What do to with 150K?

[s140]

Hey guys. Im new to the forum. Im in a good situation in my life. I sold off a lot of business assets and by November will have about 150-180k in cash. I am looking to see what the general public has to say about what to do with this.

Details:
30 Year old living in California, Los Angeles.
12k In student loans at 2.5%
No other debt
About 3k a month in expenses, including 825 in rent, 900 in business rent(that can be removed if necessary) and the rest in expenses for the business, etc.
Approx 60k-200k a year in salary, but it vaires in this economy with the sales forcasts.

With the CA housing market, I would like to buy housing property. I have been renting for 8 years and think its time to buy. There are extremely good deals. That is the plan. But could this money be used elsewhere more successfully? I currently rent and if I moved it would be 1000.00 a month.

If I bought a 500-700k property near the coast, I would live with roommates who would help with the mortgage.

Any and all ideas welomce. I am a businessman by trade. Is buying a house the best option? Or.....

[disneysteve]

Welcome to the forum.

Not nearly enough info and no coherent plan here.

First, I'd say that you are looking at houses on the edge or beyond affordability for you, though the fact that you plan to rent out space in the home does change that. Still, you need to be sure that you can comfortably afford the payments on your own without help from renters because there is no guarantee that you will always have them.

Your variable income is certainly an issue. What you can afford on 200K is very different than what you can afford on 60K. With that type of situation, you need to keep an extra large emergency fund to smooth out the ups and downs in your income stream.

Can you explain the business rent? You say it can be removed if necessary. What does that mean exactly? If you can maintain your business without paying that $900/month, why do you pay it?

As for your expenses, you need to list them. You mention your personal rent and your business rent but nothing else. What about food, gas, car expenses, health care, entertainment, insurance, retirement contributions, utilities, internet, clothing, travel... Let's see the whole picture.

Other than this 150K, what do you have in savings and investments? How much are you putting away for retirement? Do you have an emergency fund? Any other funds?

I think you need to do a much more detailed break down of where you stand before committing to buying a home.

[s140]

thanks for the response. to be honest I was unsure of how detailed I needed to be. allow me a few hours to detail indepth.

[disneysteve]

thanks for the response. to be honest I was unsure of how detailed I needed to be. allow me a few hours to detail indepth.

The more details you provide, the better the advice you will receive here.

[Broken Arrow]

Although I'm working with nowhere near your amount, the thought of buying a house this year has certainly crossed my mind, especially when you sweeten the pot with FHA credit....

But I am not planning to buy, not only because I don't feel like I have enough money, but also because I currently don't have the need to just yet.

So, instead, I am focusing on my personal investments. Even if I do nothing and park my money, I get to earn 4% APY.

And if I should change my mind later on, I could always liquidate the funds and still buy a house later.

So, my own decision anyway, is personal, and does not reflect the housing market in general.

That said, I agree with Steve. It's hard to say what's best for you without more details.

[disneysteve]

Although I'm working with nowhere near your amount, the thought of buying a house this year has certainly crossed my mind, especially when you sweeten the pot with FHA credit....

But I am not planning to buy, not only because I don't feel like I have enough money, but also because I currently don't have the need to just yet.

Very good post. I was going to say something similar. The time to buy a house (or a car or anything else for that matter) is not when there are great deals to be had but rather when you need one and can afford one.

I've been somewhat tempted by the problems the automakers are having and the great deals that are resulting, but my car is still okay. Yes, it is 12 years old. Yes, I wouldn't mind having a newer one. Yes, I can afford to replace it. But I really have no need to do so. I'd rather keep investing and let my portfolio recover as much lost ground as possible before I pull out 20K to buy another car.

[jIM_Ohio]

I would suggest
1) pay down debt (pay off debt)
2) invest some
3) spend some

I would not do any of the following
1) spend money within 3 months of receiving it
2) use all of the money on one thing (do not put all eggs in one basket)
3) use real estate market as an investment market

[s140]

I have averaged 120k over 4 years. It is my own business and its growing. I dont foresee in the next 2-3 years dropping below 100k. You never know in these times. I have the ability to make upwards of 30k a month if I work at it. I am in the boat where motivation goes a long way towards profit. Right now I am only semi motivated. I am comfortable. If I had something to work towards, a house, a portfolio, something, then I believe I could up my earnings. The sky is the limit.

My expenses all totaled are around 3200 a month. Including gas, insurance, phones, business expenses. The whole ball of wax. I own my car, only have the student loan payment. Other then the unforeseen things here and there, 3200 includes spending money. It also includes 900 in warehouse space rent. With me downsizing and focusing, I no longer need the large warehouse space. So that can be eliminated significantly if needed to be. Right now it is a nice convenience and it was needed in the past. So that realistically brings me down to around 2200 give or take 500 for pleasures.

My investments are zero. I am not putting anything away for retirement. I work for myself, so the only thing I can really do is the matching roth which I plan to do this year. My money in the past has been best spend investing in the business. The was my best ROI by a long shot. So essentially my smart money management and fickleness has me investing in myself for retirement. Which is why now I have this large cash asset to play with. Truth be told, it could sit in a 4 percent for years.

I am single, live a simple lifestyle, travel is usually paid for.

So to the point about needing a house. I don't NEED to move into a house. I would like to move into a house or a condo. I see the California market drop upwards of 30-40% in some areas, down to 1996 levels. My thinking is, by November when we lose the housing credit, now is the time to buy. It would be nice to own a place.

