Can I get more than 2% guaranteed over the next 2 years?

[LondonBroil]

My and my fiance are planning on buying a house about 2 years from now. We're moving in with her parents in October (it's ok, we get along) rent-free so we'll basically have zero expenses as we also both own our cars.

We have about $10,000 in an ING account now earning a whole 2%, which is still much better than the 0.25% we were earning at our old bank. I estimate we'll be putting in an average of $3K/month into this savings account for the next 2 years. I also just started contributing about $500/month into my 401k which should have around $15K by that time which I heard that I can withdrawal penalty free for first-time home buyers.

Is there a better use I could put this money too that could give me a higher rate of return with very little or no risk?

[GeorgeF]

You might consider:
1) Diversifying into other currencies by banking at www.everbank.com. (http://www.everbank.com.) Right now you have bet 100% on the US$. You might be right, you might be wrong, but just remember that you have 100% on one investment.

2) An inflation protected mutual fund like one from vanguard VIPSX. The value of this will change as perceptions of inflation change.

[Ray Zee]

buy the house now. interest rates will only be higher in two years and you wont have to live in anothers house. plus you can use the two year tax free gain to move up into another house if you choose. no better way to make money than owning you own house, especially if you sell every two years.

[adios]

As of right now the 2 year treasury is paying 2.82% so yes you can beat the 2% you're getting on your money. However, I agree with Ray, buy the house now and explore financing alternatives including but not limited to 5/1 ARMs, IO loans, etc. Of course living rent free isn't so bad either but I'd put as little down as possible when buying a house.

[DVO]

"buy the house now. interest rates will only be higher in two years and you wont have to live in anothers house. plus you can use the two year tax free gain to move up into another house if you choose. no better way to make money than owning you own house, especially if you sell every two years. "


I disagree with this advice. Wait until you have a sufficient down payment, and be patient. The housing market is very hot in many areas, and I suspect you'll be buying at the top now.

Also, the idea that selling every two years is a way to make money smacks of a bubble mentality to me. Very risky.
I see people around here ( calif) now buying properties with 5% down, with the idea of flipping them in two years...that's nuts, frankly. Leverage kills you on the downside the same way it makes you rich on the upside.

[Ray Zee]

its not nuts and the best investment available if you use it properly. if you dont understand its value you need to think about it some more. you are not considering things.

[Nemesis]

I'm a 21 year old college student, who wants to buy a house, but i don't know if i'll be able to qualify (i.e. i make less than 20k/year.) I have about 50k in stocks/IRA that i'm currently using for college. I'm in pharmacy school. In 2 years i'll go from making <20k to 100k no problem. Any loans/government programs you know of to make it work? Also i'm a big book person... is there any books with good advice on getting into the real estate business... i REALLY want to own property/rent it out when i get out of school. I want to do it right. Thanks.

[Ray Zee]

geez your going to get friggin rich.
hunt around now and you can find financing to buy right away if you want. start a a local credit union if you have them in your state. or buy a house with owner financing. then no qualifing needed. many easy ways to get rich in realestate that work slowly. the fast ones get you broke.
just go to the library and read the good stuff and the fluff. sort it all out.

[Nemesis]

What would you classify as the "good stuff" or is that my homework /images/graemlins/wink.gif

[punkass]

My only concern is that while interest rates will be increasing, prices will be decreasing. So you can't get both good things. If you buy your house now, you will pay less in mortgage payments. But if you resell in 2 years, there is a huge risk that you will sell your house for much less than you bought it. And it may cancel whatever benefits you may have in buying now (lower interest rate, tax benefits).

[Nemesis]

why will prices be decreasing, i'm curious?

[GeorgeF]

I feel just the opposite. If interest rates don't go up real estate prices will collapse. If interest rates stay low developers will keep adding new houses and other developments. At some point you will have an over supply. Over supply means lower prices in everything including real estate. The questions in my mind are:
1) can it be stopped
2) should it be stopped

[laserboy]

Buying a house right now (with $10,000!!??) is IMO a recipe for financial disaster.

[ QUOTE ]
plus you can use the two year tax free gain to move up into another house if you choose. no better way to make money than owning you own house, especially if you sell every two years.


[/ QUOTE ]

If he sells in two years, he will have gained practically no equity on his home and is almost guaranteed to lose money on the transaction taking closing costs into consideration. If the housing market tanks, he is looking at being underwater for years or potential bankruptcy.

