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My wife and I have been expecting to buy a house for the past two years (currently living in a condo worth around 400K with no mortgage). Because of this, we have pretty much all our investments in cash (1200K) with only a small amount in stocks (200K). (We have and continue to max out our retirement contributions which both have employer matching.) The problem is that we never seem to be able to find a house; the current market in our area has very low inventory. (We expect to pay 1400K or so, but there is a wide margin here as well) If a house we like comes on the market tomorrow we will immediately buy it. But we are worried that our search might drag on for a few more years and that cash (with today's rates) are not a very good investment.

Are there any alternative investements to cash we should consider with a house purchase possibly coming up in the near future?

If I had to guess, I would place the probability we buy in the next 12 months as 50%, and the probability we buy in the next 24 months at 75%.

To me, it feels like the stockmarket over the next 12 months is going to be highly dependent on whether a vaccine for COVID becomes available, and this potential volatility makes it seem very risky for a short-medium term investment. On the other hand, I would guess this same volatility would bleed into other investments as well, leaving us with cash making only 1%. We are not adverse to risk in general, but the fact that predicting the cost of the house we end up buying (it might be anywhere from 1000K to 1600K) adds an extra complication.

EDIT: unlike in this question: What is the best way to invest short term without losing principal? we are definitely OK with some risk, but I was thinking there might be intermediate options between cash and a 6-12 month market investment at the current time. For example, one suggestion might be to invest 200-400K in the market with a view to holding it medium-long term and then taking a small mortgage if necessary. Maybe there are other financial instruments which are intermediate between index funds and cash.

mhoran_psprep
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HouseAtLast
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    what country are you in? A person in the US should not have $1,200,000 sitting in a single bank account, but depending on the units in other countries 1200K might be ok to keep in a standard bank account. – mhoran_psprep Aug 04 '20 at 11:26
  • @mhoran_psprep: The US. The money is spread over a number of bank accounts (in my name, in my wife's name, and joint accounts) to be under the 250K FDIC limit (is that what you are referring to?). – HouseAtLast Aug 04 '20 at 16:24
  • That is what I was referring to. – mhoran_psprep Aug 04 '20 at 18:32
  • you could look at municipal bonds or US treasuries. The stock market with a 6-24 month time horizon is riskier than I would be comfortable with. I don't understand how you and your wife got to 1.2 mil in cash without investing though. – rhavelka Aug 04 '20 at 21:02
  • @rhavelka We are both 40 or so, have been saving for many years for a house, and both have well paying jobs (now over 400K combined). Kind of depressing that we can't even buy a house in our desired location tbh. – HouseAtLast Aug 05 '20 at 01:11
  • @HouseAtLast So, you have 1.8 mil (1.2 cash + .4 condo + .2 stocks) available to you to go towards your new house. Assuming you don't want to sell the stocks and you are going to keep a 500k cash cushion, you have 1.1 mil to put towards a house. Plus you will have 0.5 - 2 years of savings (online banks have great savings rates, so that could help too) which could boost you to 1.2 mil. So I don't see how you can't afford a 1.6 mil home, put 1.2 mil down, take out a 10 year mortgage for 400k, and still have 700k to your name. – rhavelka Aug 05 '20 at 14:45
  • At that point your mortgage will be around 50k/year, let's say your taxes are about 125k/year (I'm not a tax expert. I don't know if that's high or low for your income + property taxes in your area), and you are maxing out your 401k at 39k/year so you will have 400k - 50k - 125k - 39k = 186k left over for utilities/ living/ saving/ investing/ vacations. – rhavelka Aug 05 '20 at 14:54
  • @rhavelka A bit confused by your comment: Are you saying that we can afford at 1.6m home? (I think that's what you are saying?). I'm not disputing that, the 1.4 figure was just a rough number not a maximum. As it happens, the only houses currently for sale in the area are over 2M (this would not be the case in a usual year). I'm also surprised by the suggestion to keep 500K in cash and take out a mortgage, that seems a large cushion? Finally, online banks aren't that great; the best at the moment is Ally at 1% and I think that will go down very soon. – HouseAtLast Aug 05 '20 at 16:34
  • yes, I am saying you can afford a 1.6m home. The 500k was just a figure was for 1) unexpected expenses with the home, 2) upgrading anything like the landscaping or installing a home theater and 3) it can be psychologically jarring to see your life savings go from 1.2m to 50k over night, that's why I suggested the mortgage. But you know your money habits better than I do. Google "municipal bond etf list" for some place to park your money, there is some risk but they are pretty safe and return about 4% per year. – rhavelka Aug 05 '20 at 18:36

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