Need advice from the elders (buying land or a house)

[RandyRhoads]

I have $40,000.00 saved up and I have a few ideas of what to do with it. I was hoping some of the older wiser guys on here might be able to advise me on a smart way to use it. Now, i'm only 22, and I know what sounds like a good idea or "fun" right now, probablly wont sound so great in a year, two years, and so on. First off, being in California, everything is probablly mind boggling expensive to what most of you are used to. So one possibility in any scenario is taking that money to another state and purchasing something that would have me set for life ( I remember a 2 story log cabin with acreage and ponds for 80K in KY)


Option 1; Go purchase a few acres outright. I like the area in Nevada county. Continue renting where i'm at (or elsewhere) while slowly building up. If push comes to shove I have acreas to live primitively-ish on with tents and generators, build up to a crappy trailer. I can start saving for a house I want , first foundation....one step at a time for however long it takes. Like I said, staying where i'm at would hopefully be how it happened- the tent thing would just be there as a safety option should I suddenly have no income. This way I OWN something, all I have to worry about is yearly property taxes. I must admit this is kind of my dream. The only con I see is if I find work somewhere else and now I own property in another state that just sits there, and that moneys gone.

Option 2; Purchase a house. With a 40K down payment I could have realitively small payments. I could rent it out covering my payments, perhaps even generating a little monthly profit income. This sounds cool to me, having other people paying for my house while i'm off doing other things. I could perhaps improve on it and sell it if and when the market comes up. But I see a lot of risks in this. I'm 22, I don't know the first thing about being a landlord and perhaps don't want to. It sounds like a lot to take on. I would flip my lid if I found someone destroying my house or had to deal with douche bag renters. I also worry about not being able to find renter, having my income disappear, and losing it.


Option 3; Sit on it. This way it goes nowhere. It stays there until i'm older, perhaps with a steady job (Firefighter/Paramedic, may have to be willing to move to another state to get hired...) then I can make a decision. What worries me about this is the market raising back up to where a tiny garbage house is 200-$300,000.00 and I could have one paid off and worth that.


Any tips, suggestions,ideas, criticisms, jokes, haikus, whatever, are appreciated. Thanks for reading.

[Rick]

Randy - It's sounds like you are unsure of what you want to do so the best advice is do nothing. What's the rush? A lot can happen in the next few years job wise, according to your post, so why not hang on to your cash until you know what YOU want do.

[crashdive123]

Agreed. Until you know what you want to do, and where you want to do it - taking action now may lead to huge disappointments down the road.

[Winnie]

I'm with the F.A.R.Ts on this. Just a few words, not all tenants are good tenants, just sayin'

[BENESSE]

Wholeheartedly agree with above comments. (put it away in a low risk something or other and forget about it)
And let me add an ATTABOY for having the maturity and discipline to save such a good chunk at such a young age. Very unusual these days...your parents must be proud.

[Wildthang]

Hats off to you Randy for saving money. As Nessie said, a lot of young people do not understand that concept. I would suggest looking into a Roth IRA. Just make sure you understand the rules before taking this option. You may see some appealing options in doing so. It does protect your money, but there are withdrawel penalty's, so you will need a total understanding of this before going that route. But it may serve you well in the future!

[kyratshooter]

There is no joking when a friend asks you what to do with $40,000!!

The Roth option is good advice but has penalties for early withdrawal.

There are also anuities that are secure and can be designed for your needs (no penalties and return on call). Be sure and go with a good company. Insurance companies are low yield but they are also the lowest risk around if you choose a good company, and at the least your investment will keep up with inflation.

Judging from the last Great Depression, leaving your money in a bank account is the most risky place to have it. Even a safe deposit box is more secure.

Now if you were in KY, or another rural state, stable, on a good job and intended to live in the house, I would advise purchase of land or down payment on a house. The market is low at this point, actual values are stable and it is going to take the market a decade to recover from the disaster that has been imposed on us.

Do not worry about the market suddenly comming back to life and your money being insignifigant. $40k downpayment would have guarentees you home ownership even in the insane market of the last decade.

[hunter63]

Having the cash is always a good thing....congrats.

I have found in my past the credit is also a good thing as well, and have made use of it, but usually only up to the point that you can cover the balance of most of it.
Credit cards, if kept paid, you pay no intrest..

"The Place" our acreage and cabin is paid for, took awhile, but notes were backed up by cash.........

