With all the Neil Woodford news at the moment, you could have missed the fact that world equity markets are up over 12% so far this year. In GBP, at least. This rising tide has taken me over an important high water mark – my portfolio has recovered to where it was at before I raided it to buy the Dream Home.
For those of you who missed the whole stressful saga, I bought my Dream Home, on a whim, in December 2015/January 2016. To make this more complicated, I ended up funding the purchase very significantly through a margin loan – basically a loan secured on my equity portfolio, rather than a loan secured on the property.
Buying the Dream Home needed me to sell almost half my investment portfolio. I was doing this in the middle of a minor market correction (global equities were 15% off their peak), which felt like a very painful time to sell. In the end, by borrowing over £2m I was able to keep £2m+ invested that I would otherwise have sold.
In those first few weeks after I completed I was pretty exposed. If the market had dropped 30% I would have been panicking. Fortunately, as hindsight shows, it turned out very differently; world equities are up almost 60% since then. Brexit has ‘helped’ here, because the sharp fall in the GBP after the June 2016 referendum meant my (mostly overseas) investments sharply gained versus my margin loan; this is not easy to see in the graph but it is there if you look closely.
With a combination of my investment returns, some liquidity windfalls, my net position (of the liquid investment portfolio, which ignores properties, illiquid holdings, etc) is up around 90% since my Dream Home purchase. I’ve paid down over half the margin loan, and my leverage now is at a very modest level that carries (I believe) very low risk. Thanks to this leverage, in fact my total gross holdings are now bigger than ever before. My net position isn’t quite at record levels, but it is well within the margin of error – and ahead of September 2015, a few weeks before the fateful Dream Home decision.
As an aside, the rental income I’ve received from the old house (which has become an investment asset, albeit not one that I include within my investment portfolio on this blog) has not been a big factor here, because in practice I’ve used those funds to both pay for the old house costs, as well as fund the significant running costs of the Dream Home.
I didn’t anticipate recovering my investment portfolio in under 4 years, without selling the old home. It feels good to know that my money can work so hard in such a short time. So, time to buy another one? Dream on!
In my last post in this occasional series about my tribulations buying my Dream Home, I left my story at 9am on Friday 24 June – The Morning After – having just received an offer for £100k less than the ‘actual’ value of my old house. I asked for views on what I should have done next. And I got some wonderful comments with real wisdom – a real testament to the amazing insights in the UK’s FIRE community.
The first comment came from RIT, suggesting I should have taken the money and run:
“Looks like either a very illiquid market or the price was to high to me. From where I sit I would have had their arm off and pushed for an exchange very quickly.” Retirement Investment Today
My approach wasn’t what RIT advocated, even though I think it is a very sensible perspective. I had several people giving me the same advice at the time. In fairness to RIT, as LondonRob commented, the ‘right’ answer “partly depends on how much [I] really need the cash. It would also be good to know what the rental value could achieve.” LondonRob said he felt a 10% discount to the asking price was too much, and so provided cash wasn’t an immediate issue he recommended turning the offer down. This is indeed what I did.
What I hadn’t explained in my last blog is that yes I would like the cash from my old house, but no I am not desperate for it. I have emotional ties to the property and do not want to sell it ‘under duress’. I am pretty confident I will get a reasonable price for it at some point and can afford to wait. I also was wondering about its potential as a rental property, and felt pretty sure I could rent it out – albeit possibly at a low rental yield. Had the rest of the market tanked between January and June I may well have been feeling more desperate for cash. But in fact I had already made almost £1m in paper gains this year and this had boosted my resilience, so I was not in much of a mood to compromise.
Readers earlier in the year will be aware that I found myself buying my Dream Home, on something of a whim, at very short notice in January. My plan had been to put the old house on the market last Easter. Things haven’t gone entirely to plan, as I’ll recount.
First off the old house needed a bit of TLC. Nothing major, but not something I have to bother with on my other valuable assets. This took a few weeks, and prevented me selling the house at the start of the year.
Secondly, I got quite a significant shock when I got the house valued. This being London, the first and almost only step required to value a house in a given postcode is to measure its square footage. Measuring is a very slick process these days involving lasers. But I couldn’t believe my eyes when I got the plans back : they were 500 sq ft short. Shurely shome mishtake? Alas not. I’ve been labouring under a misapprehension for about fifteen years about the size of my old house.
500 sq ft in North London is worth over half a million squids so this was quite a blow. In many ways I’m glad I hadn’t realised this when I was looking at new houses, but I’m certainly relieved I didn’t stretch myself to buy a more expensive Dream Home. Certainly it is a good reminder of one of life’s most important lessons: Check Your Assumptions.
In any case I then had a few of the local agents visit to tell me how wonderful my house is, how exorbitant expensive it will be and how rapidly they can sell it for me. My original strategy was to deploy two agents who between them covered all three of the UK’s large property portals but in the end I ended up with a ‘pile it high’ agent and a ‘classy one man band’ agent both of whom were on the same two portals (Zoopla/PrimeLocation being the one that matters in my market).
The pricing of a house to sell is a fascinating process.