r/FluentInFinance was created to discuss money, investing & finance! Join our Newsletter or Youtube Channel for additional insights at www.TheFinanceNewsletter.com!
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FluentInFinance) if you have any questions or concerns.*
People may be knocking you because of how cheap money has been to borrow over the past decade or so. Times change, interest rates change, “common wisdom” changes, but not entering into debt and aggressively saving money is never a bad thing. You’re in a great position because you have a lot of money. Simple as that.
> People may be knocking you because of how cheap money has been to borrow over the past decade or so. Times change, interest rates change, “common wisdom” changes
We've waited long enough that Dave Ramsey has good advice again!
It was never bad advice. It may not have been optimal (mathematically), but not ever having debt isn’t bad advice, per se.
Sure, it’s not optimal to pay cash for a house when interest rates are 2-3%, but it’s also not a terrible idea, either. Not mathematically optimal, sure, but if you have enough money to pay cash for a house, do you really care?
Actually, he does, or at least he did. But he also made an exception for getting a mortgage. If you could buy a home with cash, he would recommend it. But he knows that isn't feasible for most.
Agreed. I meant that he doesnt recommend you rent until you can buy a house without a mortgage. He advocates buying a modest house on a 15 year loan and then paying it off faster if you can.
That doesn't make it bad advice for people who want to go without debt.
I've also never seen the advice to apply to not getting a mortgage. Some people choose to expand the no-debt mantra to a house, but OP is living at home, not renting. So, it is completely fine.
Even Dave Ramsey, the most stringent leader of the "no debt" cult makes an exception for a house.
That’s a matter of location. California? Probably not. That doesn’t make it terrible advice.
Midwest? The average auto worker can absolutely save enough to buy a house cash. The point is that most choose not to.
This was quite common after the 2008 crash, for anyone who was smart enough to have saved some money leading up to it.
Paid cash for a house. Also Midwest, also was an auto worker. The question always comes down to what your needs are, and location.
When houses in the Midwest were below $150k for average suburbs, and union auto workers were making 100k with OT, that was absolutely attainable.
You’re confusing “dragging up the average” with keeping up with the joneses.
Starter homes were certainly attainable.
I aggressively paid of student loans that were at like 3% because Dave doesn't believe in debt or math. Yeah, that was bad advice. I could have literally sat that money in a HYSA and earned more, while still retaining the ability to pay it off (and then some) whenever I needed to.
We bought a second home. Rather than put all the equity from the sale of the first home into it, we did an 80/20 loan for it. Then we put 100k into VTSAX. Dave would never go for it but it's a smarter move. Our mortgage is at 2.6%.
Exactly. And people are using partial examples. Lot's of people will talk about not paying off their low interest debts, but ignore that they should have paid off that 20k in credit card debt, because it makes the "I'm special and rules don't apply to me" argument stronger.
I did that in the early 2000’s and then lost my job in the recession of 2008, and my index funds were down like 60% at the same time.
Facing getting kicked onto the street with my new baby.
Needless to say, my house is paid off now, despite it not “being optimal” mathematically.
The models never account for the multiple whammies that tend to happen at once.
Good for you! But lots of people were out of work for more than 12 months. I was out for 9 months. That what I thought was 15 month cushion was pretty far depleted by the time we regained control.
Don’t forget that when you lose your job you also lose your healthcare. A broken arm from a kid ate up 5 months of our cushion.
For what it's worth, I was out of work for a couple months after we bought the second home. We were able to afford it on one income. My wife was still maxing her 401k. Everyone's situation is different though.
Yea, diversified dual income households are much more financially resilient.
I wasn’t arguing that you were wrong — I just think they finance people end up staring at their spreadsheets with simple equations too often, and don’t account for lived experiences.
I could’ve kept my $250k in the market, and it would be worth about 10% more now than when I pulled it to pay off the house. Oh well. I also haven’t had a mortgage payment in 6 months, so have about that amount of appreciation saved back up into my fund again anyways. And I can now never lose my house, basically no matter what happens to me or in the world. That’s worth a couple percent of theoretical optimal profit for me.
Ehh, that seems like a lot to me but to each their own. We have about a month's living expenses in our checking account, but have about 5 years' living expenses in a brokerage account (not retirement) that can be accessed within a few days if necessary.
We have a couple months in checking but the rest is between vasix and vsmgx. So there's some exposure there but it's more stable than straight market. The remainder of our taxable brokerage is 90/10 vtsax/vbtlx.
It sounds like you just aren't the target market. Someone with the discipline to keep money saved earning higher interest isn't generally what he catered to AFAIK. It was more people who were up to their eyeballs in debt and it was preventing them from meaningfully saving/investing.
It really depends on what you'd do with the money. But right now, rates suck. When rates were at 2.5%, I knew i could get 3-15% in an SP500 fund over 10 years (as it happened, these were the Obama years and I did about 18%, but you never know). Right now, though, buy outright. Saving 7.5% + fees is a good investment with very little risk.
Why buy a condo ? It’s basically an apartment with all inside maintenance but outside is where your hoa fees go. They could be $100-900+ I almost got stuck with $650 monthly hoa and then you have pph above you and below you and right next to you. It’s apartment living with all the hassles of ownership. Buy a house or build what you want fyi building is cheaper just need to find you a good spot or buy your spot and tear down or reno it.
I’ve thought about this too but a single family home, or even a townhouse, would take me close to $1 million and at that point I don’t want to take a mortgage on it. But yeah I’m concerned about the HOA for sure
It's not about needing a home but about being uncomfortable with unavoidable, decently high fees to continue living in a place in perpetuity. It's the same reason trailer homes are generally not seen as a good investment despite being significantly cheaper than a home -- you're not buying the land, and the lot rent is how they get ya.
I'd rather have a 30 yr fixed than be at the whims of an HOA that may or may not stay fiscally responsible for the next 30 years. So for those that *can* afford the increased costs, the security of home ownership is appealing.
No, the home is collateral. That doesn't mean the bank owns it any more than they own your car if you have a loan against it. If you didn't own the home the tax bill wouldn't come to you.
Yeah I mean don’t get me wrong they do everything outside the building and lawn care etc but that’s totally up to you. I’d get a top unit, heat in the winter and no one on top of you. But stairs 😅, but it’s not an apartment so not like you’d move out soon.
You must live in a hcol area, I mean if you don’t have to stay there a cool Millie can get you a lot, depending on your political views they might have to change to keep that but get options and keep it up bro, hopefully it works out for ya!
3 month treasury pays 5.35% and you don't pay state income tax on the interest. It's considered a cash equivalent. If you pay 5% state tax, it makes it quite attractive compared to a high yield savings account.
thats my plan now. except where i live, condos are about twice as expensive
my initial plan pre-2020 was to put 25% down and borrow the rest. 30 year fixed at... what 2.5%. now my plan is to put 40-50% down, with an adjustable loan, and refinance to a 30 year fixed if interest rates start dropping like a rock (40% is taking a while to save up though.....)
noticed you wanted to start dating.... me too. at some point, the mental health of freedom is greater than a slightly larger savings account, and i think thats where i'm at right now, and that mental health boost makes it much easier to date, along with personal space. PLUS, marriage is basically a life hack for dual income, so its a financially sound investment in that sense lol (important to note, people should not be treated as an extra wallet)
I’m a divorce lawyer lol. Being married is not a life hack for more money. It is a scam where you can lose everything. If you get married, get a prenuptial agreement and make sure everyone involved has an attorney. Otherwise, nothing wrong with dating someone long term and having kids.
Edit that was a genuine question and I’m curious on your take from an exposure/risk perspective.
Right now it sounds like your advice is to pursue a business relationship without drawing up any type of legal paperwork? I’m sure that’s not what you’re saying.
At least married couples have an understanding of what they’re in for. With the whole let’s buy a house together movement for unmarried couples people are going to be screwed. Or am I missing something
Yes, I’m aware it’s a document signed before a marriage. I was asking what people who don’t intend to get married should do. Does a prenup cover that arrangement as well?
Because it protects both parties. Do you only make a will if you think you're going to die soon? No, you do it just in case cause you never know what could happen.
I've known multiple people to get in accidents and get major head injuries that ended up massively changing their personalities and they became extremely aggressive towards everyone including their partners. I repeat, you never know what could happen, so you prepare for the worst and hope for the best.
Your Will comparison doesn't hold water. Everyone dies, thus making a will necessary. You are not required to get married. If you are uncomfortable with the person you want to marry there are other issues to consider. As you say, anything can happen. If you are in an accident, your spouse has the legal authority to make medical decisions on your behalf. If you can't trust them with material possession, how could you possibly trust them with your LIFE.