Example: 40K stashed, borrow at the best rate possible (low interest)...that way you are using someones else's money and keeping your own, and have the option pf paying it off if there is a need.

This gives you more bargaining power....it's much easier to operate off the top of the pile, and drag your self up from the bottom.

The advise to keep your stash is real good advice, and at your age, still no rush....your deal will come along, finding and all the plotting planning is have the fun.
Take it slow, research areas road access, water rights, electric, septic, taxes, codes, employment opportunities, and community in general.

[Wildthang]

Just for the record, a Roth has no penalties for withdrawel once a five year term has been met, and when you become 59 1/2 years old and want to withdraw money, absolutely no taxes are withheld, even on the earnings of your account.
The five year rule is pretty important. I think their may also be hardship withdrawels available as well but would need to read up on those.
Just take your time and do nothing until you are sure of what you want to do!

[hunter63]

Just for the record, a Roth has no penalties for withdrawel once a five year term has been met, and when you become 59 1/2 years old and want to withdraw money, absolutely no taxes are withheld, even on the earnings of your account.
The five year rule is pretty important. I think their may also be hardship withdrawels available as well but would need to read up on those.
Just take your time and do nothing until you are sure of what you want to do!

This is true, but it's added to the top of your income, and may increase your percentage you pay in taxes.

....and only applies after 59-1/2 years of age.

[BENESSE]

I'd like to mention something important and apologize in advance if it ought to go without saying. (I've seen too many kind hearted, decent, hard-working people taken advantage of)

Do not talk to anyone (friends, family, etc.) about having this money. Do not lend any to anyone for any reason even if they say they'll pay you back as soon as the get their tax refund or the next gig. As far as anyone is concerned, it doesn't exist.

[Wildthang]

I'd like to mention something important and apologize in advance if it ought to go without saying. (I've seen too many kind hearted, decent, hard-working people taken advantage of)

Do not talk to anyone (friends, family, etc.) about having this money. Do not lend any to anyone for any reason even if they say they'll pay you back as soon as the get their tax refund or the next gig. As far as anyone is concerned, it doesn't exist.

Yeah, what Nessie said! Big plus 1 to that!

[hunter63]

Yeah, what Nessie said! Big plus 1 to that!

Agree.....you will have friends you didn't know you had.....

[kyratshooter]

Yep, suddenly everyone you know and most of your whole family will have an earth shaking emergency that absolutely, positively has to be taken care of immidiately!

Blood may be thicker than water, but it thins out at payback time.

[Rick]

Actually, there are very severe penalties for early withdrawal on a Roth unless it falls under very specific guidelines. Not only are you taxed on the withdrawal, which may put you in a higher tax bracket but you are assessed a 10% penalty ON TOP of the taxes you would normally pay for the income if you are not at least 59 1/2. There are a number of exceptions that allow Roth to be withdrawn from. They include disability death, SEPP, medical expenses of 7.5% of AGI, to pay medical premiums if unemployed for more than 12 weeks, 1st time home purchase, to pay back taxes on an IRS levy. I think that's all of them.

[RandyRhoads]

Excellent advice, thanks guys, I appreciate taking the time to read this and writing thought out replies. I appreciate the hats off but it's not deserved, this isn't something I saved penny by penny from a child. It was a pay off for getting blown up in Afghanistan. Although being stupid with money years ago taught me what not to do. I'm not out buying anything with the money. Nothing has changed other than a number in savings that could save my *** one day.


I'd like to mention something important and apologize in advance if it ought to go without saying. (I've seen too many kind hearted, decent, hard-working people taken advantage of)

Do not talk to anyone (friends, family, etc.) about having this money. Do not lend any to anyone for any reason even if they say they'll pay you back as soon as the get their tax refund or the next gig. As far as anyone is concerned, it doesn't exist.



Unfortunately I already learned this the hard way. At least it showed me who the real friends were....those being the ones that were uneffected by this news and didn't change one bit because of it. Some were insanely obvious about what they were up to. If you were that way you'd think you'd at least be smart enough to be coy about it.

