I’ve previously written that I rent. I live in a small town with public transit, restaurants and services just a few blocks away. If I were to buy, I would want to get the same lifestyle.
When I wrote that article, mortgage rates were about 4.5%. I remember about 10 years ago I was looking to buy a home and at the time a 7% interest rate was available (and that was a good rate). With rates now around 3.5% and home prices down from previous higher prices from 5 years ago, does it make sense to give this another look?
I won’t waste your time: yes, you can absolutely crush renting now by buying instead. Read on for the numbers and reasoning.
I was in the barber shop getting my hair cut when Domenic (my barber) mentioned that he was glad he kept a multi-family home that he bought about 40 years ago. Over time he moved as his needs changed (larger family) or when he made a final move that was close to his newly opened barber shop. Except for that property, he would sell his previous residence at the same time he moved to the new one.
This particular property was different since he was already earning money by renting the other unit. He figured that the property wouldn’t be a drain on his finances because he could also rent his side such that all the expenses would be more than covered.
Fast forward 40 years and this property is his ace for a comfortable retirement. What if he didn’t keep it and sold it instead? He might of simply bought a more expensive house along the way. He would have lost this asset that over time continued to earn more and more money and increased in value as well.
The market swooned today, and I took an opportunity to buy into Kinder Morgan, Inc (KMI) at $38.50/share.
I especially like buying into today’s market because Kinder Morgan just went ex-dividend about a week ago. Although I like collecting dividends, buying just after an ex-dividend at an even lower price after subtracting the dividend is a good way to buy shares. I got the dividend by a lower buy-in price, which is even better than a payment.
We had a real divergence in the market today, the S&P500 beat the Dow Jones Industrials (DOW) by more than 3/4ths of one percent (0.80%). Almost all of the this divergence can be attributed to IBM which was down over 8%, after a poor earnings report.
As I mentioned in this previous article, Why The DOW is Outperforming, a stock like IBM has outsized weight simply because of its high price (in absolute value). The DJIA is a price weighted index and not a market weight index.
Return on Equity (ROE) is a common financial measurement that investors use to evaluate a company. You might find it used in stock screens as one criteria. In its simplest form it is a measurement of how well a company does on earning a return on the money investors gave the company. An investor looks to earn an outsized return on his money invested compared to other options. ROE can tell you how well the company is doing in that respect.
However, it is best to use this metric not with the ‘headline’ number but each component that goes into it and how it changes over time. Also, depending on what kind of company you are investing in and what you are looking for in a return, you will want to use ROE in specific ways to evaluate the companies performance. If you are a dividend growth investor you will want to be particularly careful not to rely on the headline number as I will talk about. It is possible for ROE to be negative, zero, a big number and everything in between. The headline number doesn’t tell you enough, you need to look deeper.