After purchasing my owner-occupied, I bought an investment property. Only then I start investing in stocks
For those who hardly visit this forum, as far as I remember, everybody believe in buying owner-occupied first so the $500k free capital gain and can deduct mortgage rate for owner-occupied are not relevant. In other words, talking about after owner-occupied investment, not purchasing an owner-occupied vs stock investment. Also, most of us, prefer buy over renting.
There are plenty of articles or posts or books are there. The way it is suggested:
Pay off loan first
Contribute to 401k (if company match is there) up to match percent
Contribute to Roth IRA (if eligible)
Contribute to 401k above match percent up to max 18k
Then, invest in stocks (as this is easier to invest in small amounts and grow)
Then, buy primary home (as this is very large down payment involved)
IMO, that is not right. You can check with any financial planners or other experts and many blogs or books.
Let me take my sonās info. His company matches $1 for each $1 he contributes to 401k up to 5%. He needs to essentially contribute up to 5% to get free company match.
If he does not do, he looses match. Almost many companies provide matches in bay area. 401k match is free money from the company to employee.
Second is Roth IRA, he needs to maximize Roth IRA and power of compounding takes its own exponential growth. He earned 10k during college summer time. I filed taxes for his earning and contributed to Roth every year. Four year he saved 22k, but that has grown up to 33k now. If he puts that in SPY forever, 7% growth, it ends up 1M by his 65th age. Remember he made 11k growth in last 2 years.
If Roth is not contributed last 4 years, his easy 1M is lost.
For down payment, say for my sonās case, he needs at least 120k or worst case 60k (Condo or TH price 600k). He needs to save 20k every year that takes 3 years. He will not keep the cash idle, but to invest in stocks so that he gets 60k in 2.5 years. Stock has the max ROI to save it for down payment.
House can not be his first ! The above steps are well proven way to growth. House comes when MID tax deduction is beneficial.
One who follows these time tested proven steps will ultimately save and earn income faster than others. In fact, those savers may likely end up buying the home faster than other ways. Please note retirement account is considered as 6 months cash reserve when buying a home!
I get it that you disagree, but at least tell us how the notion of paying rent (which is not cheap around here) makes financial sense in your strategy.
When a person starts earning life, how can you get a down payment? You need to save. What is the fastest way to save the down payment?
Then read and re-read the page in which I said āHouse can not be his first!ā
If you do not properly plan at the age of 20s, when you review at the age of 30, 40, 50 or 60, you will be behind others of same income and will not be able to rollback your life. You need to read and understand (in depth) about personal finance and financial planning.
Only lucky people are exception !
I really wanted to stop here as I do not want to make multiple argument as people may not like me countering further.
Having got the knowledge about personal finance and financial planning, I wanted to share the details, but not to counter the argument.
I stop here and will not make any more counter arguments in this thread further as I leave it the individuals to take the best steps (as there are many ways to grow) whichever works for themselves.
I think @Jilās strategy would work great in Anytown Middle USA. If I were in Iowa or Texas no doubt fill up all the tax-deferred retirement accounts first.
But here in what I like to call The Major League ā¢ things are different. One needs to solve the housing piece first and foremost. There is a limit on how much you can borrow out of your retirement accounts. If I remember right itās capped at 50K or something? Whatever it is itās not enough for a downpayment.
So if you put in every single cent you have to fill up the retirement accounts but you can only take out 50k on the other side, you can never buy a home. Buying a home also has a host of tax benefits. But the most important thing is that you will never be priced out of here.
I did that myself. My employer at the time didnāt require matching so I put in $0 in my retirement accounts. I maximized my real estate buying power and bought primary and a bunch of rentals. Worked out fine for me.
I bought my first house with money I made in summers during college ā¦Buy early and oftenā¦The earlier the betterā¦I was 22ā¦Kids today delay everything. .The recession, college debt, parental coddling has made them stupid and lazyā¦Millenilals born 1980-2000 are finally buying, 10 years later than they should. .
Owning a home for a longer period of time creates more wealth,ā said Christopher E. Herbert, managing director of the Harvard Joint Center for Housing Studies. āIf you shrink that amount of time, youāre going to shrink how much wealth it creates.ā
If you buy 10 years earlier than your peers, they will never catch upā¦That is why my net worth is much higher than my college and high school friendsā¦They waited till their 30s to buyā¦Some never did or bought outside the BAā¦Due to time value of money, the 10 years lost will never be made upā¦Besides today 75% of kids can get free money down payment from parents. .That beats IRA matching fundsā¦Those kids will be 10 times richer than their peers in 30 years. In fact, just think of the kid that bought a Concord condo for $25k that is now worth $250kā¦Those 22 year olds that bought from 2009-2012 will be richer than their peers for lifeā¦
The key is discipline. Many people plan to save but donāt. I worked with a lot of people at Apple that bought new cars and vacations with their RSU money. Rent was cheaper then. I rented a 1-bd apartment in Cupertino for $1600/mo. They thought cheap rent would last forever, and real estate wouldnāt recover. They thought they had forever to buy. They also thought that when interest rates finally went up prices would drop further. The only thing that save me from that trap is analyzing the data and realizing home prices have never declined in a year with an interest rate hike.
Unless youāre VPs who get generous RSUs every year and subject to blackout period, I would hold on to them to collect dividends. Please donāt tell me they also sell their ESPPs or donāt even bother to buy themā¦ that would be bad financial discipline. I hope at least they maxed out the 1 to 1 match for 401k.