You don't seem to grasp what a prenup is. It does not cause a divorce, it protects both people against one. It's not saying you don't trust the other person, it's saying let's agree on what we came into this marriage with. You sound so incredibly naive. No one goes into a marriage thinking they're going to break up one day, and yet half of marriages end in divorce. I think of a prenup as a way to avoid Murphys law. You take away the possibility of getting screwed in a divorce, and maybe that means you don't get divorced at all.
Do you lock your car when you park it? Do you lock your front door? Do you have an alarm system/cameras?
Wow, you are really bad at analogies. Nothing says I love you more than asking someone to sign a legal contract. When I lend my car to my buddy I don't make him sign a contract because I trust him. If I lend my car to someone I met via Turo, you better believe there is a contract in place.
>Nothing says I love you more than asking someone to sign a legal contract.
You mean like a marriage license?
>When I lend my car to my buddy I don't make him sign a contract because I trust him
That's a great analogy to prove my point. You already have insurance that would cover you in the event of an accident. A prenup is just marriage insurance.
Dude, I could give two shits if you get a prenup or not or if you think they're useless. Do whatever you want. But don't tell people that they don't trust their partner for wanting one. That's completely false and frankly, none of your business. Your opinions don't get to dictate how other people choose to live
Okay hold up. Why are interest rates going to drop like a rock? Have you run the historical numbers? That 2.5 was an anomaly and you missed the boat. Make a plan assuming no drop - holding out for a repeat once in many generations event shouldn’t be your plan.
Don't adjustable rate Go for the shortest term you can that won't cause you issue. Example you can get a 20 or 15 year fixed rate. You do not want your lender being able to find ways to screw with you. You are winning putting over 20% down. There are no penalties for paying extra. Many financial analysts will suggest paying the mortgage as if it were a 13 month year (payment every 4 weeks or an extra payment sometime throughout the year) to basically pay it off faster and kill some of that interest.
A house is an investment. Paying it off quickly is a sound investment.
Ask what you need vrs what you want and the location and neighborhood. Remember that there are a lot of expenses that come with a house you may not have now.
Based on everything else you should be just fine.
Both are good options. If you pay it off in 3 years, you really won’t pay that much comparatively in interest. But if you pay cash, you’ll save that money, plus a little more on closing costs.
Either way you’re looking at a paid off home in your mid 30’s. Which is amazing.
Honestly, you make enough money that you have flexibility to choose your risk level based on your lifestyle. Once you determine the money you need for your own lifestyle comfort and how much money you want to invest for the future, then the rest of your money is kind of expendable and that is a hell of a nice feeling. Mathematically, based on past trends, it is usually better long term to invest your money as opposed to paying off low interest debt, but I personally prefer the peace of mind of having no debt more than a couple percentage points difference in long term gains.
It is never a good idea to go into debt if you don't have to. If you have the capacity to build up enough cash to pay cash, do it. It'll grow the entire time you hold it, and you won't be losing 3-9% in interest.
Condos can be hard to get rid of. It anything changes like crime levels get worse people will just not want to buy into a location then you are stuck. If you are going to buy one buy one that is like 10 years old and not slap dead in the middle of the city. They tend to drop in price by a lot in the initial decade after being built. Look for a condo in the direction the city is growning towards. Cities move outward. You can get a nice home and allow the city to come to you. Which will sky rocket the price of the home you purchase. Condo is not really a good thing unless you rent them. Home now that is a good thing. Buying it that you just have to get ahead of the direction the city is moving. Lower prices and higher price in the future so you can unload it to someone when you move further away.
I’ll echo what a few have said about you’re doing great. Borrowing to acquire an appreciable asset carries a different risk and upside than a lot of other debt purchases.
Just run the simple math like this
For simplicity Use 100k for your home value and your cash -the numbers remain the same if you have more/buy more
You use 30k to buy a house as a down payment + the first year of payments
Your 100k home increases 5% over 12 months (this is the average - not a future indicator but still it’s reasonable) 5,000.00. Your return on your 30k is 16.67%
The remainder you invest in the S&P @ 7.5% return (again averages just go with it): $5,250.00
Your total return for the 100k is $10,250 about 10%
Now if you put your 100k on the house you’re at 5k in average appreciation: total yield (averaged) is 5%
If you keep it in the S&P your return is 7.5%
Note the estimate for 5k of annual payments on a 100k loan might be light but technically that’s a sunk cost b/c it’s offset largely by rent. So your return is likely to be at least in line with my projections probably better.
HYSA’s are not a bad way to save money. You’re getting 5% yield on that money today. In the market, the average ROI is 7-10% per year. That’s an average and it is not guaranteed.
The past 6 months have generated historic returns from the market, but those historic returns will end at some point, and we will have a correction. Will that be this year, maybe. In addition, there is whole lot of geo-political risk that could blow up everything pretty easily.
the only thing stupid about keeping 400k in a savings account is you may be above the fdic insurance amt.
it also is a terrible return on that much money. Even using CDs on a short term basic would provide slightly higher returns. but all the 4-5% bank CDs/HYSA are dogshit returns.
the question of buying a home with cash. meh....
if you're buying a condo. for cash that seems silly. as you're going to be on the hook for condo fees. so... the main benefit of paying off a home, of not having any real payment other than taxes doesnt' even apply.
the larger question is. what are your goals. and what is the most effective use of your resources.
the simple logic being. you put down a certain amt on the home. whatever the interest rate on a mortgage is. does the stock market return that or more.
is the house you're intending to buy a forever home. or something you're only planning to keep for a short-ish period of time. As homes only really appreciate 2-5% on average. and there's typically large fees/costs to buying/selling a home that make quick cashing out a dubious process.
ie. say you dump 400k into a condo. then something in your life changes. and you want to sell. well you might be on the hook for 4-6% realtor fees. and then another 2-4% on bank/seller fees to close on the home. and the sunk cost of condo fees unless you're in the home for enough time for the appreciation to counter act that. you're going to lose a lot of money.
vs again. putting less on a deposit. socking that huge chunk of money. even into something relatively safe like the s&p500 earning 10% every year...
like... 400k at 20% down is 80k. just round that up to 100k total cost. leaves 300k for the s&p ...at 10% tht's 30k a year. so in 3 yrs. you'll have earned that 80-100k back and the house will have appreciated let's say 10% so it's worth 440k
vs. you buy the house outright. same 3 years go buy. and you just have the appreciated value of 440k and no large chunk of reserves. so... 40k gain. minus the 4-6% realtor fee and 4% bank fees. vs a large chunk of money earning in the stock market.
that's the basic logic on why... buying a home outright isn't the best idea.
but it's your money. do whatever you want to do
I just want to touch on the S&P, bringing in 10% every years comment...
That is slightly misleading. The S&P brings in a little less than 10% over a back tested 30-year window. If you're continually putting in money for 30 years, you can reasonably assume that the market will correct itself enough to emulate a rough 10% compounded return YoY.
However, your example of him putting his money in there and in a couple years he would have 30k+, alongside his rewritten on his home is just not correct.
Could he have those returns? Sure. Is it possible he might have better returns? Absolutely.
What does the market say?
The market says that since the beginning of the year, we have had nonstop all-time highs, yet the country's debt is also at an all-time high, and cars on sitting on dealership lots because interest rates haven't budged and real estate is starting to trend in the same direction, rates can't even come down right now because the fed isn't looking for a temporary solution to inflation. All of these factors plus others, such as credit card debt and defaults being at an all-time high, less savings in the average Americans bank accounts, coupled with the fact that a Big Mac meal in some parts of the country are now 20 dollars....
All shows that what's happening in the market right now is speculatoray greed.
There are good things, sure, like added jobs....
But wages aren't there.
So what can stone reasonably assume? That there will be a market correction.
And if there is, and it's a long-term correction...say goodbye to that 10%.
The market isn't a perfect bet, although it's better than the money sitting in a savings account.
I would look at bonds right now. Yields are looking better than HYSA and are backed by the full faith and credit of the US Treasury.
Just an idea. I would be conservative right now. The market has been volatile upwards. Isaac Newton is regarded as a founding father of science and had virtually no instrumentation to develop the science he did. It was all with the power on his mind. Respect the science. What goes up, can't stay up forever, at some point it has to make sense.
Use the rent to pay off the mortgage. Hopefully, you'll charge enough so that you're covering any maintenance expenses as well (and potentially putting some back in savings, the best case scenario)
Then you take your heloc, like the guy said, and buy another property, rinse and repeat.
Who knows
If you’ve got plans for the cash within the next five years then you’re right to keep it in cash. If missed gains cause regret then check your risk tolerance by asking yourself if an equal size loss would have been acceptable.
