Down Payment savings for 18 months from now

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cbr shadow
Posts: 371
Joined: Wed Jul 10, 2013 2:12 pm

Down Payment savings for 18 months from now

Post by cbr shadow »

My wife and I have been considering buying a house in 18 months. We're (6) months into a 12-month lease on our rental house right now, and think we want to sign another 12 month lease once the current lease lapses.

The down payment that we'll need is somewhere between $130k - $250k for a 20% down payment.
We have ~$750k in a taxable brokerage account, invested 100% in VTSAX
We also have about $50k in cash right now, which goes up by about $2,500/month. We typically like to maintain $40k in cash and throw any extra into the brokerage account each month.

How should we handle the down payment in 18 months? How should we prepare?

We could:
- Move $250k to bonds until we are ready to buy in 18 months. Possibly miss out on market gains, but also a market fall where we wouldn't be able to buy
- Keep things as they are (invested 100% in VTSAX) and be flexible about when we buy. If the market falls in 18 months we wait longer to buy

Our main reason for buying is that we want a permanent close community. We have a 1 year old and another baby coming. We owned a home previously, but have rented in a VHCOL area for the last 7.5 years.
vas
Posts: 288
Joined: Thu Mar 06, 2014 12:51 pm

Re: Down Payment savings for 18 months from now

Post by vas »

I think you captured the two options pretty well. Although, for funds you plan to spend in 12-18 months one might consider a Savings account rather than bonds.
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Hyperchicken
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Joined: Mon Mar 02, 2020 5:33 pm

Re: Down Payment savings for 18 months from now

Post by Hyperchicken »

You are either flexible or not flexible in terms of when to buy a house.

If you "could be flexible", you are flexible.

This leads to option B, keeping money in the market.
mikejuss
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Re: Down Payment savings for 18 months from now

Post by mikejuss »

Keep the money in a high-yield online savings account. Don't sweat whatever return you might end up leaving on the table by not investing in bonds or stocks. Your time horizon is 18 months, the return would likely not be that meaningful over such a short time, and you'll be in a strong position to scoop a house up at a discount if the market tanks and you have cash on hand.
exodus4224
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Joined: Thu Nov 14, 2019 11:39 am

Re: Down Payment savings for 18 months from now

Post by exodus4224 »

On a related timeline - how do people feel about TIPS funds for a similar situation?
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FoundingFather
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Re: Down Payment savings for 18 months from now

Post by FoundingFather »

mikejuss wrote: Tue Nov 23, 2021 2:29 pm Keep the money in a high-yield online savings account. Don't sweat whatever return you might end up leaving on the table by not investing in bonds or stocks. Your time horizon is 18 months, the return would likely not be that meaningful over such a short time, and you'll be in a strong position to scoop a house up at a discount if the market tanks and you have cash on hand.
This is the advice I would give you as well. Don't risk a downpayment, especially when there is so little time over which the investment would grow. It just isn't worth it

I would encourage $200,000 being moved into a high yield savings account. The yields are almost identical between a short duration bond fund and a high yield savings account. However, the bond fund comes with risk. Keep this money 100% safe and ready so that you can get the house you want without any issue. This then allows you to sleep well keeping the entire rest of your investments in 100% stocks.

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TXDoc21
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Joined: Tue Dec 15, 2020 11:02 am

Re: Down Payment savings for 18 months from now

Post by TXDoc21 »

What will the tax bill be for selling VTSAX to convert 100-150K to cash? Another option is you could take a loan out against the brokerage account. At Schwab it is called a pledged asset line. The more assets you have with them the more attractive the rate is. Just a thought. Good luck.

If you convert to cash +1 for sure in keeping it 100% safe. No need to chase yield in a short term bond fund. Preserve the funds so you can buy your home.
babystep
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Joined: Tue Apr 09, 2019 9:44 am

Re: Down Payment savings for 18 months from now

Post by babystep »

I wouldn't invest any new money in taxable and keep building the cash. When the time comes then I will use cash from the savings + sell the taxable for the down-payment.
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