I sold my rental property last year, after owning it over 20 years. It’s a lovely property, worth around £1m, right in the heart of London – near the middle of the map below. I used to live in it, I travel past it regularly, I know its neighbourhood well. The Modern Flat has genuinely been part of my life – in a way I can’t say for most assets I own.
Central London – roughly corresponding to the Circle Line area
As most readers would I think agree, I am a pretty numerate, analytical person. Yet looking back on the sale of the Modern Flat, in my decision to sell I made two stupid mistakes. I got two of the big numbers wrong. Not just a bit wrong, but properly, materially wrong.
There are lessons here about investing, about selling, and about property vs stocks/shares. Let’s take a look.
Supposedly Albert Einstein called compounding the 8th wonder of the world. Certainly the wonder of compound annual growth rates is something I feel quite viscerally, the more so with each month that I track my portfolio. But I’ve been struck recently by a radical improvement in my portfolio’s dividend income, far in excess of the portfolio’s return, that has occurred thanks to the margin loans I’m using. For anybody curious about margin loans, this blog post shines a light on what’s happening.
While my portfolio has grown 14%…..
As a quick visit to my Monthly Returns page can see, my portfolio has returned around 20% over the last twelve months (to September 2024 inclusive). This is a good, but not exceptional period over the 10+ years I’ve been tracking my portfolio – which has returned just over 9% p.a. since inception over 10 years ago.
As it happens, despite the underlying returns of around 20% my own portfolio (and I’m excluding Mrs FvL’s in this analysis) has only grown in size by 14% over this twelve month period, thanks to some significant withdrawals to pay tax bills, make ‘off balance sheet’ investments, and such like.
… my net investment income has grown 56%
What caught my eye is that my expected investment income, something I record monthly, has grown 56% during the same time period.
But my net worth includes an important asset class – property – that I don’t normally track, but which I have held in some form for over 20 years.
So, this post takes a look at how my real estate assets have performed.
Real estate works completely differently, for me, than my investment portfolio. For starters, I have never bought a home as an investment. But let’s start at the beginning.
My property owning history
I nearly got on the property ladder in the mid 1990s.
I hadn’t realised, until a friend pointed it out a few years too late for me, that in fact one of the easiest times to get on the property ladder was the moment when I graduated and moved to London. My first job earnt a reasonable London salary of just over £20k, and 1 bed flats in a reasonable part of Zone 1 in London were available for under £70k (now £800k-£1m, sigh).
Mortgage rates had dropped from >13% in 1990 to around 7%. The interest costs could have been around £5k, a quarter of my first-job income. That was in the mid 1990s. It didn’t occur to me to buy a place, and of course those property prices were so high…..
By the late 1990s, buying a property had become a lot harder. But once I was earning £40k+ I decided to take the plunge. I found a reasonable 2 bed place very close to Zone 1 for £200k (now £500k). The mortgage (at around 7% interest, i.e. interest costs were £13k, a third of my gross income) and the deposit (£20k, if I remember rightly, for a 90% mortgage) were a massive stretch….. and then I was gazumped. By the time I reorganised, the places I wanted cost £220k+ and I couldn’t quite afford it.
FIRE v London 