What to do with my money, until, when, or if real estate corrects??

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Submitted by treehugger on July 25, 2018 - 6:24pm

Well, I have been saving my money hoping to buy another house (wanted to buy smaller single story and rent out for a few years and then downsize once kids gone), with crazy prices that ship has sailed, at least locally.....considering moving once youngest done with high school in three years. We own the house we live in and also own a rental condo (both have reasonably low mortgages and 3.0% and 3.4% 30 year mortgages).

Now I sit on a pile of cash (ok, maybe not a lot by some of your standards, but a lot for me), what do I do with it? I am risk averse and completely do not understand investing, don't know who to trust. I have a retirement account at work and a fidelity Roth IRA.

I am correcting some of my previous years stupid decisions (leased a mercedes SUV that ends next month) and just paid cash for a gently used 2017 volvo.

I talked to a financial adviser a few months ago (free through my work) and he said "wow, great job, you are on the right track" (I guess you get what you pay for) have been involved with reading this blog for years and now am turning to the smart kids for some suggestions, any thoughts?

Submitted by gzz on July 25, 2018 - 7:12pm.

Those are more than reasonable rates, they are awesome for 30 year mortgages.

Some suggestions:

1. Silver has a kind of peak oil issue. It is used more and more in electronics, especially batteries and solar panels, but mining costs keep going up and the good mines with low production costs are gone or getting low. The recent fall below $16/oz I think makes a good entry point. It hit 50 a few years ago, and adjusted for inflation, it was 150 in 1981. If you have a long time horizon, buy now, hold for the next spike. Might be a 20 year wait, but I think about 10 years is more likely, and also reflects the time between the two prior price spikes. But it is hard to see it getting much lower simply because few mines can produce it at current prices.

2. There is a special kind of muni bond that are not tax free, most of them are called "build america bonds." I think they represent a great balance of strong returns and low risk, and they pay out cash monthly. The one I have owned for many years has the ticker BBN and pays 6.5% per year.

https://www.morningstar.com/cefs/xnys/bb...

Even when the market crashed about a decade ago, it only went down to 17.3.

3. I think US stocks are in general fairly valued. If I had to buy more and was being conservative, I'd get VZ and T. The market is getting less competitive, and nobody is going to go without their cell phone.

4. San Diego real estate is hardly a steal now, but as long as the rent covers the taxes, mortgage interest, HOA, and insurance, you'll do fine. Rents should keep going up, incomes should keep going up, China is getting richer but their rich still prefer safe, unpolluted and free California, but your costs will only go down as the mortgage balance goes down and each payment goes more toward principle.

I love that my investment properties' rents more than covered the entire mortgage/escrow payment on day 1. However, it is still a profitable investment if your mortgage balance falls by 500 a month but you need to throw in 100 of your own money on top of rent to pay it. Wait a year or two and it goes cash neutral, then another couple years and it cash flows, and then just keeps getting better until paid off and the much higher rent is almost all profit.

Submitted by sdsurfer on August 1, 2018 - 3:33pm.

I'd think about staying the course your already on. Personally, I'd look into Vista or the areas with less than ideal schools (which keeps the price down) since that will not matter in your situation. Also, since everything has been going up these zones have gone up a bit. However, not nearly as much in my opinion.

I'm very similar in the risk averse and do not know who to trust areas so I just do a lot of research myself. I'd do the same if I were you.

I feel like most people that get killed in real estate do not have the reasonable approach it seems you do. They typically buy based on appreciation and value rather than rents and monthly cash flow. I was essentially trying to answer the same questions as you a couple years ago on this site and trying to figure out a scenario that would force rents down. I'm ok with not making money some years, but my greatest fear is being too risky and losing money. I worked too hard to earn it.

This chart, which Rich helped me find, had a lot to do with my ultimate decision because I wanted it to be driven by data.

Here you go: https://fred.stlouisfed.org/series/CUUSA...

Feel free to send me a message if you have any questions and good luck!

Josh

Submitted by gzz on August 2, 2018 - 10:10am.

Josh, agree that is a key graph.

The other key is long term bond rates. They impact affordability on one hand, and also show what an alternative use of money earns.

7% mortgage rates and a safe 6% treasury bond return produce a very different real estate market than 4%/3%, even if rents are the same.

Submitted by Myriad on August 2, 2018 - 12:48pm.

I guess it depends on your current age and income. If you're in the 25% tax bracket or higher, figuring out how to reduce your taxable investments is important.
If your company supports it, look into after tax 401k. My last company did - I only put in 25% - wish I had maxed it out as my current company does not. Now I only have the backdoor Roth option.

You could pay off your mortgage since there is pretty much no tax benefit now with the new tax law, but your rates are pretty low. Probably better off to invest.

One of the problems of real estate investing in CA is the high prices and low cap rates, not to mention the rental landlord rules. Personally, I think places outside of CA provide better cash flow, but CA does usually have better long term appreciation - just might have to wait a while for the next up cycle.
I'm also invested in Realtyshares, which does partial ownership of real estate (8-16% returns), but you have to be an accredited investor. It's a nice balance to actually being the landlord and having property to manage - and not having to put 25% down for investment property.

Submitted by Myriad on August 2, 2018 - 12:31pm.

dup

Submitted by flu on August 2, 2018 - 5:17pm.

My biased opinion....Go long on AMD...
Intel is in deep shet....

BTW: Not only is 10nm going to be delayed (again) to 2019... It's looking to be more like 12nm...

Screw up after screw up.

https://www.semiaccurate.com/2018/08/02/...

And still CEO-less. An when they do put one in place, probably will continue messing it up...

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