JohnCushman
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Invest in hookers and blow 
Financial Advice
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Pucky Freak
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Using the 3% mortgage vs 6% investment logic, you should always remove all the equity from your house and plug it into the stock market. If the idea of living in a 200k house that you owe $200k on makes you uneasy, also consider the advantages of paying off your mortgage early:
-Once it’s paid off, you significantly free up your monthly expenses.
-You can’t get evicted
-The next housing bubble won’t put you underwater.
The investments my wife and I have avg about 9%/yr, but we more aggressively pay down the mortgage vs invest. A house we bought 3 years ago w/ 20% down we are on track to have paid off completely in another 7. At that point we’ll ramp up our investing with about 15 more working years to round out the nest egg.
Pucky Freak
Well-known member
Re: general financial advice, the best thing anyone can do is interview financially successful persons further down the road than you. There’s a way to go about it without being too personal or intrusive. There’s a lot of factors to consider (investing, insurance, career choice, savings, budgeting, etc) and it’s helpful to consult with someone who strings these components together well. I know broke doctors and wealthy welders.
I’ve heard a massive amount of worthless financial advice from broke friends, family members, teachers, etc, and sometimes when you’re exposed to such a consistent volume of crappy info over a many years you come to believe things and take them for granted and fail to consider there’s often a lesser traveled path that’s far more worthwhile.
Here’s what I discovered in interviewing a lot of successful persons:
1. The majority of persons who genuinely appear to have it made are leveraged so deeply in debt and have a net worth in the neighborhood of $0. Don’t be deceived by appearance of lifestyle. 95% of the vehicles in my parking lot at work are nicer than mine, with the majority of them being purchased new. I would not be at all surprised if only 5% of coworkers at my age were doing better financially though.
2. Some people cheated (insider trading, theft, tax evasion, illegal enterprises, etc.). I want to earn it, and enjoy it too.
3. Some people’s parents paid for nearly everything, or inherited a huge amount. I’m more interested in people who made it on their own.
4. There are multiple paths to wealth (business creation, investing, starting early, working lots of OT/2nd job, real property, etc, and it depends the individual which path(s) best fits their personally, lifestyle preferences, resources, abilities, etc.
I’ve heard a massive amount of worthless financial advice from broke friends, family members, teachers, etc, and sometimes when you’re exposed to such a consistent volume of crappy info over a many years you come to believe things and take them for granted and fail to consider there’s often a lesser traveled path that’s far more worthwhile.
Here’s what I discovered in interviewing a lot of successful persons:
1. The majority of persons who genuinely appear to have it made are leveraged so deeply in debt and have a net worth in the neighborhood of $0. Don’t be deceived by appearance of lifestyle. 95% of the vehicles in my parking lot at work are nicer than mine, with the majority of them being purchased new. I would not be at all surprised if only 5% of coworkers at my age were doing better financially though.
2. Some people cheated (insider trading, theft, tax evasion, illegal enterprises, etc.). I want to earn it, and enjoy it too.
3. Some people’s parents paid for nearly everything, or inherited a huge amount. I’m more interested in people who made it on their own.
4. There are multiple paths to wealth (business creation, investing, starting early, working lots of OT/2nd job, real property, etc, and it depends the individual which path(s) best fits their personally, lifestyle preferences, resources, abilities, etc.
406dn
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My wife and I from the get go were happy to live beneath our means, that was 40+ years ago.
Pay yourself first every payday.
Get your money's worth from your vehicles. My dad preached that early and often. I have driven more than one to the junk yard. We have always had the age of our vehicles staggered so that one is easily road trip worthy and the other at worst is suitable for knocking around town.
I had to overcome my mother's fear of the stock market. Once I did,,, it has been very good to us over the years. And I'm not afraid of individual stocks.
While you plan for tomorrow,, remember to live in the present as well. I have friends who were so intent on saving and waiting until retirement to have fun,,, only to realize they did not have any hobbies.
Pay yourself first every payday.
Get your money's worth from your vehicles. My dad preached that early and often. I have driven more than one to the junk yard. We have always had the age of our vehicles staggered so that one is easily road trip worthy and the other at worst is suitable for knocking around town.
I had to overcome my mother's fear of the stock market. Once I did,,, it has been very good to us over the years. And I'm not afraid of individual stocks.
While you plan for tomorrow,, remember to live in the present as well. I have friends who were so intent on saving and waiting until retirement to have fun,,, only to realize they did not have any hobbies.
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SAJ-99
Well-known member
But there are negatives too.
- Once that mortgage is paid off you probably have the majority of your net worth in the house. Your liquidity sucks. If you invested instead, you would have liquid (but volatile) assets. The expenses may be "freed" up, but the person will still need to invest for retirement. So maybe it isn't freed up.
- you can get evicted. You still have to pay insurance and taxes. Once the mortgage is gone, you have to pay the taxes yourself. You might be surprised (or might not) that there is a whole industry set up to pay delinquent tax payments so they can take possession of the property through a tax lien.
- True, but you might have just spent $200k on a house now worth $125K. Still not going to feel great.
