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If you could save $1000/mo over the next 15-20 years, by staying at your current residence instead of upsizing, where would you instead better invest that $1000/mo so that you could yield greater returns than a new house (and its tax deductible benefits) could appreciate over the same period of time, while keeping risks the same or lower?
My current residence is a condo, 2bd/2ba/1car garage that's $1500/mo, including principal, interest, property taxes, HOA and home insurance. Apartment rents in the area are around $1700/mo for similar configuration and square footage, so around $250 more when you factor in renters insurance.
A home builder is building new homes down the street from my current condo but it will cost a total of an additional $900-$1000/mo to own. The homes will be at least 2040sqft up to 2400sqft, about 5000ft lots, start around high $300K's to low $400K's (probably on the higher end of that spectrum).
Reasons to buy a new house would be: (a) elderly parent will eventually need to live on ground floor due to age and inability to walk up/down stairs safely over time, (b) to be rid of vulnerability of loss/liability due to actions of other 2 connected condo units, (c) it will bring 2 extra bdrms, 1 extra full bath, and 1 extra garage space, plus a bit of a front and rear yard. Can use 1 of the extra rooms as dedicated home office but not a necessity. Could use 1 of the extra rooms for a guest bedroom also but not a necessity. (d) hoping for another hot real estate market cycle so prices can go up significantly, beating stock market/index fund returns over the next 15-20 year period or so.
So I'm wondering if I buy and hold the new house long term (10-20 years), looking at the increased $900-1000 in payment being a forced savings of sorts, and then sit back and enjoy the house and watching it appreciate over time (hopefully), will I be better off than just keeping the condo and applying the saved $900-$1000/mo towards some index fund like Vanguard instead, in terms of both ROI and risks involved?
I at least am pretty sure if I choose to put the money into real estate long-term, I won't have as much flexibility or liquidity there should I need it, vs investing in stocks.
Also, I can't likely afford keeping the condo to rent it out PLUS buy a new house, since it will require a considerable down payment, otherwise I end up with PMI until at least 80% Loan-To-Value. If I try to do 5% down instead of 20% down, I take on the PMI and my monthly mortgage payment also increases.
So I'm looking at either keeping the condo and investing the "extra" money somewhere where I can get better returns than investing in real estate or a bigger primary residence OR selling the condo and using the net proceeds as the 20% down on a new house that will be the main "investment"/forced savings vehicle.
I'm making $5K/mo gross right now, and will be making $6.5K gross in about 3 years.
where would it be best invested, if you could save $1000/mo staying at current residence
If you could save $1000/mo over the next 15-20 years, by staying at your current residence instead of upsizing, where would you instead better invest that $1000/mo so that you could yield greater returns than a new house (and its tax deductible benefits) could appreciate over the same period of time, while keeping risks the same or lower?
My current residence is a condo, 2bd/2ba/1car garage that's $1500/mo, including principal, interest, property taxes, HOA and home insurance. Apartment rents in the area are around $1700/mo for similar configuration and square footage, so around $250 more when you factor in renters insurance.
A home builder is building new homes down the street from my current condo but it will cost a total of an additional $900-$1000/mo to own. The homes will be at least 2040sqft up to 2400sqft, about 5000ft lots, start around high $300K's to low $400K's (probably on the higher end of that spectrum).
Reasons to buy a new house would be: (a) elderly parent will eventually need to live on ground floor due to age and inability to walk up/down stairs safely over time, (b) to be rid of vulnerability of loss/liability due to actions of other 2 connected condo units, (c) it will bring 2 extra bdrms, 1 extra full bath, and 1 extra garage space, plus a bit of a front and rear yard. Can use 1 of the extra rooms as dedicated home office but not a necessity. Could use 1 of the extra rooms for a guest bedroom also but not a necessity. (d) hoping for another hot real estate market cycle so prices can go up significantly, beating stock market/index fund returns over the next 15-20 year period or so.
So I'm wondering if I buy and hold the new house long term (10-20 years), looking at the increased $900-1000 in payment being a forced savings of sorts, and then sit back and enjoy the house and watching it appreciate over time (hopefully), will I be better off than just keeping the condo and applying the saved $900-$1000/mo towards some index fund like Vanguard instead, in terms of both ROI and risks involved?
