Author Topic: When to buy a house and where to store the money  (Read 4187 times)

Miyazaki

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When to buy a house and where to store the money
« on: July 18, 2012, 07:05:39 AM »
Hi everyone, I'd like to ask for some advice about my situation. What would you do? Disclaimer: all numbers have been very roughly converted to US dollars.

Income: around 3000 per month
Savings rate: around 50% (around 70% not including rent)
Savings: around 20k, all in stocks, getting around 5% in dividends.

Situation: I'd like to buy a house/apartment as soon as possible, because I'd love to have my own place, and I'm lucky enough to be in an area where exactly what I want is extremely cheap. I've seen a couple of places I'd love for around 35k-40k. The problem is that I'm not a citizen of this country, so in order to buy, it would have to be in cash, rather than a mortgage. Saving 1500 per month, that means I could afford it in 10-14 months.

The main thing I'm now worried about is where to keep my money. I feel like putting all of my money in cash is kind of throwing away the dividend payments, though of course there is a risk that my holdings will decrease in value. Another risk is that all of the houses I'm looking at will not be available in a year's time.

Also, I did some calculations about whether it's better to buy a house as soon as I have enough money to do so, or whether it's better to build up enough dividend money to cover my non-housing expenses, then buy the house. Buying the house first came out way ahead, but I also feel a little strange about buying a house and going back to zero cash.

First world problems are so tough, aren't they!? :-)

Still, what would you do in my situation? Buy the house ASAP or wait? Keep the money invested in stocks or sell everything and just keep cash. By the way, I'm leaning towards buying the house ASAP and keeping the money in stocks (selling only when I have the amount I need), but I'd be interested to hear if anyone thinks this is a bad idea.

deciduous

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Re: When to buy a house and where to store the money
« Reply #1 on: July 18, 2012, 08:19:55 AM »
The uncertainty and pessimism that keeps "everyone" else out of the stock market spells opportunity for anyone who is ready and able to put the time into research and making smart stock picks (or index funds.)

You're getting 5% in dividends: do you mean that? Or are you using the word loosely to include changes in price? That seems like an unusually good dividend rate to me.

But with such a clear target in mind and such a short timeframe available by playing it safe, why take the risk of stocks? Say you get 8% growth this year in the market. Very roughly speaking, you went from needing 14 months to 13 months and a week to afford the house. Is the risk in the market worth those few weeks for you? Buying the house itself will involve lots of time. Having the money ready is just one requirement. I bought my house in a very similar fashion, and I was surprised by just how long the delay was between making my offer and when I actually needed to supply the cash.

I would favor something safer than the stock market in this case. If you do want to go more aggressively, I'd actually overshoot your needs for the house. I would expect that even in a cheap area, at that price you're going to be buying a place that needs some attention and repairs in one form or another.

smedleyb

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Re: When to buy a house and where to store the money
« Reply #2 on: July 18, 2012, 09:06:39 AM »
The uncertainty and pessimism that keeps "everyone" else out of the stock market spells opportunity for anyone who is ready and able to put the time into research and making smart stock picks (or index funds.)

I hope by "everyone" you don't mean the multi-trillion dollar mutual fund industry:

http://home.comcast.net/~RoyAshworth/Mutual_Fund_Cash_Levels/Mutual_Fund_Cash_Levels.htm

http://www.zerohedge.com/news/11th-consecutive-outflow-us-equity-mutual-funds-pulls-cash-levels-record-lows

I'm a fan of contrarian thinking but I don't see the overriding negativity in sentiment that you claim exists, hence it's not prudent to make an investment decision based on inconclusive, if not just plain wrong, data.
 

« Last Edit: July 18, 2012, 09:08:36 AM by smedleyb »

deciduous

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Re: When to buy a house and where to store the money
« Reply #3 on: July 18, 2012, 09:35:00 AM »
I'm not sure I follow your point. I don't claim to understand the structure of the stock market, and was only making a very broad statement about the overall economic pessimism that I have been hearing for the last 5 years or so.