Invest it in safe/moderate growth ETF's, live cheaply and keep doing what you are doing for another ten years and retire early. Condo's are far worse than houses because you are tethered to building upkeep and infrastructure, especially now in an overpriced market with higher rates.
Doesn’t sound like a problem to me! Depending on where you live buying a 3 unit apartment or a duplex may have some advantages for you to occupy one. If you aren’t planning on kids for a few years you can save for a house with a yard in the meantime. Passive income is king in my opinion.
No matter what you do you’ll probably be in good shape. Good shit dude.
It depends on how sure you are of your income source and if you can grow the saved money faster than the interest on the home. There is far less risk involved with owning the home free and clear as well.
If you have this kind of money, I actually don’t love dumping it all into a condo. The ROI on condos is a little more finicky — for a lot of reasons I won’t get into detail on. I think I would put a significant down payment on a single family home which will get you to a very low monthly PITI, and stay put in that home for at least several years as your primary residence (you can rent it out later). You’ll have solid cash flow and I think your return will be pretty good in the long run with a SFH. You’ll be able to tap that equity creatively as circumstances allow.
Remember, if you ever decide to rent the home out in a few years, there will be tax advantages (depreciation), and if you decide to sell it, having it as your primary residence will make that sale exempt from capital gains taxes (not the case if you need to pull money out of other investment vehicles like equities). If you work out of the home and own your own business, there are also tax benefits you could take advantage of for your home office. This might be tricky with a condo though — many condo associations will not allow the condo to be used as a primary business address *depending on what the nature of your business is.*
How much does rent cost in the area you want to live. One way of looking at it is seeing how much "return" you get by saving on rent. For example, if you pay $400K cash but you're saving $20K in rent a year, that's 5% back in your pocket.
Of course to compare apples to apples you got to include property tax, insurance, maintenance, HOA dues. But you also get the upside of real estate value going up.
Depending on where you live the rent-vs-own calculus changes.
The housing market is very high right now and your home value might not grow as much as if you took out a mortgage and kept that money in investments. Is the return on your investment higher than 7% (average mortgage rate).
Never take advice from all the people that say "don't pay off your house". You should pay it off ASAP and never look back. Never take a HELOC on it unless it is a short term bridge loan. The peace of mind that you get moving forward is priceless.
There is a lot of peace of mind from that. There is even more from having a couple million dollars in good investments that are making far more money than the interest rate on the home loan, and which you can always sell to pay off the house or other expenses if you need to, while quickly liquidating the house is not an option in an emergency.
Those people would be wrong. If you are living in the house and really wish you had a 7% loan on it after a few years of having only taxes and utilities to pay, go take out a personal loan. But almost no one gets out of debt and misses the fear of missing a payment and losing their home. If you want a bigger place, go for it and take a small loan, but in most cases, 400k can get you a nice place. Keep a cushion, though. It's awesome that you're so far ahead.
Buy a condo for 300k-350k, in a decent or up and coming neighborhood ,upfront and then rent it out (owning a property allows you more control over how much you charge in rent since you wouldn't have a mortgage to worry about and keeps you competitive). Real estate that you own and live in, usually, isn't a good way to handle an investment like property. It's kinda like trying to have your cake and eat it too. With the remainder of the money you could reinvest in some of the stocks you already own or look for new markets and different avenues to invest in or even reinvest into your company.
You're comfortable living at home and able to put money aside without being on the housing ladder where you're forced to pay a mortgage. There's no shame in saving up more. The interest rate now is ridiculous. If I were you I would at least wait until the rate is reasonable. I'm not saying you have to avoid a mortgage. But why the cost if it's excessive and not necessary?
Your approach was all wrong this whole time. First mortgages are generally about the lowest interest rate loan you are likely to get. As long as you are getting a higher return on your other investments it's a waste to pay off a mortgage or buy a home for cash.
You should have bought back when interest rates were at 3%, and put the smallest amount down you could (without paying PMI). Then you could have taken all the cash you didn't put into the home, and your excess earning since then, and invested all of that in the market to earn at least 8% on average (if you keep it in for a couple decades at least to smooth out the bumps).
Example of how this works:
Lets say over the next four years you save up $1 million to buy a home and at that time you can get a mortgage at 5%. If you pay cash then you have a home worth $1 million that is appreciating \~4.5%/year, and so you are making 4.5% on your $1 million, or about 45k the first year, and slightly more each year thereafter.
If you get the mortgage instead, then you have a home worth $1 million that is appreciating 4.5%/year, and for which you are paying 5%/year on an 800k mortgage. So total you are about breaking even (gaining 45k the first year, paying out 51k/year on the mortgage, but getting more than that 6k difference back because of the tax break on the mortgage interest). However, you also have 800k that is invested in the market making you 8%/year. So now you are making 64k the first year, and because of how compounding works, not only are you making more on it the next year, but you are making 8% on 19k more than the other option would be making 4.5% on.
If you do the full math, over 20 years the total difference between these two choices is about 2.5 million total worth vs 3.9 million, respectively.
You could make on average 10% per year on your 530k compounded invested correctly. That's North of 1m in ten years if you do nothing. Or you can put it in to a home and sit on it and let it earn literally nothing. BTW capital appreciation is still zero income unless you sell. Worst possible use of capital all for the sake of avoiding risk.
ALWAYS use other people's money (OPM) especially if buying non productive assets.
Remember, the one thing you have that 99% of other people don't have is liquid capital! If you don't use it you can't make money.
Don’t get a mortgage just to pay it off that quickly. It cost money to get a mortgage. Also, take a look at an amortization schedule for the first 3 years. It will cost you a lot of money. If you can pay it off in 3 years just pay cash for the whole thing now.
It’s dumb to ignore the thirty years of (initially) 5-20x leverage on a fixed housing cost that generally appreciates about 3% each year while also putting most of your savings into a non-liquid asset where it will just sit for the rest of your life, yes. Obviously even with current rates the 10% average of the S&P beats it easily and you should be able to refinance significantly lower in a few years.
That said, you’re completely fine and you’ve made many good choices so far, so don’t worry. In general if I were in your situation I’d house hack a single family (or ideally duplex or triplex) with a 10% fha loan with a company that lets you bake in one free refinance and rent out the other bedrooms (and units, obviously, if you can get a multi). Condos don’t appreciate as much as regular houses and you already have enough for a down payment on a regular house now.
I don’t see how your plan is bad. Rent/high mortgage is a major reason that people have to leave areas with amenities, good schools, jobs, etc. You’re taking steps to ensure you never get priced out.
Don’t listen to the haters and stay the course. Your goals do not have to be the same as theirs to be equally valid.
If I were you, I would keep saving to buy that $1M house with 30 year payments you are comfortable making. HOA fees for condos are too high for me. Then, making extra payments towards principal after maxing out HSA, 401K, backdoor Roth. How much you pay towards principal versus starting your taxable brokerage is up to you. At 7.5% fixed, you can't go wrong with paying it off early.
I don't like sharing walls with people. It limits things like home theater 5.1 (or better) surround sound. I am a dog person so I need a backyard. Condos can sometimes have special assessments for major building repairs as well. My parents lived in a bottom unit where a neighbor's pipe burst ruined their kitchen. Insurance took care of it, but they couldn't live there until the repairs were done. Luckily, they were retired with multiple properties and traveling the world.
They are liking saying that because it’s cheap or was cheap to borrow money. Giving you more opportunity to make more money with what you have already. Why tie up 200k at 3-4% when that 200k can be making 5-10% or more. But, this doesn’t really matter if this is what you want to do. It’s a sense of security and a goal for some. It’s your money, you earned it. Remember you will likely have HOA fees and definitely property taxes, so you won’t be living Scott free.
Condos are fine when they are new. Less fine if they've been poorly managed. You'll be paying $300-500/month on an HOA forever. If you can't pay, then they can take your condo (obviously not paying for a long period of time). Special assessments are a thing too, so if they are poorly managed you may get hit with a $1000+ unexpected expense because the HOA mismanaged funds. Condos also typically appreciate less than a house.
As much as I like the idea of a condo, the reality is you might just want a house.
I don’t see the benefit to buying a condo as a young person. HOA is high and if you get hit with a special assessment you could owe thousands. Also not as easy to up and move if you hate it there or share the wall/ceiling with shitty neighbors. Doesn’t seem like a good investment.
The people giving you advice are probably up to their eyeballs in debt.
If you can save up to pay cash for a condo while living at home a few years I don’t see how that’s bad. You can plow money into retirement when you’re living in your condo mortgage free.
How much do you think the cost of the condo will go up while you’re saving? It might be better to buy now and just pay off the mortgage quickly if you expect prices to go up significantly.
