Author Topic: Where to invest?  (Read 13094 times)

TerriM

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Where to invest?
« on: January 15, 2015, 12:43:21 PM »
I live in the Bay Area, and am hoping to buy a house during the next RE downturn.  We have some money in savings intended for a down payment and safety fund and are wondering where to invest them until that point.

Assume the following (I can debate these points, but after 3 years on a Bay Area housing forum, I'd like to consider them assumptions to operate on):

1.  The areas I want to buy are highly dependent on how well the tech sector is doing--if tech tanks (i.e. dot-bomb), housing prices will come down between 20-40% in the areas I want to buy, and this is when I want to buy.  These areas are mostly software (not, say biotech or mech e, though there is some of that as well)--ie Google, Facebook, Apple, etc.

2.  The BA housing prices seems to follow the stock market (i.e., there's maybe a 3-4 month lag of SF rental prices to the Dow), but it's hard to tell whether anything other than Tech stocks may be driving the area. 

3.  The Bay area housing prices can act independently of the rest of the US--if housing is going up elsewhere, it could still go down in the BA and vice versa.

4.  The next fall will probably be in 2-5 years.

5.  Our own income is 40% stock, so when Tech falls, we will need part of our safety fund to pay the bills if we buy a house (say $25K to be safe).  We don't expect job loss as husband is with a major company, but if he was cut, we think he'd still be hirable as he was hired during the recession. 

First time homebuyer.

We have a $60K safety fund, $70K in 401K of which 50% can be put towards down payment, but must be paid back in 5 years or on job change, and another $43K specifically allocated to downpayment.

I don't want to put the money in the stock market because I'm assuming that I want to take it out when the stock market falls.  Is there anything that goes up when stocks (or tech stocks) and RE go down?  Or is there any part of the stock market that reacts opposite to tech stocks?

GGNoob

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Re: Where to invest?
« Reply #1 on: January 15, 2015, 01:05:15 PM »
Sounds like you'll just want to put it in a "high-yield" online savings account. They currently yield around 1%.

www.banking.barclaysus.com/index.html
www.ally.com/bank/online-savings-account/?INTCMPID=HP_NAV_SVG
www.gecapitalbank.com/savings-products/online-savings.html

Another Reader

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Re: Where to invest?
« Reply #2 on: January 15, 2015, 01:47:51 PM »
Real estate in the Bay Area is more cyclical than it was, say, 30 years ago or more.  A couple of the most recent cycles have been sharper than historical cycles.  However, predicting anything more than a 20 percent decline is iffy, if you look at history.  The decline was certainly more pronounced in 2009-2012.  It was also accompanied by the largest recession since the Great Depression, and that amplified the decline locally.  The drop in values was also more significant in the less desirable areas.  Expecting a 40 percent drop in the areas where you want to buy may not be realistic next time.

The other problem with your plan is that almost all of the buyers waiting to do what you want to do will be cash buyers.  Most of the short sales and foreclosures in the more desirable areas in the last recession went to cash buyers.  Unless you have $800k or more sitting in cash, I would not count on getting the deal you anticipate getting. 

If you think prices will drop dramatically, assume the paper asset markets will do the same.  Money you want to use to buy a property in 2-5 years belongs in low risk instruments that are either insured or will otherwise resist the general decline.

TerriM

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Re: Where to invest?
« Reply #3 on: January 15, 2015, 02:55:08 PM »
Real estate in the Bay Area is more cyclical than it was, say, 30 years ago or more.  A couple of the most recent cycles have been sharper than historical cycles.  However, predicting anything more than a 20 percent decline is iffy, if you look at history.  The decline was certainly more pronounced in 2009-2012.  It was also accompanied by the largest recession since the Great Depression, and that amplified the decline locally.  The drop in values was also more significant in the less desirable areas.  Expecting a 40 percent drop in the areas where you want to buy may not be realistic next time.

I think the overall stats show an average 20% drop every time it drops (then goes up 30%). But yes, the particular neighborhoods I'm looking at are the less desirable ones (schools rated 3/4/7 or so and it won't change very soon), and I've seen comparable houses (same size, same age, same lot size, across the street from each other), sell for $670K in 2010 and $1.25M in 2014.  I do not think the 100% rise is at all sustainable in a down market.  I don't necessarily expect to get another comparable house for $700K, but I think $900K is reasonable to expect.

