Author Topic: Lumps of cash and where to live??? Help!  (Read 2456 times)

tjaws

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Lumps of cash and where to live??? Help!
« on: February 26, 2016, 06:48:58 PM »
Hey! First time posting in the forum. But my husband and I need some advice from some smarter, more seasoned folk!
Our house is currently under contract, with a closing date of early fall. We are set to make about $120,000 once the sale is complete.  (We bought a fixer upper, fixed it, and paid down the mortgage pretty low). My question is:  would it be better to try to just find a cheaper house and pay cash for it? OR take that money and invest it and just buy a new house that we know we can also shoot to pay off in ten years. 
Other background details: we have no debt. We make about 100k a year, we both have 401ks and Roth IRAs set up, and we have approx $10,000 in cash savings. 
Of course there are a few other factors that make our decision making hard Bc affordable houses in our area are in scary neighborhoods or terrible school zones. But the basic issue is what is the best thing to do with the money.
Thanks for any advice or tips!

GrowingTheGreen

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Re: Lumps of cash and where to live??? Help!
« Reply #1 on: February 27, 2016, 07:39:41 AM »
This is a personal decision.  One one hand, you've got the safety and security of a paid off house.  On the other hand, you've got the potential for higher returns by investing the money and borrowing for your house at historically low rates.  From a pure numbers standpoint, it makes more sense to get a loan on the new house and invest your profits from the old house.  But as you know, there is more to life than numbers :)

When buying a house, I think it's important to look at schools and the neighborhood.  I know MMM has his own opinion on this, but I side with the "location location location" folks.  I'd prefer to live in a better neighborhood with better schools than buying a cheap house in a crappy area.  Especially if I have kids.  It's all about balance and living well below your means.

soccerluvof4

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Re: Lumps of cash and where to live??? Help!
« Reply #2 on: February 28, 2016, 05:25:22 AM »
^+1

Ricky

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Re: Lumps of cash and where to live??? Help!
« Reply #3 on: February 28, 2016, 06:33:36 AM »
  • Did you enjoy the rehab process?
  • Do you need more money?
  • Are you willing to put in the work for another project?

I think it pretty simply boils down to answering those questions. You're at the cuff of the BRRR strategy, coined by Brandon Turner @ BiggerPockets:

https://www.biggerpockets.com/renewsblog/2015/04/20/how-to-100000-dollars-year-real-estate/

Look for a house with good bones that needs some TLC in a decent/good/great neighborhood and go from there. This is personally my favorite way to invest going forward. I love the whole process and would rather accept less returns in a stable real estate investment than worry about stock market returns. Keep repeating the "BRRR" process and before you know it you'll have 5-10 properties (or far fewer depending on who you rent to and how good of a deal it is) and you won't have to worry about anything else. 5-10 may be a little more than most people want to worry about but I'm pretty sure anyone could manage at least 3 before they considered turning it into an actual business.

The other obvious alternative is to continue borrowing at historically low rates and dump the money less the down payment on your "livable" house into a fixer-upper that you won't be living in.

A great neighborhood doesn't necessarily constitute great schools. Proximity to great schools matters, sure, but people do drive. As long as you're focused on finding something within close proximity to attractions/large companies/parks/etc you'll be fine. People get hung up on great schools but then they miss out on the gentrifying areas that historically have shit schools immediately nearby. I'm not suggesting you speculate or buy into any hype - but it's worthwhile to acknowledge the growth areas as well as the already established neighborhoods.
« Last Edit: February 28, 2016, 06:37:25 AM by Ricky »

Cassie

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Re: Lumps of cash and where to live??? Help!
« Reply #4 on: February 28, 2016, 12:07:37 PM »
I would not buy in a crappy neighborhood because it won't go up in price that much. I would buy in a safe area even if it means having a mortgage. Also homes that are not move in ready will often you a bigger bang for your buck.

Axecleaver

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Re: Lumps of cash and where to live??? Help!
« Reply #5 on: February 28, 2016, 04:07:33 PM »
One benefit of going all cash is that you'll have access to properties that only investors are able to buy. Stuff that won't pass Fannie Mae guidelines. That's a tremendous advantage.

If you're willing to buy a foreclosure, and owner-occupy, look into Homepath properties. Owner-occupiers get a huge competitive advantage, due to TARP agreements the feds squeezed out of the banks. If you're both an OO AND all-cash, geez, you'd be unbeatable and could take any property you wanted.

I started down this path, but after having a lot of trouble closing on a property (see journal for details) I decided this wasn't my core business and we just needed a place to live.

Cassie

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Re: Lumps of cash and where to live??? Help!
« Reply #6 on: February 28, 2016, 04:45:33 PM »
We bought a foreclosure will all cash because the bank had to lower the price a ton because no one could get a mortgage. Even with all the repairs that we did ourselves it is now worth double what we paid for everything.