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Should I pay off my house?
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Date: January 3rd, 2017 12:03 PM Author: shivering rigor I'm carrying a 750k mortgage on a 1.2 million dollar house right now. Payments are about 5K a month with everything impounded. Here are our current stats:
Ages: 33 Status: married with no kids, but wife is pregnant Income: 500k+ (wife is lawyer and I have my own firm so income fluxuates from 300K-800K/year) Cash on hand: 850k Combined retirement: 360K Other debt: None (student loans were paid off a few years ago, no credit card debt, just a car lease for an acura RDX that is $400/month).
If I pay off the house my monthly cost for property tax/insurance/HOA fees will be about $1,800/month.
I understand it is probably a better investment to buy an income property, but we have high income and no debt, so I figure once I pay off the mortgage I could buy an income property in another year or two. Plus property prices are insane right now and I think they will correct. Also, having a paid off house at 33 with 100k in the bank and 360k in retirement seems like a good place to be.
Would you pay off your house?
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Date: January 3rd, 2017 12:20 PM Author: Bistre Brethren Resort Is your only foreseen benefit psychological? How important is that benefit to you? Being afraid of debt qua debt is very prole and causes irrational behavior. You'd be giving up a big mortage interest deduction and reducing your liquidity just to be able to go to bed thinking of the sweet prole comfort of "financial freedom" (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288767) |
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Date: January 3rd, 2017 12:23 PM Author: exciting stag film incorrect
prole is borrowing big for everything, that makes you nigger rich |
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Date: January 3rd, 2017 12:27 PM Author: shivering rigor Yes it is psychological, but not as short sighted as just thinking my house is "safe." Once the house is paid off we can live soley off my wife's income without losing any quality of life (travel, eating out, our sick house, etc). That will allow me to take significant risks with my firm to grow it more, and also allow me to put 100% of my significant income into investments without worrying what happens to that money.
In short, it is a tool to make me LESS risk averse.
Hope that makes sense. |
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Date: January 3rd, 2017 12:34 PM Author: exciting stag film this makes immense amounts of sense
cover the basics, and the rest is upside with which you can take more risks |
Date: January 3rd, 2017 12:07 PM Author: exciting stag film yeah I would
I have owned a house mortgage-free, an amazing release of pressure knowing that your home is fully yours and that nobody can ever fuck with that no matter what happens
then save like crazy for a short while and buy that investment property
(THIS IS NEITHER LEGAL ADVICE NOR QUALIFIED FINANCIAL ADVICE) |
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Date: January 3rd, 2017 12:09 PM Author: grizzly theatre headpube it depends -- your interest rate is probably under 4% and is deductible. Can you place the money elsewhere and generate higher returns? You almost certainly could, so it doesn't make FINANCIAL sense for you to pay off your house. But it might be worth it for peace of mind. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288690) |
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Date: January 3rd, 2017 12:15 PM Author: shivering rigor My rate is 3.375 if that helps. 30 year fixed. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288726) |
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Date: January 4th, 2017 12:22 AM Author: glittery school cafeteria It would be moronoic to pay that off.
Invest the 750k intelligently and you'll almost certainly get better than 3% returns over the long run. |
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Date: January 3rd, 2017 12:16 PM Author: exciting stag film I would argue that it might make economic sense once we recognize that human beings are naturally somewhat risk averse
the amount of stress that even a small uncertainty about keeping your family house, your most basic source of shelter and security, is intense for some people
pay off the house and then all future savings streams are upside gains to your positive portfolio rather than reducing the amount you are behind
idk we are all different but that is how I see it as a moderately risk averse guy |
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Date: January 4th, 2017 12:04 AM Author: Beta aqua theater (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32293697) |
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Date: January 4th, 2017 12:06 AM Author: provocative space this is all true, but getting hammered over the long run by lack of upside potential is a greater risk (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32293711) |
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Date: January 4th, 2017 10:32 PM Author: Aromatic Carnelian Associate Scourge Upon The Earth You're not moderately risk averse, you're a fucking dumb pussy. If you have that much cash you can invest, you can basically pay your mortgage off with dividends. You're a dumbass poor if you don't know how to use leverage. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32300990) |
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Date: January 3rd, 2017 12:15 PM Author: orange rehab What is your rate? Ours is 3.375% and we are never paying it off.
