Wow this is some pretty solid advice, thanks so much everyone for taking the time and effort, not too often you find forums where people type in proper English and willing to help out, what a great community here!
To answer some good points raised, I plan on staying in the house for at least 3 years almost guaranteed and rent it out if I decide to move to another location or stay if I find work. I skimmed some of MMM mentioning rental properties so that's where the idea of renting it out sort of came from. I know renting a house out isn't always easy as there's upkeep, maintenance, etc, maybe I'm not ready or fully appreciative of the responsibilities yet but if there are details others would like to offer about rental responsibilities and time requirements, please offer.
Housing has tremendous transaction costs, so unless you're 99% positive you're where you want to be for the long term, renting is the way to go. You'll also want to make sure that where ever you land, you do your best to eliminate that commute. That's one of the biggest killers of both wealth and time.
As far as the stock market, the volatility is part of the deal. But if you can stomach that, you'll end up with tremendous gains. I was fully invested in stocks during the crash but I didn't lose a dime. You know why? I didn't sell anything! In fact, I just kept buying on my normal schedule. And now, a few years later, all those cheap shares are worth a lot of money. So I'd challenge you to shift your perspective on investing. You're young, so when the market goes down, that's a good thing for you. It allows you to purchase more shares cheaper.
I'd start reading through this for a good primer:
http://jlcollinsnh.com/stock-series/
The reason I thought of buying a house is mainly because I do not want to live with my parents. It's probably not Mustachian to move out and better to stay at home but mentally for my development as a more reliable and independent person, I want to move out and maybe that could help me improve as a person and have more career success in terms of staying sane perhaps. I guess I want to go through society's definition of "growing up", whatever that definition is. I have nothing against my parents and love them a lot but I have a strong urge to move out (my parents a little too) and the options are either rent myself or buy a house and rent to others. I figured home ownership is better than losing money to rent (which I did before) especially when rent is somewhat high in my area. But I guess if I find very cheap rent, it might be better than buying a whole house. My parents are also seeing the house as somewhat an investing opportunity as well and for the issue of getting a mortgage, I think they'll be signing on and I'm paying them back since I'm a student working part time. The part time job, not sure if relevant, does make a fair amount I think, perhaps 30-50k/yr. My tuition at the moment is free and adds another 25k or so. My parents also take on the costs for a lot of my expenses and I want to have more financial responsibility of my life since they've done so much for me already. My parents are also still close by if that means anything. In regards to transaction costs, err well my dad is a real estate agent on the side so that would cut some costs and I feel I can trust him, I should right?!
Agree on the volatility. I heard seniors didn't recover despite market gains cause they sold, whereas young people w/little to lose and not much invested benefited tremendously. I guess the gains are slowing down though and maybe heading for another downturn as part of the cycle? I do wait for stocks to dip, like that recent 300 point drop at end of July so you're definitely right there! I actually keep rooting for the market to go down but also don't want to miss the boat if it's going up.
That's great advice from Eric. Don't buy a place until your 5 year plan is a little more solid.
I'm guessing your part-time employers don't offer your a 401(k) with a match. If they do, contribute at least up to the full match. You should definitely be maxing out a Roth IRA at this point!! And continue to do so until you are making enough to switch to a Traditional (or combination).
As long as rates are low, I would advise just putting down 20% to avoid PMI, but no more. This leaves you max flexibility and ability to have that money invested in something that will return a higher percentage than your mortgage rate. You can always pay it down more aggressively later. Even though I don't think you should pull the trigger on a house yet, you should be getting your down payment planned out. As you pointed out, you've enjoyed some decent returns from your investments. As Eric pointed out, those gains are a result not of your skill, luck, time spent, etc, but of the volatility (risk) you can afford to take at a young age. You don't need to get scared out of investing if the market takes a fall. But you do need to understand that if you want to have available, on short notice, within the next 2-3 years, a down payment of say $20K, you should start accumulating all or most of that amount in a money market or other liquid account. If your portfolio value drops in half you have nothing to worry about unless that happens to the time you need $20K for a down payment!
Hope that helps. You are off to a great start!