PS:  I also realize the whole thing is a crapshoot.  If we can't get in in the next downturn, we'll simply move somewhere else, but we are currently priced-out, so I have to plan ahead to that point.   I don't need 2009 prices, just 2011/2012 ones.
« Last Edit: January 15, 2015, 03:30:52 PM by TerriM »

RapmasterD

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Re: Where to invest?
« Reply #4 on: January 15, 2015, 04:10:26 PM »
Real estate in the Bay Area is more cyclical than it was, say, 30 years ago or more.  A couple of the most recent cycles have been sharper than historical cycles.  However, predicting anything more than a 20 percent decline is iffy, if you look at history.  The decline was certainly more pronounced in 2009-2012.  It was also accompanied by the largest recession since the Great Depression, and that amplified the decline locally.  The drop in values was also more significant in the less desirable areas.  Expecting a 40 percent drop in the areas where you want to buy may not be realistic next time.

I think the overall stats show an average 20% drop every time it drops (then goes up 30%). But yes, the particular neighborhoods I'm looking at are the less desirable ones (schools rated 3/4/7 or so and it won't change very soon), and I've seen comparable houses (same size, same age, same lot size, across the street from each other), sell for $670K in 2010 and $1.25M in 2014.  I do not think the 100% rise is at all sustainable in a down market.  I don't necessarily expect to get another comparable house for $700K, but I think $900K is reasonable to expect.

PS:  I also realize the whole thing is a crapshoot.  If we can't get in in the next downturn, we'll simply move somewhere else, but we are currently priced-out, so I have to plan ahead to that point.   I don't need 2009 prices, just 2011/2012 ones.

I don't think we'll see worse than what we just did a few years ago in our lifetimes, and in the SF Peninsula we saw about a 15-18% drop, which turned out to be pretty freakin' fleeting. Even your 40% was predicated on the whole mortgage crisis. Therefore I agree with others who've suggested you set more modest expectations. And if pondering a purchase in Union City, Richmond, or Vallejo, head to Big 5 and buy a rifle or three. Good luck.

TerriM

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Re: Where to invest?
« Reply #5 on: January 15, 2015, 05:16:37 PM »
Sorry guys, but I'm not interested in discussing the SFBay RE market here.   I've been on Bay Area RE forums for a long time, and have had extensive discussions with people who have knowledge of particular neighborhoods and long term experience in the markets both as builders, agents, and investors.    I know who to ask about current % of all cash offer and whether it's slowing down or picking up. 


What I need right now is advice from people who have knowledge of other investment vehicles to know where to store money to retain it's value during a stock market crash or an RE crash or better yet, what, if any, investment vehicles would actually go up during an RE downturn or a tech downturn.  That's why I'm here.

Thanks for understanding.

Another Reader

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Re: Where to invest?
« Reply #6 on: January 15, 2015, 06:36:51 PM »
What real estate forums do you like and use?   I have over 30 years of professional experience and have lived here for a lot longer than that.  I'm curious what these folks know and what their opinions are. 

If you find an answer to your investing question, please let us know.

TerriM

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Re: Where to invest?
« Reply #7 on: January 15, 2015, 08:48:05 PM »
The Redfin forums.....   

Overall, the people that are regulars are mostly investors, some RE agents, a builder, mortgage brokers, and a couple of past buyers, most if not all of whom have stopped buying right now, except for maybe one investor who is fairly bullish.  There is an acknowledgement that on the Tech corridor rents are crazy, prices are high, inventory is low, buyers are priced out, and Facebook and Google are driving prices up by paying high salaries, and a number of IPOs, including Facebook, have dumped a lot of money into the area but we're always wondering what the distribution is (100 people with $10M is much different from 1000 people getting $1M). Other parts of the Bay Area seem to be still recovering. There is limited Tech corridor housing development, with most of it happening in Redwood City and San Jose.  There is also a lot of discussion on renters vs. landlord issues, rent control and building policies especially in SF, Prop 13, and what kind of issues people face with the various building depts.     They would agree with you that the worst areas have the most fluctuation, and those stats can also be seen by zip and city using Trulia's market trends.    Predictions are for an easing of the BA RE market in 2-5 years depending on who you ask, but that interest rates will not be allowed to rise significantly next year.  Of course, everyone has their own opinion, but the above is a pretty decent summary of the over all sentiment.  There's also a lot of discussion on schools and a consensus that student performance is pretty much all about parent expectations.

