Money earmarked for a home

[tmitchell]

I’ve been wondering how to think about this. Prior to leaving my job I earmarked 500k for a home in my NW. Of course all those places now cost 750k+ so if/when I do purchase I’ll be taking on a small mortgage.

I have 250k in a private REIT that I can redeem without additional tax. I’m considering pulling another 250k from my portfolio and combining the two into a pot for a future purchase—hopefully in 3-5 years.

What would be your approach be here? Since this is a “maybe in 3-5 years” how would you invest these funds?

Given I’m 57 and have never owned a personal SFH I can see this never happening, but it is a dream I’ve always had and don’t want to be left hanging in a major correction if/when the time does come.

 

[mrfeh]

Treasuries, CDs.

Might want to build a ladder so when you re-visit your situation every 6 months or a year, you can decide what to do with the rung that matured.

 

[Dtail]

Treasuries, CDs.

Might want to build a ladder so when you re-visit your situation every 6 months or a year, you can decide what to do with the rung that matured.

+1

 

[Morgan22]

For now if you are undecided and just need a place to park your house funds, I would put all in a Money Market Fund. If you are at Fidelity, many of their MMF's have a 7 day yield currently over 5%.

 

[mrfeh]

For now if you are undecided and just need a place to park your house funds, I would put all in a Money Market Fund. If you are at Fidelity, many of their MMF's have a 7 day yield currently over 5%.

Those rates will likely be dropping.

If the money isn't needed for at least a couple years, there are better options, IMO.

Added bonus of treasuries - no state income tax.

 

[tmitchell]

Thanks all. I’ll look for a thread on ladders!

 

[Morgan22]

Those rates will likely be dropping.

If the money isn't needed for at least a couple years, there are better options, IMO.

Added bonus of treasuries - no state income tax.

Right, but if undecided and need a safe place to park funds now, put into a MMF. Then he/she has time to research purchasing rolling treasuries or CD's, etc.
You can put your funds a Treasury Only MMF also, I do, and no state income owed tax here.

 

[OldShooter]

We had a similar situation a few years ago when we decided to build a new lake home, though our time horizon for needing the money was a bit shorter.

What I did was to figure out about how much I would be taking from fixed income and from equities, then I immediately sold the equities and put the proceeds in a very short term bond fund. The goal was to insulate the new house money from any of Mr. Market's gyrations prior to our needing it.

I'd suggest that you do essentially the same thing except put the money into slightly longer instruments like a couple of CDs or into treasury notes. I see no value in a ladder since you will not need portions of your money along the way --- you'll just need a big lump when your purchase closes. In the unlikely event that you need some of this money ahead of time, both CDs and Treasuries are readily saleable on the secondary market. You'll take a hit, bigger on the CDs, but it's not something you're planning to do anyway. Alternatively, put the money into a very short term bond fund and suffer the lower interest you'll receive in exchange for liqidity.

 

[RetiredHappy]

A couple of days before the market nose dived this past week, my husband decided to move 20% of his IRA money into fixed income. He was thinking of bond etfs and I recommended MYGAs instead. He sold 20% of his equity etf holdings the same day. He got 5 and 6 years MYGA at 5.4% to 5.5%, AM Best rating of A.

OP can buy a 3-year MYGA to protect against market gyrations. Spread out across a couple of companies to stay under State Insurance Guaranty amount.

 

[MarieIG]

The funds ear-marked for the purchase of our next house are in a NY Muni MMF but we are not exactly certain when we will be buying - and it could be within the year.

 

[Diogenes]

You can put your funds a Treasury Only MMF also, I do, and no state income owed tax here.

That's probably the best idea.

We should also consider what might happen to the housing market. Sheer speculation, of course, but it may turn out, that the houses costing $750K now - the ones that were only $500K when the OP first mulled his plans - might be $1M in 3-5 years. Then what? Such particular numbers might be hyperbole, but we should still consider, what if housing prices rise faster than our return on investment.

The point would be to assess, why ought one to wait X-number of years, and not be thinking of buying, right away. Answering this question for myself, I'm unsure if I'll stay "barista FIRE" or attempt to return to full-time work. If the former, I'm tied to a location where it makes no sense to buy. If the latter, who knows where I'll relocate. What about the OP? Has he/she found a candidate area to buy?