You're getting a much better return investing that is something else. |
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Date: January 3rd, 2017 12:16 PM Author: shivering rigor What is a better return right now? The DOW is nearly 20k and I don't see it going much higher now for a while (in fact I see it correcting). As far as real estate, as rates go up I see it getting cheaper over the next year or two. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288734) |
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Date: January 3rd, 2017 12:30 PM Author: orange rehab Your mortgage is basically free money. Why would you ever pay it off. You're getting a tax deduction so really you're talking about a guaranteed under 3% return, which barely outpaces inflation. I don't do short time horizons. I don't care if the Dow is at an all time high, I'm looking at a 10-15 year time horizon at the very least so it doesn't matter to me. The market will easily return more than 3% over the long term. I don't invest in stocks, only index funds in a lazy portfolio.
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Date: January 3rd, 2017 12:52 PM Author: Pearly Diverse Mad Cow Disease Wow. I agree with you.
This is my thought process. My home is 2.75 30 year. I have no intention of paying it off early and view that as free money. I would rather invest in bitcoin (or whatever) than pay off my house early. Debt doesn't scare me. |
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Date: January 4th, 2017 12:22 AM Author: disgusting lavender principal's office philosopher-king Your "10-15 year time horizon" is not "long term" and your starting and ending points are crucial. Over the past 30 years, you could have any number of 10-15 year periods that do really well, really shitty, and in between.
"The market will easily return more than 3% over the long term" is cold comfort to people whose 15 year period happens to end when the market has taken a big shit. |
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Date: January 4th, 2017 12:40 AM Author: provocative space if you want to lengthen your time horizon, though, then you should be entering your risky investments earlier, not later. OP has indicated that he is going to be making risky investments, so the real issue is the sequence of those investments. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32293882) |
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Date: January 4th, 2017 11:36 AM Author: orange rehab You missed the "at least" 10-15 years part. Point is that at that income level, you have the flexibility to take out money when you want when it's at a high (like now) for home renos or whatever else you want, but you can always leave it in to ride out a downturn. There is absolutely no reason to ever dip into your stock portfolio because you need cash to live. You only need a $100k cash cushion in case one person becomes unemployed. A $5k/month mortgage is very manageable. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32296159) |
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Date: January 3rd, 2017 12:30 PM Author: provocative space You are in your early 30s which means that you can weather a market crash.
Granted all this depends on your risk tolerance but going all in on a low-risk investment when you're young and have a high income is a tad conservative. |
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Date: January 3rd, 2017 12:35 PM Author: Bistre Brethren Resort this post is making an argument for a mortgage that, under a normal repayment time frame, would be paid off in one or two years if your mortgage still has 20yrs on it, who the fuck cares whether you see a correcting coming in the next year? what matters is how sure are you the dow will be SPS 20yrs from now |
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Date: January 3rd, 2017 12:58 PM Author: Startling topaz forum See my post below (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32289022) |
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Date: October 22nd, 2017 8:43 PM Author: ruddy self-centered orchestra pit gaming laptop (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#34505713) |
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Date: January 3rd, 2017 12:17 PM Author: shivering rigor Also, paying off my mortgage would be like 3.2k post tax positive cash flow because that's what it would save me per month. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288744) |
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Date: January 3rd, 2017 12:36 PM Author: orange rehab You're thinking too short term. A low interest mortgage in a high property value area (which I assume you are) is really the only low risk way to be leveraged over a long time frame. Don't give it up for some "peace of mind." Look I am conservative too with money, but not that conservative to the point where I don't do what makes economic sense. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288892) |
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Date: January 3rd, 2017 12:58 PM Author: shivering rigor Los Angeles. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32289024) |
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Date: January 4th, 2017 11:42 AM Author: orange rehab I Iive in the same market as you with same size mortgage and similar income and one kid and likely another in the next few years. We save btwn $200-250k/year not counting 401k. There's never been a reason for us to take out money from the stock market. We have a year's worth of living expenses but there no chance either of us would ever be unemployed for that long anyway. Maybe six months. Frankly, a mortgage of this size is playing it ultra safe. Don't pay off the mortgage. Use that money for the kid's 529, stock market, RE investments etc. you pay off the mortgage now and it will take about 3 years to save up to that level again. You can miss a lot of opportunities during that time. A super low interest mortgage is the best way for you be leveraged. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32296192) |
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Date: January 3rd, 2017 12:22 PM Author: provocative space You have a low fixed deductible interest rate on a large sum of money; why do you want to get rid of that, particularly when inflation is expected to increase soon?
