were asking $324K at the time. From this we can infer that condos that building have roughly appreciated 55K or 17%. (That’s assuming this isn’t an outlier.)
I decided against buying in that building. I don’t remember the exact reasons why, but it was very close to where I grew up, had no yard, and no pool. Instead, I opted to buy a place that was a little further with those things. It was closer to my job and a little further from Boston.
I paid $278K and now it is worth around $250K. In 13 years, it’s depreciated by 28K or around 10%.
I’m going to make a huge oversimplification here. I’m going to ignore that the former property would have stretched my finances. I’ve rented the later property a lot longer than I lived in it with the rent covering most of those expenses. Viewed through that lens the cost of the property is minimized. With all that pushed to the side, the road not taken would have netted $85,000 in equity (turning a 28K loss into a 57K gain).
Flash forward a couple of years to 2006…
My wife and I are living in Silicon Valley. A coworker and I have an interesting conversation. He makes the point that buying a home in Silicon Valley is always a good investment.
That sounds crazy to me. At the time a 1000 sq. foot home that should be torn down was going around $650,000. We were able to rent for a fraction of what it cost to buy. It was one of the few places in the world where the buy vs. rent equation was far in favor of renting. It wasn’t even worth thinking about.
In hindsight the prices in Silicon Valley just kept going up. I haven’t looked up the pricing in the last few years, but I’m sure that $650,000 house is around a million now.
It’s no use crying over spilled milk, but I found it interesting. There’s a lot of truth to the big purchases making a huge difference in your financial life. For every negative, there’s a positive though. We did buy two properties in 2011 and 2012 near the bottom of the market. We’ve been able to build a lot of equity that way.
Do you ever stop to reflect on financial decisions you have made (or didn’t make)?
* I’m quoting Steven Tyler who was born on March 26th for those who didn’t catch that reference.