I at least am pretty sure if I choose to put the money into real estate long-term, I won't have as much flexibility or liquidity there should I need it, vs investing in stocks.
Also, I can't likely afford keeping the condo to rent it out PLUS buy a new house, since it will require a considerable down payment, otherwise I end up with PMI until at least 80% Loan-To-Value. If I try to do 5% down instead of 20% down, I take on the PMI and my monthly mortgage payment also increases.
So I'm looking at either keeping the condo and investing the "extra" money somewhere where I can get better returns than investing in real estate or a bigger primary residence OR selling the condo and using the net proceeds as the 20% down on a new house that will be the main "investment"/forced savings vehicle.
I'm making $5K/mo gross right now, and will be making $6.5K gross in about 3 years.
You want to buy a $300-$400k home on a $60k salary.
To put it another way: If you bought one of these new homes you would be paying $2500 of your $5000 (gross) towards a mortgage.
I'm sure you know that the general recommendation is to keep your housing costs under 30% of your gross income. What you're considering seems more like 50%.
Also I've heard you shouldn't consider your primary residence to be an investment.
You want to buy a $300-$400k home on a $60k salary.
To put it another way: If you bought one of these new homes you would be paying $2500 of your $5000 (gross) towards a mortgage.
I'm sure you know that the general recommendation is to keep your housing costs under 30% of your gross income. What you're considering seems more like 50%.
Also I've heard you shouldn't consider your primary residence to be an investment.
I think OP meant to say he will sell his condo to buy the house.
Without trying to ascertain the $1000/mo calculation I'll just answer OP's question: The two highest-return mainstream investments are stocks and real estate. DJIA on average gives you about ~9% return annually; real estate on national average slightly less but not by much. There are other higher returns but the risks are not for everyone. Between stocks and real estate, I think real estate is a safer bet for most people, as stock investing takes a higher level of skills and even professionals can fail. Real estate investment can fail too but it generally will take a really stupid move or something really drastic like the sub-prime bubble.
On top of this, OP has a need for space for parents. So this is not a pure investment return question.
No one knows for sure, OP, but I suspect you'll be better off investing the money in the stock market.
You haven't factored in things like higher property taxes, higher utility and maintenance costs, etc for a bigger house.
Also, once you commit to a huge house payment, you lack flexibility. If you're saving $1000 a month in the stock market and lose your job, then you can stop investing for a while. Can't do that with a mortgage.
Also, this whole "I'll be making $6500 a month in 3 years" type of thinking sounds like you're trying to justify buying a house you can't afford. The truth is, you have NO CLUE what you'll be making in 3 years. None of us do. People who do well financially just don't engage in this type of thinking. They look at what they can realistically afford right now...and they give themselves wiggle room at that. They don't buy a house for the maximum amount the bank will allow. They typically buy a house for 1/2 or 2/3 as much as the bank will allow.
If you could save $1000/mo over the next 15-20 years,
by staying at your current residence instead of upsizing,
where would you instead better invest that $1000/mo...
Your gross is $5K? If that's correct then I would think a $400K home with a $2500 a month mortgage payment (which is 50% of your gross pay) is not a wise financial decision at all!
Rule of thumb is not to have a mortgage payment over 30% of your gross income and that is even a stretch to live comfortably. Wait till you are ACTUALLY making the $6500 and then think about upsizing. Nothing is a guarantee when it comes to pay and jobs!
Where to invest that money (if you have extra)? In your 401K or retirement plan! And make sure you have an 8 month emergency fund. Real Estate may or may not appreciate over 15-20 years. NEVER put all your eggs in one basket.
Thanks. It's true, I would be stretching myself and not leaving any buffer for the unforeseen if I were to buy a house of that price. And I wouldn't be able to go on vacations and what not also. Plus the uncertainty factor of future pay and I guess unexpected health issues that could prevent one from working.
I guess that answers my question about what I should do... will have to look at getting a nice, large house someday if income / wealth increases are enough to make it comfortably possible to attain. Right now, I guess I should focus on enjoying the condo, making the limited space work, and focus on building wealth.
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