Junior Engineer's Early Retirement/Home Ownership Plan Advice

[shaylahc]

I agree about saving up to retire somewhere else. Or hope for another bubble, and buy when the prices are low.

I intend to retire somewhere else someday. I can buy a legit mansion in NC (where we came from) for what a typical 4 bedroom, 2.5 bath (that needs cosmetic work) costs here.

I also agree that you cannot count on the stock market to grow. It's been stagnant the past few years. Very few people are making money. And you're just as likely to lose it as you are to make money. I wouldn't count on growth.

[HELLOMYFRIENDS]

Originally Posted by homesinseattle

HELLOMYFRIENDS, what's your reaction to the 3.5% FHA home purchase idea as part of your investment strategies? You could choose something modest that could be turned into a cash flow positive rental when you were ready for your next place.

I have just started my career and would want to establish some sort of job security before thinking about buying a house. I am still trying to figure out how much longer I should rent an apartment before I thinking about real estate investments. I am not sure if I should keep investing in stocks or make a down payment for a home.

If I were to take full advantage of the low interest rate FHA loan, wouldn't it make more sense to use it for a more expensive home rather than a "starter" home?

Thanks again

[RVD90277]

Just FYI, I bought my first home back in 1998. I took half of my entire life savings (which wasn't that much anyway) and pulled it out of the stock market to put a down payment on that house. My logic was that I wanted to build some equity over the next decade in paying a mortgage rather that pay rent. I knew most of my mortgage payments at first were going to interest anyway so either way I was "throwing away money" every month but 10 years later when a lot of my mortgage goes to paying down the principal it would be worth it.

Most of my friends said that I was nuts for pulling money out of a high flying stock market to buy real estate (which was at an all time high).

Fast forward a few years when the stock market crashed and the half that I had in the stock market basically went down to 0 and the house I bought (well, townhouse actually) went up 50%, it was looking like a good decision. When I sold the house 6 years after I bought it for more than 2X, it was nice.

So buying a home is not a bad idea. No need to go overboard...even a small condo is fine. In Seattle (Capitol Hill), they start at around $150k...mortgage on that is like $800/month?



Diversification is good. As they say in "Wolf of Wall Street", this stuff goes up, down, sideways, etc...nobody can predict this stuff.

[homesinseattle]

Well sure, I was deferring to your desire to keep your money invested. But, for example, you bought a $500K home, that's only $17,500 down. And you can either get the seller to cover your closing costs or have them rolled into the mortgage, so your true out of pocket is only the down payment.

[Tall Traveler]

You have a good current plan but what about potentially getting married and having children in the future, you'll need a lot more money to retire early unless your future spouse is a good income earner as well.

As far as housing, it's very hard to predict what will happen. You seem like an analyzer so I suggest you do your homework factoring in your needs and the tax savings from the property taxes and mortgage interest, etc. I currently own 6 houses which I rent out and are part of my retirement strategy and 4 of those are paid off.

[homesinseattle]

My Dad always said "Stocks go up, stocks go down. Real estate goes up, real estate goes down. If a stock goes down, you have lost money and have nothing. If real estate goes down, there will always be renters, you have something they want". So, is real estate a risk? Yes, everything is. I would argue with rents rising and interest rates low, it is a risk with a strong insurance policy, should be part of everyone's investment strategy.

[Tall Traveler]

Originally Posted by homesinseattle

My Dad always said "Stocks go up, stocks go down. Real estate goes up, real estate goes down. If a stock goes down, you have lost money and have nothing. If real estate goes down, there will always be renters, you have something they want". So, is real estate a risk? Yes, everything is. I would argue with rents rising and interest rates low, it is a risk with a strong insurance policy, should be part of everyone's investment strategy.

I just try to balance out me stocks and real estate investments. I've done better with the real estate considering I'm earning rent and they are appreciating. Seems like real estate takes less to analyze than the stocks. Even with having a property manager manage the rentals, it's still a hassle especially at tax time or changing renters.

[RVD90277]

real estate is a great part of asset allocation but it is just one part. i know some people who are so leveraged that they own 10 properties that they can't afford although they collect rental income. their logic is the same...the rent covers the mortgage + taxes + some money in their pocket so even if the value goes down sometimes, it's ok. problem is that sometimes units get trashed, need to be renovated, tenants move out, holding costs when you have no tenant, perfect storm of multiple events happening at the same time, etc.

so like most things, in moderation is good. i only have 1 income property now (sold my other one last year) and i'm sort of passively looking for another one but we'll see...

[homesinseattle]

RVD, I feel the same, real estate should be just a part, but always a part. Not much going where you can leverage such a low cost of borrowing to your advantage.

[StealthRabbit]

Originally Posted by homesinseattle

My Dad always said "Stocks go up, stocks go down. Real estate goes up, real estate goes down. If a stock goes down, you have lost money and have nothing. If real estate goes down, there will always be renters, you have something they want". So, is real estate a risk? Yes, everything is. I would argue with rents rising and interest rates low, it is a risk with a strong insurance policy, should be part of everyone's investment strategy.

thus... good advice = diversify and be conservative / wise on 'leverage'.

As I mentioned on page #1, I would propose real estate holdings elsewhere than residential / your personal home, tho... buying / financing one initially as a primary residence that is certain to be a Long-Term (LT) value / investment. (this is risky).

As I have advised my own kids...; ONLY buy Real Estate that you can sell tomorrow for 10% more (cost of selling), and it MUST be able to rent for 1% of purchase price. i.e. $200k real estate must be capable of getting $2,000 gross rents / month.

WA is a difficult market own investment real estate that has strong cash flow. (high capital requirement and high property taxes).

I have accomplished best gains in WA with view or commercial properties (buy and sell / trade). My rentals are best in WA commercial properties or residential in other tax free states (TEXAS at the moment... I get 10- 15% cap rates, but there are other issues (floods...))

You MUST buy right, as with any investment you lock in your cost basis / potential earnings gain the day you drop your cash it.

• Work and live in a tax free state
• Live on your income from PT job and bank 100% of your salary job
• live reasonably, but with frugal mindset
• Don't marry (if you plan to divorce / or it is even an option)
• align and keep track of spending / saving priorities
• If you like to travel, get a job that pays you to do so (Mech Engineering paid me to live in 4 countries and travel to many, as well as 100% for 5 degree programs).

Your 'wealth' will not come / grow from wage income (It gets hammered with taxes, and is VERY incremental) It is just a tool to get you beyond poverty.