Best way to save for a house?

[GotIssues]

Do not buy any stocks or funds. If you need the money in 3-4 years, these are not where you want them. Anyone giving you this advice is an idiot.

If you are going to use the money to purchase in 3-4 years, the primary goal is to preserve capital and gain as much as you can otherwise. To do this, you'll want the CD, short-term bonds that mature before the time the cash is needed (NOT long term bonds or bond funds), or other guaranteed rate of return(NOT "virtually" guaranteed). If there is even a 1% chance of having less overall money than when you started, then you shouldn't be doing it.

It is very important to note that this if you want to buy in 3-4 years. The smart things to do change drastically with longer timelines. The shorter the term, the less risky you can be. At this time frame, you want 0% risk. You'll likely get lower returns, but it will keep you from getting "surprise buttsecks" when you need the money. Don't believe me? Ask those that wanted to retire in 2008 and were told to continue along with a high percentage of their retirement accounts stocks in 2006.

 

[rh71]

biggest thing is not to move out of your parents' house [till you can afford a down payment] unless they are kicking you out. I don't want to hear any sob story about being poor if you decided to move out on your own.

BTW, I'm 34 and still eat $1 menu items all the time. Everything helps.

 

[Zeze]

biggest thing is not to move out of your parents' house [till you can afford a down payment] unless they are kicking you out. I don't want to hear any sob story about being poor if you decided to move out on your own.

BTW, I'm 34 and still eat $1 menu items all the time. Everything helps.

I'd rather hear a sob story from someone living on own broke than from a basement adult saving money at home.

 

[rh71]

I'd rather hear a sob story from someone living on own broke than from a basement adult saving money at home.

the "basement adult" will be outta there with a house by 23-ish if they do it right. Oh and there will be no sob stories from them.

The sob teen who couldn't stand their parents anymore is still broke at 23. But hey, you can tell all your friends how you were so cool to break out of jail.

 

[Imp]

I'd rather hear a sob story from someone living on own broke than from a basement adult saving money at home.

I use to feel the same way, but the dude whom's broke but has his dignity is still broke. I'm a live at home loser, and make fun of myself for being one all the time, but I'm not remotely broke.

To OP: I've realized that all investments are a bit of a joke for saving money towards something in the "nearer" term (<10 years). The best term deposit I can find is 3%/year right now. Even on $100k, that's just $3k a year or $12k in four years (simple interest). I can occasionally make (and lose) that much in a week on the stock market - it's not reliable nor consistent and you can lose it though.

Compare this with your lifestyle and activities (numbers are out of my ass):
- Car loan = $400/month x 12 months = $4800
- Car Insurance = $100/month x 12 = $1200
- Daily Coffee = $2/day x 365 days = $730
- Buying lunch = $10/day x 365 = $3650
- Cable = $50/month x 12 = $600
- Phone + Data Plan = $70/month x 12 = $840
etc.

Now you obviously can't get rid of all of that, but you can cut down. It's easier to save what you earn than grow what you have with interest.

 

[Hugo Drax]

Buy a high dividend yield stock, like VZ or T. they pay ~6% and you're probably going to see some return on the actual stock price side, too.

That is a terrible idea. He needs to be concerned with return of capital not return on capital.

3-4 years is not a long enough holding period for stock.

 

[OneOfTheseDays]

That is a terrible idea. He needs to be concerned with return of capital not return on capital.

3-4 years is not a long enough holding period for stock.

Can you elaborate on this please?

 

[MagnusTheBrewer]

The current mainstream plan seems to be staying in your parent's basement till you're 42.

 

[Red Squirrel]

Instead of moving out of your parent's right away after college, stay for a few years while you accumulate money from a full time job and invest it as suggested or just save it. 2-3 years should be good, though the price of houses is at an all time high so it's a tough time to buy, but doable.

Once you saved, say, 30k, then you can probably put like 15k down on a 200kish house, then use the rest for any "must" renovations, furniture, appliances, accessories such as dishes etc...

You'll probably be super broke for a year or two, but at the end, it's worth it. Try to avoid going over budget and go cheap with everything you buy, but it's inevitable. A 300 fix turns into a 3000 fix once you find mold, water damage, etc...

As much as it's considered a huge sin here to live with your parents past the age of 8, I don't think it's wrong to do it if you are working and planing to move out, and just saving money to do so. I was 23 when I bought my house. I could not wait to move out, but I stuck to it, and wanted to save.