I also on the other hand want to continue to be secure for years to come. I do not want to overextend myself. That is where the roommates would come in. I am pretty sure, since I have lived with multiple roommates for 8 years now, I could successfully rent out as many rooms as I needed to, to help out with the payments. That does significantly change the game. And unless I got married, which I don't see happening within the next 5 years, I would have at least 5 years of 1-3 room payments. I see in the next 5-10 years the CA housing market bouncing back to make a nice profit on the house.

Now on the other hand, the market is quite low for its time, and I have no doubt it will rebound fully within 5-10 years. If I went ahead and wisely invested this money into a diverse portfolio, I could see it doubling or tripling by retirement. But I would then still be renting for the next 5 years or so.

Now there are other options out there...but I do not know the best ones. I am not in any hurry but definitely putting my ducks in a row so that I have the most information at the time to make the best judgment for my situation.

So what else did I miss? Comments?

(Id also like to preference this all by saying, I really don't know what I am doing or what the best options in my situation are. So I am trying to gain as much information from multiple sources as possible. It seems like many of you are wise and have been through these tough decisions before, so your advice is worth more then gold. )

[s140]

I would suggest
1) pay down debt (pay off debt)
2) invest some
3) spend some

I would not do any of the following
1) spend money within 3 months of receiving it
2) use all of the money on one thing (do not put all eggs in one basket)
3) use real estate market as an investment market

1. Dont have any debt. Student loan payment is at 2.25% for 10k, APR on Money Market is 4%. No brainier to keep paying off loan for the next 10 years.
2. Yes I should now.
3. I do on my pleasures, but I am still Frugal.

1. Im good with my money. I dont have this problem many do.
2. Correct.
3. I understand this as well.

Thanks.

[s140]

Very good post. I was going to say something similar. The time to buy a house (or a car or anything else for that matter) is not when there are great deals to be had but rather when you need one and can afford one.

I've been somewhat tempted by the problems the automakers are having and the great deals that are resulting, but my car is still okay. Yes, it is 12 years old. Yes, I wouldn't mind having a newer one. Yes, I can afford to replace it. But I really have no need to do so. I'd rather keep investing and let my portfolio recover as much lost ground as possible before I pull out 20K to buy another car.

I understand. When I say "time to buy a house" I am more along the lines of, time in my life to buy a house, and wow what a great time I fell into to buy a house." I am not buying to buy. And quite honestly, I don't need to buy. I can continue to rent. But I would like to own property for myself, especially if I can rent out rooms to roommates, and if I can afford to do it. I think, while not taking it as an investment, as a 30 year old in California, with the coastal properties at their lowest in years and only going to rise, its a great opportunity and situation that I am in. Which is why I am looking hard at this huge decision.

[Seeker]

Southern California beach house prices staying afloat - Los Angeles Times

Housing prices in the coastal areas of Southern California haven't really fallen all that much. I don't know what part of SoCal costal you're thinking of, but the article above is a year old, and still rings true to me.

I've seen realtors try to sell and but they cannot meet the owner's price demands. These homes now sit empty with FSBO signs and those owners are not always ready nor willing to "deal." They're just holding them until prices rise again, if they do. If they don't, the people intend to pass the property to their children.

Sure you may find something you like in a costal area, but I wouldn't expect the prices to rise short term nor maybe even long term. Distressed properties, or bank-owned properties (foreclosures) may need a lot of work in some cases.

[disneysteve]

OP, since you are new to the forum and I've been here a while, let me point out one thing about the advice that generally comes forth. The vast majority of regular posters here are not the entrepreneurial type but rather folks working regular jobs for an employer. That isn't good or bad but it does tend to bias the advice. While many are risk-takers when it comes to the stock market, commodities, etc., most tend to lean conservative when it comes to housing, cars, and other spending issues.

I think your situation is different than most. You are your own boss. You are in a relatively start-up kind of position where your potential income isn't restrained by the salary you agreed to when you were hired. And I can tell already, you are a think-outside-of-the-box kind of person when it comes to financial issues, which is pretty typical of business owners.

I think you can buy a house and do quite well, especially with the plan to take in a couple of renters to help defray your costs. Still, I wouldn't go crazy on the purchase price. 700K is out there, even if you earn 200K, even with renters. I would buy a home that you can afford without the renters. I use the rule of thumb of 3 times income, so maybe a max of 600K at this point and closer to 500K if possible in your area.

As for retirement, a Roth is not your only option. Self-employed folks have other things available. I'm not well versed in this area, but their are SEP-IRA plans and I believe you can even set up a 401k plan. I would talk to your tax professional and find out what your options are.

[s140]

Thanks Disney. Yes that is me exactly. Actually I was looking at 500k for my MAX. Yes 700k Is quite an extension, and even if I did well it would be quite a burden. My Tax professional suggested buying a duplex actually. He said that would be one of the best ways to maximize my situation. I am not so sure I would want to do that just yet. I also looked into condos but those are a whole different ballgame.

[s140]

Bump Bump up up up

[anonymous_saver]

Would you consider buying a house that is much cheaper, just so that when you earn less in a year it will be easier to handle. I mean if you earn 60k some year, how are you going to afford a 500k house? Heck, it would be hard on some to afford a 200k house on that much. I think buying a cheaper place in the $250k range may be more appropriate. I know there may not be many options in S.Cal. but 700k even with a roommate is probably way out of line I would think.

Awesome interest rate on your school loans by the way!!!!!