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Old 12-07-2009, 06:02 PM
 
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Quote:
Originally Posted by nicet4 View Post
It's like gaining an income that won't fluctuate.
No, it's like losing an income stream.

And even if I take your approach and consider the money not paid on a mortgage to be an income, the fact that it doesn't fluctuate is actually one of its biggest negatives. Even with modest inflation, that "income" you buried in the backyard is worth less and less each and every year. At 4% inflation, that income stream is worth only half as much in 18 years. Conversely, if you took out a mortgage and invested the difference, your investment would have grown and grown over time just by compounding. And you'd be paying off the mortgage in cheaper dollars that are worth only half of what they are today.
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Old 12-07-2009, 07:14 PM
 
Location: DC Area, for now
3,517 posts, read 12,056,039 times
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My plan is no mortgage in retirement. It greatly reduces the cash flow needed to live on. Debt costs a lot. I don't buy into the idea of paying lots of money in interest to gain less in investments. My ex bought into the interest and debt is good idea. Guess who is retiring and who isn't.

Besides, by not paying 1000's in interest, I still have extra money in retirement to save and gain in compounding interest, such as it is during this time of lousy returns. The bottom line is that I can live on a lot less with no mortgage than I can with a mortgage. So the 40% decrease in income is the same as my former salary.
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Old 12-07-2009, 10:15 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by nicet4 View Post
Nothing better than owning your own house, however humble it may be, and being debt free.

The big ones left are cost of property tax and homeowners insurance.

...
and others will say "nothing better than NOT owning a house"

1) full time RV'rs
2) those who are more comfortable renting and investing large chunks of equity, rather than owning
3) Those who can no longer maintain their house
4) Those who's property taxes have become 2-3x what their highest house payment ever was
5) Ones who are stuck trying to sell their house so they can pay for care, or move in with relatives.
6) folks who have lost the spouse that LOVED and cared for the house / gardens / location - and those who have a tough time dealing with the grief of a lifetime of 'house' memories.
7) those who's neighborhoods went to the dogs
8) folks struggling with stairs in their previous 'dreamhouse' / cold - old houses, extensive damage from storm or insects
9) those who become handicapped and can no longer safely live in their non-accessible home.
10) Those who are tired of the kids fighting over the 'family home'

... just a few of the things I run onto every week.
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Old 12-08-2009, 02:03 AM
 
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if you figure typically a 50/50 mix will return 6-7% before taxes which is all i would do at best being a retiree and about 5% for the mortgage with expenses before a tax deduction the 1 to 2% spread in my eyes for a retiree is probley not worth it.... unless i was going to get aggressive to really make some dough or because i needed more money to live on the risks out weigh the rewards for me.

many retirees live in some pretty low cost areas real estate tax wise and some dont even have a state tax so that mortgage interest may not even clear the standard deduction level and that can make the cost of borrowing even higher as they get nothing back in real dollars and cents from that interest payment.

like i said before i have a master plan for retirement which includes different building blocks.. a paid off house, a paid off car, certain insurances in place, my investments allocated in a bucket system. my investments allocated in certain asset classes in certain proportions. these all are very important building blocks to MY system of planning.

i wouldnt deviate from my plan at this stage to try to p/u a few extra bucks which arent crucial to my retirement . anything that adds more unneccassary risk then i need to take is a no no... ill leave the extra risk taking to those who still want to grow richer, im happy not growing poorer.


there are certain costs built into life, food , shelter, clothing, cable tv ha ha ... i wouldnt expect anyone of them to generate income for me or even appreciate. these are all consumption items or expenses if you will.
as long as we are living in it its a liability not an asset on my balance sheets for retirement purposes. i dont count it anymore then the jewelry we wear or the origional art work on my walls. the taxman may want to count it but to me these are consumption items until the day comes i no longer live in it. .

i wouldnt skimp on the food i eat or wear k-mart clothes if i didnt need the money as part of my plan... i feel the same way about my house. its not an investment, if it happens to be worth something when we die its a plus, but its not an income generator, its not an investment, its a place to live... i consider that money spent on my home the same way i consider what i eat and wear ,,,merely as expenses.

taking a mortgage and investing the cash is no different then a retiree mortgaging his payed off home to put the money in the markets... i think most of us are in agreement thats not such a good idea at this stage.