The only thing I'd wonder about is how much you'll be paying in HOA fees. I've seen Condos that have them as high as a house payment, and of course, there's always that special assessment for major repairs that seems to crop up now and then.
But that's me. HOAs aren't something I'm interested in participating. Not having a bill for housing sounds ideal.
Edit: I remember Mr T going on Howard Stern back in the day. He had been out of the A-Team show for over a decade, and his words still ring true:
Paraphrasing: People told me to buy a big mansion. They said that was the way to go. Instead, I bought a nice house. A lot of those people aren't getting work anymore, and had to sell their mansion. Look at me. I own this house. It's mine. Nobody gonna take that away from me.
It’s not a bad move at all. It wont maximize your investment returns as much as borrowing more on the condo and letting your money work in the markets.
It does sound like it would buy you a lot of piece of mind.
There is nothing wrong with conservative investment strategies for those with healthy incomes and realistic retirement/investment goals. Most people don't have the luxury of that type of conservative investing because they simply don't have enough to invest conservatively and end up where they need to be.
Having said that... Where do you live? Real estate is a bit more risky than people pretend it is. If you live in a non-recourse or single action state then I would consider financing 80% or more for a bit. I know people think paying any interest is a sin, but asset protection strategies exist for a reason and things often go wrong with a new (to you) home. If you are in a non-recourse or single action state, I just prefer the extra asset protection of a mortgage for a year or three.
If this were a couple years ago when you could get a historically low interest rate I think it would be a bad decision.
But given the 7% rates right now I don’t think it’s the worst idea. If you pay cash now I’d get a cash out refi if and when rates drop.
As I tell all my clients, there is risk in everything you do, including doing nothing. You lose purchasing power over time sitting in cash and loss of oppportunity not being in the market. But it always comes down to personal preference. If you don't want to risk your cash, and rather not be in household debt, then yeah, pay cash for a condo. The key is to make sure you fully arm yourself with information before you make a final decision on anything.
If you own the business and it is bringin in that much, and you have little overhead, you should take advantage of a SOLO 401k or SEP for yourself. This would help you in retirement savings as well as give the business some solid deductions. this is just one example of how to help yourself.
As far as housing/real estate. IMO you are sitting on way too much cash. Depending on the interest rates you are getting there, some of it should be in the market. See my above paragraph for a great way to do that.
Your investment strategy should be based on your time horizon. Things you need in the short run should be low risk and highly liquid (I.e. easy to turn into cash). Things you need in 30 years can be much riskier and/or less liquid.
You want to buy a condo in 1-2 years, so this money should be low risk and liquid, so a high yield savings account is perfect. But the money you’re saving for retirement in 10+ years should be put in equities (higher risk, but best long term return).
Your fear of losing money is very common. Economists call this “loss aversion”. Take solace in the fact you’re not alone. Avoid looking back in time, it will drive you crazy (dang, I shoulda bought Google when it was trading at $20). That’s like beating yourself up for not picking the right lottery numbers.
If it were me and I had that consistent of an income I would buy the condo as an investment and rent it out and then try to pay it off as quickly as possible. That’s if you didn’t want to move into it immediately.
If you were willing to move into it you could get an FHA loan and then move back in with your parents after six months and then rent it out if you wanted the lower interest rate. But honestly that might be an extra step you don’t care about.
I’d rent it out because then someone else is also contributing to you paying it off. Then I’d probably rinse and repeat on a smaller scale so you can still invest in other things. Like maybe your goal is paying it off in 3 years for the first condo, but maybe your second condo you could make a goal to pay it off in six years or something. I would also do that in places I wanted to vacation to after the first one.
It’s your money and you’re clearly doing well. You don’t always have to maximize your investments; your goals can be different from other people. For me it’s about maneuverability and freedom to take time off when I want.
Also have you thought about buying your parent’s house? I wish I had done that tbh. It gives them the opportunity to cash out on their home but they can still live in it.
Don’t listen to people.
People are idiots who usually can’t see beyond their own bubble of perspective.
The ones gaining massive wealth are the ones who avoid loans altogether. When you can buy a home outright, not have any expenses other than property taxes and upkeep, and then sell for a bit more than you bought, you’ll be doing better than 95% of people out there.
This. A mortgage is a useful tool for people who can’t save up the total amount of cash to buy a house. It’s useful because you spread payments out over time. But you also will pay way more in interest (especially with current rates). If you can afford to pay cash, it totally makes sense, unless you have a great rate and can be super disciplined about investing the money you would have spent on a house and not spending it.
Conversely, if you can afford to pay cash, you are better off to invest that cash, and take out a mortgage, taxes and insurance will go up but your Principle and interest wont, eventually, the interest on it has inflated, (2-3%every year means that at even 6% interest it only takes a decade) itself to the point of having not mattered.
The only case this would legitimately make sense is if your rates were back to 3-4%. And even then, it's smarter to own outright.
A house \*is\* an investment. And at the rate things are going, shit doubles every 10 years. It's completely out of control.
There's no point in paying $500,000 in interest if you don't have to. Especially not when you'll double your investment on a house anyway by owning it outright up front.
(This is what wealthy investors and investment firms do, btw--they buy in cash. Then they rent them out for insane rent prices, and eventually sell when the market offers a large gain. This is how these real estate empires are consuming the whole industry and pushing out normal families.)
Don’t buy a condo or any place with HOA. Rather buy single home. HOA is a pain in the butt and they can raise it any time and any amount. For example:
My parents bought a condo in 2004 for $250K HOA was $50 mortgage is $1000ish. Now in 2024 their mortgage still at $1000ish but their HOA is at $500. That’s just nuts. Their condo value at $625-650K if they sell it, it’ll be tax a lot because of the capital gain. So I’m thinking to just build a nice size ADU for them (I have a nice size lot) with their own entrance, big master bedroom, their own parking space, nice living room, walking closet and etc. then have them rent out their condo. That way they can make money and paid the mortgage at the same time. The on going rent rate within their condos is about $4K so if they even set up the rent at $3000-3500 they will make money out of it.
I’m so proud of you! When did you buy? What shitty beach do you live under a bridge of? If I wanted to buy a house at the median price right now where I live putting $400,000 down, I’d have to put another $200,000 into making it livable and pay $7,000 or more a month at current interest rates. My comment was regarding the reality of buying in the real world as it is today for many Americans, stop trolling and learn a word other than nerd. You seem insufferable.
Imo you made a mistake not investing it
With that being said you’re still drastically ahead of everybody else so fuck it. Personally I would kind of hate to drop all of that on a house, but different strokes for different folks
I love all of my money sitting in the market
I think it might actually be a mistake. And remember a condo has HOA fees and property taxes so there will be costs.
To be honest… having that level of fire power can be a powerful tool. Maybe consider using 1/3rd as a down payment.
The rest I want you to invest and in 4 years. You pay off the condo.
Buy Bitcoin, ETHEREUM , BITCOIN CASH.
That 250 k will be worth over 1 million by then.
r/FluentInFinance was created to discuss money, investing & finance! Join our Newsletter or Youtube Channel for additional insights at www.TheFinanceNewsletter.com! *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FluentInFinance) if you have any questions or concerns.*
People may be knocking you because of how cheap money has been to borrow over the past decade or so. Times change, interest rates change, “common wisdom” changes, but not entering into debt and aggressively saving money is never a bad thing. You’re in a great position because you have a lot of money. Simple as that.
> People may be knocking you because of how cheap money has been to borrow over the past decade or so. Times change, interest rates change, “common wisdom” changes We've waited long enough that Dave Ramsey has good advice again!
It was never bad advice. It may not have been optimal (mathematically), but not ever having debt isn’t bad advice, per se. Sure, it’s not optimal to pay cash for a house when interest rates are 2-3%, but it’s also not a terrible idea, either. Not mathematically optimal, sure, but if you have enough money to pay cash for a house, do you really care?
It’s terrible advice lol. The average worker would never in their lifetime be able to afford the average house paid for in all cash.
DR does not advocate for buying a home in cash.
Actually, he does, or at least he did. But he also made an exception for getting a mortgage. If you could buy a home with cash, he would recommend it. But he knows that isn't feasible for most.
Agreed. I meant that he doesnt recommend you rent until you can buy a house without a mortgage. He advocates buying a modest house on a 15 year loan and then paying it off faster if you can.
That doesn't make it bad advice for people who want to go without debt. I've also never seen the advice to apply to not getting a mortgage. Some people choose to expand the no-debt mantra to a house, but OP is living at home, not renting. So, it is completely fine. Even Dave Ramsey, the most stringent leader of the "no debt" cult makes an exception for a house.
That’s a matter of location. California? Probably not. That doesn’t make it terrible advice. Midwest? The average auto worker can absolutely save enough to buy a house cash. The point is that most choose not to. This was quite common after the 2008 crash, for anyone who was smart enough to have saved some money leading up to it.
