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My mother recently passed away, leaving a multiple of enough money to pay off our relatively small mortgage, around $65,000. A financial adviser I talked to advised not doing this since having no outstanding debt would lower my credit score, which now stands in the 700's.
Irrelevant. We are discussing own with vs. without a mortgage, NOT rent vs. own!
Only the last line was "irelevant ". Sorry, I'll try to do better staying on track, your majesty . If anything, your post pointing it out contributed nothing what so ever. Kettle, pot...pot, kettle.
My mother recently passed away, leaving a multiple of enough money to pay off our relatively small mortgage, around $65,000. A financial adviser I talked to advised not doing this since having no outstanding debt would lower my credit score, which now stands in the 700's.
get another advisor ,that is bull . i am in the 800's and have not owed a penny in decades. i only use credit cards and pay them off each month.
No housing expense. If I didn't own the place outright, it would cost me about $2k a month to live here. It's a particularly sweet deal because the return is 100% tax free. If I was working for a company that provided housing like this, I would have to pay tax on the compensation, probably at least 20% in addition to what I earn. Because I own it, no taxes, minimal expenses, and even the property tax is deductible. It's a really sweet ROI that does not require sale of the property.
get another advisor ,that is bull . i am in the 800's and have not owed a penny in decades. i only use credit cards and pay them off each month.
Likewise. I have credit cards that are paid off every month so I don't pay interest. Other than that I don't owe anybody anything. That's adequate to keep my credit score very high.
No housing expense. If I didn't own the place outright, it would cost me about $2k a month to live here. It's a particularly sweet deal because the return is 100% tax free. If I was working for a company that provided housing like this, I would have to pay tax on the compensation, probably at least 20% in addition to what I earn. Because I own it, no taxes, minimal expenses, and even the property tax is deductible. It's a really sweet ROI that does not require sale of the property.
someone needs some basic accounting training.
there is no roi on a consumption expense ! cutting your housing costs is never the same as generating more income. cutting expenses may improve EXISTING cash flow but it adds not 1 penny more in income hense no roi from consuming something yourself that cost you money unless you sell it...
it is like saying if i cut my electric bill in 1/2 it is tax free income. noooooo it is reducing an expense and improving EXISTING cash flow .
the major difference between cutting an expense and generating income is there is a floor to cost cutting , once there is nothing left to cut your cash flow can't improve any more.
income generation has no cap. that is why wall street looks at profits which can come from cost cutting as well as revenue growth.
cost cutting appears the same as income generation only for a while. once costs are at rock bottom and expenses rise cost cutting no longer improves cash flow.
in fact by consuming that home it can be said it is costing you the rent you are not collecting by renting it out . if you could live with mom and dad you would be getting that income.
the fact you need a place to live and can't rent it out is costing you the rent you are not getting on that money you invested in the place . there is no roi when you consume something yourself , there is only cost cutting and cash flow..
there is a reason expenses go on one side of a balance sheet and income on another.
if i bought i ford escort instead of my bmw i wouldn't say the difference in cost between the two is like income and has an roi. no i would say i saved myself x amount of dollars a month and have more existing cash flow. key word being existing. that is no different when it come to expenses of renting or expenses of owning.
someone can go from a 3 bedroom rental to a 1 bedroom and see better cash flow then you do owning . it is all cost cutting.
if the day ever comes that you are no longer consuming that house well then you can sell it and after adding up a lifetime of housing costs see if you made money or it cost you more , then there is an roi . more than likely a lifetime of housing costs will cost you more eventually than any residual value your final home my have.
don't forget the clock does not stop because you sold a house and bought another instead. those costs of housing you keep adding up the same as a life time of rent would.
when we had our 2nd home it not only cost us 10k a year to keep going but it cost us another 10k a year in income we gave up by tying up the money in the house instead of a muni bond .. i wouldn't go i am saving 6k a year because i don't have a mortgage and paid cash . no the mortgage just would have increased expenses.
the question actually is in the end who spent more for housing and it isn't always the renter even figuring that residual value on the house.
Last edited by mathjak107; 05-25-2015 at 03:58 AM..
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.
No, except for tax considerations. The impact that selling assets has on your net worth is exactly the same (again, barring tax effects) as forgoing the purchase of the assets.
What it does do is make one better able to have a higher risk tolerance by improving the equity/debt ratio.
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