Wife and I currently own our home with ~$300K equity in a VHCOL area.
No immediate plans to move but likely will be looking in two or three years.
Neighborhoods we like in our area start at $2M minimum. Currently putting everything into a MM fund, but wondering if at this time horizon we should be putting some in VTI or similar?
HHI is ~$800K and we’re saving a little over $125K per year after tax (excluding tax advantaged accounts that are maxed every year).
Edit to add: would you also be dumping everything beyond tax advantaged savings into the down payment fund? Seems like an obvious “yes” if we’re trying to jump to a much higher home value but feel like we’re leaving money on the table having it sit in a MM fund.
MM is correct.
If you want to use it in the next 5 years then MM is great.
imo 5 years too long, the opportunity cost would be too high and pending the market if housing prices are going up, it just makes it harder to catch up.
I just put it all into equities.
My approach was if markets were down, then I’d just continue renting. But when I was ready to buy, then I liquidated back into cash.
Considering how much prices went up, if I didn’t have my funds invested into equities, I wouldn’t have been able to afford my house now
This is what I do. A 3-5 year duration is long enough to not count as an immediate need. If you need a hedge for peace of mind, get some t-bill ladders.
I agree. I’m already in a paid off home and I can wait patiently for the right time.
Makes sense!
If you’re in Cali you can invest in a state municipal bond and save on the state income tax
CA state Munis have downside risk worth considering . They should not be thought of as a MM replacement.
I don't really understand the premise. Standard down payment is 20%, so wouldn't you just be selling your current home and topping it off with a little savings and be fine if you're talking about $400k down for a $2m house?
We’re putting down much more than 20%.. trying to keep our monthly less than 7 or 8K
it doesn't sound like you can save enough to put down $1m in 2-3 years if that's the case
Sounds you like you need to save much more than $125k per year towards your downpayment then...
I would start there, and worry less about where to invest it. MM fund is solid. Now focus on increasing your savings rate or accepting that you won't be able to put down much more than 20% in 2 years.
This doesn't really get you anything except feelings. Almost always the wrong move financially. Put down 20% and stomach the monthly. Hold a little extra cash on hand in the emergency fund
This seems low. Especially if you’re trying to save for a house.
Turns out they're counting future years' RSUs as income, so this number is pretty inflated. They should be reporting what they see on their W2 at the end of the year as their HHI.
We are pretty much in the same boat except using our HYSA and may do a major remodel instead since our mortgage would double.
It has been tough watching the gains in the market the last 18 months since we have been parking hundreds of thousands of dollars in a 3.5% account taxed at regular income but we were thankful we did in April (at least for that crazy few weeks). We also have nearly $500k in a brokerage account, but that is a long term hold and we are not going to use that for the down payment or remodel. I think that account has gained at least 15% this year and it is so much more growth than the HYSA. Depends on risk appetite but if another April 2025 event happens and sticks, it would be painful for a while.
We are also remodeling because purchasing another house would quadruple our mortgage payment (2.875% rate here and house prices are still soaring here) but also love our neighborhood. I also like just the idea of keeping our expenses low since we can pay cash for remodel. Hopefully this plan works out!!
In your position, I would dump everything above a healthy emergency account and maxed out tax advantaged accounts into an index fund. You have a home, you have house equity, you make a ton of money. Keeping it in MM or cash equivalents doesn’t make sense to me. You have enough house equity that a relatively small cash contribution will get you to 20% down.
How is your HHI 800k and only manage to save 125k a year?
It’s probably slightly higher than that (maybe 150 ish). Last year HHI was closer to 750 and we saved 125. Decent chunk of our HHI is bonus in RSUs that vest over three years as well.
Mortgage is currently 5K, student loans 1350, car payment 350, nanny 3-4K. Adds up and after tax 750 is only like 450.
This savings rate excludes 401K contributions and HSA.
$37k a month after taxes, you accounted for $10k where's the rest going?
