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Old 05-24-2015, 04:02 PM
 
6,241 posts, read 4,725,740 times
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Quote:
Originally Posted by ncole1 View Post
I think jrkliny could make even more money by borrowing against the crystal ball.
I have already made $37K profit in 2 1/2 years and that does not include the roughly $5K savings in income taxes for the past 2 years. $43K ahead in 2 1/2 years after paying interest and principal is a nice return. That is a higher by a little bit than what I expect to get on an average basis over the 30 year mortgage.

That profit is not some risky attempt to maximize profits. Instead it is a balanced, roughly 60:40 allocation. If I had invested 100% in the stock market I would be ahead by $60-70K on a $300K mortgage. Of course my returns will keep compounding over the years.

This is not complicated. The only uncertainty is the amount of returns I will get for any specific time period. According to the Monte Carlo calculations, my odds of making a profit were in the 90+% range at the start of the mortgage. Since I have done well at the start of the mortgage, my odds of success are now virtually 100%.
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Old 05-24-2015, 04:38 PM
 
Location: Myrtle Creek, Oregon
12,233 posts, read 12,495,497 times
Reputation: 19379
Quote:
Originally Posted by ncole1 View Post
Property taxes, maintenance, and (depending on your definition of "cost") opportunity cost can be quite large.
Can be, which illustrates that people need to evaluate the true cost of owning a home, vs. just diddling with investing their mortgage. It takes a spreadsheet to figure the angles. Property taxes are deductible. Insurance can be a major expense, depending on what the lender requires. "Opportunity cost" is an odd term, since I am at a loss to name the return. I bought my place in 1994 and have had it paid off for years, which means it has been virtually free living. Property taxes in this area are trivial ($1500/year) and homeowner insurance with a $10k deductible is also trivial ($850/year). On the black side of the ledger, I logged about 20 acres in 2013, and my net after all expenses was $49,000. That paid for a new roof, and some of it is still sitting in the bank as ready funds.

I haven't touched my retirement accounts yet because, with two pensions, two SS claims and no debts, it can just sit there until the feds start making me take distributions. That extra 5 years of earnings has made a big difference in the paper balance. If I had to make mortgage payments I would be tapping savings, though probably non-sheltered investments.
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Old 05-24-2015, 05:06 PM
 
Location: Myrtle Creek, Oregon
12,233 posts, read 12,495,497 times
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Quote:
Originally Posted by jrkliny View Post
No without a mortgage, the homeowner already paid that amount and no longer has it.
And with a mortgage you spent a bunch of money you didn't have.
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Old 05-24-2015, 05:10 PM
 
Location: Myrtle Creek, Oregon
12,233 posts, read 12,495,497 times
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Quote:
Originally Posted by honobob View Post
Exactly! The money is STUCK in the house earning NOTHING just as if it were under the mattress only way less liquid.
My paid off house returns about 10% per year on the original purchase price just in a free place to live, plus whatever appreciation I may someday realize. That's hardly "nothing."
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Old 05-24-2015, 05:12 PM
 
71,517 posts, read 71,694,121 times
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jrk is correct.

as long as the spread is there he pays the mortgage and keeps the difference.

in fact as long as he does not have to sell assets to pay the mortgage and can wait for a recovery he will be ahead.

but if you are like most retirees with no pension the outcome will be quite different if you need to spend down those assets at a loss to pay that mortgage.
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Old 05-24-2015, 05:15 PM
 
71,517 posts, read 71,694,121 times
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Quote:
Originally Posted by Larry Caldwell View Post
My paid off house returns about 10% per year on the original purchase price just in a free place to live, plus whatever appreciation I may someday realize. That's hardly "nothing."
consider yourself lucky if you are getting 10% as an average on a home long term that you live in. the real return on residential real estate is only about 3% after inflation nationwide. we are not talking investment properties , that is something else

real estate results are very localized and no one can say what anyone else;s home will do.
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Old 05-24-2015, 05:17 PM
 
6,241 posts, read 4,725,740 times
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Quote:
Originally Posted by mathjak107 View Post
jrk is correct.

as long as the spread is there he pays the mortgage and keeps the difference.

in fact as long as he does not have to sell assets to pay the mortgage and can wait for a recovery he will be ahead.

but if you are like most retirees with no pension the outcome will be quite different if you need to spend down those assets at a loss to pay that mortgage.
This is an important point. Although I am making money, it would be risky to spend any of it at this time. I need to build a substantial nest egg so that I do not need to sell assets in order to cover the mortgage costs. The profits will be money that I can use years from now.
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Old 05-24-2015, 05:17 PM
 
Location: Myrtle Creek, Oregon
12,233 posts, read 12,495,497 times
Reputation: 19379
Quote:
Originally Posted by jrkliny View Post
Not when I have a return that is way beyond the cost of the mortgage. At the end of my 30 year mortgage I am likely to have 2 or 3 times the amount of the mortgage in my portfolio and that of course is after paying the principle and interest.
Don't be too stubborn to change your strategy when the return makes it a loser. Your horizon is a lot shorter than 30 years. You will be lucky to last 5.
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Old 05-24-2015, 05:18 PM
 
71,517 posts, read 71,694,121 times
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Quote:
Originally Posted by jrkliny View Post
This is an important point. Although I am making money, it would be risky to spend any of it at this time. I need to build a substantial nest egg so that I do not need to sell assets in order to cover the mortgage costs. The profits will be money that I can use years from now.
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Old 05-24-2015, 05:19 PM
 
Location: SF Bay & Diamond Head
1,779 posts, read 1,418,471 times
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Quote:
Originally Posted by Larry Caldwell View Post
My paid off house returns about 10% per year on the original purchase price just in a free place to live, plus whatever appreciation I may someday realize. That's hardly "nothing."
Please explain where the 10% per year comes from.
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