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I like unencumbered primary residences, and particularly for retirement.
Add to that, you state that you already have a solid portfolio, and that you don't NEED to borrow to buy.
It certainly does not have to be an either/or consideration.
Another angle:
If you want to invest, buy the house outright with cash, and regularly put the principal and interest amount of a monthly payment into a solid dividend paying stock.
Dollar-Cost Average those payments into investment vehicles, and in 15 years, your home will still be paid off and you will have a nice balance in built up.
One example:
$1500/month X 180 months = $270,000, plus any accrued stock price appreciation and dividends.
Time is your biggest friend when investing in markets .. time basically takes a volatile risky asset and makes it one of the most predictable with few exceptions. The less time you give yourself the less the effectiveness of time and the more pressure you put on your time frame to do well in a shorter period of time .
So delaying investing while you channel more money in to a house puts a whole lot more pressure on the shorter time frame being successful. In short it can be a poor idea to delay investing in the accumulation stage.
Far to many make a thrust in to paying for a house they don’t have to or accelerate the payments and end up house rich and to cash poor or just not doing as well as they could have for that final outcome before retiring because they lost the value of time in their market investments.
Dollar cost averaging is the least efficient way of buying in . Markets are up 2/3’s of the time and down only one third .
If dollar cost averaging worked well we would all hit our desired allocation and sell everything and start from zero again . You can see that would not be a good idea . We dollar cost in when we have no choice .
As far as stocks go ,it is all about total return . Markets don’t care if you return is made up of appreciation ,dividends or a combo .
Tax wise dividends are the least effective way to draw income from stocks unless you are in the zero capital gains bracket
Last edited by mathjak107; 10-06-2018 at 04:53 PM..
Mathjak...
The OP is looking for alternatives.
Whether scheduled investments or some strategic timing, the OP should see that cash purchase and smart investment going forward are not mutually exclusive approaches.
Even in a low return investment scenario, the OP can own an unencumbered property and build up significant additional equity in an investment portfolio.
If the current mortgage rate is 4-5%, and you are a conservative investor, then you probably will break even if you pay cash. My next house will be cash. I will need the $600. payment to live on.
Mathjak...
The OP is looking for alternatives.
Whether scheduled investments or some strategic timing, the OP should see that cash purchase and smart investment going forward are not mutually exclusive approaches.
Even in a low return investment scenario, the OP can own an unencumbered property and build up significant additional equity in an investment portfolio.
Everything has a cost to it . Channeling more money then you need to in to a house financially will not be the best choice if your plan is to also invest because the earlier the better. Investing needs as much time with as much money as you can invest .
It is counter productive to fill up the house at an accelerated pace because then you lose time and that makes your investing outcome far more left to the whims of markets .
Almost all typical accumulation time frames which span decades fall out within 2% of each other ... but shorten that time frame or dollar cost average in and all bets are off as to outcomes .
At retirement it is a personal choice which way to go . But in the accumulation stage , nope , you will hurt yourself more potentially trying to delay the investing portion or not comitting as much as you can as early as you can.
History and math says do not waste your accumulation stage by channeling more than you have to into the housing portion .
Last edited by mathjak107; 10-06-2018 at 05:11 PM..
Everything has a cost to it . Channeling more money then you need to in to a house financially will not be the best choice if your plan is to also invest because the earlier the better. Investing needs as much time with as much money as you can invest .
It is counter productive to fill up the house at an accelerated pace because then you lose time and that makes your investing outcome far more left to the whims of markets .
Almost all typical accumulation time frames which span decades fall out within 2% of each other ... but shorten that Tim frame or dollar cost average in and all bets are off as to outcomes .
At retirement it is a personal choice which way to go . But in the accumulation stage , nope , you will hurt yourself more potentially trying to delay the investing portion or not comitting as much as you can as early as you can.
History and math says do not waste your accumulation stage by channeling more than you have to into the housing portion .
The OP is clear in their status being adequate accumulation currently, that this is a decision rooted as much in their personal preferences as in academic exploration of maximizing their portfolio.
There's no wrong approach.
My comments were not to the op. The thread reads IF YOU COULD ., not if he should ,so these are comments intended as general knowedge for all who read it or who are deciding whether to pay cash or accelerate payments to a mortgage.
There are just certain ways of doing things financially that tend to provide superior outcomes more often than not . Whether you want to ,can or choose to are a different story.
I don’t give specific one one financial advice. My replies are always in general terms
So we are moving soon. We have been dealing with banks and all that and frankly I'm tired of it. We are about 50 in age and both of us have credit scores over 800. Recently we received an inheritance that would allow us to buy with cash. Yes, we have adequate savings and retirement funds that will not be touched.
I have been considering the difference between paying mortgage interest vs. income from investing. On the face of it, using the money for investments would likely give us a greater return than using the money to buy the house outright. Yet the idea of heading into our retirement years without a mortgage is appealing.
Interest rates keep climbing and we need to decide soon which way to go.
Opinions?
We're in the same boat, basically. We also have a home that is worth 3 times what we paid for it. We're looking to move somewhere and I've been wrestling with this same idea.
Every website I've came across said to basically weight the difference between how much you could make investing the money vs how much you'd pay in interest on a loan.
IDK, something about the idea of being 50 and not having a mortgage has real appeal. The only downside is that you basically take a huge amount of money and park it into a place that doesn't allow for much growth, depending on where you live of course, but overall it's locking the dough down.
The real deal is retirement is not the same as our accumulation stage . Cash flow becomes king for most of us not net worth . For what is likely our final homes ,what the appreciation is does not help us ..
Once the money goes in it is trapped . Only loans can be used to borrow against its value . So it becomes all about cash flow and expenses.
It is like if we buy a co-op we can save 6k a year over renting . But we will give up a minimum of 18k a year in just interest on that money now in the apartment.
Who cares what it appreciates , we are retired ,our cash flow is reduced by 12k a year
In our 40's we got a chunk of cash. We have a very good financial advisor. He told us to use it to pay off the mortgage of the home we lived in then. He said, "If I could think of a better way for you to invest that money, I'd tell you to put it there, but that's the best place." So we did. Later, we bought a farm (can't keep the horses five minutes from downtown Austin very well and board gets expensive after a while), and moved to it. It is now paid off - we put a big down payment when we purchased it, and then refinanced to a lower rate which lowered our payments, but we kept paying the same amount in extra principal (since we were used to making those payments) and shortened the length of time (and thus the interest paid) considerably. It is now paid off. We kept the house in town, not having to sell it to buy the farm because it was paid off, which is a rental house now and which is a source of welcome income (my husband is now retired), considerably more than the amount of money we paid it off with, though significant, would be bringing us every month. Because we are on a farm, we have lower taxes.
Which is to say, you can play what if until the cows come home, but every situation is unique and what is important to each person is unique - one size most definitely does not fit all. Something our financial advisor was careful to point out to us.
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