#1 - if you read this, thank you - sorry it's long winded.
I'm really hoping to get some good feedback in here - as everyone I've been talking to (which I keep limited) seems to tell me something different. I have yet to meet with our "investor" that manages our IRA's until I have a little more knowledge so he doesn't rake me over the coals. I don't know him that well, and although he has managed our IRA's just fine, I still understand investment brokers have to make money too.

For the next 18 months we'll be saving $12K month (after taxes)- and have no idea what to do with it. (And can save $8K month after that if required).
Last week we paid off our last auto-loan and have zero debt besides a $190K balance on our rental home that is occupied on a year to year lease with tentants. All CC's/cars/toys are paid off.

Our plan is to buy 10 acres and build a house in the $300K-$500K range. Or find a recently built home if it's exactly what we want.

We are kind of on a 18 month plan, and would like to pull these monies out (appx $200K) to put down on a 2nd house in 18-24 months. Our kids are 2yr and 6yr, and I want to plant our roots sooner than later.

I'm getting really mixed reviews, where some folks are telling us to only put down the required 20% on the 2nd home and invest the rest, where others are saying buy property now with cash, build later and finance.
Some people are saying save the money in a online FDIC insured savings, T bonds, and max out IRAs (which are done).

We have close to $100K in our 401K's/IRA's and I myself have pondered the thought of saving the $200K in our normal bank, then pulling out our retirement, selling our rental home - then buying our dreamhome outright for around $400K and having zero debt completely. (We are 31 & 33 and I own stock in a portion of a business (which some people consider retirement?), my wife has a solid position). Then build our retirement monthly at the $8K savings a month.

I'm so confused because we have no knowledge of investing or using money in the right places to our advantage. I don't even know where to start.
It's very overwhelming, and I already feel we made a mistake by renting out our other home instead of selling it.

Can anyone shed some light on our situation? Thank you very much in advance!!

For money that you intend to spend within a 24 month time frame the answer is simple, but not very satisfactory.

The people who told you to buy FDIC insured CDs from a bank had it right.  (Maybe an online bank, maybe not, shop around, but rates are really low right now).

I say this, even though I am an aggressive investor who likes to make aggressive investments.

I keep a rainy day fund at my local bank just so I don't have to eat dog food if all of my investments/speculations turn south at once.

Pay off the rental home and once your debt free go from there. Savings and C.D.s aren't making any money so for long term look at Mutual Funds or land.

Any of the options in your original post have good points and other options.

The only part of the plans that I would absolutely stay away from is the 'take money out of the retirement' part.

Your after tax cost of funds would be huge.  Your next tax return a nightmare, and a total cluster.

ANY other combination of options can work.  There is no best unless you can tell the future like a Monday morning quarterback.

Plan for the best, but do not build a house of cards trying to get everything too fast.


My house of cards became very expensive after life happened

One buddy says buy/sell land too.

I have someone paying down the mortgage though (renters), and since it's the first year renting, we don't have to pay taxes on the equity for five years - I think? Lol
So it's not costing us anything.
And that doesn't get me a house in the woods within 2 years? Just a shit-ton of funds with zero write offs when the house is paid off in 14 months.

But, we could pay it off in 14 months - then save 20% down for the 2nd home?
But then I'd be financing $250K on the 2nd home?


See. This is what I mean. My head hurts. :(

Half of it I would be taxed - Roth IRA's, but yea, still didn't consider that.

Buy Land they are not making any more of it much of the productive crop ground has increased in value many times over in the past few years.  
Buy income producing property like a duplex.
Pay off any debt.

Yeah but if you look around it is fucking everywhere.

OP

I would  not even consider touching your retirement funds. I hate debt but to me they are off limits unless you are in a major shit storm and need the money to avoid a foreclosure or something.

I do not believe in investing money if you will need it inside of five years. Over the long term investing in the market wins but over short periods you can lose your ass. Let's pretend it was 2006/7 and you dropped this money in the market and it got cut in half when you needed it two years later. It has came back now, but in the short term it tanked.

If I was in your shoes I would consider buying the land with cash now to build on but that kind of fubars your plan if you find an existing house you like. Paying off the rental is a good idea too even though it is positive cash flow now. It would be a guaranteed return for you and likely you are paying a much higher rate on that loan than you would get on any FDIC investment.

I appreciate all the input - thank you all!!

Doodlebug,
We have toyed around the idea of paying off the rental.
My thoughts on that - we're currently at 4.5% or 4.75% and have $188K left on it.
The renters are paying $100 short a month of what the mortgage is which is no biggie - I'm upping it in 8 months to match the mortgage.
I believe the interest rates on 2nd homes right now are around 4%.

Would it make more sense to save an abundance of cash now, in case 2 years from now we go to borrow 1/3 of the 2nd home price and the rates went up?

I'm scared we'd be paying down a lower interest rate on the 4.5% rental, then get stuck with a 6% rate on a new $300K loan. Sure we'd have a $275K rental house paid off, and then have a lot of positive cash flow coming in - but our mission is to buy our dream home.
We could just keep the rental as is, throw $200K down on the new home and only finance $100K @ 6% or whatever the new going rate is.

I don't know if that is logical thinking?
Does anyone have a crystal ball? :) lol

What your renters are paying isnt really a factor. They are going to pay that same amount if it is paid off or not so you can remove that from the decision making process.

If you pay off the rental now (approx 200k at 4.5% to make math simple) you will be saving $9000 a year in interest.

If you do happen to get a higher rate on the mortgage on your home it is not likely to be that much higher and with the money you are able to save now plus the money coming in from the rental with no payment you will be able to pay off the mortgage in a hurry.