I am stuck, need some guidance

[MrThatsDifferent]

TLDR: What do I do with my money while trying to decide if I should buy property or not: keep investing or put in a HISA until I know for sure what I’m doing?

So, this isn’t really a debate about if I should buy property, I’m still weighing that one out. Currently I don’t have available cash for a deposit because I put everything into my investment account. Now, I’m not sure if I should still funnel all my money into the investment account until I’m sure, and if I do buy, withdraw the money and suffer the associated penalties (taxes, etc) or put the money in a HISA so the cash is available, but that means I will miss the next 1-1.5 years of investments (and potential gains or bargains).

I’m a bit late to the FI party, but have a good job and trying to catch quickly with my stache. I had settled on a strategy of never buying and so was committed to the all investments plan. Lately it seems that home ownership could be viable. I want to see what the market is like in a year and if prices will drop more, but if they do and I haven’t saved the money in available cash, I’d have to take it from my investment account? How do I prepare for this possibility while sacrificing the least?

(Oh, I also don’t have an emergency account that would cover a deposit because I don’t think I need one between credit cards and my own salary, so all my money goes towards investing).

Thanks in advance for any guidance or feedback!

[skekses]

At one point in my life I had a vague notion that at some point in the undetermined future I would buy a house. Since the timing was undefined, I put money into a taxable investment account that involved some split of stocks and bonds so that I could get all of those sweet market gains.

Then the day came that I decided I would start looking for a house. That day I made an offer, had it accepted, and was on my way through the home buying process. In order to make the downpayment, I had to cash out my taxable account. Unfortunately for me, at that exact moment, the market took a nice nosedive and I had to lock in my losses.

If you are looking to potentially buy within the next 1-1.5 years, I would encourage you to put aside some cash into a money market or other non-volatile type of account. There is no guarantee that you will get any gains and it doesn't feel great when you have to lock in losses because you need the money. 

[Livingthedream55]

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Ally pays 2% FDIC insured.

[MrThatsDifferent]

Thanks, so you both seem to suggest ignoring potential investment gains and not adding to my account for 1-1.5 years is the less risky path?

I have a 2.87 HISA.

[wageslave23]

I play the odds.  The odds are that the market will be higher in a year than it is now.  You may end up locking in losses and you may end up locking in gains, but the odds are in your favor.  It would be different if you needed $100k for a kidney transplant and 110k doesn't matter and 90k means you die.   

[MrThatsDifferent]

I play the odds.  The odds are that the market will be higher in a year than it is now.  You may end up locking in losses and you may end up locking in gains, but the odds are in your favor.  It would be different if you needed $100k for a kidney transplant and 110k doesn't matter and 90k means you die.

So, are you saying, stick with investing the money and pull it out if you need it?

[swashbucklinstache]

It would be helpful to know how much money we are talking about here. To make this call we'd ideally have:
1) your salary
2) your expenses / net of #1 after all expenses are taken care of, excluding relevant investing
3) how much down payment you need and want, and what % of down payment will you have to save/invest in the next 1.5 years?
4) how big of a deal is it to you delay purchase by x months/years?
5) how certain are you that you'll buy in 1.5 years / how big a deal is it if you instead waffle with just the down payment money in a savings account for 5 years instead of 1.5? This, among other things, is dependent on your savings rate and if you're FIRE'ing right at FI or planning to shoot past it. Another way to say that is, how much do investment returns matter to you?

Strictly speaking, if you've invested in a taxable account you're paying taxes on just the gains, so I wouldn't think of those as "penalties" any more than you think of the ~5% expected gain you'll miss out on by putting it in a savings account instead as penalties. The question is really limited to how you feel about downside volatility risk of non-HISA.

For example, if you've got a 90% savings rate and are retiring right at FI, have a small range down payment need you're saving entirely from $0 in 1.5 years, no flexibility on timeline etc. this is no brainer savings account. If you've got a 10% savings rate (and thus your long to-FI journey is very dependent on stock returns) and don't care if you buy in 1 year or 4, stock market is probably the way to go. Knowing, of course, that returns aren't guaranteed.

[MrThatsDifferent]

Thanks Swashbuckling. I don’t want to be too specific about salary but I can give this perspective:

In 1 year I can comfortably save or invest $80k. I don’t plan on FIRE for 6 more years. I’m close to 50 and I heard it’s much harder for people 50 and up to get a home loan so if I pull this trigger, it should be in the next 2 years max.

I want a place for $650k and could either get that with a 10% deposit for the $80k or top that up from my investment account if I want 20%. I might have a way to avoid LMI even at 10% and because it’s my first home, no stamp duty. If I get a 2 bedder, I’d get a flat mate to cover the cost. My mortgage would be roughly $612/week, and I’m currently paying $590/week to rent a 1 bedroom. Outgoings for a property I’d consider buying would be around $8k a year, which would mean the weekly cost for buying is at least $917/week. Hmmm, geez when you factor in the outgoings, you really do seem to out behind. That’s not counting all the costs going into buying.

[wageslave23]

I play the odds.  The odds are that the market will be higher in a year than it is now.  You may end up locking in losses and you may end up locking in gains, but the odds are in your favor.  It would be different if you needed $100k for a kidney transplant and 110k doesn't matter and 90k means you die.

So, are you saying, stick with investing the money and pull it out if you need it?

Yes.  I wouldn't worry about not being able to get a mortgage after 50.  People buy and sell homes with mortgages all the time in their 50s 60s and 70s.