The Best Financial Decision I’ve Ever Made

It was September 2001 and I was living in a tiny 500 sq. ft. basement apartment of a big house in the suburbs of Washington D.C.  My $40,000 a year salary placed me slightly below the median income in America, but I had a stable government job. 

I could afford a bigger place, but my frugal tendencies kept me on the path.  I knew that saving on the big three was the fastest way to build wealth.

My lease was up in November, and I was flirting with buying a house but wasn’t sure I could afford it.  The D.C. area was then as it is now the richest area in the country and house prices even then were expensive.

Then 9/11 happened, and my world was rocked like everyone else’s.  I work for the Department of Defense,  so on September 14th I was sent halfway across the country to a military base to assist and deliver training to elite soldiers who would soon be on the front line. 

Most planes weren’t even back up in the air yet, I rented a car and drove.  My instructions were “take clothes you like, your trip is open ended. You’ll be there as long as they need you”. 

At that point I obviously put my thoughts of buying a house on the back burner, my sole focus was my job.  I worked 90-100 hour weeks tirelessly for the next month, then I was told to come home. 

The troops I was working with took off to Afghanistan in mid October.  I wanted to go too, but got my chance soon thereafter.

 

Opportunistic

The U.S. economy was already in a recession when 9/11 happened.  The Fed had cut interest rates 7 times during 2001, which was why I was tempted to buy a house.  Mortgages were getting cheap. 

Then as the stock market crashed and reeled from the attacks they cut rates two more times to make money more available to consumers, the last being on October 2nd. 

I was still thousands of miles from home and deep in my work, but I noticed, and it sealed the deal for me. 

“When or if I ever get home, that’s it, I’m going to buy a house”. 

And that’s what I did.  And it was the best single financial decision of my life. 

I don’t say that because I subscribe to some dogma that everyone should own a house – I don’t.  The pro-renting crowd has some very strong arguments to support their point of view, and it’s all really circumstantial. 

Geography, finances, stage of life, community, and goals all need to play into the decision.  For me the timing was right.  Interest rates were the lowest they had been since 1962 (at around 6%, think about that!), and everything else in my life was ready for a house. 

At the end of October 2001 I found myself buying pizza and beer for my closest buddies who helped me move into my new house.  And man did I choose well.

 

A Bubble?

Housing prices in the Washington D.C. metro area started rising fast in 1999, and by late 2001 many thought it was a bubble ready to burst.  That was on my mind, and to be frank I was kind of scared.  Buying any house in the D.C. region would stretch my average-Joe salary more than I was comfortable with. 

But here I am almost 19 years later and my house has more than tripled in value.  To be exact it’s gone up approximately 205%, while inflation has increased about 45% during the same time frame.  For the math challenged that means if my house cost $100,000, it would now sell for $305,000.  Except the real numbers are much larger. 

I do not disclose the price I paid for my house or what it would sell for now because I also do not disclose my net worth.  And it would be easier to figure out the latter if I told the former.  Needless to say, the value of my house constitutes a significant portion of my net worth.  And it will only keep going up…. 

How do I know? 

 

Enter The Behemoth

In November 2018 Amazon announced its second headquarters, or HQ2, to be just a few miles from my house.  Since then my house has appreciated about 28%.  And that’s real data from houses on my street that have sold, with bidding wars. 

Yes the economic downturn and looming recession from this pandemic could dampen things, but history has shown that my house will weather it better than others.  Here’s a chart of housing prices in the D.C. region from the 1990’s to present.

 

That big dip from 2006 – 2009 saw prices decrease by about 32%.  During that period my house value went down only about 9%.  And while most other houses are still worth less than the 2006 peak, mine is worth way more. 

Why? 

I purposely bought within a walking distance to a Metro station. 

Washington D.C.’s Metro is one of the best in America (which honestly isn’t saying too much), and houses within a ten minute walk to a D.C. Metro station always hold their value in a downturn.  I knew this going into my purchase because I’m a geographer, and location is what we geographers do 🙂  

Amazon plans to bring about 25,000 employees to their HQ2 who will make an average salary of about $150,000 a year.  Yes, average salary. 

In short, they will flood what is already the wealthiest area in America with a small baseball stadium of super-high income earners, all who need a place to live.  And where Amazon goes, so will tons of new startups and smaller companies, like little remora fish on a shark.

 

Risk, Homework, And Luck

Some choose the real estate path to wealth and financial independence.  It wasn’t my path but it is a viable one.  I’ve never been a landlord and really had no interest. 

But I will be one day.  I will not be fully retiring in the Washington D.C. area.  As much as I like it, it’s too crowded, with too much car culture and stress.  I want more peace.

So when I leave this house I will rent it, and currently I could rent it for about three times the cost of my monthly mortgage.  Yes, three times.

I will get a new place in a modest or even low COL area, and be set.  The renters in my D.C. house will be paying my D.C. mortgage, my new mortgage (wherever it is), and I’ll still have about $700 – $1000 left over every month as income. 

All from one house. 

It’s a great position to be in.  

It comes down to taking risk, doing my homework, and having some luck.  I bought into what most thought was a bubble, that was risky.  I did my homework and bought near a metro station.  And Amazon became a juggernaut and decided to plop it’s second headquarters down right near my house.  That’s luck.

So I may not have chosen the real estate path to FI, but I chose a house that will provide me a solid income for the rest of my life.  And it was the best financial decision I’ve ever made.