They're awesome when it comes to RE investing and how to maximize their property buying, put in offers, etc., but most of them seem to *only* invest in real estate, and only in the Bay Area.  Hence, my question here.  I need people that think about something other than RE in the Bay Area. :)


PS:  I've put in almost two thousand hours reading the posts there--the RF stats say I've read 120K of posts--probably not all of them, but....  That's why I don't want to go over it all again here.  My current focus is on trying to maximize savings, minimize taxes, and to understand the best path to retaining the value of the $$ we have in the face of inflation (or QE or whatever the Fed is currently doing).
« Last Edit: January 15, 2015, 09:19:14 PM by TerriM »

NoraLenderbee

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Re: Where to invest?
« Reply #8 on: January 15, 2015, 10:05:04 PM »
Your question doesn't really have much to do with real estate, except that buying RE is your ultimate goal. You're asking, where do I put money that I will need in 2-5 years? The answer is in something safe and liquid. Bonds, CDs, savings accounts. They are boring (and very low yielding right now), but they are safe and predictable.

Quote
Is there anything that goes up when stocks (or tech stocks) and RE go down?

There will always be something that goes up when stocks go down. You just don't know what. If there were something that consistently did so, it would be the holy grail of diversification. In the past, bonds tended to rise when stocks went down. But the next time it could be different.


TerriM

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Re: Where to invest?
« Reply #9 on: January 16, 2015, 04:57:08 AM »
Quite a few people believe that bay area housing still has much farther to go up and that the current prices are extremely cheap.

It's interesting that you say this, but at this point I've met no one who thinks this either on Redfin or locally regarding the current situation.  On Redfin, there's  a sentiment that "Bay Area prices are cheap compared to Tokyo" used as justification that housing will retain its value and rise in the long-term, but I'd have difficulty finding anyone who thinks current prices are "extremely cheap" especially on the Tech corridor. As I said, most of the investors on the RF forums have stopped buying right now because the prices are too high to get the y-o-y increases they need.  And despite the very low inventory, there are a number of good houses that have stayed on the market for 90 days.

Another Reader

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Re: Where to invest?
« Reply #10 on: January 16, 2015, 06:28:31 AM »
Two thousand hours on a housing forum???  That's a year's worth of paid employment.  You might have been closer to buying a house with a year's worth of net income instead.

When I signed the papers for a Bay Area new house purchase around Halloween in 1988, there were 2,500 people on the builder's waiting list.  A year after I moved in, there were none and the already built houses sat vacant for three years.  Downturns do happen.  The difference between then and now is the amount of cash in the world with no place to go and the globalization of the Bay Area real estate market.

When it comes to markets and economic events, it's impossible to predict the future.  Emotional home buyers and investors alike are biting their nails right now waiting for a downturn.  When it does come, all those emotional home buyers will turn and run and leveraged investors will be out of luck, because financing will likely be unavailable to most of them.  Where will you be when lenders are reluctant to lend and your income security disappears?  The real investors will be picking up properties for cash while you worry about your husband's job and try to get a loan.

In your shoes, I would not spend a lot of time with people trying to use their engineering knowledge to analyze the market and predict the downturn.  A better investment would be maximizing your household income and cash savings to be in a more competitive position when the market does turn.  Forget about the "when" and work on the "how."


TerriM

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Re: Where to invest?
« Reply #11 on: January 16, 2015, 08:48:17 AM »
Two thousand hours on a housing forum???  That's a year's worth of paid employment.  You might have been closer to buying a house with a year's worth of net income instead.

No sh*t!   Though, that's across 4 years and with a baby+kids (SAHM).  Nursing and reading isn't a big deal, and it's not too hard to put in 10 hours a week--other people watch more TV than that which I don't at all.  But yeah, at this point, I know what I need to know!

When it comes to markets and economic events, it's impossible to predict the future.  Emotional home buyers and investors alike are biting their nails right now waiting for a downturn.  When it does come, all those emotional home buyers will turn and run and leveraged investors will be out of luck, because financing will likely be unavailable to most of them.  Where will you be when lenders are reluctant to lend and your income security disappears?  The real investors will be picking up properties for cash while you worry about your husband's job and try to get a loan.