An alternative would be to put the 850K in some dividend index fund which spins off about 3% every year in dividends, which would roughly cover your monthly HOA, insurance, and property tax fees.
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Date: January 3rd, 2017 12:27 PM Author: claret church generalized bond Pay-off mortgage, find local bank to loan you back 50%-70% of the home's value at a fraction of your current rate due to you having 100% equity (this matters). Put the loaned cash in an LLC. Invest in local RE, profit... (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288834) |
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Date: January 3rd, 2017 12:29 PM Author: grizzly theatre headpube you do realize that if he got a new loan the rate would be 100 bips more than his current one, right? (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32288849) |
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Date: January 3rd, 2017 12:28 PM Author: Startling topaz forum If the current market value of your property is worth at least 2 percent more than when you bought it (adjust for inflation), then you're better off hiring a realtor to SELL your property so that you take advantage of the increase in property value. Use that extra money to buy another place.
If you can sell right now and buy during Oct-Dec you can earn at least $100k in profit. |
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Date: January 3rd, 2017 1:27 PM Author: shivering rigor With transactional costs I would not net much. Also, I plan on raising my kids in this house so I don't want to sell it. It is where I want to live. Finally, 100k in profit is nothing relative to my existing income and not worth the hassel. I could just settle a few cases and make that much without selling the house I love. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32289209) |
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Date: January 4th, 2017 12:04 PM Author: Startling topaz forum Selling real estate on the part of the homeowner is not hard. Unless you have kids, have pets, have other ppl living with you, or if you have a messy house, then there's nothing to worry about.
Talk to a realtor see if you can list $200k-$400k above original purchasing price |
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Date: January 4th, 2017 12:07 PM Author: shivering rigor I have a brokers license. There are still broker fees on the selling side plus closing costs. Plus the transactional costs of whatever I buy next. Also, we made 800k in 2016. Making a couple hundred grand even, is not going to materially impact my life. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32296404) |
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Date: January 4th, 2017 12:57 PM Author: Startling topaz forum Yes... usually seller agent and buyer agent split the 4-6 percent commission.
But the point is: sellling your house will be the easiest thing you can do to generate you $100k+... $800k is impressive and don't you want more? You think that's "enough"... |
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Date: January 4th, 2017 10:16 PM Author: shivering rigor Yes... I do my friend (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32300853) |
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Date: January 3rd, 2017 12:30 PM Author: Pea-brained fat ankles weed whacker It depends on your future plans with respect to your career and your discipline for saving and investing. It's also worth considering what extent your employment is "diversified" from the economy at large (i.e., if you invest the money in an index fund and it craters on account of a bad economy, are you at risk of losing your job).
The economic benefits of maintaining a home mortgage are well-known and covered above. However, the advantages of freeing up cash-flow, from both a psychological and entrepreneurial perspective, are often overlooked. |
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Date: January 3rd, 2017 1:26 PM Author: shivering rigor My employment has nothing to do with the economy. I do personal injury mostly and people get in car accidents regardless of the economy. Also, I am free to hire since it is contingency, so there are no financial hurdles for client's to hire me.