Do I understand you correctly that the figures you shared indicate that there is less and less total dollars invested in mutual funds? That would seem to support my premise, that in general, people aren't eager to invest. What am I missing?

Like I said, I am a humble student here, not a teacher.

smedleyb

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Re: When to buy a house and where to store the money
« Reply #4 on: July 18, 2012, 09:50:05 AM »
I'm not sure I follow your point. I don't claim to understand the structure of the stock market, and was only making a very broad statement about the overall economic pessimism that I have been hearing for the last 5 years or so.

Do I understand you correctly that the figures you shared indicate that there is less and less total dollars invested in mutual funds? That would seem to support my premise, that in general, people aren't eager to invest. What am I missing?

Like I said, I am a humble student here, not a teacher.

Two things:

first, you're absolutely right about how that second link supports your assertion of the widespread negativity; in fact, that money fleeing the market is making it's way into bonds.  So in one context, mutual fund equity outflows (which still represent a tiny fraction of mutual fund holdings) point to obviouis increased negativity regarding stocks.

On the other hand, the extremely low cash levels of the funds represent an "all in" mentality and thus who is left to buy stocks when all the available cash in the industry (which is the primary driver/mover of stocks long term) is invested?

In short, I think there is a duality of bullishness and bearishness existing in the market today.  We're definitely not in a bubble in stocks (hence the outflows, modest PE levels), but nor is their universal negativity (hence historically low cash levels by funds, S&P 500 index being merely 12% off it's all time high, etc.).

You're suggesting buy stocks because everyone is negative, but sentiment is only a useful indicator when it reaches an extreme level.

But seriously, I don't want to hijack Miyazaki's thread!

BTW Miyazaki, it's aspiring, hard working immigrants like you who will see to it that the United States prospers tremendously as we move forward.  It's precisely why it's impossible to be negative on America for long.

Good luck with buying the house!




Jamesqf

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Re: When to buy a house and where to store the money
« Reply #5 on: July 18, 2012, 12:24:06 PM »
The problem is that I'm not a citizen of this country, so in order to buy, it would have to be in cash, rather than a mortgage.

I'm puzzled by this, as I have a number of friends who've gotten mortgages despite not being citizens.  Of course it depends on visa/green card status (or lack thereof), but it might be worth checking into before assuming that you can't get one.

grantmeaname

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Re: When to buy a house and where to store the money
« Reply #6 on: July 18, 2012, 12:27:48 PM »
The OP is not in the United States.

arebelspy

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Re: When to buy a house and where to store the money
« Reply #7 on: July 18, 2012, 01:14:57 PM »
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

gooki

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Re: When to buy a house and where to store the money
« Reply #8 on: July 18, 2012, 03:31:45 PM »
Also, I did some calculations about whether it's better to buy a house as soon as I have enough money to do so, or whether it's better to build up enough dividend money to cover my non-housing expenses, then buy the house. Buying the house first came out way ahead, but I also feel a little strange about buying a house and going back to zero cash.

Buying the house and going to zero cash is a whole lot better than buying a house and going to -$200,000 like most people do when taking out a mortgage.

I'm inclined to say buy ASAP. Do you have family you can borrow off to get in even earlier? I think the biggest decision you have to make is where to put your money (and the what place to buy). What are the interest rates on Term Deposits (CDs) paying in your country?

Giving up 5% for just one year isn't a major loss, with a low amount of capital, increasing your savings rate through badassity will have a bigger benefit than hunting down investments with higher returns (and more risk)

Miyazaki

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Re: When to buy a house and where to store the money
« Reply #9 on: July 18, 2012, 05:59:28 PM »
Yes, it's true that I'm not in the US. Unfortunately, CDs are paying 0.01%, which is absolutely ridiculous... Anyway, making this post has cleared my head. I'm going to get back into a cash holding ASAP, then I hope to make a post telling everyone that I bought a new house soon! Thank you for the comments so far.