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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Ilija on March 02, 2017, 02:01:13 PM

Title: Property or invest?
Post by: Ilija on March 02, 2017, 02:01:13 PM
Hi all,

Long time reader, first time writing.
Writing here for some comments and maybe pointers if someone was in the same situation as I to share his/her experience.

Few things about me:
Iím 33 same as my wife, our kid is 2
Live in Europe
Currently I hold around 12x,xxx USD value of Vanguard ETFs with US broker with following distribution:
VTI ~70%
BND ~15%
VTSAX ~15%

I live in a flat that I recently paid off the mortgage (4.2% was the interest). Flat value is around 280,000 USD.
Considering that we await another kid, we took a mortgage (1.9% interest rate) and purchased a land for 190,800 USD and we plan to build a house, to be done by the end of the next year 2018.
We currently save around 60% of our income, that comes to 4800 USD per month in savings (my wife works part time).
We have savings of 80,000 USD on cash account that I plan to put in a house.

Total house cost should be around 320,000 USD once fully done.
My current mortgage is for 30 years, as mentioned 1.9% interest rate with 5 years fixed (meaning this interest cannot be changed for 5 years, I canít repay the loan for the next 5 years with lump sum, I canít put inside any extra payments, etc), I can just pay monthly what I need and that is all, but I get protection that for the next 5 years my interest will stay 1.9%. After 5 years I can repay whenever without fee. I can also take extra money for the house building for the same interest rate, how it works I can put 50k (amount can be bigger or lower) of my own money to build a part of the house and they would give me then a loan for 50k (~same amount) depending on the value of the work done. I can do that till I finish the house, basically do a part of the house and get more money.
 
My plan was to start building a house with 80k that we have and save our salary (instead investing) and finish the house so we can move in while the house is partially done.
Then we would sell our current flat and finish the house fully with the money we get, so we do not need to borrow more money from the bank.
The rest of the money we would either invest as a lump sum or save and wait that we can repay the mortgage (land) after fixation is done (after 5 years).

Now, after reading few articles about the market and interest rates I got to think on the other options.
One of them is to start building the house with the money we have, take additional money from the bank but keep investing our monthly savings.
Once we move into the house, sell the flat invest a lump sum into the market, and continue finishing the house fully for the next few years with money we will save (instead investing monthly savings).
After 5 years, renegotiate the interest and if good keep paying the mortgage on the house and the land.

Just to mention, we after 5 years of holding the stock do not pay any capital gains we make on the stocks, our dividends are taxed with 15% in US (tax agreement). I do DRIP.
I plan to work for next 15 years, as after kids my wife will go working full time (next 5 years part time and then 10 years full time).
I do not have any other debts.

Any comments, pointers or experience sharing is welcomed, or even how would you approach the situation.

Thank you.
Title: Re: Property or invest?
Post by: 2Cent on March 03, 2017, 02:45:14 AM
I don't know which country you are in, but here the interest rate is around 1% after taxes. It is totally worth borrowing and investing at that rate. There is some risk to it, but it is quite small. Also, locking all your money in a house has it's own risk. If you feel uncomfortable, maybe think about a hybrid solution. Peace of mind is also valuable. But remember the rates could go up in the coming years, so lock them if you can't afford the risk.
Title: Re: Property or invest?
Post by: JaxonParsons on April 18, 2017, 03:18:44 AM
I think investment would be better.
Title: Re: Property or invest?
Post by: deborah on April 18, 2017, 03:47:42 AM
It really depends on your banking system, your taxation system... Here in Australia, where these systems are totally different to the US, it makes a lot of sense to get the house. But in the US, I think the reverse may be true. We also have quite different interest rates to other countries. Other countries are bound to be different. You need to look at what taxation incentives there are for housing versus investments, what your mortgage interest rates are and work out what is best in your country.