Comments on: AFM Reader: I Want to Pay Cash for a House in 12 Years!

By: K

Wed, 13 Aug 2008 15:28:00 +0000

I don’t know where you people live, but there are many places where a decent house costs under $100k, so he should be fine even if he puts his money in CD’s, and even if the price of homes double by then.

As far as taking money from a Roth, it is an unwise idea if you had been putting that money away for retirement and then decide to use it for something else. However, if you have already planned for retirement and contribute with the intent of using it for a house, or college, or medical expenses, or whatever, it’s a good way to do it tax free.

By: APD

APD — Tue, 12 Aug 2008 05:04:56 +0000

On average, house prices have matched inflation. The current run-up in house prices is abnormal and not sustainable, as we are now seeing. As long as he matches or beats inflation over the next 12 years he should be able to afford an equivalent to about a 175k house today.

I do like muddlehead’s idea. If you can find a long term CD with a good rate, that would be the way to go.

By: dogatemyfinances

dogatemyfinances — Mon, 11 Aug 2008 12:36:27 +0000

Uh, there are a LOT of places where more or less 200K won’t even come close to purchasing a house (plus closing plus taxes plus furniture, etc.). Besides, this is 200K in 2020 dollars, so it’s worth even less.

I hope he isn’t planning on buying in one of those places.

By: KC

KC — Sat, 09 Aug 2008 15:44:17 +0000

Houses double every 10 years? That seems a bit extreme. Do you have something to back that up? Not doubting you, I just don’t know of any houses is “real” markets (meaning ones not in a bubble the last few years) that have doubled at a ten year rate. My parents home in NC was built in 1975 for $35k. It’s been very well cared for and has some nice additions, but its not worth $280k today. My home in Memphis was purchased 7 years ago and has increased about 30% with little to no improvements made, just regular maintenance. I don’t see it increasing that much mroe in the next 3 years.

By: Kim

Kim — Thu, 07 Aug 2008 14:14:34 +0000

I just wanted to add for those of you concerned about taking money from a Roth — he is retiring from the military after 20 years and that gives him some (I don’t know his rank, etc) guaranteed retirement money in addition to the 15% he is contributing to TSP.

By: Julie

Julie — Thu, 07 Aug 2008 13:04:41 +0000

Houses are NOT going to be worth what they are today in 12 years. Maybe I’m pointing out the obvious, but historically houses double in price over a 10 yr period. So a $300k house now, will be about $600k in 12 years… something to consider..?!? I feel like no one brought this point up….

By: muddlehead

muddlehead — Thu, 07 Aug 2008 05:02:54 +0000

$1600 a month ($19200 a year) x 12 years = $230,400 absent any other factors. current annual income $67k. investing the $19200 at plain vanilla 5% cds every year and paying fed tax – figure cd interest taxed at 25% – leaves risk free – ballparking with pencil and calculator – $298,000 after 12 years. MH and wife, jot that down. i’m guessing, you might be pretty happy with that since it is a 100% ironclad worry free number.

By: JLP

JLP — Wed, 06 Aug 2008 19:17:39 +0000

Mike,

I understand what you’re saying but keep in mind that this is what HE WANTS. Besides, he is saving 15% of his income in a retirement plan.

Yes, if it were my money I would take on a mortgage and leave the Roth money alone but that’s not what this reader asked.

By: Mike

Mike — Wed, 06 Aug 2008 19:01:12 +0000

After reading your post I have to question the wisdom of unplugging or withdrawing money from your IRA, 401k or any long term investments! While the numbers on the IRA look really good in 12 years, you fail to take into account the BIG hit MH will take in retirement dollars by taking a withdrawal to his IRA. I believe that better advice could be having MH take the money from his savings accounts and use this money to buy something that he could afford to own with a small mortgage. Now, this might not be his dream house, but why not encourage MH to continue to save and work his way to the dream house, without sacrificing his retirement!

By: JLP

JLP — Wed, 06 Aug 2008 18:00:21 +0000

David,

Neither you, me, or Warren Buffett knows what the market is going to return in the future. So, I simply used a conservative historical average. Besides, for this illustration, the market’s immediate return does not have an impact on the outcome of this situation (unless he ends up losing money in his Roth IRAs).