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Old 06-24-2009, 02:43 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
26,280 posts, read 44,073,380 times
Reputation: 29908

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I have an interesting dilema too...

Have a 7-1 ARM that just started to adjust in March. (Currently 4.1%, 1yr LIBOR + 2.375%; 2% cap / yr) very low LTV ~ 20% + 2 HELOCS (untapped ~ 300K available)

I got this product with the intention I would be selling (Which I hope to do, soon...)

Location is: Rural 'View' Prop in desirable protected scenic area... 20 min from metro area. (2) 6 acre parcels adjacent with shop and Mobile next door for rental income.

I was laid off / took 'adios' option @ age 50... quite a few yrs to SS or 'qualified' retirement funds access.

Plan A was to SELL, & find a cheap abode, pack stuff there, and travel the world for a year, while renting the cheap abode out 'furnished'. Current abode is very costly to pay taxes ($1000/month - they doubled in 2008, or I would have been gone already)

so.... current sales conditions in area are poor, homes (previously) $700k, sitting empty for $300k. (Risk of keeping = LIBOR Arm, tho I could survive a 2 more yrs with it, + potential of further decline in home values ... 'Harry Dent' - USA gone BUST- scenario)

so... do I...
1) have a 'fire-sale' and loose $200k+ of equity and move on with life (reinvest in 'distressed' income property with proceeds)

2) wait till repo's and distressed props inventory gets whittled down, then sell

3) Go back into workforce (surely there is a less 'demanding' way to live)

4) rent the joint out and travel (tough to do with rural prop & harsh weather climate zone / high maint in winter) wind and ice

What is the risk they will 'pull' my HELOCs? (I have a plan C to use HELOCs to fund income property purchase)

I'm currently getting 5% on cash I have setting around, but that doesn't generate enough to fund 'the beast' (house).
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Old 06-25-2009, 11:47 PM
 
Location: SE Florida
1,194 posts, read 3,811,591 times
Reputation: 754
We have been informed of a lot of advice for saving our money but so far the professionals are not accurate. So it remains important that we remain at the basics of investing our hard earned money. Mutual funds do have a risk but since the funds are paying small % over what our savings pays in the banks we can assume it does have risk but a small risk.

We remortgaged our home to save a tad less than $150 a month.. We are saving that $150 in a small interest bearing account at a well know bank. I believe we should be very cautious + remain frugal before invesing in real estate other than our main residence. Some cities have not had price reductions in their real estate markeplace as other cities.

DC, for one city, has not had the prices falling to the extreme levels as Miami, Phoenix and most parts of Florida are encountering. Their prices had reduced around 15% in RE every year for the past 2 years. Some areas have almost 50% and the homes are or were priced at $400k-$500k at one time. The same homes nowadays are approx. $200k - $300k.....or are being sold as a short sale or being foreclosed due to the top to bottom or upside down theory of home ownership. In Atlanta the once 750k homes are vacant and being on sale for 300k and less. (Our friend is purchasing a 6 bdrm.4 bth 3cg home for $265k. It ws appraised 3 years ago for over $600k)

So in closing if you feel comfortable in investing in let's say XYZ then you should do it but I would have a heavy hold in cash for flexibility.....
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Old 06-27-2009, 08:34 PM
 
304 posts, read 829,379 times
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1. Pay off all of your debt
2. Emergency fund in a money market 3 to 6 months at least
3. 15% at least towards a Roth IRA
4. College funding if you have kids that need it
5. Pay off your home
6. build wealth and give (mutual funds/real estate)
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Old 06-27-2009, 08:51 PM
 
Location: SE Florida
1,194 posts, read 3,811,591 times
Reputation: 754
I am not sure if paying off a home in today's very poor real estate market conditions would improve ones stability. When RE prices are still falling unless y ou live in the DC area or another area of rising RE prices. Why would one even consider paying off their home in a declining market?

RE facts are all historical however, when the current RE condition tell us the prices are falling then if you pay off the home slowly but surely you will be putting the dough in a pit.

Of course pay off credit cards would be conditionally first on the list but it all depends how much iis owed and if there is an interest rate higher than a some sort of savings rate.
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Old 06-27-2009, 09:03 PM
 
304 posts, read 829,379 times
Reputation: 164
I'm all for paying off my home...I'm not considering it, I'm doing it. I've done everything on my list and am at #5...so why on earth wouldn't I pay off my home? This is the only debt I have and I began my list October 2007. These steps have changed my life. TMMO
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Old 06-29-2009, 02:54 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
26,280 posts, read 44,073,380 times
Reputation: 29908
Quote:
1. Pay off all of your debt
2. Emergency fund in a money market 3 to 6 months at least
3. 15% at least towards a Roth IRA
4. College funding if you have kids that need it
5. Pay off your home
6. build wealth and give (mutual funds/real estate)
did 1)&2)&3) during 40 yrs of employment
I'm done working, (I hope) so no more #3 (will be doing conversions to Roths while income is low)
I skipped #4, so must now be getting 'payback' . (Kids each had $30k in their ROTHs & 30K in real estate equity by the time they were jrs in college at age 18 - Homeschooled, - I had them each design & build houses in grades 9&10 and they did college instead of HS grades 11 & 12 (free tuition from WA state)- after grad, they each consolidated $15k in loans at 2.7% for 20 yrs, so much cheaper $$ that I could have given them). I figured they could have tapped ROTH or RE equity if they didn't want loans, but I encouraged them to pay their own way to keep them on task and to give them more sense of responsibility. My advice for them to get cheap loans may have detrimental effect on long-term relationships.

5) I could write a check to pay off the 4.1% house Mortgage, but am getting 5% on that money + chance for growth in down market, not sure it is prudent to pay off a mortgage IF that cheap money can be working or leveraged for growth. I consider a 'paid off' home, very poor utilization of capital (unless it is an inexpensive home... less than $100k)

6) Working on 'building wealth', but currently in cash flow crunch ($33/ day property taxes) need SOLID net income. Once you're 'retired' it is all 'outflow'. (No more magical direct deposits from benevolent employers)

6b) I set up a family foundation about 10 yrs ago to handle perpetual gifting.

The subject of paying off mortgages is very interesting and a good topic of debate, as 'cash // equity' in hand may be of more benefit than in 'non-liquid' personal residence. I can accept the great feeling of being debt free and no mortgage, BUT I can't eat my house (subsistence), or take advantage of bargain asset accumulation if too much of my net worth is inaccessible and tied up in my house. (And may not be accessible if the HELOCS get called)
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