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Old 11-15-2009, 06:16 PM
 
18 posts, read 40,028 times
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Aloha,

I am 50 yo. living in Hawaii. Own my own (struggling business), 40% bracket, married and have two mortgages.

We owe $420k @ a fixed 6.25% on our residence and believe it to be worth $900k. Payments etc total about $3500 pm. Too high for us at the moment.

We also have a condo, valued at $320k, that we owe $200k @ a 6% ARM. We rent it for $1600 and that covers it's payment and ($600) maintenance fee. The market is very soft right now or we would probably sell it (or both).

We have $300k sitting in 3 banks...doing nothing. I am afraid to invest in the market after losing close to $200k at the beginning of this decade. I know I need to get over that but now married, I am overly concerned about risk.

In the interim:

We need to keep $100k in cash. Couldn't breathe if we had less. I am considering paying down our mortgage(s.). I have been reading this excellent forum all weekend and have learned alot but too many differences in opinions to make a decision.

If we pay the $200k off on the condo, and it's ARM, it would give us $1000 pm that we could put towards the ungodly $3500 we pay on our house. Business is slow and we are worried.

I know we can write off a portion (not dollar for dollar) in interest on our place of residence but what about the rental? Does it make sense to continue with the ARM or should we pay it off?Your help would be much appreciated.

Last edited by chuckwow; 11-15-2009 at 06:24 PM.. Reason: Forgot to address my topic question;)
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Old 11-15-2009, 09:54 PM
 
Location: Maryland
1,534 posts, read 3,942,962 times
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My $0.2 - I'm very conservative and really don't like ARMs at all. I would payoff the condo, it gives you more flexibility and less risk. I can appreciate your concerns with what to do with cash, I have the same concerns. You still get a tax deduction for the condo on depreciation and netting expenses from the rental income. Not familiar with HI's mortgage rates but 6.25% seems a bit high. Here in Maryland I could get about a 5% loan with your equity ratio and high 700s FICO score with a clean credit history. Might want to check into a refi. JMO
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Old 11-15-2009, 11:03 PM
 
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Thanks for the reply, Pilgrim. I don't trust the ARM either. Even though it is half of what it was a couple years ago. Can't help but think that won't last. I have been looking at re-fis and not getting much satisfaction. Although I have not offered up any addiditional monies. I just went into my banker and asked what he could reduce it to and he felt that "after fees" and such that the savings would be insignificant. Should I have offered to put some cash in? Not sure how this stuff works (yet).

Again, I appreciate your reply.
Anyone else?
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Old 11-15-2009, 11:18 PM
 
975 posts, read 1,627,614 times
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You say business is slow and your worried.

Here's my questions:
What exactly are you worried about?
Is the business still profitable?
Is the business profitable enough to cover your personal expenses right now?
Are you worried the business may fail? If so, how much longer can you last?

The reason I ask is because without knowing it's hard to say whether or not you should deplete 2/3rds of your cash reserves. You say you need to keep 100K for example. Well with a 3500/mo mortgage you could burn through 100K in no time if you have to close the business. By spending the cash you also greatly diminish your ability to keep the business afloat if it's not profitable now or not profitable enough.

I guess what I'm getting at is what is the true state of your business financially right now?
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Old 11-16-2009, 11:04 PM
 
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Hey Traderx,

I sincerely appreciate your interest. Your question is a gut-churner for me. Here's the scoop and pardon me if I get carried away.

I represent the 5th generation of my family-owned, construction related business. Unfortunately, my 19 yr old son wants to be the 6th.

We have been in business in Hawaii since 1982 with many established customers. Not a big company but my net WAS typically around $400k per year. Two years ago we sorta' hit the big time with a very big job and a very big (international) customer. I was sold some bad product for that project that failed. Instead of netting a large amount, we are being sued for a large amount. The customer actually loves us because of the way we responded to the situation but they had no contract with my supplier, so have to se me. I don't need to tell you my supplier has hunkered down behind a wall of attorneys. Leaving me to deal with this on my own. My attorney fees are well over 100 hundred thousand as my insurance carrier refuses to help because I have not been accused of doing anything wrong. I've also spent almost all of the company's money making repairs because I valued this major client and their work so much. PLUS...we were involved and I couldn't turn my back on this customer. Dumb I know. They are offerring no compensation for my efforts.

