What would you do if you have $400K in cash ? (Dallas: rent, loan)

[ChristieP]

Sell our current house and move to the Hill Country.

[justsomeguy]

I'd tell you what I'd do, man. Two chicks at the same time.

Seriously, I would diversify; use some for an investment property, some in equities, and some in cash/money market/high-yield checking.

[pharpe]

Originally Posted by MckinneyOwnr

Not in this market environment, and not with interest rates being what they are.

Having a mortgage at 4%, with annual inflation of 2-3% means you'd have to find an investment paying greater than 7% to come out ahead. It can be done, but it's also more risk.

In this hot market in this area, paying off the mortgage is investing in real estate... which has been going up at 10% a year around here. It's guaranteed that you won't lose your equity in your home, at least for the next few years. Can't say that about the stock market.

First inflation doesn't have anything to do with it. It's actually your friend with debt because it makes overall value of your debt less.

Say you have a mortgage of $400,000 at 4%. You will pay 687,478 over 30 years. So if you pay off the loan you save yourself 287,478 over 30 years. That is your opportunity cost.

An investment of 400,000 with the return on an S&P index average for 30 years is 8,419,990.66. Over 8 million profit over pay the house off option.

Also, the 10% appreciation on the home is still working for you. Your home will appreciate the same whether it's paid off or not. It's a non factor. It's a simply the cost of money that you are looking at.

[ufcrules1]

Originally Posted by pharpe

An investment of 400,000 with the return on an S&P index average for 30 years is 8,419,990.66. Over 8 million profit over pay the house off option.

Yeah, but you know what they say: "Past performance isn't indicative of future results"
If you really trust the direction our country is trending and trust the market, I would agree the
smarter place to put your money is in the stock market. I personally don't and prefer to to invest
in real estate.

[MckinneyOwnr]

Originally Posted by pharpe

First inflation doesn't have anything to do with it. It's actually your friend with debt because it makes overall value of your debt less.

Say you have a mortgage of $400,000 at 4%. You will pay 687,478 over 30 years. So if you pay off the loan you save yourself 287,478 over 30 years. That is your opportunity cost.

An investment of 400,000 with the return on an S&P index average for 30 years is 8,419,990.66. Over 8 million profit over pay the house off option.

Also, the 10% appreciation on the home is still working for you. Your home will appreciate the same whether it's paid off or not. It's a non factor. It's a simply the cost of money that you are looking at.

Inflation has quite a bit to do with it. Yes, it does make the value of your debt less... the flip side is that it makes your liquid investments worth less too. Your investments need to beat inflation to be earning you anything... and your example using the S&P is probably figured on a 7 or 8% return, neglecting inflation. So take that number and divide it in half. Then be more realistic and realize that the stock market has been great the past 6 years... We are due for a correction.

Originally Posted by ufcrules1

Yeah, but you know what they say: "Past performance isn't indicative of future results"
If you really trust the direction our country is trending and trust the market, I would agree the
smarter place to put your money is in the stock market. I personally don't and prefer to to invest
in real estate.

Bingo, especially in this area.

If I were younger, I'd invest more of the $400k. But I already have a healthy amount of investments, and what I care about is financial security... If I died tomorrow, I'd want my house paid off so my wife and child wouldn't have to move unless they wanted to.

[Ishad]

Pay off student loans. Get big mac value meal with the remaining money.

[hell_storm2004]

A Ferrari and save the rest for its repairs!

[aggie972]

Originally Posted by ufcrules1

Yeah, but you know what they say: "Past performance isn't indicative of future results"
If you really trust the direction our country is trending and trust the market, I would agree the
smarter place to put your money is in the stock market. I personally don't and prefer to to invest
in real estate.

Real estate isn't somehow immune to macroeconomic forces. If the market crashes and the country tanks, house prices will plummet because nobody will be able to pay a lot of money for a house.

Personally, I'd give some money to my mom and invest the rest in S&P index funds.

[pharpe]

Originally Posted by MckinneyOwnr

Inflation has quite a bit to do with it. Yes, it does make the value of your debt less... the flip side is that it makes your liquid investments worth less too. Your investments need to beat inflation to be earning you anything... and your example using the S&P is probably figured on a 7 or 8% return, neglecting inflation. So take that number and divide it in half. Then be more realistic and realize that the stock market has been great the past 6 years... We are due for a correction.

Inflation is going to hit both uses of the money. It decreases the significant of debt or gains. You don't just apply it to one side of the equation. If you are using the same principle and time range to value both options inflation is not a factor. It nets out. If you were talking TVM then yes. 400k today is not equal to 400k in 30 years doe to inflation but that is not the question.

As for risk, all investments carry risk even real estate. That was just a simple example with moderate risk level. The point is you should be able to grow you money at a rate better than what you can lock in a mortgage for depending on the risk level you are willing to accept.

[Allison81]

Pay off my own home! Then make my backyard AWESOME!!! Then, go shopping for clothes. Do I win something now for answering this question? LOL