Author Topic: Home Downpayment "savings" and investing?  (Read 2339 times)

jeromedawg

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Home Downpayment "savings" and investing?
« on: October 20, 2014, 05:34:32 PM »
Hey guys,

I still consider myself a noob when it comes to investing and am more on the side of guided(or misguided!)/pseudo-self-investment. Between my wife and I we do have our work 401ks as well as Roth IRAs, an individual account with mutual funds, and another account with stocks. I also setup another account, several years ago, specifically for a home down-payment and we've accumulated quite a bit in it.

I'm just starting to wonder what I should do at this point because we've sort of changed our position on buying a home recently and are not sure if we want to so aggressively look especially right now. I really don't know what the timing will look like. That said, the money has just been sitting there (it's all currently allocated to a California Muni Money market) and we are of course contributing a good amount to it every month or so. But as far as accruing interest, it hasn't been a whole lot.

Should I just invest in mutual funds and stocks with all this? Or put it into a CD? I want to have the flexibility to pull it quickly if we do ever need it *if* we end up back in the market for a house. At the same time, I of course want to maximize on the returns and what not (all considering taxes, etc in mind). My dad was just mentioning how that's a lot of money just sitting around but I don't really know what would be the best way to invest it right now.

Any advice would be great.

jeromedawg

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Re: Home Downpayment "savings" and investing?
« Reply #1 on: October 21, 2014, 01:56:43 AM »
Here are a few more details, as I was hesitant to post but figure what the heck.

The "down payment" account is getting closer to $200k right now and I'm 33. The condo I'm in with my wife I've "co-owned" with my parents since 2007. My dad had another property that he rolled into this one via 1031 rollover, I put down a small down payment, and he paid off the rest with some of his retirement and other savings. I'm basically paying him back a monthly 'rent'  but it's really just equity back into the place, and it's a pretty small amount even at that. We're located in Orange County (SoCal) and were considering selling the current place and using my down payment savings to supplement buying a bigger place. Second thoughts on that now, however, just because of rising home prices. I should have just bit the bullet and got in when the bubble burst several years back but hindsight is 20/20 isn't it?

Of course, this $200k or whatever isn't all that we have saved but it is a significant amount of the total net worth. I feel like I should have a whole lot more saved up or at least accruing interest but just not quite sure of the best way to get there. I realize my original post was somewhat vague so figured maybe a little more detail and context might help with anyone willing to give some advice.

I'm pretty new to the forum but just from reading around here, I just feel so behind on savings and securing the nest egg. I have friends who fully own their own places (w/o help from parents) as well as those who own multiple properties. They have great jobs (enough to more-than-comfortably live off one income) and on top of that it seems they have an indispensable source of income that allows them many "freedoms." And of course both my older brothers are extremely well-off with the benefit of having my parents close by to help with child care, etc. My wife and I have no kids currently, are both working and make a modest amount (in the context of SoCal); enough to live fairly comfortably but savings and future-wise we have a long way to go IMHO. I'm just at a point in life where there's all these potential decisions and outcomes I'm considering. e.g We are recently open to trying for a baby - my wife and I are leaning towards having her stay at home long-term if we do have kids. I also often contemplate my job/career and what direction I want to go - I'm fine at my current job but unsure of my career path long term. It's just a lot to process and I'm probably over-thinking it but I really feel inadequate most of the time when it comes down to things (sorry for the long rant... it's late hahaha)
« Last Edit: October 21, 2014, 02:08:09 AM by jplee3 »

matchewed

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Re: Home Downpayment "savings" and investing?
« Reply #2 on: October 21, 2014, 08:05:42 AM »
It all depends on the timeline for a home purchase. You're going to have to narrow it down further than "not sure if we want to so aggressively look." I would say if you're looking to buy within the next five years your down payment should be in some form of laddered CD's or savings account because you need it liquid and low risk.

If you have more money than you need for the down payment (as it seems you do have, unless you're buying a 1mil home) the remainder that you don't need for the home should be invested as you would invest for your other goals (whatever they may be).

Bob W

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Re: Home Downpayment "savings" and investing?
« Reply #3 on: October 21, 2014, 01:26:38 PM »
Invest it fully in the S and P 500 today. 

 So the risk is it will go down 25% in the next year and the opportunity is it will go up 15%.    You would have the same risk but many times leveraged if you put a down payment on a home. 

For example -  you put 200K down on a 1 million dollar home.   The real estate market drops 25% (effectively 250K on your home)  You have to sell due to job loss, disability,  divorce,  death, personal depression, change in circumstances etc.   You have now lost 250K, which is well over 100% of your original money.  (this has happened a lot in the last 6 years by the way).

If the money were in a S and P and down 25%,  you would simply pull out whatever amount you needed at the time with a high probability the remainder would recover.

My house statement is --

"Hardly ever buy a home that cost more than you have in savings and investments"   In today's market you could then keep your investments and borrow the 200K for a house.   

Houses are just like cars --- they rarely appreciate enough to make up for the risk, overhead and headaches.

jeromedawg

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Re: Home Downpayment "savings" and investing?
« Reply #4 on: October 23, 2014, 01:03:37 PM »
Thanks for the tips, guys.

My dad offered up the idea of doing another 1031 exchange on the current place we're at, and finding a bigger house where we might pay the difference. E.g. say our place is valued at $500k and we have this $200k saved up - we could rollover the $500k value to another place that's worth $700k and fork over the $200k we have to make up for it.

But is that really the best use of our money? Living in Southern California is pretty expensive, and thinking ahead in terms of expanding our family, etc., I've been invaded with thoughts of getting a bigger place and doing it sooner than later. So many "what ifs" - we're still not sure about time frame. I think the desire is there to get a house but we are also OK where we're at currently (it's a 1300-1400sq ft 2bed/2bath condo, well, technically 3bed since the 3rd room is a den/office area that I've been in since 2007). It would probably be okay with 1 or even 2 kids but probably would start getting really cramped with more than that. Funny that I'm talking about all this though since we don't even have a kid or are expecting yet haha.

In the meantime, it sounds like generating some interest on the money at hand is still something I need to do. Just not sure the best way to go about it... When you say invest all of it in the S&P, I'm assuming you mean diversified too right? So some stocks, some mutual funds, some bonds? If I have a Roth 401k through work, I can't back/post-contribute to that can I? We were recently given the Roth 401k option so I'm splitting my contribution amount by contributing 6% to the Roth 401k and 6% to the regular 401k... I think I even upped the contribution amount recently to 15-16%. We each have our normal Roth IRAs as well, which we make sure to max out every year. It's harder thinking about maxing out the 401ks through work though since the amount taken from each paycheck would be way more significant. Anyway, with the additional amount we've saved up to generate this $200~ I'm still not exactly certain how or where to invest - I'm also concerned about having the least impact on taxes (say if I do invest all or most of the money and start generating interest).
« Last Edit: October 23, 2014, 01:09:16 PM by jplee3 »