Last edited by mathjak107; 12-08-2009 at 03:22 AM..
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Old 12-08-2009, 06:00 AM
 
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if you think about it there are 2 very distinct parts to our financial lives..

part 1 is the accumulation stage , thats where we need to save and earn the money for our various goals.. whether its buy a house, buy a car, fund college ,fund our retirement these are all our goals.

since we dont have the money yet but need to accumulate it we can go as aggressive as we like. since we dont have the money to buy that house yet even if we loose money or markets are down its still a moot point because we have no timetable yet because we still need to get the money.. if we loose money so maybe it will take a few years longer to get to that goal.

part ii is the capital preservation and spend down phase. thats after we raised the money and have a definite time table for doing what it is we raised the money for.

if you raised the money for the house but now decided to move that money from the preservation stage to the accumulation stage again by investing it elsewhere realize what your doing.

the retirement graveyard is filled with failed retirements because folks mixed up and combined the 2 phases...

if your overall in the capital preservation mode and won the game and you move more money into the accumulation phase again realize your changing your overall status..

its okay to do that as long as you realize you may have met a goal like paying for your house but are putting that savings in jeopardy by putting it back at risk into the accumulation phase.

some times it ends up like working for a company and buying mostly company stock for your retirement plan.

if the company does poorly not only can you loose your job but your savings too.

point is correctly identify what stage your in and what stage do you want that money to be in .what part of your goals have you met and should be having that money in the capital preservation stage but are redeploying that money with potential for gain or loss back into the accumulation stage and if your pulling from one of your goals confirm thats what you really want to do
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Old 12-08-2009, 07:40 AM
 
4,348 posts, read 6,062,523 times
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Quote:
Originally Posted by MadManofBethesda View Post

Now ask yourself this: If the richest men in the world get mortgages on their real estate purchases, why do you think that paying cash makes better financial sense?

Because they're the 'richest men' in the world. For us average Joes, getting the monthly mortgage payment off our backs is huge!!!
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Old 12-08-2009, 09:13 AM
 
Location: Sacramento
13,784 posts, read 23,817,529 times
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Quote:
Originally Posted by thrillobyte View Post
I'd like to pay cash for our dream home in the La Crescenta area but prices are still hovering in the 800-1.2k range there, even in this downturn. What is it about the Glendale/LaCrescenta/LaCanada area that keeps prices so &*^% high on these otherwise ordinary-looking 3+2's????? And why are people still crazy enough to pay these kinds of prices???
Not sure about your requirements, but my search of La Crescenta showed 20 homes with at least 3 BR and 2 BA for under $600K. I know it is a pricey area due to the great schools and terrain, plus it is a rather small and isolated area in metro LA.
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Old 12-08-2009, 10:27 AM
 
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Thank you very much, NewToCA. I'll check that more closely. I have a bad feeling that those are below Foothill Blvd., the long "highway" running east-west that divided the desirable area (north of) from the not-as-desirable area (south of).
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Old 12-09-2009, 03:56 AM
 
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Quote:
Originally Posted by MadManofBethesda View Post
No, it's like losing an income stream.

And even if I take your approach and consider the money not paid on a mortgage to be an income, the fact that it doesn't fluctuate is actually one of its biggest negatives. Even with modest inflation, that "income" you buried in the backyard is worth less and less each and every year. At 4% inflation, that income stream is worth only half as much in 18 years. Conversely, if you took out a mortgage and invested the difference, your investment would have grown and grown over time just by compounding. And you'd be paying off the mortgage in cheaper dollars that are worth only half of what they are today.
homes pretty much beat inflation by a point or so over time as well so the home appreciation would pretty much keep up.. of course tapping that appreciation is not always easy but cetainly id take the home appreciation over burying it in the yard.

i stil subscribe to the theory that most retirees would invest so conservatively that there after tax return would probley be so close to the cost of the mortgage that it may not be worth it.

as i said no guarantee the interest they are paying will clear even the standard deduction point, while anything they make will be taxable regardless...


and of course if you already met the goal of being able to pay off a home why jeopardize that by throwing all the money back on the table again...


ill leave doing that to those who want to but to me it makes no sense for a typical retiree with modest means to try this.

im not convinced either that alot who may try this will get more than that 3-4% return do it yourselfers typically end up with even though markets do far more. especially because as retirees they will be overloaded with fear as to what happens with the house money they have at risk and will be very hyper at market moves.

while it looks like a given treasury rates on the long end are poised to go higher any hint of global sliding backwards will send those rates back to the low 2's where they were last january.

unfourtunetly for retirees taking the money from a paid house and trying to bolster their return could be committing financial suicide for quite a few folks.

Last edited by mathjak107; 12-09-2009 at 04:05 AM..
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Old 12-09-2009, 05:55 AM
 
8,204 posts, read 11,923,585 times
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Quote:
Originally Posted by mathjak107 View Post
im not convinced either that alot who may try this will get more than that 3-4% return do it yourselfers typically end up with even though markets do far more.
Yes, but the typical investor who panics and buys high and sells low isn't someone who normally frequents financial message boards to discuss these issues and to conduct their own due diligence. You can look no farther than in your own mirror. I have complete faith in your ability to beat 4%. I would also hope that I could be trusted to do the same. (It's worked so far for almost 30 years.)
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