Author Topic: I sold a house... what do I do next?  (Read 1736 times)

MTBmustachian

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I sold a house... what do I do next?
« on: November 23, 2019, 11:54:58 AM »
Hey Mustachians!

In a couple of days, my house sale will close and I'll be walking away with a good chunk of change. Not the exact number, but for ease of discussion let's say I'm walking away with $100,000 in profits. I need advice on what to do next to move towards FIRE.

Here's the dilemma. While I'll probably purchase some real estate again at some point in the future, I have no desire to purchase another house right now. If I had to guess, I probably won't buy for another 2-3 years at least, but maybe it will be even longer than that. So, I want to invest my capital as best as possible while still giving myself the flexibility to jump back into real estate, especially if I spot a good opportunity. That's essentially what led to some radical profits in a short amount of time on my previous purchase: spotting a rare opportunity (thanks to my knowledge of the local market) and taking it.

Things I'm considering:

1. Investing most or all of the money into index funds.
Follow up question to this: what's the best process for investing a big sum of money without taking on too much risk? I just read up a bit on dollar cost averaging a big lump sum and it sounds like the opinions are divided. I realize that I can't time the market, but still, investing more money than I've ever seen in my life into the markets all at once feels like a huge risk.

2. Should I keep a portion of that money out of the market for a future downpayment? And if so, how much?
Follow up question to this: is it better to keep enough out for a 20% downpayment on the expected value of the home I would buy so I don't have to pay PMI, OR is it better to invest most of my capital into the market now at the risk of possibly having to pay PMI on a future mortgage? The difference between keeping a 5% downpayment out of the market and a 20% downpayment out is pretty huge.

3. ...anything else that you think I should consider that I haven't mentioned above?

Thanks for any advice!
« Last Edit: November 23, 2019, 12:01:35 PM by MTBmustachian »

Goldy

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Re: I sold a house... what do I do next?
« Reply #1 on: November 23, 2019, 12:59:46 PM »
I was in your position a couple years ago having just sold a house and nervous about investing 270k in the market at an all time high.  I decided on DCA 50k a month but after a week I changed my mind and just dumped the entire amount into the market.  The Dow was 17k then and there was talk of the bull market coming to an end.

Looking back it was a good decision, I say jump with both feet.

terran

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Re: I sold a house... what do I do next?
« Reply #2 on: November 23, 2019, 03:19:21 PM »
Money you need in 2-3 years shouldn't be invested in the stock market, but it sounds like you don't NEED this money in 2-3 years, you might want this money in 2-3 years. Would I be correct in assuming that if you invest this money and the market tanks you would reconsider at that point whether you want to lock in the loss by selling to buy real estate unless the real estate deal makes that worthwhile? Or would you want to sell no matter what because you'll want to buy real estate even if it doesn't make financial sense? If the former, then go ahead and invest the money, it's the "right" decision. If the latter, you may want to put the money in something unlikely to lose value.

If you do want to invest, remember Dollar Cost Averaging is a good behavioral trick to get you to invest as fast as possible while acknowledging that investing makes some people nervous. Mathematically, investing as fast as possible (as close to lump some as possible) is the optimal strategy.

Schaefer Light

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Re: I sold a house... what do I do next?
« Reply #3 on: November 23, 2019, 03:28:53 PM »
Your situation is almost exactly the same as mine.  I sold a house and got a check for $110k, but I'm not sure how long it will be before I want to buy another house.  It could be as soon as next year, or it could be 2-3 years away.  I basically went with option #2 on your list.  I'm keeping enough for a 20% down payment in savings, and dollar cost averaging the rest.  I've been investing $10k at a time.  I also decided to increase the size of my emergency fund because I went through a period of unemployment recently (which was the reason I was selling my house to begin with) and it took me a while to land a new job.  I don't want to have to worry too much about being unemployed again, and having the extra savings really helps.

MTBmustachian

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Re: I sold a house... what do I do next?
« Reply #4 on: November 23, 2019, 03:40:51 PM »
but it sounds like you don't NEED this money in 2-3 years, you might want this money in 2-3 years. Would I be correct in assuming that if you invest this money and the market tanks you would reconsider at that point whether you want to lock in the loss by selling to buy real estate unless the real estate deal makes that worthwhile? Or would you want to sell no matter what because you'll want to buy real estate even if it doesn't make financial sense? If the former, then go ahead and invest the money, it's the "right" decision. If the latter, you may want to put the money in something unlikely to lose value.

If you do want to invest, remember Dollar Cost Averaging is a good behavioral trick to get you to invest as fast as possible while acknowledging that investing makes some people nervous. Mathematically, investing as fast as possible (as close to lump some as possible) is the optimal strategy.

Yeah, you read this right ;) I might want the money, but I don't exactly know when or under what circumstances. Obviously if the market has tanked, I'm not going to pull it out... but that could hamstring my efforts to buy a house if the housing market tanks at the same time ;) But then, if I see the market tanking, still have a decent job, and stop investing in my funds and throw my cash into savings, I could then still swoop in and buy a house. Or does that count as market timing?

This is the problem: there are tons of variables that are impossible to predict, so I'm just trying to make the decisions that make me as resilient (antifragile?) as possible, without putting my FIRE plans on hold.

Also, I do appreciate you summing up DCA that way!

