Paid Off Homes (million, deposit, financing, deductible)

[Thatsright19]

Originally Posted by kyam11

Let me explain it because they did a poor job. You are talking about slating $100K in risk free scenarios.


You have defined that you want to put $100K in risk free things only. If it was to pay a 4% mortgage off or put in a 3% CD you would be better paying the mortgage off (assuming you did not need the cash for something else). This is what I chose to do.

I could go get a $1,300,000 mortgage (or however much they would give me for my house), but the problem is I would only put that money into what I consider a risk free investment. At this point that means a 3% CD or whatever the rate is. Makes no sense.

If I was going to designate that money for the market and was leaving it there for 10 years then it might make sense to do it.

It is why professionals understand about risk tolerance and understand about risk adjusted returns.

I would also never take $100K and pay off my house if I only had $100K. If I had $1M I probably would pay off my $100K mortgage.

IN your scenario if you have $100K and put into a CD you end up with $103,000 at the end of the year. You also have paid let's say 4% or $4000 in interest. (This is rough math due to not wanting to amortize). Let's assume it was an interest only loan for this purpose and assume your home is worth $100K exactly.

Doing the CD approach you end up with a $100K asset (and still owe $100K on it) and $99,000 in the bank (roughly). Your net worth is $99,000

If you just paid the mortgage off you would own a $100,000 asset and have $0 in the bank. Your net worth is $100,000.

Why is this mythical loan “interest only” with the principle not being paid down?

Care to explain what happens to the net worth in year 2? Year 3?...suddenly having income producing assets starts to matter more than eliminating an expense.

[kyam11]

Originally Posted by Thatsright19

Why is this mythical loan interest only with the principle not being paid down?

Care to explain what happens to the net worth in year 2? Year 3?...suddenly having income producing assets starts to matter more than eliminating an expense.

Math purposes only as stated multiple times. It was also stated interest only loan. In real terms some of the cash would have decreased and some equity would have increased giving you a net $0 difference. $1000 paid off in principal for example would have left you with $98,000 in cash, and you would have still had a $100,000 asset with $99,000 owed. In the end net worth is the exact same $99,000.

I never advocated for one over the other. I simply showed the math. It was not my scenario.

Your last sentence is wrong at times. Depends on the income producing assets rate of return and the risk level of the return and the risk tolerance of the person.

[Jim1921]

Originally Posted by UnfairPark

Is there a website with information about percentage of paid off homes in every town? Just for fun, to see which town has more fiscally responsible crowd.

I haven’t looked at a few quoted numbers, but the underlying data was not very strong. When looking at an associated topic (cash buyers), there is a bit more out there.

Fewer Cash Sales, Investor Buyers, and Distressed Sales in 2017

https://bdmag.com/markets-least-cash-buyers/

https://www.businessinsider.com/home...anging-2017-12

[mathjak107]

Originally Posted by SuiteLiving

I'm not sure what accountants you hang out with but they didn't pass the same exam I did.

First of all, cancelling cable is not the same thing as eliminating a liability from your balance sheet. If you believe they are the same, then you fundamentally haven't a clue about accounting.

Stock buybacks produce no revenue, yet companies evaluate the deployment of capital based on the ROI that a stock buyback is expected to produce.

In most instances, an investment in technology produces no revenue, yet software is always sold accompanied by an ROI analysis of what the customer can expect to get for its investment.

Stock buy backs have value as they increase my net worth which increases my actual income since I am retired and draw is based on that value.

Anything that increases either gross income or net worth by appreciation can be considered one and the same . Bills are a liability they do not go on the income side ever. My net worth in liquid assets determines my safe withdrawal rate in retirement not just the income stream itself. So buy backs are a plus as well as anything that translates to increased gross income for me.

As to why am I so emphatic about what is cost cutting vs income generating .

I have been active on retirement forums for more than a decade. I have seen way to many seniors concentrate on cutting cost while neglecting growing the income side . To them they appear one and the same but eventually this confusion comes back to burn them as that difference eventually becomes very apparent and leaving these people with the mis-impression that reducing expenses is the same as growing income is not a good idea.

There is great importance on doing both and mixing up the two sides is not good.

As an example the homes we bought in the 1970’s were 30-35k . That was a lot of money back then . But today that paid off mortgage means little anymore when it comes to affordability when taxes are 12-15k and there is nothing left to cut .

That mortgage that that no longer exists in today’s dollars barely represents the utility bill today .

So the fact they did this cost cutting and neglected the investing side has left them in a bad spot and many are now being forced to leave .

So cost cutting should be left as cost cutting and the function of actually investing in assets that can grow income beyond the other expenses is very very important .

[SuiteLiving]

Originally Posted by mathjak107

Stock buy backs have value as they increase my net worth which increases my actual income since I am retired and draw is based on that value.

Anything that increases either gross income or net worth by appreciation can be considered one and the same . Bills are a liability they do not go on the income side ever. My net worth in liquid assets determines my safe withdrawal rate in retirement not just the income stream itself. So buy backs are a plus.

As to why am I so emphatic about what is cost cutting vs income generating .

I have been active on retirement forums for more than a decade. I have seen way to many seniors concentrate on cutting cost while neglecting growing the income side . To them they appear one and the same but eventually this confusion comes back to burn them .

There is great importance on doing both and mixing up the two sides is not good.

As an example the homes we bought in the 1970’s were 30-35k . That was a lot of money back then . But today that paid off mortgage means little anymore when it comes to affordability when taxes are 12-15k and there is nothing left to cut .

That mortgage that was so cheap that no longer exists in today’s dollars barely represents the utility bill today .

So the fact they did this cost cutting and neglected the investing side has left them in a bad spot and many are now being forced to leave .

So cost cutting should be left as cost cutting and the function of actually investing in assets that can grow income beyond the other expenses is very very important .

Your personal bias for where the funds should be allocated does not make an apple an orange. You can be as emphatic as you want, it doesn't change the fact (as has been extensively explained already) that paying off the mortgage does produce a risk-free return on the money used.

Whether or not it's the appropriate use of the money in any situation is a separate discussion.

[mathjak107]

Then show us all where gross income increased by paying off that mortgage if it is the same as growing income via bond interest or any other investments. You can’t . Because it is a cost cutter not a growth in additional gross income. Gross income is the same and has not grown at all. Cost cutting simply increased the cash flow of whatever income was .

[SuiteLiving]

Originally Posted by mathjak107

Then show us all where gross income increased by paying off that mortgage if it is the same as growing income via bond interest or any other investments. You can’t . Because it is a cost cutter not a growth in additional gross income. Gross income is the same and has not grown at all

show me where its required to have gross income to have a return on investment? You can't.

[mathjak107]

you are talking it being the same as a bond. If you are comparing it to cutting the expense of a mortgage it will always add the interest to your gross income . Do you loan money in this country at negative rates?

[shokwaverider]

Math is a stock market investor. So based on the recent returns a 3% mortgage is a steal if you are making >5% in the market. For others like us who do not invest in the stock market, and are into capital preservation above all, a mortgage is a burden we do not want. We retired 10 years ago at the ages of 55 and 50 respectively. We could NOT have done it without a fully paid for home. So the decision, like most others is subjective.

[mathjak107]

It has nothing to do with the amounts of return. It is strictly the concept of mixing up cutting costs with additional income generation. They only appear the same until they don’t