| Sold House, Plan to Buy in 2 Years, Invest the cash where? |
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padgett
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Location: Indiana
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| Sold House, Plan to Buy in 2 Years, Invest the cash where? |
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I sold my house, had about 50% equity. I'm going to move around for 2 years then come back and buy another house. Murphy says housing prices will go way up in those 2 years (inflation, housing recovery?) and I'll be out a lot of house as a result.
I could just buy a CD but there's no real inflation protection there, money market rates are near zero. I've thought of some kind of real estate oriented mutual fund, but those seem geared toward commercial real estate, and on a national scale. I really just care about housing prices in Indiana. Ideally, I could just buy a small house in Indiana with the cash, but it seems like realtor and maintenance costs for just 2 years would make it hard to break even.
What's a good strategy here?
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Fri Jun 17, 2011 12:19 pm |
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littleroc02us
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It depends on your risk meter. Are you willing to take a chance and put your money into a Mutual fund and then it falls for the next 2 years and you lose most of it or possibly you do get a good return on your money but have to pay taxes on the money or do you want a gaurentee that the money will be around for your next purchase then you either put it into CD's or a money market account.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Fri Jun 17, 2011 1:10 pm |
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oldguy
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quote:
I'm going to move around for 2 years then come back and buy another house. Murphy says housing prices will go way up in those 2 years
LOL - yes, houses could go way up - or way down and you'd be glad you missed those 2 yrs - or they could stay the same? Murphy's Laws don't always apply.
Are you young & single, going on a 2-yr adventure? If so, who knows what you'll want to do in 2 yrs - you may end up in Alaska and never return. 
At any rate, putting the money in a small all-cash house has a very low probability of successful outcome. In the best of times, houses grow at about 6%/yr - and then it costs 8% or 10% to sell it after two yrs.
Leveraging into several houses at least has a ray of probabilty of success. Ie, split the money in 4 and make DPs on 4 small rentals. That way, if houses go up 6%/yr. your equity will go up by 12% x 4 = 48%. And if the 4 rent checks offset you loan payments, the 48% return is mostly yours. Plus the virtual depreciation write-offs can give you a significant cash-flow. (As an engineer taxes are probably an issue). But this requires management - I wouldn't want the burden while traveling.
Personally I would put the money in Spyders - SPY is a long term investment - you need 25 yrs of statistical averaging to have a reasonable certainty of successful outcome (about a 15X growth). I do this and I don't count on shortterm results, I simply borrow for my shortterm needs and let my longterm investments grow. If I wanted a house in two yrs, I would use a 100% mortgage and leave my own money in SPY.
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Fri Jun 17, 2011 3:46 pm |
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padgett
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I have a family going with me and a job I'll come back to - pretty sure of that. For risk, I think stocks are not good for just 2 years. My goal is to pay off the new house quickly, so I'm not likely to do a 100% mortgage. I will probably do CDs if I can't think of anything more house-like that would be a liquid investment.
I view the risk of inflation as significant with cash in a CD, but if I had the money in a real-estate-like asset, at least if it went down, so would housing prices, so I'd still roughly break even.
What's a proxy for housing real estate? I know with gold you can buy mining company stock and they track pretty well. Is there any trick like that for housing?
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Fri Jun 17, 2011 6:09 pm |
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oldguy
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quote:
For risk, I think stocks are not good for just 2 years. My goal is to pay off the new house quickly, so I'm not likely to do a 100% mortgage.
Definitely don't use stocks for a 2-yr period, they are strictly a longterm product. As I said, we use SPY and then borrow against it for our shortterm needs, that is my way of getting longterm returns for shortterm money. So we have averaged 12%/yr returns for 35 yrs, but we avoid putting our cash into RE equity. (now that I'm retired we keep our home paid for, but we periodically refi our rentals and remove the equity - and add it to the SP500 account).
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Fri Jun 17, 2011 6:35 pm |
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coaster
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quote:
Originally posted by padgett
What's a proxy for housing real estate?
REITs = Real Estate Investment Trusts. Available as individual company securities or pooled assets (mutual funds and ETFs).
That being said, no financial advisor giving any kind of sound advice would advise putting two-year money into anything with a variable market value, UNLESS you were made VERY aware of the possibility of loss, and was convinced that you're able and willing to sustain that loss should it occur.
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Fri Jun 17, 2011 9:02 pm |
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