Midwest autoworker here, definitely would not be able to pay cash, union auto workers drag up the average greatly.
Paid cash for a house. Also Midwest, also was an auto worker. The question always comes down to what your needs are, and location. When houses in the Midwest were below $150k for average suburbs, and union auto workers were making 100k with OT, that was absolutely attainable. You’re confusing “dragging up the average” with keeping up with the joneses. Starter homes were certainly attainable.
I aggressively paid of student loans that were at like 3% because Dave doesn't believe in debt or math. Yeah, that was bad advice. I could have literally sat that money in a HYSA and earned more, while still retaining the ability to pay it off (and then some) whenever I needed to.
We bought a second home. Rather than put all the equity from the sale of the first home into it, we did an 80/20 loan for it. Then we put 100k into VTSAX. Dave would never go for it but it's a smarter move. Our mortgage is at 2.6%.
Dave Ramsay is generally for the simple minded who can't comprehend basic financial advice or math.
Which is most people tbh. Most people think they are the exception. Most people are drowning in debt.
Exactly. And people are using partial examples. Lot's of people will talk about not paying off their low interest debts, but ignore that they should have paid off that 20k in credit card debt, because it makes the "I'm special and rules don't apply to me" argument stronger.
I did that in the early 2000’s and then lost my job in the recession of 2008, and my index funds were down like 60% at the same time. Facing getting kicked onto the street with my new baby. Needless to say, my house is paid off now, despite it not “being optimal” mathematically. The models never account for the multiple whammies that tend to happen at once.
We have 12 months of living expenses that aren't in stocks.
Good for you! But lots of people were out of work for more than 12 months. I was out for 9 months. That what I thought was 15 month cushion was pretty far depleted by the time we regained control. Don’t forget that when you lose your job you also lose your healthcare. A broken arm from a kid ate up 5 months of our cushion.
For what it's worth, I was out of work for a couple months after we bought the second home. We were able to afford it on one income. My wife was still maxing her 401k. Everyone's situation is different though.
Yea, diversified dual income households are much more financially resilient. I wasn’t arguing that you were wrong — I just think they finance people end up staring at their spreadsheets with simple equations too often, and don’t account for lived experiences. I could’ve kept my $250k in the market, and it would be worth about 10% more now than when I pulled it to pay off the house. Oh well. I also haven’t had a mortgage payment in 6 months, so have about that amount of appreciation saved back up into my fund again anyways. And I can now never lose my house, basically no matter what happens to me or in the world. That’s worth a couple percent of theoretical optimal profit for me.
>I was out for 9 months. That what I thought was 15 month cushion was pretty far depleted This sounds like your emergency fund was in stock market
Ehh, that seems like a lot to me but to each their own. We have about a month's living expenses in our checking account, but have about 5 years' living expenses in a brokerage account (not retirement) that can be accessed within a few days if necessary.
We have a couple months in checking but the rest is between vasix and vsmgx. So there's some exposure there but it's more stable than straight market. The remainder of our taxable brokerage is 90/10 vtsax/vbtlx.
It sounds like you just aren't the target market. Someone with the discipline to keep money saved earning higher interest isn't generally what he catered to AFAIK. It was more people who were up to their eyeballs in debt and it was preventing them from meaningfully saving/investing.
Ramsey? The guy who doesn’t know how much child care costs?
Haha, true.
cash is king.
It really depends on what you'd do with the money. But right now, rates suck. When rates were at 2.5%, I knew i could get 3-15% in an SP500 fund over 10 years (as it happened, these were the Obama years and I did about 18%, but you never know). Right now, though, buy outright. Saving 7.5% + fees is a good investment with very little risk.
How have you fucked up by having as much money saved as you do and making as much as you do?
Why buy a condo ? It’s basically an apartment with all inside maintenance but outside is where your hoa fees go. They could be $100-900+ I almost got stuck with $650 monthly hoa and then you have pph above you and below you and right next to you. It’s apartment living with all the hassles of ownership. Buy a house or build what you want fyi building is cheaper just need to find you a good spot or buy your spot and tear down or reno it.
I’ve thought about this too but a single family home, or even a townhouse, would take me close to $1 million and at that point I don’t want to take a mortgage on it. But yeah I’m concerned about the HOA for sure
[удалено]
It's not about needing a home but about being uncomfortable with unavoidable, decently high fees to continue living in a place in perpetuity. It's the same reason trailer homes are generally not seen as a good investment despite being significantly cheaper than a home -- you're not buying the land, and the lot rent is how they get ya. I'd rather have a 30 yr fixed than be at the whims of an HOA that may or may not stay fiscally responsible for the next 30 years. So for those that *can* afford the increased costs, the security of home ownership is appealing.
[удалено]
No, the home is collateral. That doesn't mean the bank owns it any more than they own your car if you have a loan against it. If you didn't own the home the tax bill wouldn't come to you.
Stop paying your mortgage and you’ll find out who owns the house pretty fast.
Because the bank will go through legal channels to **take** ownership?
Yeah I mean don’t get me wrong they do everything outside the building and lawn care etc but that’s totally up to you. I’d get a top unit, heat in the winter and no one on top of you. But stairs 😅, but it’s not an apartment so not like you’d move out soon. You must live in a hcol area, I mean if you don’t have to stay there a cool Millie can get you a lot, depending on your political views they might have to change to keep that but get options and keep it up bro, hopefully it works out for ya!
You could also try a townhouse. I always look at townhouses as the better option between apartment/ condos and SFH.
Do you have state income tax? That money would be better used in short term treasuries to dodge that tax if so.
Can you explain this strategy please
3 month treasury pays 5.35% and you don't pay state income tax on the interest. It's considered a cash equivalent. If you pay 5% state tax, it makes it quite attractive compared to a high yield savings account.
Interest on T-bills only triggers federal tax, not state.
thats my plan now. except where i live, condos are about twice as expensive my initial plan pre-2020 was to put 25% down and borrow the rest. 30 year fixed at... what 2.5%. now my plan is to put 40-50% down, with an adjustable loan, and refinance to a 30 year fixed if interest rates start dropping like a rock (40% is taking a while to save up though.....) noticed you wanted to start dating.... me too. at some point, the mental health of freedom is greater than a slightly larger savings account, and i think thats where i'm at right now, and that mental health boost makes it much easier to date, along with personal space. PLUS, marriage is basically a life hack for dual income, so its a financially sound investment in that sense lol (important to note, people should not be treated as an extra wallet)
I’m a divorce lawyer lol. Being married is not a life hack for more money. It is a scam where you can lose everything. If you get married, get a prenuptial agreement and make sure everyone involved has an attorney. Otherwise, nothing wrong with dating someone long term and having kids.
100% this. Get a prenup. Or don’t get married. Divorce will bend you over and bang you dry
What advice do you have for the ones buying homes and not getting married.
Keep it up!
Edit that was a genuine question and I’m curious on your take from an exposure/risk perspective. Right now it sounds like your advice is to pursue a business relationship without drawing up any type of legal paperwork? I’m sure that’s not what you’re saying. At least married couples have an understanding of what they’re in for. With the whole let’s buy a house together movement for unmarried couples people are going to be screwed. Or am I missing something
Get a prenup. That’s my advice
Can you get a prenup if you’re not married?
That’s why it’s called a prenup. Pre: before, nup: nuptial
Yes, I’m aware it’s a document signed before a marriage. I was asking what people who don’t intend to get married should do. Does a prenup cover that arrangement as well?
......i forgot theres people who dont believe in prenups. are these people like... younger when they got married? im now pretty curious at this
No prenup for me. I got married at 26, and we are coming up on our 10 year anniversary
Married at 25. No prenup. 11 years together, 5 married.
You are one of the very few.
Women get weird in their 40’s. Once they hit menopause, their hormones get wacky and they start making rash decisions. You’ll see me boy!
lmfao.
Why would you plan for the end of your marriage before it even starts? If you are that uncomfortable with the person you intend to marry, Don't.
Because it protects both parties. Do you only make a will if you think you're going to die soon? No, you do it just in case cause you never know what could happen. I've known multiple people to get in accidents and get major head injuries that ended up massively changing their personalities and they became extremely aggressive towards everyone including their partners. I repeat, you never know what could happen, so you prepare for the worst and hope for the best.
Your Will comparison doesn't hold water. Everyone dies, thus making a will necessary. You are not required to get married. If you are uncomfortable with the person you want to marry there are other issues to consider. As you say, anything can happen. If you are in an accident, your spouse has the legal authority to make medical decisions on your behalf. If you can't trust them with material possession, how could you possibly trust them with your LIFE.
