Author Topic: What if financial question scenario (Read 292 times)

1K0N · « **on:** May 19, 2004, 10:45:47 AM »

For the guys on the BBS with financial experience I have a question/scenario?

You have a mortgage at 5% with 15yrs left at $1050 per month

and received a gift equal to the balance of the mortgage.

Do you pay the mortgage off with the gift? Or invest the money and hope you do better than 5% a year?

Now the variable in my opinion is that without a mortgage on your back eating at you everyday the freedom to do other things makes paying off the mortgage well worth not having the investment

The only draw back is that one wouldn't be able to deduct interest from the tax return possibly putting the person into a higher tax bracket.

Any opinions?

IKON

Ripsnort · « **Reply #1 on:** May 19, 2004, 10:50:57 AM »

I would imagine the interest you pay on the loan is substantially more than the tax break you get on that interest.

Pay off the house.

Oooh, to have a $1050 mortgage again...

1K0N · « **Reply #2 on:** May 19, 2004, 10:54:48 AM »

Quote

Originally posted by Ripsnort
I would imagine the interest you pay on the loan is substantially more than the tax break you get on that interest.

Pay off the house.

Oooh, to have a $1050 mortgage again...

It seems a simple answer... Have had a few answer no, invest, but their reasoning is weak at best...IMO

IKON

Toad · « **Reply #3 on:** May 19, 2004, 10:57:22 AM »

Depends on what you do with the $1000/mo after you pay off the mortgage. If you spend it on faster horses, younger women and older whiskey...... you won't be gaining much.

Any chance of taking the gift and investing it in something that makes you money? Can you buy a rental house for that amount and have income? You can roll a deal like that. Buy rental, put 25% down on it, have a positive cash flow, buy another rental, put 25% down on it, have a positive cash flow and so on.

Or a liquor store or whatever.

1K0N · « **Reply #4 on:** May 19, 2004, 12:21:21 PM »

Quote

Originally posted by Toad
Depends on what you do with the $1000/mo after you pay off the mortgage. If you spend it on faster horses, younger women and older whiskey...... you won't be gaining much.

Any chance of taking the gift and investing it in something that makes you money? Can you buy a rental house for that amount and have income? You can roll a deal like that. Buy rental, put 25% down on it, have a positive cash flow, buy another rental, put 25% down on it, have a positive cash flow and so on.

Or a liquor store or whatever.

I had a rental unit that produced serious cash for years, but...
The last renter was a young very attractive women about 28 with a good job as a graphic designer. Her and her boyfriend of the month started doing "beans" and "heroin" and next thing I now I have 2 drug addicts as tennants, she starts topless dancing and turning late night tricks in the rental, then I have a fricken swat team outside and the Sheriff is threatening me the landlord because of the problems with the tennant..
When I finally get them to move out, they took the cloths on their backs and said I could keep what ever was left.
Cost me 10k to replace and repair the damage to the rental..
I never new spilled Bong water could do as much damage to a concrete slab as it did. Anyway rental income sounds real good until you figure in possible damages. I was bitten hard on that deal I guess.

IKON

Gunslinger · « **Reply #5 on:** May 19, 2004, 12:26:45 PM »

I would pay off the house and find a requrring investment for half of the $1050. The other half I would pay down other debts that you have higher intrest on (if applicable) If not I'd get back into the rental property business.

Toad · « **Reply #6 on:** May 19, 2004, 12:26:51 PM »

Maybe a carwash?

Yeah, bad renters are bad news. Been there.

Midnight · « **Reply #7 on:** May 19, 2004, 12:37:50 PM »

Pay off the Mortage and be done with it.

You may be able to invest and get better than 5%, but how much better? In order to be worth it, I would say you would need to make at least 7% return on investment, which is possible, but certainly not garenteed.

COnsider how much tax break you get for the mortgage payment interest also, you could add that onto the % yeild from investment.

Also, consider that with the mortgage paid, you cold take that $1050 each month and invest it in whatever you want, vs. if you take the lump sum and invest, it might be hard to make portfolio changes, like if you put it in an IRA or group investment (i.e. 401K plans)

The choice is yours, but I go with the certain thing. Pay off the mortage and never worry about loosing the place you live due to job loss or whatever. Invest as you go.

rpm · « **Reply #8 on:** May 19, 2004, 02:51:43 PM »

What's a mortgage? I paid cash.

capt. apathy · « **Reply #9 on:** May 19, 2004, 02:53:40 PM »

seems like the ability to deduct the interset you pay would be offset by the fact that you'd be paying taxes on the interest you make.

it's amazing how many people I meet who are very proud of how much interest they are making on their investments, but then you find out that they have a simular sized amount of credit card debt that is charging a a few % more than they make on the investments.

maybe I'm being overly simplistic, but I avoid debt like the plauge. I rarely buy anything I can't pay for up-front. if you're in a position to own your house 'free and clear', I'd jump at it. then take the amount of your mortgage payment and pay that to yourself every month for investing.

Lizking · « **Reply #10 on:** May 19, 2004, 04:20:50 PM »

Yeah, RPM, but we don't all live in cardboard boxes under the overpass.

Your tax situation is just as important as anything else. Do you currently cut a check every year, or get one back?

mosgood · « **Reply #11 on:** May 19, 2004, 05:24:56 PM »

Use the money to make down payments on 1 or more other houses and rent them out to pay the mortgages.

This isn't unrealistic... very doable
ya you can get bad renters... thats why you use a property management company that handles this stuff. they know how too.. cost about 10% of the rent money.