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

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

Post by DouroBound » Mon Jun 01, 2020 11:23 am

Cyclesafe wrote:
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.
Thanks for this. Helpful food for thought. We are, for the time being, all over the map on this decision.

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

Post by geerhardusvos » Mon Jun 01, 2020 11:34 am

DouroBound wrote:
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.
If you need the money soon, meaning in the next 1 to 3 years, keep it in a certificate of deposit or similar guaranteed liquid product.

We recently sold our house and we put it all (>$300k usd) in VTSAX as soon as we got the money. We don’t plan to buy again though, so we wouldn’t touch this money for 5 to 10 years at the very soonest.

If I may, I would say hold off on buying for the next year or so to watch what the market does. A lot could change over the next couple years... I wouldn’t buy any real estate in a luxury market or high cost of living area over the next 12 months
VTSAX and chill

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

Post by DouroBound » Mon Jun 01, 2020 1:31 pm

geerhardusvos wrote:
Mon Jun 01, 2020 11:34 am
If I may, I would say hold off on buying for the next year or so to watch what the market does. A lot could change over the next couple years... I wouldn’t buy any real estate in a luxury market or high cost of living area over the next 12 months
Yeah, I agree with that some days, and you’re probably right that waiting a bit would be prudent. Other days I feel like waiting 12-18 months for some kind of anticipated clarity on markets/house prices/etc. is just a trap. Anything could happen at any time. We might buy and then prices drop 10, 20, or 30% immediately. Or we could wait on the sidelines as prices defy expectations and steadily climb. Or prices could be relatively stable for a year or more, enticing us to act, and then drop dramatically. No way to know.

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

Post by geerhardusvos » Mon Jun 01, 2020 2:50 pm

DouroBound wrote:
Mon Jun 01, 2020 1:31 pm
geerhardusvos wrote:
Mon Jun 01, 2020 11:34 am
If I may, I would say hold off on buying for the next year or so to watch what the market does. A lot could change over the next couple years... I wouldn’t buy any real estate in a luxury market or high cost of living area over the next 12 months
Yeah, I agree with that some days, and you’re probably right that waiting a bit would be prudent. Other days I feel like waiting 12-18 months for some kind of anticipated clarity on markets/house prices/etc. is just a trap. Anything could happen at any time. We might buy and then prices drop 10, 20, or 30% immediately. Or we could wait on the sidelines as prices defy expectations and steadily climb. Or prices could be relatively stable for a year or more, enticing us to act, and then drop dramatically. No way to know.
You’re right, there really is no way to know the future. But the upside and downside risk considered for both options, renting for the forseeable future seems wise. Especially if you are buying a home that you only plan to own for 5 to 10 years, renting really has some appeal, especially for luxury markets. I’m not familiar with the UK, but if you were to try to buy versus rent in a city comparable to London in the United States, renting would almost always come out ahead in those relatively shorter timelines all costs (opportunity and actual) considered
VTSAX and chill

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

Post by sergeant » Mon Jun 01, 2020 3:49 pm

We have a large house fund bucket as we look for our retirement destination home. We have been looking for about five years and have gotten serious the last six months as DW retired last fall. I have it divided equally in GNMA, Prime MM, and the S&P 500 fund at Vanguard.

You could DCA a portion from MM into equities and HYS if it is going to be years before you buy. The general rule is to have money needed in the next 5 years in cash type investments but I don't mind taking a bit of risk.
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lakpr
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Re: What do we do with “house” funds if we decide to rent longer term?

Post by lakpr » Mon Jun 01, 2020 4:16 pm

What is the process for obtaining a mortgage in London for non-UK citizens (I am presuming that you don't have dual citizenship)? If you do decide to buy a home in London, say even after 3 years, if there is a realistic possibility of obtaining a mortgage, I'd be inclined to invest the money.

Keep the money that's required for down payment in ultra-safe instruments such as money-market funds, short term bonds, etc. With the rest of the money, I'd invest it according to my asset allocation.

It's likely to be no different than what exactly you would do if you had all that money and here in the US. First order of business would be to secure the 20% down payment in ultra-safe instruments like Money Market or Treasury Bills. Next order of business would be to determine how much higher than the 20% minimum down payment you want to spring for. May be that answer is 30%, or 40%. That money would be invested in bonds of appropriate average maturity. Rest would be invested in stocks.

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