I agee 100% that the numbers say you should alway put the money towards the highest returning asset. But what he should do is based on what makes him feel most comfortable. I am like you, everything is fully paid for even though it is not economically rational to do that. I still "pay" the equivalent to the previous mortgage into an investment account. I try to find a way to justify it, but I know it isn't rational. The human mind does funny things.
Art Vandeley
Well-known member
Another option I’m looking at is refinancing to a 15 year mortgage at a lower interest rate which would save a big chunk of change on the cost of the loan.
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Pucky Freak
Well-known member
-A lot of your points are tempered if you don’t buy too much house. I have a very affordable house, and pay down the principal, and also invest to the point where the house isn’t the biggest asset. If I can’t pony up the $180 monthly property tax bill I’ve got a lot more serious problems than where to allocate my extra funds to build wealth.
-It might be advantageous to have your residence be your biggest asset in some scenarios anyways, such as rapidly increasing property values in some locations.
SAJ-99
Well-known member
So a housing bubble is both a positive and a negative in the same context? I owned a house in the last housing bubble and I didn't find anything advantageous about it. If I sold it at its inflated value I would have to buy another house at an inflated value. I could rent, but those values were inflated as well and the wife was not big on the idea
. If you want to invest in RE and hope for another housing bubble I wish you luck. Especially given we currently are probably in the second housing bubble of my life time, and ironically, the second in the last 100 yrs.SAJ-99
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I took it as he is asking what the impact is on each incremental extra dollar. In that case it really doesn't matter what price house he buys.
406dn
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That is how we financed our first home. That got us to a place where we could get our kids educated without taking on debt.
SAJ-99
Well-known member
The thing I notice with your questions is that you want to pay off the loan as quickly as possible. The way to think about a 30yr vs 15yr is that you can take a 30yr mortgage and pay it off in 15yrs if you pay the same principal amt in the 15yr amortization schedule. the interest will be higher, but the time frame the same. The 30yr gives you the option to have a lower required payment. The cost of that option is the difference in the rate between a 30yr and 15yr.
The end result of any of this is that there is no "right" answer. Just the answer that is right for you. The mortgage is a fixed cost. The return on investing is variable, and maybe your income is variable. Having variability versus a fixed liability is the definition of risk. You have to figure out what level of risk you are comfortable taking.
npaden
Well-known member
What you seem to be missing in your calculations is the $200,000 up front in your pay down the mortgage calculation. In your invest $300/mo for 30 years you don’t have $200,000 invested up front. That would skew the numbers heavily in favor of the invest instead of pay down the mortgage option. Pure math is simple, determining what the returns are going to be and how you feel about having a mortgage vs not having a mortgage is also a factor.
A few things that have been mentioned that I think are very important.
By the time you are around 40 your house should not be your largest asset. Your retirement funds should be. In my opinion if that isn’t the case then you have too much house.
Which kind of correlates to something else that has been mentioned and that is not to buy to much house. There are these things called starter homes. They are called that for a reason. You need to not be spending huge amounts of your income on a mortgage early in your career. You need to be saving huge chunks for your retirement early. Time value of money and all that.
Don’t buy brand new vehicles if you can’t afford them. If you do buy new vehicles don’t be trading them in every couple years.
Last I 100% agree with charitable giving. That is actually the first thing in my budget before anything else.
I think it teaches you a lot about yourself and what is really important in life.
My 3 cents. Lol. Nathan
belshawelk
Well-known member
-I started my 401k 30 years ago with the minimum to get company match. 3%. Every year since then I take 1/2 my raise and added to it. 30 years later I contribute 15% and max out my maximum every year $17,500. Now I can add to it since I am over 50 and put in $21,500. By putting in half your raise you’ll never miss it. Let’s just say it’s worked very well. Has lot to do with investment options.
- I hired a really good investment guy.
- I am very diversified
- Bought lots of property and rental house.
- use property so it’s investable and gets returns or tax deferral ( agriculture)
- start college plan early ( it paid for all my oldest undergrad). Now in law school but that’s a different conversation.
- try not to live in a craphole tax state like I do ( Oregon)
All of the above is fine but for me it’s been a about a solid foundation in giving tithes and to charity. None of the above isn’t possible without being blessed. Period.
- I hired a really good investment guy.
- I am very diversified
- Bought lots of property and rental house.
- use property so it’s investable and gets returns or tax deferral ( agriculture)
- start college plan early ( it paid for all my oldest undergrad). Now in law school but that’s a different conversation.
- try not to live in a craphole tax state like I do ( Oregon)
All of the above is fine but for me it’s been a about a solid foundation in giving tithes and to charity. None of the above isn’t possible without being blessed. Period.
Irrelevant
Well-known member
The idea that your house isn't your biggest asset is a non western idea. At 40 your 401k may not be 500k, but a 3 bed "cheap" house may be.
elkfever2, npaden, saj99, neffa, others.
You fellows have all given excellent advise . I did just want to add that real estate can be a very profitable way for retired people to not just enjoy their golden years, but it is also a way to "eat your cake and have it too" I have decided not to sell any blue chip holdings but to save them for children and grandchildren and just recently even great grandchildren have been added to my game plan. I also have not sold any real estate while enjoying the fruits of our labor ( or real estate investing ) when younger, working, building.
