MIDYEAR REVIEW OF INVESTMENTS AND PERSONAL FINANCE : Personal Best

We publish advice and insights from all sorts of investment and personal finance experts--much of it contradictory. So to find out what works in real life, we went to the source, asking our readers to recount their all-time best financial decisions. From hundreds of letters, faxes and e-mailings, we’ve selected a few of the most interesting to publish or excerpt. Thanks to everyone who contributed.

Knowing When to Hold ‘Em, Fold ‘Em

I am a financial analyst for a large aerospace company in the Antelope Valley. Since aerospace is very cyclical, I obtained my real estate license in the late ‘80s as an insurance policy against being unexpectedly unemployed.

Back in 1985 (when everyone thought real estate was a sure thing), I went into partnership with a friend and built two “spec” houses using borrowed money. I eventually moved into one home. The other property we sold for a minimal profit.

My family and I lived in the house for three years, from 1986 to ’89. Every year, the house appreciated by at least 100% of our initial down payment of $10,000.

Having a degree in economics, I was interested in economic literature and at the time was reading about “The Kondratieff Wave.” The author was predicting a large decline in real estate based on economic cycles. I agreed with this analysis and decided to sell my house, so I listed the property myself and sold it in September, 1989. I made approximately $47,000 profit on my initial $10,000 investment in three years.

The following month, real estate started to decline, and it continued to decline. I invested that money in a money market account and rented a home for the next two years. Over that two-year period, real estate declined drastically in the Antelope Valley. Most people who bought in the late ‘80s and early ‘90s found themselves “upside-down.” I had to buy another house in 1991 to avoid capital gains, but, oh, what a difference two years makes.

I ended up purchasing a beautiful, 2,700-square-foot home for $175,000 that originally sold for $269,000. So I sold my first house for approximately $100 per square foot, waited for the anticipated decline and then bought a nicer, better-quality home in a nicer area for approximately $64 per square foot. Renting for two years, indeed, paid off in the long run.

The lesson I learned is that it pays to try and be aware of the economy and the various cycles that happen over time. Also, in today’s economy, it pays to be diversified professionally. And finally, just because something has gone up in the past does not mean it will continue to always go up. Are you listening, stock market investors?

Rene Maldonado

Lancaster