Not worried about the income security--either we have a job or we don't, and even if the stock market falls, our loan is only based on salary so only the current interest rate changes our loan amount.  Not worried about getting a loan.  We have a very high credit rating.  We were able to get loans in 2010, but had too little savings.  Didn't have 20% down payment + 12 mo PITI because husband had just graduated, so our numbers were always $25K-$50K below ask.  We were chasing the curve up. 

A better investment would be maximizing your household income and cash savings to be in a more competitive position when the market does turn. 

Yes!! Exactly why I'm over on these forums now. Though I will try not to spend so much time here.   And next year, when my youngest is in school, I will go back to work.   But again, that's the question--trying to make sure we're doing the right thing with our money.
« Last Edit: January 16, 2015, 09:24:37 AM by TerriM »

TerriM

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Re: Where to invest?
« Reply #12 on: January 16, 2015, 08:51:15 AM »
Also, I've never seen any evidence that Tokyo real estate is really expensive. I've never been there and know nothing about the market, but I've often seen people invoke it as an expensive city on internet forums. But then I look at real estate listings and it doesn't look so bad. http://www.realestate-tokyo.com shows many condos for under $300k (quite a few for under $250k) and many houses for under $500k (including many under $400k). Maybe those are "bad areas" or something, but even the highest prices on that site are not anywhere near the highest prices in the peninsula for similar sized properties.

The comparisons are generally price per square foot, and their apartments tend to be tiny, but if their prices are competitive with ours now, awesome.

The properties could also be farther out. 

TerriM

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Re: Where to invest?
« Reply #13 on: January 16, 2015, 09:20:36 AM »
Alright, so, back to the question at hand--no more discussion of my own situation.


A first time homebuyer wants to buy a house, most likely during a tech bust which will probably correlate with a stock market fall.  Where should he/she invest their money if not in "boring" savings accounts and low-yield bonds, etc? 

What are other ways to maximize the down payment/PITI?  Aside from 401K, are there other pretax investment vehicles that can be used?  Suggestions?  Pros/cons?  (I'm aware of the 401K issues of having to pay back in 5 years or by end of month of leaving current job.)  These investment vehicles can be for someone self-employed as that's what I'll be next year or a regular W2 employee.

waltworks

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Re: Where to invest?
« Reply #14 on: January 16, 2015, 10:14:50 AM »
To the question: FDIC insured savings acct. You can gamble on some countercyclical asset (buy gold?) but there's a decent chance you'll just lose a ton of money doing something like that.

Beyond the question: You have hilariously too little money to buy the houses you are talking about (yes, even raiding your 401k, which is beyond stupid) I'm sure you don't want to hear that, but seriously - you have a NW of ~$170k including your retirement funds and you want to try to get a house that costs a cool million, or majority thereof? This is laughable.

If you have income sufficient to afford that sort of house, you can easily save a downpayment in your timeframe without trying to beat the market or get any investment returns at all. And if you don't have, say, $200k/year gross, then you have no business buying that kind of house and it'll ruin your life to try, so don't.

You're either underpaid, or not frugal enough, or both. Solve those problems and you're golden. Or keep renting, or move. There is no magic investment that will create great returns and hold it's value in a downturn that anyone can predict in advance.

-W

Another Reader

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Re: Where to invest?
« Reply #15 on: January 16, 2015, 11:12:59 AM »
Because the yields are so low, everyone says "cash is trash."  That's baloney.  In my opinion, the smart money, including a lot of corporations and Warren Buffett, are holding on to cash, waiting for opportunities to buy distressed assets at much more favorable prices.  Isn't that what you are trying to do?  In your shoes, I would load up the high yield savings accounts and the short term CD's to maximize my returns on the liquid cash.  With cash savings, you will be in a lot better position that some of your competition if and when the right time to buy comes. 

I would also fully fund all available tax deferred retirement accounts because those have a time horizon well beyond the next recession.  Touch those to buy a house?  No way.  A house is not 30 years of your retirement, it's just a house.