[laserboy]

You will not have a problem getting financed for a home if that is what you want to do. In America today, ANYONE can secure a home loan whether they are broke or unemployed. There is a whole subsection of the mortgage lending industry that specificly caters to low income people in exchange for predatory interest fees, whether these people are likely to repay the loan or not. Countrywide and New Century are among the more prominent ones. This is how the vast majority of people in Southern California can "afford" $500,000 homes on salaries less than $50,000 a year.

I know this is not what you were looking for, but as far as literature is concerned, I recommend The Coming Crash in the Housing Market by John Talbot.

[laserboy]

In short, housing prices will decline because they are unsustainable at current levels. Their current "values" are inflated due to artificially low interest rates and lax lending standards supported through government agencies Fannie Mae and Freddie Mac. Yet even with interest rates at historical lows, there are still record shattering numbers of bankruptcies and forclosures each month right now. With wages stagnant and interest rates rising, the vast majority of the population will simply not be able to afford homes at their current levels.

I am not sure where you live, but in Orange County, California the median home price is over $500,000. Using the historical standard of mortgage/income ratio of 2.7/1, in the past you would have to be pulling in $185,000/year to qualify for a $500,000 mortgage. How many households do you know that pull in $185,000 a year? And this is for the average home.

I could go on, but this is a very complicated subject. Buying a home is an extremely big financial decision and I recommend you do a lot of research before doing so.

[Nemesis]

I'm looking at a 90k townhouse to start out in, and after i get out of school and start making some real money then i plan on renting it out and buying a 200ish thousand dollar house... I live in Alabama so the market is nowhere near what SOCAL is.

[laserboy]

With a $90K townhouse, there is much less risk since less leverage is involved. Still the same principles apply. As interest rates increase, people will not be able to afford as much house and home prices will be pressured downward.

In your case, I would draw up a spreadsheet comparing the cost of renting to the cost of ownership. Draw up an amortization schedule for a $70K($90K - 20%down) mortgage. Compare your monthly rent to your monthly home ownerhsip costs (monthly interest + association fees + property taxes + maintenance - tax deuction). Is the amount you are saving each month on rent vs. a mortgage payment/fees/taxes greater than or less than the amount of equity you are building in your home? Many people are surprised at just how little equity is built the first several years of a mortgage. In California, it is considerably cheaper to rent than it is to purchase a new home right now from a cashflow standpoint. I would not count on any home price appreciation in the near future.

With $50K and what I am assuming is a stable income, I am positive you can swing financing on a $90K home. Check out bankrate.com to see what kind of rates/loans are available. The question you need to consider is whether the $90K home is a good value right now?

[adios]

Might be able to pick up some cheap housing here /images/graemlins/smile.gif.

The strange case of the lake that simply disappeared overnight (http://news.independent.co.uk/world/americas/story.jsp?story=533352)

The strange case of the lake that simply disappeared overnight
By Andrew Gumbel in Los Angeles
20 June 2004


One day there was a lake and the next - well, there wasn't any more. For the past 20 years, several hundred homeowners in the outlying suburban community of Wildwood, outside St Louis, Missouri, have prided themselves on their waterfront properties on the edge of Lake Chesterfield.

But last week their dream drained away to mud, a few dead fish and soggy nothingness. The karst, or porous limestone at the bed of the lake, developed a sudden 50ft crack and - wallop - the 23-acre lake drained away like a bath with the plug yanked out.

The case of the mysterious disappearing lake promptly hit the "fancy that" columns of American newspapers, with morning coffee-drinkers across the country having a good chortle at the thought of homeowners facing the prospect of plummeting property values, not to mention the stink where their ready-made outdoor swimming pool used to be.

But the strangest part of the story may be yet to come. It turns out that bodies of water in North America spring leaks all the time - especially in karst-rich Missouri. Just up the road from Wildwood, in St Charles, is the HQ of a firm called Strata Services. Its motto: "Leaky lake? We fix them!"

Strata's chief geologist, David Taylor, concluded Lake Chesterfield was eminently repairable - probably with some judiciously poured concrete to eliminate the crack caused by excess rainfall. The cost will have to be borne by homeowners, but that has to be better than the prospect of explaining to would-be buyers of their properties that they now live on the shores of an ex-lake.