What to do with some savings

[Lostinthewoods]

Sounds like most others have you covered on the investment side so I won’t touch on that, but my brain wants to ask so many other questions.

Is $30K enough to get you into a second home without PMI?

If you’re able to retire in 3, but will work 8 more is it possible to stack cash longer and getting into stuff with better returns?

A lot of life can happen in 8 years, maybe getting a little closer to punch time will help you make a better decision?

Im not saying this is what you’re doing, but the reason I bring all this up….

You buy a house and $30K doesn’t get you enough to remove PMI.

So now you’re paying an interest rate and PMI for 5 years where maybe you'd have made more stacking cash all this time and leaving it in the market making some good cash.

As a proper numbers nerd I’d forecast it out and see what looks better for you.

The part that math can’t cover is if you’re bored and are actually excited to jump into a renovation (not many people are ).

I’ll shut up now.

 

[Addicting]

Sounds like most others have you covered on the investment side so I won’t touch on that, but my brain wants to ask so many other questions.

Is $30K enough to get you into a second home without PMI?

If you’re able to retire in 3, but will work 8 more is it possible to stack cash longer and getting into stuff with better returns?

A lot of life can happen in 8 years, maybe getting a little closer to punch time will help you make a better decision?

Im not saying this is what you’re doing, but the reason I bring all this up….

You buy a house and $30K doesn’t get you enough to remove PMI.

So now you’re paying an interest rate and PMI for 5 years where maybe you'd have made more stacking cash all this time and leaving it in the market making some good cash.

As a proper numbers nerd I’d forecast it out and see what looks better for you.

The part that math can’t cover is if you’re bored and are actually excited to jump into a renovation (not many people are ).

I’ll shut up now.

Plus taxes on a second home are significantly higher. Take that amount you would pay multiplied by the 8 years + the PMI.

Investing that amount would significantly put you further ahead for when you are ready to have a single home that would be 100% homestead exemption.

 

[LopeHunter]

The S&P 500 is up almost 70% in the past 3 years.

I'd invest it.

I have less confidence in suggesting the OP invest in stocks with the downpayment funds if OP really, really needs to not see those funds fall in value prior to the downpayment being due.

If the OP was my sibling and was indicating they had no need for the invested funds for over a decade then piling into stocks using a low-fee, big bucket of diversified stocks (such as VTI ) would feel less like mixing investing with gambling.

The OP indicates an anticipated capital need in a narrow range of time in the relatively near future when the typical economic expansion/contraction cycle is around 7 years since WW2 with the contraction portion being 11 months on average.

Cash equivalents are very likely to grow at the rate of inflation though a bit less if annually paying taxes on interest earned.

Stocks over the past 3 decades have gone up around 10% a year with actual inflation needing to be subtracted to get a real return close to 7.5%. Much better than cash equivalents. In fact, we have seen much better real returns from stocks the most recent 10 years. Closer to 11%. Will that continue? Maybe. Maybe not.

From the October 2007 peak in stock values to the March 2009 trough, major U.S. stock indices lost over 50% of their value. Ouch. Capital preservation took it on the chin for a couple of years. Homes and land fell in value in 2008 in most of America so having your downpayment nest egg sitting in cash equivalents would have been fortuitous rather than in stocks where had recently fallen in value and had not yet recovered to be no worse than even.

My folks invested into stocks starting in 1954. Stocks stunk up the joint spanning a 17-year period beginning December 1965 with the Dow Jones Industrial Average gaining less than 1%. Ouch. I like our recent 11% real returns per year better. Alas, I lack the magical powers to conjure up guaranteed future stock performance.

Op has a decision to make. A lot of ways to play this. Appetite for risk and awareness risk exists is in place now. OP is leaving the on deck circle soon. Should OP tap out singles and walks for a few years buying cash equivalents? Or, invest in stocks and maybe get a some doubles or even home runs along with one or more strike-outs?

 

[LopeHunter]

Re costs for a second home.

I have had two residences for 15 of the past 17 years and for about a year had three residences as bought another before sold a prior.

A house worth around a million with no mortgage costs me around $35,000 a year of post-tax cash outflow. That "all-in" includes property tax, insurance, utilities, repairs and maintenance, HOA fees plus yard/pool care. A condo worth around $600,000 with no mortgage costs me around $25,000 a year of post-tax cash outflow.

Every house we have owned has averaged about 7% nominal growth in value per year. Every condo has had basically 0% nominal growth but the condo requires less upfront cash to purchase and less outflow per year.

The condo does allow us to lock the door then leave for months at a time relying on the door man to keep an eye on our place. The condo will also likely be our only residence as we eclipse 70 years of age in a few years. The parents were mobile and active after 70 but by 75 were struggling with stamina and balance. Then, needed supplemental oxygen. Then a walker.

Freeing up a million upon selling the house will increase what we hold in stocks and bonds and likely throw off an additional annual drawdown of $30,000 post-tax cash flow plus the house sale will eliminate the annual $35,000 cash outflow. That is a $75,000 swing to the positive. And, half as many water heaters to deal with, smoke alarms, etc. Not as much fun climbing up ladders and wrestling with heavy stuff as once was.