Not sure about 401k matching, I think they might after 1 year of working (6 months so far) as I got a book about their 401k plans. I'm still paranoid about 401k, I heard there's a lot of fees with mutual funds in 401k, or are 401k also index funds like Vanguard, etc? And a lot of people were trapped in their 401ks during the crash right? I heard there's money market funds or something you can use to escape but it seems risky as it takes just 1 month to wipe everything and I'm not so certain about the future based on populace sentiment. The matching does sound good though and my parents also encouraged contributing. As for Roth IRA, I'll have to do research but that seems all the rage I hear these days so that's definitely something I want to do in the near future, ASAP.
Great advice on securing a downpayment, didn't think of that. As of now, a lot of money is in stock and I should probably work on building that than gambling so much of it or risk losing my down payment. I know I'm a complete novice investor and it's a lot down to luck and some educated guess (luck mostly) and I know that being young I can afford more risk, even Jim Cramer tells me that though I feel I can't trust that guy. I'll gamble less of the money and research other safer ways. Are there any suggestions as to safe ways to invest like bonds, etc? I'm a complete novice so if you could point me to references if you don't want to waste time lecturing that would be tremendous help.
No idea what PMI is, but it sounds like you don't want to put too much down? I always thought it's best to buy as much of the house as you can with cash or what you have and borrow as little as possible so putting down a big downpayment is a good thing but maybe not? I'm a bit confused here.
Echo what others said, plus:
Housing is not cheaper in the winter, per se. Sometimes you can try "lowballing" listings that have been on the market a long time (especially around the holidays when buyer traffic is low) and have a higher success rate in the winter, but prices are not necessarily lower in the winter.
This is right. I assumed that because people move usually when kids are not in school, summer is better for sellers, not as much for buyers and no one is really moving in the winter as much so I thought you would have better leverage to negotiate prices down lower when there's less buyers. Also days on market gives leverage too although I know some have long DOM because they know someone will buy at listing price.
Where are your stocks held? Usually the advice is to have a balance of Vanguard or Spartan mutual funds, not actively managing them but letting the index do that work for you and counting on the long term gains (without taking a hit on fees). You don't really need to beat the market per se, or to worry about downturns, if you are investing for a stable future and don't plan to touch the funds until later.
I just have stocks in 2 companies now, (just sold 1, I'm pretty new to all this) I'm not in any fund or anything and don't know much about how to trade them, will have to teach myself that. I've heard about Vanguard because of low fees but there's less choice? But it's very good I heard; never heard of Spartan before. I'd like to follow the index up but not down but the funds you mentioned are also important plans for the future. Stocks also have those darn $8 trading fees that can really build up! So it forces me to hold and not trade constantly.
Hi fewaopi,
I purchased a house at a pretty young age, so hopefully I can share some insight coming from a similar situation.
After that though, I'd absolutely say purchasing a house can be a good idea IF:
a) you can commit without question to living there for at least 5 years. 10 is better.
b) you have enough cash to handle the random large expenses that can and will pop up (i.e. 10-20k on short notice to fix a roof/foundation/water damage/whatever can't sink you)
c) you can maintain a savings rate equal or above what you'd be able to in an apartment. Renting out one or two rooms can be a tremendous help for this.
Another piece of advice is to really look hard for first time buyer programs. They aren't always easy to find, and although your Realtor should be aware of what out there, sometimes they aren't. My wife and I found a program that paid $15k toward our principle, and the whole process of applying/qualifying probably took 3 hours.
EDIT: On the investing question: If you're serious about buying a house, run the math and see what mortgage insurance would cost you if you can't put 20% down right away. You might be better off saving all your additional cash to get to 20% instead of putting it in a Roth IRA (which should be your next move)
Never really thought of the large expenses, definitely something to weigh whenever purchasing a home. Never knew about 1st time buyer programs either but will definitely look into that, sounds very interesting. Though I think my parents are cosigning or something don't know too much detail but it's because I probably won't be approved for mortgage when they will. I guess save for down payment then put to Roth IRA sounds like a good move many are saying, I'll definitely try and do that.
I know I sound a bit spoiled in my situation with more things working out for me than others my age but seeing others struggle financially makes me want to use all the cards and chips I have while contributing as much as I can to help build a stable, secure future when times are less certain. I'm more interested in a life of minimizing and frugality than of luxury or wasteful spending though I'm not say very stingy. Rather I strive for a low-cost lifestyle and spending habits but not penny pinching to the point of annoyance. Thanks so much guys for the advice, any further thoughts are most welcome.