Starting From Scratch: how to use HBPP to save for a mortgage down-payment?

[blue_ruin17]

Let's say that I'm starting with $0.00 in savings (you know, just for argument's sake...). I start rapidly saving 25-50% of my after-tax income.

My objectives are:

a) rapidly accumulate assets in reserve for "emergencies"
b) begin saving capital with the ultimate goal of achieving financial independence at age 51 (if/when I retire from the army with a full-pension, assuming I decide to stay in for the full 25 years)
c) save for a mortgage down-payment (by five years from now... 15 year, 20% downpayment, $150,000-$175,000 home)

Now, squirreling away 25-50% of my income and allocating it into the HBPP easily takes care of goal (a) and (b), as I believe that the PP doubles as both a long-term savings vehicle, and an "emergency" fund.

However, what's stumping me is this mortgage down-payment...

Let's say my portfolio reaches $40,000 in four years. That's my down-payment right there.

But if I cash out my HBPP and put it into real-estate, not only have I lost my capital reserve, but I've also lost the asset diversification that the HBPP provided to my networth. Now I'm 100% "invested" in real estate (though, I should mention that I don't consider owning a home to be an "investment", it is an expense that has a chance of retaining equity, sort of like buying a car, but without the guaranteed loss of value over time)

BUT, if I decide to only cash out, say, 50% of my portfolio and have the other 50% remain, that could mean an additional 5 years of throwing money away towards rent rather than building my home equity...

Anyways, enough yammering from me, you guys get what I'm trying to explore here:

Thoughts?

[ochotona]

A-B and C as separate projects. And within C, only cash and short term bonds. Five years is a short time horizon.

[blue_ruin17]

You first write that you don't consider owning a home to be an investment, but then characterize renting as "throwing money away" due to the lost opportunity at building equity. I'd say you need to decide what you truly value.

I want to also say that this is not an easy task, because there are lots of factors involved -- some of them are amenable to formulas in a spreadsheet, but most of them are not.

I think a big question you need to answer is: Do you have the skills and/or the money available for the upkeep of a home that you own? Homeownership is neither cheap nor easy.

Well, I don't consider a car to be an investment either, but I'd rather own it than lease it.

Once the mortgage is paid off, I wouldn't have any substantial monthly payment to worry about for housing. But if I don't buy a house, I'll be paying rent forever. Owning a home helps me achieve F.I. because eventually I don't have to use income from my SWR to pay for housing.

To answer your question though, I am not a "handy" kind of person...Hmm.

[Kbg]

Specific to the military...

I've no idea what rank, service or specialty you are but a couple of things on the mortgage/buying a house:

1) You can make or lose a lot of money doing this and it all depends on the market where you are stationed. But let's assume you will be doing the frequent move thing as is life in the US military. When you get orders you either sell or rent it out.

2) In most cases it is tough to break even after paying realtors each way...so are you up for being a long distance landlord? This can be free money or your worst nightmare.

Bottom line: Except for some very narrow specialist things you must not assume you will be a typical homeowner for planning purposes. In my own military experience (ret) I know some folks who own multiple homes and are very well to do now, some who will be paying for overpriced homes for the rest of their lives or filed bankruptcy and many situations in between. Personally I believe if you are going to buy a home in the military you should assume you are going to become a real estate investor and ensure you know/understand and are using and doing good real estate business practices. Actually living in the house is secondary from a financial perspective.

My free .02

[blue_ruin17]

Specific to the military...

I've no idea what rank, service or specialty you are but a couple of things on the mortgage/buying a house:

1) You can make or lose a lot of money doing this and it all depends on the market where you are stationed. But let's assume you will be doing the frequent move thing as is life in the US military. When you get orders you either sell or rent it out.

2) In most cases it is tough to break even after paying realtors each way...so are you up for being a long distance landlord? This can be free money or your worst nightmare.

Bottom line: Except for some very narrow specialist things you must not assume you will be a typical homeowner for planning purposes. In my own military experience (ret) I know some folks who own multiple homes and are very well to do now, some who will be paying for overpriced homes for the rest of their lives or filed bankruptcy and many situations in between. Personally I believe if you are going to buy a home in the military you should assume you are going to become a real estate investor and ensure you know/understand and are using and doing good real estate business practices. Actually living in the house is secondary from a financial perspective.

My free .02

I resolutely do not want/intend to become a real estate investor.

Thank you for your input.

Permanent Portfolio it is.

[Kbg]

No prob and thank you for serving!

I was ready to move on, but it was a great life all in all. No regrets and I'm glad I did it.