Some 35 years after buying my first home, and as I am about to retire as a personal finance columnist, it seems like a good time to review my best lifetime investment.
There have been a few great performers during that period in my financial portfolio: Emaar shares; a modest pension plan that turned into a decent lump sum and my own business, which I sold before the global financial crisis of 2008-09. But nothing has really topped simple residential real estate. So, why is that?
Buying a house in a depressed market with lower than average prices is the surest way to improve your return on residential property …
Well, I have saved 35 years of rent for a start, or better still earned money from rent when a company paid for my apartment in Dubai.
Then, there was house price inflation. Of course, there were a few years when prices fell but overall the direction has been up and up. At the same time, mortgage rates gradually fell and so did the mortgage payments. There came a time when I was finally able to pay it off 13 years ago, and that early repayment saved 8 per cent on interest alone. Keeping money in the bank instead would have earnt 6 per cent in interest, which is unbelievable today.
Meanwhile, my salary benefited from the same rising inflation and a gradual move up the media ladder.
The financial engineering that makes home ownership work is straightforward and easy to understand. When buying a residential property, most buyers take a large loan at a fixed point in time and make a big investment. You immediately have a serious amount of money at work on your behalf.
You do not have to drip feed into an investment plan for years to accumulate a decent sum, and only then find that it is not enough to fund your retirement due to fraud, unsound management or a bear market. Bricks-and-mortar are solid and not a paper asset; you can see and feel what you own.
The other main reason why residential property investment works so well is that everybody has to live somewhere and expects to pay up to a third of whatever their income is to do so.
You have a situation of very stable demand and generally stable cash flow. Any investment expert could come up with a moneymaking plan with those inputs.
That’s why in my long career as a financial journalist – which included a decade writing about real estate in the UK – I have met many more people whose financial success has been mainly down to buying residential property than those who have done so through business or investing in the stock market.
Not surprisingly when I moved to the UAE and it became possible to buy residential property, I was literally one of the first in the queue. How many of my older friends today are considerably richer because they did…