Your situation is almost exactly the same as mine.  I sold a house and got a check for $110k, but I'm not sure how long it will be before I want to buy another house.  It could be as soon as next year, or it could be 2-3 years away.  I basically went with option #2 on your list.  I'm keeping enough for a 20% down payment in savings, and dollar cost averaging the rest.  I've been investing $10k at a time.  I also decided to increase the size of my emergency fund because I went through a period of unemployment recently (which was the reason I was selling my house to begin with) and it took me a while to land a new job.  I don't want to have to worry too much about being unemployed again, and having the extra savings really helps.

Thanks for sharing, I appreciate the real-world experience! I also would like to have a sizeable emergency fund readily available. Up till now, I've just stuck the vast majority of my money into the markets. I know MMM talks about using a HELOC as an emergency fund, but obvi. that's not an option for me anymore.

My problem is that I live in a HCOL area, and a 20% down payment is realistically almost all of the money I'm walking away with :S Time to think about moving, I know... hence why I don't want to buy a house just yet.

terran

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Re: I sold a house... what do I do next?
« Reply #5 on: November 23, 2019, 04:03:57 PM »
This is the problem: there are tons of variables that are impossible to predict, so I'm just trying to make the decisions that make me as resilient (antifragile?) as possible, without putting my FIRE plans on hold.

That's the key right there. No one's crystal ball is very clear, so make the best decision you can based on the information you have right now. Right now you have money you don't need and would only use for real estate at some point in the future if it seemed like a better investment at the time than stocks. If markets shift and real estate seems like a better investment than the stock market when you include you own desires, then sell or stop buying stocks and buy real estate at that point. My answer would be different if you knew for sure you wanted a house for emotional reasons, but as long as it will be based on market opportunity in one asset class as compared to another and not emotion then you should be invested in whatever the current best opportunity is. 

MTBmustachian

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Re: I sold a house... what do I do next?
« Reply #6 on: November 25, 2019, 01:47:30 AM »
So, the more I've thought about this, the less I feel like keeping cash on hand would be really beneficial for me. Examples:

A) Instead of keeping a 20% downpayment in cash, let's say I keep a 5% downpayment in cash. If I find a property that I want to buy quickly, I can always buy with 5% down and if I can't sell assets, I can quickly switch my regular savings rate from investment accounts to aggressively paying down my mortgage to the point I remove my PMI, then switch my savings back to investment accounts.

B) If I realize I'm getting close to the point of wanting to buy a house in, say, a year, I could always start sticking my monthly savings into a money market account in preparation for a house buy.

C) ... there are actually quite a few different options I could employ if I decide I really want to snap up a house.

In conclusion, right now I think that keeping a cash emergency fund (in a money market savings account, of course) that correlates to a 5% downpayment on a house will be the sweet spot. Note, I'm not planning to keep both an emergency fund and a downpayment in cash, because then I'd be way too cash-heavy.

Linea_Norway

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Re: I sold a house... what do I do next?
« Reply #7 on: November 25, 2019, 02:17:03 AM »
We hope to be in a similar situation soon, but with a much bigger sum coming out of our home sale, about 800K. We plan to buy another house in 1-2 years, or maybe later of half the sum. We plan to put aside the sum for the next house in a savings account.
And the rest, which is our FIRE stash, we plan to put it partly in index funds, and partly in savings. We could not afford loosing it all if the stock market would crash severely, so maybe the stock market is not the best place to store the whole sum.

MTBmustachian

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Re: I sold a house... what do I do next?
« Reply #8 on: November 25, 2019, 02:40:01 AM »
Quote
but with a much bigger sum coming out of our home sale, about 800K.

I know Norway is expensive, but I sure hope that you're basically FIREd by that point!

If not, I think you should take a serious look at your options. With that amount of money, you can easily move to an area with a medium to low cost of living and be very comfortably FIREd.

Linea_Norway

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Re: I sold a house... what do I do next?
« Reply #9 on: November 25, 2019, 02:48:25 AM »
Quote
but with a much bigger sum coming out of our home sale, about 800K.

I know Norway is expensive, but I sure hope that you're basically FIREd by that point!

If not, I think you should take a serious look at your options. With that amount of money, you can easily move to an area with a medium to low cost of living and be very comfortably FIREd.

We are FIREing in 3 weeks. :-) Even before the house is sold.
That sum still needs to be divided by 2, because we need to buy another place to live. But we have additional savings as well. Our budget is 50.000 euros a year and for the last couple of years, we were below this if we don't buy big things, like a new car.

MTBmustachian

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Re: I sold a house... what do I do next?
« Reply #10 on: November 25, 2019, 03:07:55 AM »
Quote
but with a much bigger sum coming out of our home sale, about 800K.

I know Norway is expensive, but I sure hope that you're basically FIREd by that point!

If not, I think you should take a serious look at your options. With that amount of money, you can easily move to an area with a medium to low cost of living and be very comfortably FIREd.

We are FIREing in 3 weeks. :-) Even before the house is sold.
That sum still needs to be divided by 2, because we need to buy another place to live. But we have additional savings as well. Our budget is 50.000 euros a year and for the last couple of years, we were below this if we don't buy big things, like a new car.

NICE congratulations on reaching your goal! That's amazing!