Question: What would you do with $20,000?
> Buy a brand spanking new Toyota Camary/Corolla or a cheap fix-it up house. > My Toyota Corolla has 200,600 miles on it and is about to die. > I currently rent a small apartment for $CHEAP/month including > utilities(heat, water, electricity)free.
> I wonder if I can afford the uti
Answer: Just one idea…
Put $5000 in the bank to use in case your car bites it. The plan is to buy a serviceable used car that will last you 3 to 5 years at a minimum so that you have transportation if you need it.
Then use $10,000 as a down payment on a house. Buy something with a room (or if possible, a separate structure) that can be rented out. A friend of a friend has a two-bedroom house with a detached garage out back that has been converted into a standalone apartment. They rent out the second bedroom in the main house *and* the converted garage. The renters are paying a good chunk of the mortgage.
And the best part is that 5 or 10 years from now, the house payment will be about the same as now, but with any luck, the rooms will rent for more than they do now. The percentage of the mortgage that renters pay will increase over time.
The remaining $5000 is to keep in the bank in case of home repairs. If a few years down the road you are comfortable you can handle the risk of repair expenses without the $5000, make early payments on the mortgage.
Speaking of which, I have heard that in some countries there are home mortgages where early payments can be withdrawn without any penalty if necessary. That is, at any point in time, there is an amount you would’ve paid if you’d made only the regular minimum payments during the life of the loan, and any amount you’ve paid beyond that can be withdrawn. With such a mortgage, you can put rainy-day money into the loan as early payments (instead of into a savings account), and it is in effect earning the interest rate that you’ve got on your home loan, which is a better rate than on a savings account, etc., etc.
I’m not sure if they have that type of loan in the U.S. (or wherever you live), but if they do, it’s a great way to get most of the benefits of paying with cash but with the flexibility to take the money back if something unexpected happens.
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