Greetings from South East Asia, I'm a noob Mustachian, 32 years old, married without kids in Kuala Lumpur looking for some advice. I just sold a home for $1.4million (money is in MYR, but I'll just use $ for simplicity sake) and am unsure of what to do with the money. I intend to settle down in a smaller town about 45mins away from the city center.
Cash in hand from sale: $1,400,000
New house cost: $1,000,000 (for a 2900 sqft linked home)
Mortgage rates: 4.45%
Max loan amount: $600,000 - repayment $2800/month for 35 years
CD rates: 3.8%
Income: $96000 yearly
Savings: $0
Bad debt: $120,000 @ 18%
First plan of action is to pay down the bad debt. But the next question is should I take out a loan and invest the rest, or just pay for the next house in cash. Initial back of envelope calculations indicates that taking the loan and investing it on say a Vanguard ETF fund with at least a 4% real returns is better. (as a NRA, I do not get tax on capital gains but a 15% witholding tax on dividends)
The other thing I tried to look at is downsizing the house. But the surrounding property prices is crazier:
- $1,5-1,600,000 for a 3700-3800 sqft house
- $1,000,000 for the 3 storey, 5 bedroom, 2,900sqft house I want
note: this is the total build up area on a 22' x 70' house (typical for the country) - $850,000 for a 1,500sqft condo
- $5-600,000 for a 1200-1300sqft apartment
- $330,000 for 470sqft studio
Yes I realize that 2900sqft is overkill for 2 persons, my reasons for wanting to go with the bigger house:
- The $ per sqft is the lowest among all, making it a great value buy
- The house is built almost like a duplex, I can rent out the other 4 bedrooms for at least $2400 and live with the wife on the highest floor
- Condos/Studios are in oversupply and allocation for houses is much more limited (i.e. no one can build more houses
- Cultural bias - Houses are seen as more desirable properties around here ensuring high demand for decades to come
- This is the lowest entry point for a landed house as opposed to a highrise in this town
- Condos charge high maintenance fees around here, typically $0.33/sqft so about $500 a month for the 1500sqft condo
My concerns with leveraging the loan into an index fund is the high share prices. Sure, we shouldn't time the market and who knows which way that will go but I also want to buy low and sell high - which is why I want to put my money in a home and lock in the interest while it's low (in this part of the world) as part of my asset allocation. I'm not interested in bonds and if I do invest, I will go 100% index funds. The only question is how much allocation? - Well, what do you think?