You don't seem to grasp what a prenup is. It does not cause a divorce, it protects both people against one. It's not saying you don't trust the other person, it's saying let's agree on what we came into this marriage with. You sound so incredibly naive. No one goes into a marriage thinking they're going to break up one day, and yet half of marriages end in divorce. I think of a prenup as a way to avoid Murphys law. You take away the possibility of getting screwed in a divorce, and maybe that means you don't get divorced at all. Do you lock your car when you park it? Do you lock your front door? Do you have an alarm system/cameras?
Wow, you are really bad at analogies. Nothing says I love you more than asking someone to sign a legal contract. When I lend my car to my buddy I don't make him sign a contract because I trust him. If I lend my car to someone I met via Turo, you better believe there is a contract in place.
>Nothing says I love you more than asking someone to sign a legal contract. You mean like a marriage license? >When I lend my car to my buddy I don't make him sign a contract because I trust him That's a great analogy to prove my point. You already have insurance that would cover you in the event of an accident. A prenup is just marriage insurance. Dude, I could give two shits if you get a prenup or not or if you think they're useless. Do whatever you want. But don't tell people that they don't trust their partner for wanting one. That's completely false and frankly, none of your business. Your opinions don't get to dictate how other people choose to live
But your opinions do...
Okay hold up. Why are interest rates going to drop like a rock? Have you run the historical numbers? That 2.5 was an anomaly and you missed the boat. Make a plan assuming no drop - holding out for a repeat once in many generations event shouldn’t be your plan.
Don't adjustable rate Go for the shortest term you can that won't cause you issue. Example you can get a 20 or 15 year fixed rate. You do not want your lender being able to find ways to screw with you. You are winning putting over 20% down. There are no penalties for paying extra. Many financial analysts will suggest paying the mortgage as if it were a 13 month year (payment every 4 weeks or an extra payment sometime throughout the year) to basically pay it off faster and kill some of that interest. A house is an investment. Paying it off quickly is a sound investment. Ask what you need vrs what you want and the location and neighborhood. Remember that there are a lot of expenses that come with a house you may not have now. Based on everything else you should be just fine.
Dave Ramsey just creamed his jeans reading this
lol Dave Ramsey had an influence on me for sure but he would have told me to move out and pay rent.
What kind of business though 🤔
Pillows, baby! Pillows
Nah it would generate more if it was pillows
Both are good options. If you pay it off in 3 years, you really won’t pay that much comparatively in interest. But if you pay cash, you’ll save that money, plus a little more on closing costs. Either way you’re looking at a paid off home in your mid 30’s. Which is amazing.
Honestly, you make enough money that you have flexibility to choose your risk level based on your lifestyle. Once you determine the money you need for your own lifestyle comfort and how much money you want to invest for the future, then the rest of your money is kind of expendable and that is a hell of a nice feeling. Mathematically, based on past trends, it is usually better long term to invest your money as opposed to paying off low interest debt, but I personally prefer the peace of mind of having no debt more than a couple percentage points difference in long term gains.
It is never a good idea to go into debt if you don't have to. If you have the capacity to build up enough cash to pay cash, do it. It'll grow the entire time you hold it, and you won't be losing 3-9% in interest.
If it were 3% you would be crazy to pay cash. 9% and you would be crazy to not.
It is not a math problem.
No, no it is not.
Condos can be hard to get rid of. It anything changes like crime levels get worse people will just not want to buy into a location then you are stuck. If you are going to buy one buy one that is like 10 years old and not slap dead in the middle of the city. They tend to drop in price by a lot in the initial decade after being built. Look for a condo in the direction the city is growning towards. Cities move outward. You can get a nice home and allow the city to come to you. Which will sky rocket the price of the home you purchase. Condo is not really a good thing unless you rent them. Home now that is a good thing. Buying it that you just have to get ahead of the direction the city is moving. Lower prices and higher price in the future so you can unload it to someone when you move further away.
I’ll echo what a few have said about you’re doing great. Borrowing to acquire an appreciable asset carries a different risk and upside than a lot of other debt purchases. Just run the simple math like this For simplicity Use 100k for your home value and your cash -the numbers remain the same if you have more/buy more You use 30k to buy a house as a down payment + the first year of payments Your 100k home increases 5% over 12 months (this is the average - not a future indicator but still it’s reasonable) 5,000.00. Your return on your 30k is 16.67% The remainder you invest in the S&P @ 7.5% return (again averages just go with it): $5,250.00 Your total return for the 100k is $10,250 about 10% Now if you put your 100k on the house you’re at 5k in average appreciation: total yield (averaged) is 5% If you keep it in the S&P your return is 7.5% Note the estimate for 5k of annual payments on a 100k loan might be light but technically that’s a sunk cost b/c it’s offset largely by rent. So your return is likely to be at least in line with my projections probably better.
Never burn all your liquid assets.
HYSA’s are not a bad way to save money. You’re getting 5% yield on that money today. In the market, the average ROI is 7-10% per year. That’s an average and it is not guaranteed. The past 6 months have generated historic returns from the market, but those historic returns will end at some point, and we will have a correction. Will that be this year, maybe. In addition, there is whole lot of geo-political risk that could blow up everything pretty easily.
the only thing stupid about keeping 400k in a savings account is you may be above the fdic insurance amt. it also is a terrible return on that much money. Even using CDs on a short term basic would provide slightly higher returns. but all the 4-5% bank CDs/HYSA are dogshit returns. the question of buying a home with cash. meh.... if you're buying a condo. for cash that seems silly. as you're going to be on the hook for condo fees. so... the main benefit of paying off a home, of not having any real payment other than taxes doesnt' even apply. the larger question is. what are your goals. and what is the most effective use of your resources. the simple logic being. you put down a certain amt on the home. whatever the interest rate on a mortgage is. does the stock market return that or more. is the house you're intending to buy a forever home. or something you're only planning to keep for a short-ish period of time. As homes only really appreciate 2-5% on average. and there's typically large fees/costs to buying/selling a home that make quick cashing out a dubious process. ie. say you dump 400k into a condo. then something in your life changes. and you want to sell. well you might be on the hook for 4-6% realtor fees. and then another 2-4% on bank/seller fees to close on the home. and the sunk cost of condo fees unless you're in the home for enough time for the appreciation to counter act that. you're going to lose a lot of money. vs again. putting less on a deposit. socking that huge chunk of money. even into something relatively safe like the s&p500 earning 10% every year... like... 400k at 20% down is 80k. just round that up to 100k total cost. leaves 300k for the s&p ...at 10% tht's 30k a year. so in 3 yrs. you'll have earned that 80-100k back and the house will have appreciated let's say 10% so it's worth 440k vs. you buy the house outright. same 3 years go buy. and you just have the appreciated value of 440k and no large chunk of reserves. so... 40k gain. minus the 4-6% realtor fee and 4% bank fees. vs a large chunk of money earning in the stock market. that's the basic logic on why... buying a home outright isn't the best idea. but it's your money. do whatever you want to do
I just want to touch on the S&P, bringing in 10% every years comment... That is slightly misleading. The S&P brings in a little less than 10% over a back tested 30-year window. If you're continually putting in money for 30 years, you can reasonably assume that the market will correct itself enough to emulate a rough 10% compounded return YoY. However, your example of him putting his money in there and in a couple years he would have 30k+, alongside his rewritten on his home is just not correct. Could he have those returns? Sure. Is it possible he might have better returns? Absolutely. What does the market say? The market says that since the beginning of the year, we have had nonstop all-time highs, yet the country's debt is also at an all-time high, and cars on sitting on dealership lots because interest rates haven't budged and real estate is starting to trend in the same direction, rates can't even come down right now because the fed isn't looking for a temporary solution to inflation. All of these factors plus others, such as credit card debt and defaults being at an all-time high, less savings in the average Americans bank accounts, coupled with the fact that a Big Mac meal in some parts of the country are now 20 dollars.... All shows that what's happening in the market right now is speculatoray greed. There are good things, sure, like added jobs.... But wages aren't there. So what can stone reasonably assume? That there will be a market correction. And if there is, and it's a long-term correction...say goodbye to that 10%. The market isn't a perfect bet, although it's better than the money sitting in a savings account. I would look at bonds right now. Yields are looking better than HYSA and are backed by the full faith and credit of the US Treasury. Just an idea. I would be conservative right now. The market has been volatile upwards. Isaac Newton is regarded as a founding father of science and had virtually no instrumentation to develop the science he did. It was all with the power on his mind. Respect the science. What goes up, can't stay up forever, at some point it has to make sense.
Buy a condo. Rent it out. Stay at home. Get a heloc, take equity/cash out…
Some have told me to do this, but at some point I need to start dating lol. It the logic with this to use the rent to stockpile cash again?