JFC
Cheaper than most daycares here in the bay
That's incredible. Kids are expensive
Yeah.. will go down this year when kid goes to preschool
Our nanny is 6k for 2. Pretty standard in HCOL
Man so jealous of your HHI. Lol We are also in an area where we need 2.5 M for a house. And we’ve had to aggressively invest to even have the prospect of a downpayment.
How are you going to afford the mortgage of a 2.5m house if you have a low HHi?
By putting more money down…
Stick with the MM, market volatility on your down payment will stress you out. Can you up your savings rate?
If you plan to buy within 5 years, then 100% of your down payment should be in a stable, interest bearing asset type like MM fund, SGOV, HYSA. So you’re doing things correctly.
If you are in a high tax state like NY, SGOV is probably a bit more tax efficient.
In California I generally find that VUSXX is the best after tax yield.
You can keep some of it in index funds if you want, you just have to realize that if the market drops your plans to buy a house will probably be delayed. Although at your HHI, even a significant market drop shouldn’t delay it beyond a couple of years.
Stock market is too volatile. If we're talking about pre-pandemic, and planning to purchase 5+ years from now, then investing in index fund may make sense. But with the current volatile stock market and not favorable economic numbers, less than 5yrs to purchase, doesn't make sense to risk, put it in HYSA, MM, or CD.
I am in a similar boat with like half those numbers for hhi and the house value. I have parked it in about 40%bonds and 60% stocks. We are extremely flexible on when we want to move. It could be 2 years, it could be 7 years.
The risk that we don’t have the max value is acceptable given the variable time horizon imo but everyone has to judge their own risk. We’ll see if I get my milly house.
More cities are becoming predominately rent only like Manhattan. At some point it just doesn’t make sense.
How much is left on your car and student loans and at what interest rate? Might be nice to finish those and be done.
We were banking cash when we were preparing to buy. We knew it was going to be in less than two years though. We needed x for down payment and x for emergency fund and then we purchased a house that I thought was too expensive. But, thankfully, my husband was right - it was the right house and time for us.
Our house was a big jump so overall costs went way up so I based our emergency funds needs based on the new anticipated needs.
Less than 2 years, HYSA. More than 2 years, I’d probably invest some of it conservatively. Good luck! Market may have a pullback at some point which is totally normal.
I've been using MOFXX as a holding place while I DCA cash from an investment property sale into the market. It's a federal municipal fund that was paying around 3.5% and is federal tax-free. That rate has probably dropped a bit over the last year though.
Are you married to the 3-year mark? If not, keep the money in the market ( index funds). You can always delay the move if the timing is bad, allowing you to capture the highest possible returns instead of letting it sit idle in a HYSA.
Money market is good, but think about tax exempt funds (if in a high tax state) and maybe think about some more conservative/low volatility index funds like SCHD.
If it’s California or New York you have some 480k net. Since they own a house with relatively low equity they bought not long ago, so easily 100k PITI a year. Say all other expenses including child care if applicable are 200k (a lot), still would be closer to 200k to save..
A lot of the HHI is phantom with RSUs though.
I don’t understand why people call RSU phantom- vast majority of it, from large corporations, is real money.
Because it isn’t liquid cash you can spend/invest how you want.
You can sell on vest
Sure, in 3 or 4 years.
What? No, RSU of eg Google or any other public company are sellable on vest
Sure, but usually you see something like 3-4 year vest with a 1 year cliff. So if I pay you $400k of RSUs that is worthless today, and then $100k a year for the next 4 years (assuming stock holds value, maybe more, maybe less). Sure if you’ve been at the same place for a long time with a consistent package your cash flow eventually evens out but that takes time (and assumes you aren’t getting promoted with increasing grants over time).
Right - but I’m saying the same thing?
A stock options from 30 persons startup is phantom. RSU from any large tech company is well predictable income, if you join Google as an L5 or L7 and stay there for years your total comp, every year, will include pretty predictable amount of RSU you can sell on vest.
Your savings rate is very bad. Budget before you buy a $2M home.
Even with some bad habits they make enough dude
I'll probably need to buy a new house. Personally I don't save anything special for the down payment. I'll just withdraw or borrow against my normal savings.