The path to financial freedom is not an easy one. It takes a lot of effort to get there, and many will fight their entire lives and still not get to the point where their passive income exceeds their expenses each and every month.
We all take our bumps and bruises along the way, and if you’ve invested in the markets for awhile, I’m sure you’ll agree that the journey can feel a lot like riding a rollercoaster on many occasions. Still, rain or shine, highs or lows, regardless, we keep on investing because we have full conviction that we are doing the right thing to better our futures.
Good earnings and an even higher savings rate are just some examples on how to shortcut the time it takes to get to financial nirvana. Also, depending on the investment decisions you make along the way, this can help greatly expedite your progress, or set you back a few years. Whether it be luck or skill, the right moves do make a huge difference in the grand scheme of things.
At this point, I would like to ask everyone, “What was the BEST investment decision you ever made?”
- Best stock decision.
- Best real estate decision.
- Best lending decision.
- Best business decision.
- Best knowledge (growth) decision.
This is a very open-ended question, and can mean more than just a simple transaction event (e.g. buying or selling). For myself, and many other freedom fighters, I’m guessing the decision to actually get started with investing was one of the best investment decisions ever made…
And getting started is tougher than it might sound. When you are new and green, everything seems overwhelming and excessive. I remember when I first decided to start investing in stocks in late 2011 and began researching individual companies… Not only were there a million terms to learn, but just the sheer number of publicly traded companies that are out there is mind-boggling… “Oh boy, this stuff is going to take a lot more time to sink in and marinade than I thought!”
Anyway, if I was going to answer with the best investment transaction decision I’ve made over the last 4 years on the journey to early FI, I’m going to go with the following:
- Purchasing Rental Property #1
- Purchasing Rental Property #2
I know that ‘decision’ should be singular and not plural, but I’m electing to go with those two transactions because they were nearly identical, and really just the same move duplicated twice.
- I purchased Rental Property #1 in August 2012 for $315,000. I put in 25%, or $78,750 to close escrow. It most recently appraised at $435,000.
- I purchased Rental Property #2 in February 2013 for $290,000. I put in 20%, or $58,000 to close escrow. It most recently appraised at $440,000.
The reason those transactions rank at the top of my list is because they presented a very unique opportunity that rarely occurs in my local real estate market:
- The ability to generate strong cash flow on Day 1 with typical 20% downpayment.
- Opportunity to buy at a significant discount relative to previously set all-time highs.
I wasn’t a real estate investor prior to 2012, but from talking to other local investors, I’ve learned that investing for cash flow prior to the subprime market crash of 2008 was a foreign concept. Back then, the only reason to acquire rental properties in the Bay Area was to speculate on future price appreciation… Yes, that’s a risky proposition, and a lot of investors paid the price (literally) when the housing market collapsed and they were unable to support the negative cash flow each month.
Crazy or not, it was the norm back then… and it’s starting to become the norm again today (scary thought). Right now, it’s extremely difficult to find a cash flow positive property in the Bay Area… unless you are willing to force cash flow by putting in a very large downpayment (30%+)… Or, unless you can get lucky enough and lease out to a corporate tenant who is willing to pay a premium for rent + ammenties. In general, when you have single family homes pushing north of $650,000 (even in mediocre locations), and renting for only $2,800/month, the numbers simply don’t work. Townhouses and condos can offer better cash flow potential… but even most of those options will still be cash flow negative on Day 1.
Today, with the benefit of hindsight, I really believe that these two moves were the best financial decisions I’ve made in my life (so far). With two cash out refis completed recently, I’ve now pulled back out all my investment capital (and then some) on each property.
Looking back, I can’t say that I had enough experience back then to know what I was doing; I simply got lucky and found myself caught up in the right place at the right time. In the future, if such a wonderful investing environment presents itself again, I will have the knowledge and experience to know that opportunity is indeed knocking… and pounding loudly on the door! It will be time to capitalize, once again.
Sometimes, it’s better to be lucky than good… Or, as they say, “luck is when opportunity meets preparation”. But you have to play the game to have a shot.
What was the BEST investment decision you ever made?