Don't settle with an apartment, you'll never be able to save for a house. A house is also a really good investment. Chances are if you have to sell it, it's value will have gone up due to inflation, and if you did any renovations etc. My parent' house cost around 80k to build 25 years ago. They could get way over 200k today. I forget they exact number, but they had gotten it appraised for fun a few years back.

 

[brianmanahan]

I'd rather hear a sob story from someone living on own broke than from a basement adult saving money at home.

ive saved so much money staying at home zeze, even youd be impressed

also reduces carbon footprint. in india dozens of families live in the same large home, i support this way of life in america

 

[brianmanahan]

Can you elaborate on this please?

stock is high risk. if we get another drop to s&p 600's, boom, there goes half your house savings. the further out you are saving the more likely the risk is worth it. but if you need this money in a couple years, stock is not the way to go.

 

[GotIssues]

Can you elaborate on this please?

#1. Imagine if it were 2006 and you put your money in an index fund, needing it in 3-4 years. Come 2009, you'd have 75% of what you started with. The historical return on the market is in the neighborhood of 9%, but it's not a steady 9% year in and year out. It's a high risk, high reward strategy with lots of ups and downs where the odds become more in your favor the longer you have it in.

#2. Stock prices aren't dictated by their actual value, they are dictated by how much people are willing to pay for them. In the longer run, they tend to be a little more rational, but in a short time span, they are not. If you don't know what you are doing and end up buying into an inflated stock, regardless of the dividend, you'll be extremely lucky to get your money back in 3-4 years. I also wouldn't take stock tips from 99.999999% of AT, most of them don't know shit about the stock market, they just know a few buzzwords and feign confidence because it makes them feel smart. Just remember, for every Google, there has been 100 Pets.com.

If you need your money in less than 5-6 years, then you do not put it in the market. Your concern should be about preserving capital, not risking it.

 

[JEDI]

I saved for a house by buying the cheapest possible efficiency I could get in chicago RIGHT out of school. I then built up that equity till I could afford a 1 bed. After that I went with a 2 bd condo then house.

Its alot easier to save when your already building equity.

omg.. all those realtor fees

cant believe u actually came out ahead

 

[Imp]

Instead of moving out of your parent's right away after college, stay for a few years while you accumulate money from a full time job and invest it as suggested or just save it. 2-3 years should be good, though the price of houses is at an all time high so it's a tough time to buy, but doable.

In Canada.... It's the opposite in the US, more or less.

 

[manimal]

omg.. all those realtor fees

cant believe u actually came out ahead

I also rehabbed and improved each place and rode the bubble. With price where they are now and the great interest rates available one coul still come out ahead if you stay a few years in that residence. Couple that with the fact that your not paying rent and you will come out ahead if you do it right.

 

[Elbryn]

is there another avenue that you would recommend? i didn't think about the risk with interest rates increasing.

edit: the reason i'm asking is that i'm hamstrung with independence requirements and the bond fund mentioned was an authorized investment fund.

not really. there aint a whole lot of options out there for safe returns beyond cd's, ee bonds/ibonds, and money markets.

you can try looking at kasasa affiliated banks, google search kasasa. they have a saver program that gets you higher rates of return up to 10k, 20k, 25k... amount varies per bank. there's a farmers that gives 2.2% up to 25k in the account but they all require stuff along the lines of use debit card XX times a month and do direct deposit with electronic statements. some banks may go up to say 3%

the requirements of those accounts for me has always been too much of a pain in the ass, i dont like using debit card transactions.

beyond that, all i can really say is that if you need gotta make the decision on whether the risks are acceptable to you based on how badly you have to have the money at X date. you can adjust by saving more, extending timeline, or deciding to accept the risk and be flexible with the results.. no free lunches for all we know interest rates will go down even more as the fed floods even more money out there to try to stimulate.. they said interest rate risk was a possibility in 2011 and look how tbills did.

 

[kranky]

High Dividend Stock: Anywhere from 3-10% yield
Pros: Much higher return
Cons: Not guaranteed, gains are taxed when withdrawn

Don't ignore the risk. The Pros should say "Much higher POTENTIAL return".

Will you be OK if the stocks drop 10%? 20% or more? If that would ruin your plans for buying a house, don't go that route. Stocks do well over the long term but there is risk in putting money into stocks that you will need in 3-4 years. The S&P 500 - all large, well-established stocks - dropped over 40% in the last half of 2008. They have recovered now but it took 3 years. I'm not saying it's a bad idea and I'm not saying it's a good idea. Just be sure you are aware of the risk of putting money in for the short-term.