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Help me figure out my personal finances

post #1 of 33
Thread Starter 

Good evening gentlemen,

 

I've read posts from a lot of like-minded folks around here and decided to create a new account to get some personal finance advice. Although I also work with a financial planner, I am curious to see everyone's opinion.

 

In short, I'm in my late 20's, living and working in Chicago. I have about $85-90k in cash and am unsure about how to best invest it. To give some context, I have an additional $35k or so in my retirement accounts and about $20k in a taxable trading account.

 

Should I a) buy a place to live in an stop renting; b) move more into stocks; or c) keep holding cash?

 

Although option a) is most enticing to me, I might have an opportunity to move up in my career in the next year or so, and therefore I'm not really sure whether I should pick up a mortgage right now.

 

Thanks for your thoughts, I'll hang up and listen now.

post #2 of 33
Just from what I did personally I bought a condo for 180ish put 40k down. Stayed there for two years and decided I wanted something bigger. Bought a tow home. And am renting out the condo for 1200$ month. Covers the remaining mortgage and puts cash in my pocket
post #3 of 33
Buy a place, and up your 401K contribution.
post #4 of 33
DO NOT buy a place unless you think it is very likely that you will live there for at least 5 years.
post #5 of 33
Quote:
Originally Posted by archetypal_yuppie View Post

DO NOT buy a place unless you think it is very likely that you will live there for at least 5 years.

I'm thinking about buying real estate in the next city I end up in and I highly doubt I'll stay in that one city for more than five years. That being said, I still think buying real estate right now has a decent chance of serving as a good investment.

Why the 5 year requirement? If you're in a large city with lot's of growth, couldn't a property-owner still be able to indirectly manage said property through third parties? I definitely see where you're coming from, but just trying to play Devil's advocate, as I'm potentially on the other side.
post #6 of 33
< 5 years: transactions costs destroy the economics.

Illiquidity = huge headache if you move.

Direction of house prices is speculative.

Renting out a property is a job with uncertain economics and headaches.
post #7 of 33
I respectfully disagree. Transaction costs suck, but to the extent that your mortgage payments are paying down principal, you're putting money in your own pocket (agreed, somewhat speculatively) as opposed to your landlord's (no speculation about that: it's outflow). (Note: considering the alternative is stock investments or cash, remember direction of stock prices are also speculative.) To the extent that your mortgage payments are paying interest, you gain access to America's great middle class entitlement, the MID.

And I'll say it again - presuming you have access to one, you should up your 401K contribution as it appears you are saving plenty for the shorter-term. The tax advantage is enormous.
post #8 of 33
Quote:
Originally Posted by Douglas View Post

I respectfully disagree. Transaction costs suck, but to the extent that your mortgage payments are paying down principal, you're putting money in your own pocket (agreed, somewhat speculatively) as opposed to your landlord's (no speculation about that: it's outflow). (Note: considering the alternative is stock investments or cash, remember direction of stock prices are also speculative.) To the extent that your mortgage payments are paying interest, you gain access to America's great middle class entitlement, the MID.

And I'll say it again - presuming you have access to one, you should up your 401K contribution as it appears you are saving plenty for the shorter-term. The tax advantage is enormous.

I redisagree.

Broker commissions
Maintenance & repairs
Property taxes (poof mortgage interest deduction)
Insurance
Mortgage PMTs (1st 5 years = mostly interest, not principal, so there goes the "in your pocket" argument)
Transaction costs
Illiquidity
Exposure to house prices
Exposure to wear & tear

Everything depends on cap rates (ratio of home price to rent). Market forces ensure that you are roughly breakeven in the long haul in most markets. In the short haul, owners get killed on transaction costs and illiquidity.
post #9 of 33
you know, you're right. I forgot you don't pay for property taxes, or maintenance and upkeep, when you're paying rent.
post #10 of 33
Texas property taxes blow. I guess the state has to get revenue from somewhere..
post #11 of 33
Quote:
Originally Posted by GreenFrog View Post

I'm thinking about buying real estate in the next city I end up in and I highly doubt I'll stay in that one city for more than five years. That being said, I still think buying real estate right now has a decent chance of serving as a good investment.

Why the 5 year requirement? If you're in a large city with lot's of growth, couldn't a property-owner still be able to indirectly manage said property through third parties? I definitely see where you're coming from, but just trying to play Devil's advocate, as I'm potentially on the other side.

I'm a landlord with a managed property in a market that gives me very low vacancy rates, and it still sucks.

If you're going to make property investment your job (or side job), being a landlord can be lucrative, but being an "accidental" landlord (which is what you're talking about here) is awful.

Yes, it'll be awesome in a few years when I get a fat check made of equity created while someone else was paying the mortgage, but I'm still not convinced it's worth the headaches. It's also taxable income, which means I'm going to get a haircut when the time comes.

So, yeah, I'll second the five-year "rule." When we bought, we thought for sure we'd be in the house for five or six years and then upgrade, but circumstances changed a few years in, and now we're stuck under the house for awhile until we can sell it. You can make it work as a landlord if you absolutely have to, but I don't recommend going into homeownership viewing that as an attractive alternative.
post #12 of 33
Quote:
Originally Posted by MrG View Post

I'm a landlord with a managed property in a market that gives me very low vacancy rates, and it still sucks.

If you're going to make property investment your job (or side job), being a landlord can be lucrative, but being an "accidental" landlord (which is what you're talking about here) is awful.

Yes, it'll be awesome in a few years when I get a fat check made of equity created while someone else was paying the mortgage, but I'm still not convinced it's worth the headaches. It's also taxable income, which means I'm going to get a haircut when the time comes.

So, yeah, I'll second the five-year "rule." When we bought, we thought for sure we'd be in the house for five or six years and then upgrade, but circumstances changed a few years in, and now we're stuck under the house for awhile until we can sell it. You can make it work as a landlord if you absolutely have to, but I don't recommend going into homeownership viewing that as an attractive alternative.

What are the headaches and suckages that you speak of? My gut feeling is that when you sell your property after a few years, you will not have regretted being a landowner of said property!
post #13 of 33

I'd move some of your cash into more lucrative investments.

 

I keep ~6 months of living expenses as an emergency fund in cash (savings). I keep another chunk of money as an "opportunity fund" in savings for something out of the ordinary that may come up that I may want to jump on (maybe an investment opportunity, a great deal on something I wasn't expecting to buy, helping a friend or family member if they need it, something like that). I also keep a couple thousand dollars in savings for whatever my next trip it (traveling is a prime hobby). Beyond that, I've got a 401K through work (pre-tax contributions) and a Roth IRA (post-tax contributions -- I have both basically to hedge my bets on whatever happens in the tax code between now and when I retire).

 

After my cash savings are topped off (which they would be with the amount of cash you have), the rest of my non-retirement savings goes into mutual funds. I have most of it in a couple of Vanguard index stock funds -- low expense ratio, they basically track the market. Probably the "easiest" way to invest. If you invest 10K+ in a fund up front, you can get Vanguard's "Admiral" class shares, which have expense ratios next to zero (meaning that your invest money is going into the markets, not the pockets of the fund manager).

post #14 of 33
Quote:
Originally Posted by Douglas View Post

Buy a place, and up your 401K contribution.

 

Don't put anything extra into 401k besides employer matching.  And nothing in IRA.

 

Savings in accounts locked up for a good 45 years is not savings. 

post #15 of 33
^lol what is this guy talking about. i like your out of the box thinking, but you do have to explain more and not tease us. foo.gif
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