We leveraged or bought with as little down a possible, took all the depreciation available to us each year ( taxes ) and let each real estate investment pay itself off. Mini Apartment buildings ( less than 20 apartments with one being for the manager of the apartment ) Now paid off, they provide my wine and cheese money---plus--they are all worth more today than when they were purchased. We also bought industrial warehouse either on or as a close to a port a possible, as they aren't making any more waterfront property ( that was at least our reasoning at that time ) Our other land investment that has paid off for us was timber land. So far we have cut it when we bought it, cut it again approx 5 years ago, and our children will be able to cut it again in approx 20 years and then grandchildren, etc.
AND, dont try to navigate this--buying, renting, depreciation, maintenance, etc--alone----hire a tax attorney, they will more than pay for themselves And look for areas that will increase in population --why would people move there in the future---we always bought just outside of town and they are all, in town, now.
I make this post so that anyone reading this thread will not think of real estate investing as "only" the home you live in.
While I am here. We have also made a bit of money on IPO's which is something else you could look at. We have LOST some also on this investment vehicle, but as of today I am ahead. I also, if the market ever quits going up, will sell "puts" again. I am just not comfortable having a stock put to me at these historic highs, even if it goes down 10 to 20 %
I assume all you Kiss, Grateful Dead, and Blue Oyster Cult groupies have invested heavily into the marijuana companies And if you did--Bravo !
You fellows have all given excellent advise . I did just want to add that real estate can be a very profitable way for retired people to not just enjoy their golden years, but it is also a way to "eat your cake and have it too" I have decided not to sell any blue chip holdings but to save them for children and grandchildren and just recently even great grandchildren have been added to my game plan. I also have not sold any real estate while enjoying the fruits of our labor ( or real estate investing ) when younger, working, building.
We leveraged or bought with as little down a possible, took all the depreciation available to us each year ( taxes ) and let each real estate investment pay itself off. Mini Apartment buildings ( less than 20 apartments with one being for the manager of the apartment ) Now paid off, they provide my wine and cheese money
---plus--they are all worth more today than when they were purchased. We also bought industrial warehouse either on or as a close to a port a possible, as they aren't making any more waterfront property ( that was at least our reasoning at that time ) Our other land investment that has paid off for us was timber land. So far we have cut it when we bought it, cut it again approx 5 years ago, and our children will be able to cut it again in approx 20 years and then grandchildren, etc.AND, dont try to navigate this--buying, renting, depreciation, maintenance, etc--alone----hire a tax attorney, they will more than pay for themselves And look for areas that will increase in population --why would people move there in the future---we always bought just outside of town and they are all, in town, now.
I make this post so that anyone reading this thread will not think of real estate investing as "only" the home you live in.
While I am here. We have also made a bit of money on IPO's which is something else you could look at. We have LOST some also on this investment vehicle, but as of today I am ahead. I also, if the market ever quits going up, will sell "puts" again. I am just not comfortable having a stock put to me at these historic highs, even if it goes down 10 to 20 %
I assume all you Kiss, Grateful Dead, and Blue Oyster Cult groupies have invested heavily into the marijuana companies
And if you did--Bravo !WesternRookie
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Worked for Hunter BidenInvest in hookers and blow
NEWHunter
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I’d worry about what to do with that $300 after you get your refi done. 30 year rates are 3% or less and 15 year are 2.5% or less right now. Good money to be saved if you’re at 3.75%. Get that rate locked in - good luck.
SAJ-99
Well-known member
I think that is a great way to do it, but keep in mind you had 40yrs of declining interest rates to provide a tailwind to that strategy. I don’t see any reason interest rates will rise, but anything is possible. Your strategy in a rising rate environment will not have the same result.
Irrelevant
Well-known member
While I'm super happy it worked out for you @Europe, but on the other side of the coin our family had a enough disasters to keep me from ever owning a rental. I can't remember how many "Managers" didn't manage but skimmed a few more $ off the top than they said, how many homes were almost completely destroyed by renters who didn't care about anything, and often disappeared after trashing a place, how many midnight phone calls we dealt with. And now here in WA you can't evict someone thanks to COVID restrictions. Being a landlord is great when it's great, and but can also be a great way to part with your time and money.
RobG
Well-known member
Art - I get roughly the same numbers you do. SAJ-99 made a really good point that you only have to look at the difference at the point the loan is paid off. Investing at 6% is always better than investing at 3.75%, but 3.75% is guaranteed and 6% is not, which can be important. On the other hand you have to pay taxes up front on the money used to get that 3.75%, etc. You can make this complicated and optimize things, but I bet your best option is to make the biggest monthly contribution you can into an S&P500 index fund in a 401k or IRA. For the first ten years the amount of money in your account is mostly determined by the amount of your monthly contribution.
It really helped me to learn about the types of asset classes and bond yields/duration/pricing/risk so I could make informed choices. Then spend some time learning about taxes (income vs capital gains, etc) and ways to avoid them. Bogleheads are good at that. Once you are comfortable with those things maybe revisit optimizing things.
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