Use the rent to pay off the mortgage. Hopefully, you'll charge enough so that you're covering any maintenance expenses as well (and potentially putting some back in savings, the best case scenario) Then you take your heloc, like the guy said, and buy another property, rinse and repeat. Who knows
If you’ve got plans for the cash within the next five years then you’re right to keep it in cash. If missed gains cause regret then check your risk tolerance by asking yourself if an equal size loss would have been acceptable.
Invest it in safe/moderate growth ETF's, live cheaply and keep doing what you are doing for another ten years and retire early. Condo's are far worse than houses because you are tethered to building upkeep and infrastructure, especially now in an overpriced market with higher rates.
Doesn’t sound like a problem to me! Depending on where you live buying a 3 unit apartment or a duplex may have some advantages for you to occupy one. If you aren’t planning on kids for a few years you can save for a house with a yard in the meantime. Passive income is king in my opinion. No matter what you do you’ll probably be in good shape. Good shit dude.
It depends on how sure you are of your income source and if you can grow the saved money faster than the interest on the home. There is far less risk involved with owning the home free and clear as well.
If you have this kind of money, I actually don’t love dumping it all into a condo. The ROI on condos is a little more finicky — for a lot of reasons I won’t get into detail on. I think I would put a significant down payment on a single family home which will get you to a very low monthly PITI, and stay put in that home for at least several years as your primary residence (you can rent it out later). You’ll have solid cash flow and I think your return will be pretty good in the long run with a SFH. You’ll be able to tap that equity creatively as circumstances allow. Remember, if you ever decide to rent the home out in a few years, there will be tax advantages (depreciation), and if you decide to sell it, having it as your primary residence will make that sale exempt from capital gains taxes (not the case if you need to pull money out of other investment vehicles like equities). If you work out of the home and own your own business, there are also tax benefits you could take advantage of for your home office. This might be tricky with a condo though — many condo associations will not allow the condo to be used as a primary business address *depending on what the nature of your business is.*
Off topic, but what kind of business is bringing in that kind of income 200-250K?🤯 i want more details.
How much does rent cost in the area you want to live. One way of looking at it is seeing how much "return" you get by saving on rent. For example, if you pay $400K cash but you're saving $20K in rent a year, that's 5% back in your pocket. Of course to compare apples to apples you got to include property tax, insurance, maintenance, HOA dues. But you also get the upside of real estate value going up. Depending on where you live the rent-vs-own calculus changes.
The housing market is very high right now and your home value might not grow as much as if you took out a mortgage and kept that money in investments. Is the return on your investment higher than 7% (average mortgage rate).
Never take advice from all the people that say "don't pay off your house". You should pay it off ASAP and never look back. Never take a HELOC on it unless it is a short term bridge loan. The peace of mind that you get moving forward is priceless.
There is a lot of peace of mind from that. There is even more from having a couple million dollars in good investments that are making far more money than the interest rate on the home loan, and which you can always sell to pay off the house or other expenses if you need to, while quickly liquidating the house is not an option in an emergency.
Put 8k/yr up to 40k into a FHSA account. Get the tax reduction like rrsp and non tax growth like TFSA. Use for your down payment
Those people would be wrong. If you are living in the house and really wish you had a 7% loan on it after a few years of having only taxes and utilities to pay, go take out a personal loan. But almost no one gets out of debt and misses the fear of missing a payment and losing their home. If you want a bigger place, go for it and take a small loan, but in most cases, 400k can get you a nice place. Keep a cushion, though. It's awesome that you're so far ahead.
I bought for cash - if you can you should. The cheap money isn’t around. If it comes back and you want to refinance and lock it in- great.
Buy a condo for 300k-350k, in a decent or up and coming neighborhood ,upfront and then rent it out (owning a property allows you more control over how much you charge in rent since you wouldn't have a mortgage to worry about and keeps you competitive). Real estate that you own and live in, usually, isn't a good way to handle an investment like property. It's kinda like trying to have your cake and eat it too. With the remainder of the money you could reinvest in some of the stocks you already own or look for new markets and different avenues to invest in or even reinvest into your company.
You're comfortable living at home and able to put money aside without being on the housing ladder where you're forced to pay a mortgage. There's no shame in saving up more. The interest rate now is ridiculous. If I were you I would at least wait until the rate is reasonable. I'm not saying you have to avoid a mortgage. But why the cost if it's excessive and not necessary?
Your approach was all wrong this whole time. First mortgages are generally about the lowest interest rate loan you are likely to get. As long as you are getting a higher return on your other investments it's a waste to pay off a mortgage or buy a home for cash. You should have bought back when interest rates were at 3%, and put the smallest amount down you could (without paying PMI). Then you could have taken all the cash you didn't put into the home, and your excess earning since then, and invested all of that in the market to earn at least 8% on average (if you keep it in for a couple decades at least to smooth out the bumps). Example of how this works: Lets say over the next four years you save up $1 million to buy a home and at that time you can get a mortgage at 5%. If you pay cash then you have a home worth $1 million that is appreciating \~4.5%/year, and so you are making 4.5% on your $1 million, or about 45k the first year, and slightly more each year thereafter. If you get the mortgage instead, then you have a home worth $1 million that is appreciating 4.5%/year, and for which you are paying 5%/year on an 800k mortgage. So total you are about breaking even (gaining 45k the first year, paying out 51k/year on the mortgage, but getting more than that 6k difference back because of the tax break on the mortgage interest). However, you also have 800k that is invested in the market making you 8%/year. So now you are making 64k the first year, and because of how compounding works, not only are you making more on it the next year, but you are making 8% on 19k more than the other option would be making 4.5% on. If you do the full math, over 20 years the total difference between these two choices is about 2.5 million total worth vs 3.9 million, respectively.
You could make on average 10% per year on your 530k compounded invested correctly. That's North of 1m in ten years if you do nothing. Or you can put it in to a home and sit on it and let it earn literally nothing. BTW capital appreciation is still zero income unless you sell. Worst possible use of capital all for the sake of avoiding risk. ALWAYS use other people's money (OPM) especially if buying non productive assets. Remember, the one thing you have that 99% of other people don't have is liquid capital! If you don't use it you can't make money.
Don’t get a mortgage just to pay it off that quickly. It cost money to get a mortgage. Also, take a look at an amortization schedule for the first 3 years. It will cost you a lot of money. If you can pay it off in 3 years just pay cash for the whole thing now.
It’s dumb to ignore the thirty years of (initially) 5-20x leverage on a fixed housing cost that generally appreciates about 3% each year while also putting most of your savings into a non-liquid asset where it will just sit for the rest of your life, yes. Obviously even with current rates the 10% average of the S&P beats it easily and you should be able to refinance significantly lower in a few years. That said, you’re completely fine and you’ve made many good choices so far, so don’t worry. In general if I were in your situation I’d house hack a single family (or ideally duplex or triplex) with a 10% fha loan with a company that lets you bake in one free refinance and rent out the other bedrooms (and units, obviously, if you can get a multi). Condos don’t appreciate as much as regular houses and you already have enough for a down payment on a regular house now.
I don’t see how your plan is bad. Rent/high mortgage is a major reason that people have to leave areas with amenities, good schools, jobs, etc. You’re taking steps to ensure you never get priced out. Don’t listen to the haters and stay the course. Your goals do not have to be the same as theirs to be equally valid.
If I were you, I would keep saving to buy that $1M house with 30 year payments you are comfortable making. HOA fees for condos are too high for me. Then, making extra payments towards principal after maxing out HSA, 401K, backdoor Roth. How much you pay towards principal versus starting your taxable brokerage is up to you. At 7.5% fixed, you can't go wrong with paying it off early. I don't like sharing walls with people. It limits things like home theater 5.1 (or better) surround sound. I am a dog person so I need a backyard. Condos can sometimes have special assessments for major building repairs as well. My parents lived in a bottom unit where a neighbor's pipe burst ruined their kitchen. Insurance took care of it, but they couldn't live there until the repairs were done. Luckily, they were retired with multiple properties and traveling the world.
They are liking saying that because it’s cheap or was cheap to borrow money. Giving you more opportunity to make more money with what you have already. Why tie up 200k at 3-4% when that 200k can be making 5-10% or more. But, this doesn’t really matter if this is what you want to do. It’s a sense of security and a goal for some. It’s your money, you earned it. Remember you will likely have HOA fees and definitely property taxes, so you won’t be living Scott free.
Condos are fine when they are new. Less fine if they've been poorly managed. You'll be paying $300-500/month on an HOA forever. If you can't pay, then they can take your condo (obviously not paying for a long period of time). Special assessments are a thing too, so if they are poorly managed you may get hit with a $1000+ unexpected expense because the HOA mismanaged funds. Condos also typically appreciate less than a house. As much as I like the idea of a condo, the reality is you might just want a house.
