jellyguy11 said:I am thinking about buying a 2-BR and renting out the second room.

For the sake of this discussion, let's assume I will remain in Oakland for 100 years and stay single. What makes the most financial sense? I greatly appreciate any thoughts or opinions you might have!

What part of Oakland are you planning to buy in? Oakland Hills? Sobrante Park?

dude you can do both - you can withdraw 50% of your 401k to go towards the purchase of your home with no penalties, and you simply pay yourself back

that's PRE-TAX money put into your 401k, meaning you are gonna save money anyways

my suggestion... do the 401k...

Borrowing from a 401k is generally a bad plan. If you loose your job for any reason you will be forced to pay back the loan in full or pay a penalty plus taxes on the amount you withdraw, and this will occur at the worst possible time for you to get credit or spend down your emergency fund.

OP if I were you I would save 3 to 6 months worth of expenses to keep in a savings account or short term CD's to use as an emergency fund, before worrying about the 401k or the house. If you have extra money in the bank you can take advantage of opportunities early in your career that you would be hard to do without having cash to fall back on.

Tough call jellyguy. What I would personally recommend is maxing out your roth, and also contributing the max that your company will match for your 401k. After that, it's up to you want you want to do with the money, but saving the cash for a downpayment/safety net is a good idea imo.

Regarding buying a place.. that's a very tough call. I know different areas are better than others, but I'm thinking many parts of the bay area will see substantial declines in the coming years. I understand you're looking to get a roommate, but at some point if/when you get married you might want to move and live on your own. It's a tough thing to weigh now, but in general, I would likely just rent with a roommate for the next yr or two.

Buying a house is a ridiculous proposition for anyone not flush with money or raising a family. Seriously, why home ownership has become this holy grail of American success stories is beyond me. You end up with more space than you need, more work than you can do, more expenses than you need, and less flexibility. Your odds of switching jobs or relocating are high. Your odds of meeting someone who either already owns a place or hates your place or wants to start out new with a place you pick out together are even higher.

<waiting for flames>

You mean you are saving money? You are not maxing out your credit cards on snazzy suits and buying a beemer to celebrate the new job? What's wrong with young people these days

jellyguy11 said:Great feedback so far! Thank you all.

To answer some questions:
-Employer contributes to the 401K irregardless of my own contribution. So I would not miss out on any free money by not contributing.

You may want to double check on that. Most employers don't just give you the money to deposit to 401K, they match your contributions. The goal is to encourage employees to contribute their own money.

As far as 401K rules for borrowing, check with the plan provider for the terms of repayment. Rules vary from company to company. Here is an earlier thread on this topic.
Linkaroo

Given that you already have 30K in savings for possible down payment, I would max out 401K. If you are willing to save, this is the best time to take advantage of this.

tyrone3971 said:The first $10k of your 401k can be withdrawn for purchase of a first home penalty free.This one came closest, but I can't believe this forum let this question get this far.

Look into your 401k literature for your company and check 2 things:

Safe Harbor Withdrawal which is money you take out to pay for a primary residence. Sometimes it must be a first home, but you can remove money from a 401k without all the penalties if it is ALL used for the home. Usually not a 10k limit.

Hardship withdrawal - nearly all 401k's allow you to remove money penalty free for crushing medical bills or if a home is going into foreclosure, but you must not have another source of income. Its not intended as a way to reduce your general level of debts, more as a last resort.

But it depends on your 401k.

aleck said:
You may want to double check on that. Most employers don't just give you the money to deposit to 401K, they match your contributions. The goal is to encourage employees to contribute their own money.

This is often not the case, particularly if the company is worried about not meeting the IRS "nondiscrimination" tests. One of the "safe harbor" provisions is to just contribute a flat percentage of pay to everyone's 401(k) regardless of how much they contribute. My company does it this way as do many smaller companies.

I have heard more than once that to maximize return on investment options one should follow this priority when saving for retirement:

1) 401k contributions to max out employment matching
2) Max out ROTH IRA contributions
3) Max out remaining 401k contributions

The question now remains how other saving priorities should align themselves with retirement savings. I wouldn't follow a set "all retirement" or "all house savings" funding, I would split between the two more or less depending on how much you can afford to save and allocate. This is highly dependent on your priorities as a 'best' solution for you and not necessarily what is most profitable (401k max would usually be the most profitable).

1) Keep and maintain an emergency fund (3-6 months of bills)
2) Max 401k contributions to max out employment matching
3) Max out ROTH IRA contributions
4) Save a large part of the leftover portion to 'new house fund'
5) Max out remaining 401k contributions
6) Other investments/savings

Say you already do step 1, 2, and 3, and have an extra $1,000 per month left over after monthly expenses are paid, I would distribute 50/50 or 75/25 to house savings/401k max depending on your priority and timeline for purchasing a new house.

EDIT: The short answer is it depends. Financially, the best option will often be to max 401k first, but if you have a desire to purchase a house then that may be more of a priority for you than maximizing long term returns (based on expected projected market value).