TerriM

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Re: Where to invest?
« Reply #16 on: January 16, 2015, 01:31:15 PM »
Ok.  Sounds like the consensus is leave it in Savings, but make sure I'm getting as high a yield as possible.  Thanks!

I hear you on making sure that we save for retirement, Another Reader, but was wondering if there was what sort of other IRS loopholes there are for first time buyers to buy a house with pretax money with a longer-payback period or a lower penalty....  I have no problem using these accounts if the original intention was to buy a house with those $$ anyways.  Buying and paying off a house before retirement is part of the retirement package to me.  Renting the rest of your life is a fool's game. (Except possibly in SF with the insane rent control, but you're still playing Russian Roulette.  Sure someone will have to pay you 40 grand to move out, but then what? You'll blow that in a year or two to get another apartment at market rate.)  You're always at the mercy of someone else.  With Prop 13, once the house is paid off, you've essentially got rent control on the only thing that is left to pay--property taxes.  Sweet deal.  So for me, the house is a significant facet of my retirement plans.

TerriM

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Re: Where to invest?
« Reply #17 on: January 16, 2015, 02:36:13 PM »
Sounds like you'll just want to put it in a "high-yield" online savings account. They currently yield around 1%.

www.banking.barclaysus.com/index.html
www.ally.com/bank/online-savings-account/?INTCMPID=HP_NAV_SVG
www.gecapitalbank.com/savings-products/online-savings.html

Logan, thanks for this list.   Forgive me for not knowing this, but what is the difference between a high-yield savings account and a regular savings acct (other than the yield), or is this essentially the same product as a CD for most banks?

waltworks

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Re: Where to invest?
« Reply #18 on: January 16, 2015, 03:58:53 PM »
He just meant shop around. Those are some of the generally higher-interest options out there right now.

-W

capitalninja

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Re: Where to invest?
« Reply #19 on: January 16, 2015, 05:10:06 PM »
TerriM,

   Based on the fact that there's a high likelihood that you're going to need this money in < 5 years, a money market account or CD are your best options.

I'd highly discourage you from borrowing from your 401k. Not worth the risk of having to pay it back within 60 days if you or your significant other loses their employment. That aside, it would start a bad precedent of borrowing from a pool of money that really shouldn't be touched until your late 50s.

Some of the other posters have already given great links for higher yield savings account so I'd just research that list and pick one. AMEX also offers a high yield savings account that's probably competitive so take a look at that one too.

https://personalsavings.americanexpress.com/index.html

Another Reader

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Re: Where to invest?
« Reply #20 on: January 16, 2015, 05:53:11 PM »
Hi TerriM

I think we will have to agree to disagree about your retirement accounts.  That's the money you will use to provide your income, whether you RE or at a more traditional age.  I would not touch that money to buy a house.  As I said, it's just a house.

In your shoes, I would conclude I could not afford to buy if I needed to tap the 401k via a loan or pull out my Roth contributions for the down payment.  Without complete numbers to look at, my guess is you need to go back to work for at least a couple of years, save all of your net earnings, and increase the percentage of your husband's income that goes to savings to afford to buy.  Rent is not wasted money if it puts you in a better position to achieve your goals.


Primm

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Re: Where to invest?
« Reply #21 on: January 16, 2015, 05:58:31 PM »

A first time homebuyer wants to buy a house, most likely during a tech bust which will probably correlate with a stock market fall.  Where should he/she invest their money?

In "boring" savings accounts and low-yield bonds, etc.

Sorry, but that's the best answer you're going to get. You answered your own question. :)

capitalninja

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Re: Where to invest?
« Reply #22 on: January 16, 2015, 06:05:20 PM »

In your shoes, I would conclude I could not afford to buy if I needed to tap the 401k via a loan or pull out my Roth contributions for the down payment. 

+1

surfhb

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Re: Where to invest?
« Reply #23 on: January 16, 2015, 07:48:10 PM »
Sorry guys, but I'm not interested in discussing the SFBay RE market here.   I've been on Bay Area RE forums for a long time, and have had extensive discussions with people who have knowledge of particular neighborhoods and long term experience in the markets both as builders, agents, and investors.    I know who to ask about current % of all cash offer and whether it's slowing down or picking up. 