As I started earlier in the thread. My main reason is to put my wife and I in a position where her income is enough to cover all of our needs. Then if I make 300k-800k/year, all of that money can be used to invest in real estate/stocks/bonds/etfs/etc. Also, I could then hire some more staff and try to grow my business more without feeling like I could be killing a business that is working. |
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Date: January 3rd, 2017 1:52 PM Author: Pea-brained fat ankles weed whacker I have put a lot of thought into structuring my finances to accommodate your situation. Given your somewhat unique circumstances, almost all of the standard advice is inapplicable to you. All of your personal financial decisions need to be made from the perspective of maximizing the growth of your practice while maintaining as many future options as possible.
I assume you are already a partner in your firm given the dollar amounts you are discussing. The credited course of action will depend significantly on the current capitalization of your firm, your portfolio of cases, and your likely expenses in the short and medium term to work up your cases. It is also a really good idea for people in your position to focus on minimizing fixed, periodic cash outflows so you don't stress during the lean times, but it will be of little personal benefit for you to eliminate a monthly mortgage payment if your partner(s) can't do the same since you will want to avoid the development of a significant imbalance of your respective capital accounts, which almost invariably results in the firm breaking up.
Last, and perhaps most importantly, you should give significant consideration to what is considered to be standard practice in your local plaintiff's bar for capitalizing and financing plaintiff's firms. It is usually best if all partners have similar financing arrangements (i.e., similar amounts of cash contributed and similar types of personal assets pledged as collateral), which helps to minimize the possibility of future disagreements with respect to disbursements and servicing of firm debts. |
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Date: January 3rd, 2017 12:39 PM Author: cocky sex offender locus dont pay off all off it. going from 850K to 100K liquid is retarded
Payoff like like 300K and invest the 600K in a diversified manner
And in 2020 or so pay off another 250K or so
there is a big difference between 850K liquid vs 100K liquid. what if she loses the job and your business is going through a downturn? 100K is not enough
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Date: January 3rd, 2017 11:35 PM Author: shivering rigor That's a bit absurd. If I have no mortgage 100k could last us 2 years of both not working. On top of that, if she lost her job she would get unemployment and even my firm in a terrible year would make a couple hundred grand. No way she doesn't find another job in 6mon-1 year. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32293486) |
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Date: January 4th, 2017 12:10 AM Author: provocative space the idea of splitting up your investments is sound tho (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32293735) |
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Date: January 4th, 2017 12:08 AM Author: massive cracking ticket booth becky No, I'd rather be as liquid as possible. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32293725) |
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Date: January 4th, 2017 12:20 AM Author: Cheese-eating macaca I'm buying a house straight ca$h next week (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32293788) |
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Date: January 4th, 2017 12:49 AM Author: Low-t Brass New Version Parlour Maybe pay 150k off to get to 50% equity?
I think that is a strong psychological place to be without sacrificing the tax efficiencies discussed earlier and your low, fixed rate while leaving you open to other options and cushioned with more significant liquidity.
From there you have 700k cash so maybe buy a 400K piece of RE that has a 8-10% cap rate all cash, so thats a couple of grand net of management per month in the mail which can theoretically reduce your monthly nut materially. Maybe get a line on the building from a bank you want to develop a long term relationship with but you dont use it.
Then maybe put the remaining 300k somewhere in a few HY CD's for a year or so and chill/see what develops, dont let it burn a hole in your pocket
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Date: January 4th, 2017 1:57 PM Author: Magical puppy put it all on banker at hollywood park (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32297194) |
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Date: January 4th, 2017 10:14 PM Author: shivering rigor I actually used to do that when I was like 20 and had my fake ID. My brother and I would take 5k each and bank. (http://www.autoadmit.com/thread.php?thread_id=3479960&forum_id=2#32300840) |