[Cast-Iron]

A lot of good advice here, Randy. Real estate is often a great investment. Not all markets are created equal, so get a feel for relative values for the types of property you want and when a good deal comes along you'll recognize it. Residential values experienced unsustainable rates of appreciation for much of the last decade. When it all came crashing down, some markets were so devastated, prices over-corrected creating tremendous buying opportunity if you had the ability to structure a purchase.
As for ROTH IRA's, there are annual contribution limits, but these can be augmented with rollovers from other types of retirement accounts. You can own real estate within an IRA, but I'm not sure if it has to be rental property or not. The IRS rules are complicated so consult an expert. Once funds are deposited into a ROTH, there are penalties and some exceptions for early withdrawl. It is my understanding, that after 5 years, you can withdrawl your original contribution without penalty but not any of the earnings made on those funds. Again consult an expert if this type of investment appeals to you.

[Seniorman]

Do not talk to anyone (friends, family, etc.) about having this money. Do not lend any to anyone for any reason even if they say they'll pay you back as soon as the get their tax refund or the next gig. As far as anyone is concerned, it doesn't exist.

That is EXTREMELY wise advice.

Also, be careful of investing in annuities. There can be some problems in the future with withdrawals, etc. Do a whole bunch of research, advantages and disadvantages, before diving into annuities.

Buying a house and renting it to other people can be a very large and expensive pain in the rear end. I know too many horror stories from friends who have done that and lived to regret it. Unfortunately, many, many renters could not care less about taking care of a rental house. It is not unusual for them to literally trash a house when they leave, even stealing some of the appliances, etc., etc.

Remember, at the moment in our present economic and political situation, cash is king. Don't be in a big hurry to "do something."

Best of luck.

S.M.

[Thaddius Bickerton]

Keep saving.

If you are kinda foot loose, maybe a job up in N. Dakota for a couple years living on the cheap as best you can and save even more.

See if you would be happy living in a rural area, or need a small town or a city.

Coming from where you are, things are a lot different a lot of places.

For example here in Alabama If I want a handgun I drive to the fun store, pick out one, pass the instant check, pay the man put it in my pocket and walk out the door. (assuming some are in stock, a lot of people have been buying firearms like they are getting ready for Armageddon and have to be their own logistics chain.)

So first goal is

What do you want in life.
What do you want to not have in your life
Where can you find something close to your dream
What will it take to get you living there.
Take action, evaluate results, modify action until you produce desired results.

For some a small college town is a good place

for some a beach town is necessary

others mountians or desert or what have you.

Maybe consider going on an extended trip and working for a time in many places you think you may like, then commit to making your dream reality.

TANSTAAFL.

Sounds like you have discipline to produce savings, apply that to producing your dream.

Study, research and investigate the thing in depth, then act from knowledge and experience instead of just a want.

OH, and if you follow your dream, would not hurt to take pics and post stories here, lots of us will be happy to cheer you on.

Thad.

[edr730]

I have 5 acres quickly being taken over by the woods. 1/2 mile from the nearest store and town but secluded. N/E Michigan. Electric, burned buildings, big pile of old rotten wood included. 20,000. Lots of trees to cut and clear if you want to farm it. I want your money too..... but it may be what you are looking for. I bought it for development but things went south. don't matter to me. Properties come and go. Usually you may find something similar. I tend to think you won't. Just the process of selling it is a burden to me at this point. I think you need to become accustomed to the process of looking first before you buy anything. Good luck.

[RandyRhoads]

Seems like ages ago I posted this. I'm turning some paperwork into a realtor in Modesto, Not only can I see myself being ok living there with everything I enjoy being within an hour or two drive (Mountains, Beach, Ocean, SF, Sacramento, Monterey, Delta, Valley) But the worst I see happening is me wanting to move, in which case I can rent it out for almost twice what my mortgage will be. I have a friend that lives there, he got his house for 100k, 3 bed 2 bath, pretty nice place, huge backyard for being in the city, walking distance to everything...

With the market being so low right now (2006 his house was appraised at over 300k...) I feel I should move on it. If it doesn't go up in value I have a very low mortgage I could afford on a Taco Bell salary (Not that that's going to happen, but it's nice to know I could if it did..) If it does, I can sell higher then move somewhere cheaper out of state, or continue renting it, saving that money to buy another house.

The country is nice, but if I can get the security of a nice house in the heart of my hobbies for 5-600 a month, or rent it out for 1200 a month, i'll take it and just drive to do my outdoor things. I mean where i'm at now I drive 60 miles round trip 4 times a week and i'm not even WORKING for another couple months, then I will be driving that almost daily. It seems like it would be easier to live in town and drive out here than continue driving so much into town.