What I need right now is advice from people who have knowledge of other investment vehicles to know where to store money to retain it's value during a stock market crash or an RE crash or better yet, what, if any, investment vehicles would actually go up during an RE downturn or a tech downturn.  That's why I'm here.

Thanks for understanding.

Im sorry too because you don't have any idea what the RE market will do along with your friends online.      Instead of trying to time the market, decide where you want to live and purchase a home.    Have you also considered interest rate fluctuations.  :)     

Also, youre talking about taking out of your retirement to pay for this home....which is about the worst thing you can do.   You can google why.    To put it mildly, you cant afford a home right now in the Bay area...not even with a 20% price drop :)

To answer your question, just put it in a simple saving account at your local bank
« Last Edit: January 16, 2015, 07:54:24 PM by surfhb »

surfhb

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Re: Where to invest?
« Reply #24 on: January 16, 2015, 07:50:43 PM »
  Renting the rest of your life is a fool's game.

How did you come up with that gem?

TerriM

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Re: Where to invest?
« Reply #25 on: January 16, 2015, 08:03:57 PM »
  Renting the rest of your life is a fool's game.

How did you come up with that gem?

By reading the sob stories of the poor old grandmothers who were rent controlled in SF and whose (evil) landlord sold their place and now can't afford current rents and will have to move away from their lifelong home. (Rent control in SF allows at most a 1%/year raise.)

I can see that it's easy to get attached to low rents, but buying a house means "free" rent after it's paid off.  Better to do the hard work of buying a house or finding somewhere that you can afford now than to find it out after you've settled in and end up getting kicked out.

TerriM

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Re: Where to invest?
« Reply #26 on: January 16, 2015, 08:09:59 PM »
How do you guys feel about the 401K being counted as reserve and used as an emergency reserve--emergency meaning not to accommodate drops of income due to RSU stock value fluctuations, but really only for out-of-work emergencies?

Another Reader

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Re: Where to invest?
« Reply #27 on: January 16, 2015, 08:45:17 PM »
Lots of people are unable to retire today or anytime soon because they ran through their retirement savings trying to save the house and maintain their lifestyle in the Great Recession.  If they can retire, it's at a much lower standard of living.  In my opinion this idea is foolish.

Looking at your numbers in the OP, you are seriously undercapitalized.  You want to buy a $900k house and you have $43k saved for the down payment.  You have $60k in your "safety" fund, which is important because of the volatile nature of tech employment.  You mention $70k in a 401k, but nothing about IRA's or other assets.   In your shoes, I would drop the house purchase idea for now and focus on beefing up your savings and investments.  When you go back to work and can put away a couple of years of your net income, then think about buying if your goal at that point is to stay here permanently. 


waltworks

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Re: Where to invest?
« Reply #28 on: January 16, 2015, 10:44:03 PM »
You haven't made/saved enough money. Period. Full stop. If you've been at this since 2010, your savings rate is so low that even if you were given $200k DP as a gift tomorrow, you arguably could not afford a house. Categorizing your 401k as reserves isn't even relevant here.

If you really want a house in the bay area, you have to do much, much better on either income or spending or both. There is no way around that.

-W



How do you guys feel about the 401K being counted as reserve and used as an emergency reserve--emergency meaning not to accommodate drops of income due to RSU stock value fluctuations, but really only for out-of-work emergencies?

milesdividendmd

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Re: Where to invest?
« Reply #29 on: January 17, 2015, 01:57:33 AM »
I am not a big fan of giving investment advice. Everyone's situation and values are unique.

I am not aware of any asset with negative correlation to real estate and positive expected returns.

But I am quite risk adverse, in general, so if your goal is to maximize growth during bull markets and minimize downside during bear markets, then the way that I have personally chosen to do this, is with dual momentum.

Make no mistake, This is market timing pure and simple, and probably not a great bet for taxable savings.

But you may want to read this article to see if it has appeal for you.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2042750

RapmasterD

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Re: Where to invest?
« Reply #30 on: January 17, 2015, 06:43:37 AM »
Sorry guys, but I'm not interested in discussing the SFBay RE market here.   I've been on Bay Area RE forums for a long time, and have had extensive discussions with people who have knowledge of particular neighborhoods and long term experience in the markets both as builders, agents, and investors.    I know who to ask about current % of all cash offer and whether it's slowing down or picking up. 


