What do we do with “house” funds if we decide to rent longer term?

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DouroBound
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Joined: Mon Mar 12, 2018 7:55 pm

What do we do with “house” funds if we decide to rent longer term?

Post by DouroBound » Sat May 23, 2020 6:16 am

We recently sold an apartment in NY and moved to London. The plan was to rent here for 6-12 months while looking for a place in the city to buy, as we expect to be here roughly 10 years before retiring to my wife’s (slightly) lower cost home country. Now we’re rethinking things, wondering if we’ll want to stay in London that long if city life and our anticipated frequent travels in Europe don’t end up looking as rosy as they did a few months ago. We have no plans one way or another, and are still optimistic, but feel it is prudent to at least ponder the possibility of changed realities (or new priorities).

Which all leaves us wondering if it might be more prudent to just keep renting for a few years while we see how things shake out. At the moment, we feel fortunate not to be tied down with a home or mortgage and recognize that feeling of relative freedom is valuable these days.

The question is, if we do decide to rent for the medium-to-long term, what do we do in the meantime with the cash we are currently holding (from our apartment sale and other saved funds), which we’d planned to use to buy a place here? It’s a lot of cash, and has always been in our “housing” bucket, so we’re reluctant to put it into the market. But sitting on it also seems foolish. Somewhat intriguing new thought is to maybe keep renting here and buy a retirement place in my wife’s home country. Her family would use it (rent free) and look after it, so carrying costs would likely be quite low. We have enough cash to do this without taking on a mortgage there and without touching our emergency fund (though we’d need a 40-50% mortgage if we bought in London).

Buying overseas would take advantage of historically favorable exchange rates, but we wouldn’t earn anything on the funds and wouldn’t really get to enjoy the house. On the other hand it seems smarter than holding cash (inflation risks, etc.), better than risking housing funds in the market, and better than locking ourselves into London’s uncertain and high-transaction-cost housing market. This is all very preliminary thinking, so I’m grateful for anyone who can offer words or wisdom or food for thought.

mortfree
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Re: What do we do with “house” funds if we decide to rent longer term?

Post by mortfree » Sat May 23, 2020 6:49 am

50% of existing house fund remains in cash.

The other 50% gets invested at some asset allocation between 30:70 to 60:40 Whatever you are comfortable with.

I am not the smartest so see what others say.

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Cyclesafe
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Re: What do we do with “house” funds if we decide to rent longer term?

Post by Cyclesafe » Sat May 23, 2020 7:39 am

Interesting dilemma.

Brexit and post-covid WFH may depress London real estate. Always dangerous to commit to a prediction, but renting for the time being seems prudent. I certainly wouldn't look back after 10 years (if still renting) and think that based on what I could know now that I made a mistake. As conditions change in the interim, you can always buy if funds are available.

Buying property in another country in anticipation of retiring makes sense when the move is imminent. 10 years is a very long time; lots could change that could make this a bad idea.

Investing in equity is always a crapshoot; you also have currency and possibly political risk. And when you're playing with the house money, IMHO, prudence is key. I'd park it somewhere safe and moderately accessible. I wouldn't want to take on the additional stress of seeing my house becoming unrealizable when the market periodically tanks. But that's me and you are you.

BTW, I've been through a somewhat similar thought process. I chose to possibly error in being too conservative as I can easily live with the downsides.
"Plans are useless; planning is indispensable.” (Dwight Eisenhower) | "Man plans, God laughs" (Yiddish proverb)

Skeeter1
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Re: What do we do with “house” funds if we decide to rent longer term?

Post by Skeeter1 » Sat May 23, 2020 9:39 am

I was/am, in the same situation. I sold my house last May and netted around $450k. I put all of that in cash into a separate taxable account in Vanguard as a short term landing place. I decided that $50k was mine to use as I pleased (travel, fun,etc.) and leave a balance of $400k as untouchable, until further notice.

After a month or so, (after I returned from Italy..oops, there goes 10k ) I determined that it was a waste to keep it all in cash and took 100k and bought VTI.

A month later i did the same with another 100k and bought more VTI. Now I was 50% cash and 50% VTI. It felt right because 200k was liquid if I decided to buy something quickly.

A year progressed and it looked like I would continue to rent for the immediate future. I thought hard about the 200k and decided 50k in cash/MM, would be fine and put 150k in VTI, once again.

After I pressed the Buy button I was thrilled by my decision. That money continues to grow well even in this environment and believe that I made the right decision for me.

Take your time. Time adds clarity to your plan.
Good luck.

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