i am 25, self employed, making close to 200k a year. Soon i will have 200k liquid. I want to know if i should buy my first house say around 150k and maybe sell it after a few years since the market is great for buying a house right now or invest it on different things like bonds, mutual fund, stock etc.
my goal is to to own a really nice house by the beach (1 million) and have 500k net worth for retirement etc.
Andrew T
June 19, 2010 at 2:07 pm
Go for it. Buy the house that you can afford IN THE BEST AREA.
Just take a look at that last line: “in the best area”. Value will only increase. The higher the gain the higher the risk. Remember that.
muncie birder
June 19, 2010 at 3:05 pm
You are doing very well at your age. I suspect you have enough knowledge and sense to be able to answer this question for yourself.
Different people have a preference for different types of investments. What is yours? My dad preferred real estate. I prefer equities.
The Last Lamoe
June 19, 2010 at 3:08 pm
One Good Job on busting your hump and doing something, and making $. Better investment long term real estate no question it will never be worth zero. Unlike stocks and bonds (Enron, the many scammers out there) I would hold off on the house right now if you been keeping your ear to the ground housing foreclosures are starting to rise, that means lower prices. I would keep my powder dry and keep your ear to the ground there great deals now there will be screaming deals in a year or two.
Any money I put into real estate with the government debt situation here and abroad, I would be real cautious right now.
Pierre O
June 19, 2010 at 3:50 pm
First – if you own a 1 million dollar house by the beach, and do not have a mortgage, which I hope is your goal for when you retire, your net worth has to be more than 1 million dollars.
Typically I would say that real estate is not a better investment than stocks in the long run, because the risk with real estate is much lower, therefore you would expect a lower return. Real Estate may be comparable in risk to high grade corporate bonds and therefore the return there should be similar. Again, we are talking long term, not ‘a few years’. The best policy will be a balanced investment strategy that includes stocks, bonds and real estate.
For a period of 2-5 years, everything is possible. Real Estate does look like an attractive investment right now, especially in some areas.
J
June 19, 2010 at 3:57 pm
Buying a house with the idea of flipping it in a few years for a big profit is not investing. It is speculating/gambling. This type of speculation was a major factor in the real estate crash – people were buying 3 or 4 condo’s for little money down hoping to sell quickly. Over the long term housing real estate appreciates about the same as inflation. Also, housing has costs e.g. commissions, closing fees, insurance, maintenance, etc. Buying a house to live in is fine if you want to live in a house or need space to raise a family- just don’t think of it as an investment.
At 25 and with 200k available soon you are in a sweet spot. – don’t blow it by trying to double it in a few years. A well diversified portfolio of low cost index mutual funds allocated to large, small and international stocks and bonds is most likely to generate good returns over time with manageable risk. It is not sexy or exciting but investing isn’t – gambling is.
You need to do some reading to learn more about investing. This knowledge will benefit you for the rest of your life. I suggest the Boglehead’s Guide to Investing and suggest you explore the Boglehead’s forum web site.- see also lazy portfolios on Mint.com
Good luck
MarcThyme
June 19, 2010 at 4:31 pm
Well first you need to improve your math skills; if you own a million-dollar home that is paid off when you retire, you are going to need FAR more than $500,000 in net savings to live off of. Realistically, $500,000 will only “safely” generate about $25-$30,000 a year in earnings. Depending where your beach home is, your annual property tax bill could be as much as $5/thousand assessed rate, or more than your savings will generate in income!
What do you plan to eat? Beach sand?
Silly goose!
John
June 19, 2010 at 5:08 pm
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