What I need right now is advice from people who have knowledge of other investment vehicles to know where to store money to retain it's value during a stock market crash or an RE crash or better yet, what, if any, investment vehicles would actually go up during an RE downturn or a tech downturn.  That's why I'm here.

Thanks for understanding.

Im sorry too because you don't have any idea what the RE market will do along with your friends online.      Instead of trying to time the market, decide where you want to live and purchase a home.    Have you also considered interest rate fluctuations.  :)     

Also, youre talking about taking out of your retirement to pay for this home....which is about the worst thing you can do.   You can google why.    To put it mildly, you cant afford a home right now in the Bay area...not even with a 20% price drop :)

To answer your question, just put it in a simple saving account at your local bank

+1

Just buy the house already.

And if not, park your money in a short term bond fund like VBISX.

yorkville

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Re: Where to invest?
« Reply #31 on: January 17, 2015, 12:48:49 PM »
Cathy

What are the securities that are 100% guaranteed to go up if real estate goes down? Your example of entering a contract with a current owner doesn't really work. I doubt you can even draft up a legally enforcable contract to do this bet with someone, assuming you can find a willing counterparty.  And a security must be traded and liquid. A private contract is not a security. 

Also, how do you write option on local real estate? As far as I know, there are no liquid instruments out there that allow a retail investor to write option on physical real estate.


[/quote]

There are many securities that are 100% guaranteed to go up if real estate goes down. I gave an example of one in my post above.

A less leveraged possibility would be to write some options on local real estate.
[/quote]
« Last Edit: January 17, 2015, 12:52:59 PM by yorkville »

yorkville

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Re: Where to invest?
« Reply #32 on: January 17, 2015, 01:14:46 PM »
Oh, come on. I am not fixated on language.  Do you know anyone has ever done this type of option or contract with willing counterparties? There is no point in a theoretical discussion. I am sure many of us understand what you have described, but the fact is, conventional or otherwise, this can not be implemented on any reasonable scale with adequate liquidty.

yorkville

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Re: Where to invest?
« Reply #33 on: January 17, 2015, 01:30:16 PM »
I don't know who Joshua Kennon is, I do know professional investors have yet to find an adequate way to short physical property market yet. Since you breezily suggested to TerriM that you know "many" securities that are "guaranteed" to allow an investor to express such a view,  I thought it must be more than a rhetorical device designed to make a point.

waltworks

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Re: Where to invest?
« Reply #34 on: January 17, 2015, 01:34:32 PM »
It does bring up an interesting thought experiment, though. Let's say the OP's only goal in life is to own a SFH in the Bay Area - and that conventional earning/saving money won't be sufficient to accomplish that (in fact this basically appears to be the case here).

In that scenario, any safe investment is guaranteed to fail. So super high yield, super high risk instruments (maybe countercyclical, maybe not) would make sense, even if there was a 95% chance of just ending up with both no house and no money. I guess I'd probably try to do some kind of highly leveraged equities sort of thing but I'm not very creative. Take out a signature loan/max your cash advances on credit cards, head to Vegas and put everything on black? Buy rubles/bitcoins?

I guess I'd probably prefer a quick resolution/solution in this scenario so I could move on with my life, so gambling is appealing. Currency trading could yield results fast too the way things are going lately.

So, what goofy high risk stuff could OP try?

-W

TerriM

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Re: Where to invest?
« Reply #35 on: January 17, 2015, 02:32:34 PM »
So, what goofy high risk stuff could OP try?

-W

Lottery tickets :)

capitalninja

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Re: Where to invest?
« Reply #36 on: January 17, 2015, 03:43:21 PM »
How do you guys feel about the 401K being counted as reserve and used as an emergency reserve--emergency meaning not to accommodate drops of income due to RSU stock value fluctuations, but really only for out-of-work emergencies?

I wouldn't view your 401k as emergency reserve because you can't access that money without severe penalties (as much as 50% of what you're withdrawing). You should have an emergency cash reserve of at least 3 months of living expenses (I personally go with 8 months).

Your 401k is a retirement vehicle. It's not to be used for house downpayment or serve as your emergency fund. It's wiser to save money for those purposes apart from your 401k.

Of course you can always do what you want. It's called personal finance for a reason. It's just not the best course of action.