While all of this was going on, I broke my neck and back in a non-work related accident. Bad news travels fast. I've lost probably close to a million all said and done. And even though I have done no wrong, I fear I've lost the confidence of my clients. Needless to say my competitors are having a field day and spreading
half-truths and/or absolute lies.

I have no reason to believe we will recover from this. My name is my company and vice-versa.
The company has less than $100,000 left and owes about $140,000. Mostly in credit card debt. We have no jobs and this economy is not helping.

This is why we are thinking about paying down our mortgages. Atleast we could eat with the money saved as we can net $1,000 pm from the condo.

I do have another business (corp) that is also struggling and in my current condition, my 2 partners are "out voting" me and over-paying themselves for work that they are probably not even doing. I typically bring home about 60k per yr from that...this year I only got 18 and I know they are trying to force me to sell (cheap).

Sorry for the whining. An sadly, my business life is better than my personal...so I will spare you the details on that, LOL.

I shoulda' retired at 40 when I had the money.
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Old 11-18-2009, 01:00 AM
 
Location: Maryland
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Hey chuckwow, Traderx makes some good points. After reading your expanded story I might be inclined to say just sit tight on your cash. Under your circumstances you may want to stay as liquid as possible and just take it a month at a time before you do anything major and hopefully your business situation(s) become clearer. Best of luck.
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Old 11-18-2009, 01:03 AM
 
Location: Maryland
1,534 posts, read 3,942,962 times
Reputation: 2313
PS - I'll run some refi number sets for you, bankers don't always like to loose above market loans so his advice may not be in your interest. I'm assuming I can tap the net to get your local rates and such, talk with you later.
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Old 11-18-2009, 01:55 AM
 
Location: Conejo Valley, CA
12,470 posts, read 18,186,791 times
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Quote:
Originally Posted by chuckwow View Post
I am 50 yo. living in Hawaii. Own my own (struggling business), 40% bracket, married and have two mortgages.
There is no 40% bracket, regardless if your business is struggling how would you be in the highest tax bracket?

Regardless, paying off the condo would at least make the money work for you more than it would rotting in the bank. If things got worse you could always sell your primary residence and move into the condo.
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Old 11-18-2009, 07:24 AM
 
4,010 posts, read 9,280,345 times
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I would pay off the condo, no question. Your $200K investment instantly brings you a positive cash flow of $1000/month compared to nothing in the bank. If you ever need the capital back, there is nothing to stop you from getting another loan on the property. On your tax questions about the condo there are a lot of options depending upon how you treat it (2nd residence vs business vs owned by business). On that I recommend consulting with someone familiar with Hawaii taxes.

If you can do it, I would immediately turn around and start putting that $1000/month against the principle on your primary residence. It immediately makes a 6.25% return that is tax free. You can't touch this anywhere else in this economy without taking significant risk. Your insurance is the paid for condo. It's something that you can always sell, even in a soft market, if you need the cash back.

Last edited by lumbollo; 11-18-2009 at 07:33 AM..
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Old 11-19-2009, 08:48 PM
 
18 posts, read 40,028 times
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Thanks for the replies, Guys.

UserID: I guess I should have said that typically we are, or I am, in the 40% bracket. As I said, the business is only now struggling (but in very big fashion). My taxes for 08 are not yet finished. I guess my bracket will now be lower.

Pilgrim and lumbello; Thanks for your efforts, good intentions and well-thought out opinions. reps to you both (and you too UserID). . Perhaps I should hang on to the money for a bit longer in the event we cannot re-coup some of the monies owed to us. If the ARM starts getting whacky, I can then go in and pay it off.

Is there a calculater that would show me the benefits of paying $1000 per month into the princible of my $420k loan?

My credit is currently outstanding. With that in mind, will the banks typically offer a better rate if I throw some more cash at them towards the princible? Sorry for all the questions guys...just trying to make some lemonade here.
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