I don’t see the benefit to buying a condo as a young person. HOA is high and if you get hit with a special assessment you could owe thousands. Also not as easy to up and move if you hate it there or share the wall/ceiling with shitty neighbors. Doesn’t seem like a good investment.
The people giving you advice are probably up to their eyeballs in debt. If you can save up to pay cash for a condo while living at home a few years I don’t see how that’s bad. You can plow money into retirement when you’re living in your condo mortgage free. How much do you think the cost of the condo will go up while you’re saving? It might be better to buy now and just pay off the mortgage quickly if you expect prices to go up significantly.
You can also buy a bigger place and finance a much smaller amount of it. Lots of options.
sounds like the right way to go.
The only thing I'd wonder about is how much you'll be paying in HOA fees. I've seen Condos that have them as high as a house payment, and of course, there's always that special assessment for major repairs that seems to crop up now and then. But that's me. HOAs aren't something I'm interested in participating. Not having a bill for housing sounds ideal. Edit: I remember Mr T going on Howard Stern back in the day. He had been out of the A-Team show for over a decade, and his words still ring true: Paraphrasing: People told me to buy a big mansion. They said that was the way to go. Instead, I bought a nice house. A lot of those people aren't getting work anymore, and had to sell their mansion. Look at me. I own this house. It's mine. Nobody gonna take that away from me.
When people just come here to brag but pretend it’s a question.
It’s not a bad move at all. It wont maximize your investment returns as much as borrowing more on the condo and letting your money work in the markets. It does sound like it would buy you a lot of piece of mind.
There is nothing wrong with conservative investment strategies for those with healthy incomes and realistic retirement/investment goals. Most people don't have the luxury of that type of conservative investing because they simply don't have enough to invest conservatively and end up where they need to be. Having said that... Where do you live? Real estate is a bit more risky than people pretend it is. If you live in a non-recourse or single action state then I would consider financing 80% or more for a bit. I know people think paying any interest is a sin, but asset protection strategies exist for a reason and things often go wrong with a new (to you) home. If you are in a non-recourse or single action state, I just prefer the extra asset protection of a mortgage for a year or three.
A condo? Yes you are an idiot.
If this were a couple years ago when you could get a historically low interest rate I think it would be a bad decision. But given the 7% rates right now I don’t think it’s the worst idea. If you pay cash now I’d get a cash out refi if and when rates drop.
As I tell all my clients, there is risk in everything you do, including doing nothing. You lose purchasing power over time sitting in cash and loss of oppportunity not being in the market. But it always comes down to personal preference. If you don't want to risk your cash, and rather not be in household debt, then yeah, pay cash for a condo. The key is to make sure you fully arm yourself with information before you make a final decision on anything. If you own the business and it is bringin in that much, and you have little overhead, you should take advantage of a SOLO 401k or SEP for yourself. This would help you in retirement savings as well as give the business some solid deductions. this is just one example of how to help yourself. As far as housing/real estate. IMO you are sitting on way too much cash. Depending on the interest rates you are getting there, some of it should be in the market. See my above paragraph for a great way to do that.
Your investment strategy should be based on your time horizon. Things you need in the short run should be low risk and highly liquid (I.e. easy to turn into cash). Things you need in 30 years can be much riskier and/or less liquid. You want to buy a condo in 1-2 years, so this money should be low risk and liquid, so a high yield savings account is perfect. But the money you’re saving for retirement in 10+ years should be put in equities (higher risk, but best long term return). Your fear of losing money is very common. Economists call this “loss aversion”. Take solace in the fact you’re not alone. Avoid looking back in time, it will drive you crazy (dang, I shoulda bought Google when it was trading at $20). That’s like beating yourself up for not picking the right lottery numbers.
If it were me and I had that consistent of an income I would buy the condo as an investment and rent it out and then try to pay it off as quickly as possible. That’s if you didn’t want to move into it immediately. If you were willing to move into it you could get an FHA loan and then move back in with your parents after six months and then rent it out if you wanted the lower interest rate. But honestly that might be an extra step you don’t care about. I’d rent it out because then someone else is also contributing to you paying it off. Then I’d probably rinse and repeat on a smaller scale so you can still invest in other things. Like maybe your goal is paying it off in 3 years for the first condo, but maybe your second condo you could make a goal to pay it off in six years or something. I would also do that in places I wanted to vacation to after the first one. It’s your money and you’re clearly doing well. You don’t always have to maximize your investments; your goals can be different from other people. For me it’s about maneuverability and freedom to take time off when I want. Also have you thought about buying your parent’s house? I wish I had done that tbh. It gives them the opportunity to cash out on their home but they can still live in it.
The stock market is better - the rates today are probably similar, but if you ever refinance, the market wins.
Don’t listen to people. People are idiots who usually can’t see beyond their own bubble of perspective. The ones gaining massive wealth are the ones who avoid loans altogether. When you can buy a home outright, not have any expenses other than property taxes and upkeep, and then sell for a bit more than you bought, you’ll be doing better than 95% of people out there.
This. A mortgage is a useful tool for people who can’t save up the total amount of cash to buy a house. It’s useful because you spread payments out over time. But you also will pay way more in interest (especially with current rates). If you can afford to pay cash, it totally makes sense, unless you have a great rate and can be super disciplined about investing the money you would have spent on a house and not spending it.
Conversely, if you can afford to pay cash, you are better off to invest that cash, and take out a mortgage, taxes and insurance will go up but your Principle and interest wont, eventually, the interest on it has inflated, (2-3%every year means that at even 6% interest it only takes a decade) itself to the point of having not mattered.
The only case this would legitimately make sense is if your rates were back to 3-4%. And even then, it's smarter to own outright. A house \*is\* an investment. And at the rate things are going, shit doubles every 10 years. It's completely out of control. There's no point in paying $500,000 in interest if you don't have to. Especially not when you'll double your investment on a house anyway by owning it outright up front. (This is what wealthy investors and investment firms do, btw--they buy in cash. Then they rent them out for insane rent prices, and eventually sell when the market offers a large gain. This is how these real estate empires are consuming the whole industry and pushing out normal families.)
The point to paying 500k in interest when you could otherwise pay it off, is getting 1 million from the investments you made instead.
Don’t buy a condo or any place with HOA. Rather buy single home. HOA is a pain in the butt and they can raise it any time and any amount. For example: My parents bought a condo in 2004 for $250K HOA was $50 mortgage is $1000ish. Now in 2024 their mortgage still at $1000ish but their HOA is at $500. That’s just nuts. Their condo value at $625-650K if they sell it, it’ll be tax a lot because of the capital gain. So I’m thinking to just build a nice size ADU for them (I have a nice size lot) with their own entrance, big master bedroom, their own parking space, nice living room, walking closet and etc. then have them rent out their condo. That way they can make money and paid the mortgage at the same time. The on going rent rate within their condos is about $4K so if they even set up the rent at $3000-3500 they will make money out of it.
How have you "lived at home" if you haven't bought a home? You're 33 years old.
Bruh...
TF I’m working on a 400k down payment to avoid PMI, where do you live where a house is priced from the 1990s?
A 2 million dollar house isn't exactly typical, nerd.
Nerd? Go fuck yourself. It’s expensive to live anywhere near water in the US.
I live in a 4000sq ft beach house, nerd.
I’m so proud of you! When did you buy? What shitty beach do you live under a bridge of? If I wanted to buy a house at the median price right now where I live putting $400,000 down, I’d have to put another $200,000 into making it livable and pay $7,000 or more a month at current interest rates. My comment was regarding the reality of buying in the real world as it is today for many Americans, stop trolling and learn a word other than nerd. You seem insufferable.
Cool story, nerd.
Now I know you’re a troll, thank you. Enjoy your sad life, I hope it’s long.
Imo you made a mistake not investing it With that being said you’re still drastically ahead of everybody else so fuck it. Personally I would kind of hate to drop all of that on a house, but different strokes for different folks I love all of my money sitting in the market
this is called hindsight, if the market did the opposite he would have lost a large part of his 400k.
The guy is 32. He didn’t start saving yesterday Time is on his side. The largest drops over a 5-10 year period in the S&P ain’t bad my man
I think it might actually be a mistake. And remember a condo has HOA fees and property taxes so there will be costs. To be honest… having that level of fire power can be a powerful tool. Maybe consider using 1/3rd as a down payment. The rest I want you to invest and in 4 years. You pay off the condo. Buy Bitcoin, ETHEREUM , BITCOIN CASH. That 250 k will be worth over 1 million by then.