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I'm in my late twenties. After 5 years of working in the high-tech supply chain sector and one short month of unemployment, I've got two great offers from high-techs on my plate, and either one would more than double my previous income to around $80K before any bonuses. I feel very fortunate that I was laid off right when these companies were starting to hire again; everyone has told me that the market is strong now for qualified people.
The offer I prefer (because it's permanent with full benefits) has a 6% 401k match, so of course I would contribute at least up to the match. Beyond that, I'm really not sure what to do with this newfound money. I currently rent a comfortable apartment and drive a simple family sedan, and I have no need to upgrade any time soon. We are a same-sex couple, so we don't need to plan for a family. After messing around with my money in the stock market for the past 6 years and mostly losing it, it feels more like a casino than an investment strategy, so I'm not too keen on throwing a lot of money at it. But, maybe with more cash to play with my options will be better.
I figure that if I keep my expenses at the level they are at, I could probably stash away around $30-40,000 a year. That's a good chunk of money to try and find a safe home for. With that in mind, would real estate be the right way to go? Or something else? I would eventually like to have a few acres for a hobby farm in Morgan Hill or Gilroy.
First of all congrats on the promotion so to speak.
If your eventual goal is a "few acres for a hobby farm in Morgan Hill or Gilroy" then I don't think buying real estate in the Bay Area as an investment is the best way to park money. If you're considering buying a comparable condo to buy instead of renting your apartment that is a different consideration, and I think you would want to run the math on that.
A few things to note then would be:
The lack of mobility, you can't move close to work the next time you change jobs. You could end up passing up job advancement opportunities if you are unwilling to commute long distances.
The breakeven point might be 5-7yrs away, if you would have to be satisfied enough with your purchase to deal with that.
HOA and maintenance costs are usually underestimated by people buying condos.
Besides that your income would soon be high enough that the state taxes will be higher than the standard deduction (single no dependents), so you will soon be take full advantage of the tax deduction on interest on the federal level.
If your outlook is that you will live in a condo for a long time then that would probably be a good move financially, more due to the imputed rent than the appreciation, eventually the recession will end and rents will go up again.
If you want to upgrade to a more expensive housing then you have to take into the extra costs, but that would be a luxury expense, just like renting a nicer place.
Owning a condo can be more hassle than renting, but you can also choose to change things, those are the intangibles may lean you one way or another.
I would strongly dissuade you from buying more property than you need as "an investment", that is really a luxury expense. Also if you have no kids, don't bother with school districts regardless of what the RE agents say. The extra interest you pay for mortgage will gain you nothing in exchange.
You may decide that renting is the right way to go, in which case I would suggest buying mutual funds and bonds as investments, unless you want to consider RE in places where the buy to rent ratio is different, then it is a whole different ball game. Personally I'm trying to see about buying an investment property in the Texas area my brother lives, but that can be quite a hassle, I would never by investment property in the Bay Area.
I would still kick your 401(k) up to $16,500 and another $5000 into a Roth IRA. The rest (any more you can afford) stick in an S&P500 index fund. Diversify within the 401(k) and IRA. At your age, be aggressive, growth funds, some international, some sector funds.
First of all congrats on the promotion so to speak.
Quote:
If your eventual goal is a "few acres for a hobby farm in Morgan Hill or Gilroy" then I don't think buying real estate in the Bay Area as an investment is the best way to park money. If you're considering buying a comparable condo to buy instead of renting your apartment that is a different consideration, and I think you would want to run the math on that.
I'm trimming down your quote, but I did read your whole post. I have a question to pose to you: what would you think of continuing to rent ($1450 a month) and saving my money, then after a few years buying the raw plot for my hobby farm? Then I could just throw a manufactured home on it until I was ready to build, just like my current landlord did when he built this house. Since my ultimate goal is to have that property, I don't know if it would be wise to try and go through some other piece of real estate I wouldn't particularly like, and which might hit me with assessments or other unforeseen expenses, then depend on my ability to rent it out at a reasonable price when I moved onto the little farm.
Or I could just work my butt off, try to get an even bigger promotion and then see what my options are.
Quote:
A few things to note then would be: The lack of mobility, you can't move close to work the next time you change jobs. You could end up passing up job advancement opportunities if you are unwilling to commute long distances.
I hope there are enough jobs in the Silicon Valley that I shouldn't need to worry about that. I could arguably have a better quality of life somewhere else in the country, but I'm a lifelong Bay Area resident and I don't mind the tradeoffs. If my specialty is going to be service parts logistics for high-techs, and I keep climbing the ladder, I think owning anywhere in Santa Clara County would be a pretty safe bet.
Owning vacant land is an incrediblly risky and potentially costly use of salary income...
There is an enormous gulf between "messing around in the stock market like a casino" and prudent investing in either individual stocks, index funds, ETF sector funds or managed mutual funds. With the potential to have nearly a doubling of income and no increase in expenses you'd be quite foolish not to take the time to learn what those differences are.
The basis of "portfolio diversification" is simple: a prudent mix of investments such that the overall risk and potential for growth matches you tolerance / expectations. If you demand that you NEVER see anything but positive increase you must ALSO forego anything but gains that WILL NOT beat inflation. The larger your expectations for gains so to must you be more tolerant of volatility. If you are the kind if person that wants to actively trade your investments you WILL pay more in transaction fees than other than a full time trader could expect to earn. If you are the kind of person that is OK with checking on your investments weekly or monthly and then rebalancing what you hold / sell / buy more of at least a few times a year but no more than bimonthly or so ther are MANY combinations that ought to help you achieve you goals...
After messing around with my money in the stock market for the past 6 years and mostly losing it, it feels more like a casino than an investment strategy,
did your financial planner advise you to be an aggressive growth investor? based on your age, i wouldn't be surprised if they did- it's the typical thing they push on 20somethings. the premise being: "a young person can withstand more risk because they have plenty of years to ride the waves of highs and lows. youth is the time to gamble/learn and build worth (hopefully)." older folks (50s and older) want to preserve what they've got so usually they're called income investors, taking on less risk but growth takes a 'backseat'. you'll also hear the word 'preservation' associated with older investors. i say reconsider re-entering the markets and tell those planner guys you prefer balance over aggressive.
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