First-time homebuyers can usually buy a home with a small downpayment, but what if you are not a first-time buyer? What if your situation is such that lenders want you to put down 20%? How do you have any hope of coming up with that money? Can you use Motley Fool Stock Advisor picks to save for a downpayment? Read on to find out.
Can I use Motley fool stock Advisor picks to save for a downpayment?
This is precisely what I did. I would not live in the house I do today if I had not built a portfolio of stocks based entirely on the recommendations of the Motley Fool Stock Advisor Report.
What is the Motley Fool Stock Advisor?
Note: Other than being a subscriber myself, I am in no way affiliated with the Motley Fool. This post is about my experience using the service.
The Motley Fool started in 1993 as a private financial and investing advice company. Two brothers, David and Tom Gardner, founded the service, and Erik Rydholm (no longer with the company).
The name Motley Fool comes from the Shakespeare comedy, As You Like It, in which the court jester could speak the truth to the Duke while keeping his head intact on his shoulders (literally).
Stock Advisor is the flagship service. It used to be published as a printable PDF newsletter when I first joined. The PDF version is no longer available, and the website is now where readers can find stock information in a blog format. Members also get access to special reports that cover topics like investing for beginners, cryptocurrency, artificial intelligence, or what the next “Amazon” will be.
Subscribers can look forward to 2 new stock recommendations each month, and a frequently updated Best Buys Now section. These recommendations are always timely and feature stocks that are underpriced/undervalued by the market but have a massive potential once everyone else catches on.
2008 and a Short Sale
My wife and I purchased our townhouse in Santa Clara, California, in 2006. It was nice but small. We paid over $600,000, and for the first few months, it went up in value to $635,000. Our real estate broker had encouraged us to pay over the asking price with no money down.
It was 2006, and lenders gave loans out to anybody with a pulse and then sold the bad mortgages. We ended up with a first and second mortgage with crappy interest rates. It didn’t matter to us; as immigrants to the US, we were excited to be starting our American Dream finally.
Then came the credit-default swap debacle in 2008-2009 that brought the whole real estate market and world economies to their knees (I mean, Iceland even went bankrupt).
Our $635,000 townhouse dropped in value to $400,000. This property was supposed to be our starter home, but now we were stuck. We wanted to have a second child, and this house with its two bedrooms would make that hard. I used to joke that the layout had become claustrophobic like we lived in two trailers stacked on top of one another⸺we wanted some space and a yard.
The mortgage on our declining investment was depressing. We were paying a lot of money each month for a home that was underwater. We had a negative net worth with no end in sight, and it felt terrible.
In 2011 after much research, we decided to make a short sale. One main reason was that The Mortgage Debt Forgiveness Act expired on December 31, 2013.
If we waited to do our short sale after this date, any debt that was forgiven by our lender (in this case $200,000) would be treated as income. We would be on the hook for income tax to the IRS. To avoid this, we had to act right away because short selling is a long process.
Consequences of a Short Sale
While not as bad as bankruptcy, a short sale does follow you around for a good 7 years. Our short sale meant we would need at least a 20% down payment for any future purchase. The Bay Area’s ridiculous market meant we’d need at least $200,000 to put down on a million-dollar home.
Even several years ago, a million dollars in that market would be lucky to get you a ranch-style house with single-pane windows, old appliances, no air conditioner, and a small dirt pit for a backyard in a neighborhood with bad schools.
Luckily we had the opportunity to rent a couple of really nice properties from 2011 to 2017 and we had our second child. During these years we rebuilt our credit but we were not building any equity or wealth as renters. We desperately wanted to own a home again.
Thank You Motley fool Stock Advisor Report
Since I knew we wouldn’t be building home equity while renting, I turned to the stock market and I doubled down parking our extra cash into the market. I may have an MBA but I am no advanced investor by any means so I was wary about making bad decisions.
Where did I get my stock advice? I turned to the Motley Fool Stock Advisor report. I subscribed for about $99/year. All of my picks came from their list of must-have stocks and I filled my portfolio.
I used their best buys now to make sure I was always buying stocks at a “discount,” trying my best to avoid buying anything at its peak. I had some great success with Apple which underwent a 7:1 stock split in 2014 as well as Amazon, Tesla, Netflix, and many others.
The problem was that homes were appreciating so fast in the Bay Area that the 20% needed for a downpayment meant the money we required was also increasing at the same rate. Now we needed $300,000 or more just to get back into the market.
Since we couldn’t make the Bay Area market work for us, we decided to change our market altogether. We pulled up anchor and headed to Oregon and have never looked back.
In 2017 we moved to the Portland Metro area and our stock portfolio was more than enough to buy a house in the $500,000-$600,000 range. I continued investing and saving for another 4 months after moving.
We rented until we identified a house to place an offer on in Lake Oswego. Once we found something in our price range I sold all of our stocks for the downpayment and the rest is history.
I never would have had the money if not for the Motley Fool and the market gains I experienced. I would not have saved that amount fast enough.
My stock portfolio was down to zero and I wanted to rebuild it. I continued to follow the advice of Motley Fool’s stock advisor. The problem is that it’s hard to rebuild a portfolio with top-notch companies like Amazon when just one share costs over $2000 (much more expensive than when I initially started investing).
To build a diverse portfolio that mitigates risk quickly, I turned to fractional investing through M1 Finance. I’ll go into M1 Finance more in a subsequent blog post.
Fractional investing in a nutshell allows you to invest in partial shares so instead of buying 1 share of Amazon at $2000 for example, you can instead buy $100 (or some other amount) and purchase 0.05 shares.
The cool thing is when Amazon goes up in value you still get the benefit of that. So if Amazon increases its share price by 50% to $3000 your $100 would have a market value of $150. This is much better than waiting to save $2000 to buy just one share.
By the time you saved that amount the Amazon in our example above would have gone up in value, you might find you now need $3000 for that one share. To make matters worse, you would have missed out on the stock market gains while you were saving.
I am not giving investment advice here just telling my story. I was fortunate back in the early 2000s to have discovered the Motley Fool. It was their Stock Advisor recommendations that I doubled down in 2011 after the short sale that allowed me to build up a decent downpayment. I did have to move to a cheaper real estate market but since buying in 2017, my home has nearly doubled in value. It was well worth it.