Should I pay off my house?
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Date: January 3rd, 2017 12:03 PM
I'm carrying a 750k mortgage on a 1.2 million dollar house right now. Payments are about 5K a month with everything impounded. Here are our current stats:
Status: married with no kids, but wife is pregnant
Income: 500k+ (wife is lawyer and I have my own firm so income fluxuates from 300K-800K/year)
Cash on hand: 850k
Combined retirement: 360K
Other debt: None (student loans were paid off a few years ago, no credit card debt, just a car lease for an acura RDX that is $400/month).
If I pay off the house my monthly cost for property tax/insurance/HOA fees will be about $1,800/month.
I understand it is probably a better investment to buy an income property, but we have high income and no debt, so I figure once I pay off the mortgage I could buy an income property in another year or two. Plus property prices are insane right now and I think they will correct. Also, having a paid off house at 33 with 100k in the bank and 360k in retirement seems like a good place to be.
Would you pay off your house?
Date: January 3rd, 2017 12:27 PM
Yes it is psychological, but not as short sighted as just thinking my house is "safe." Once the house is paid off we can live soley off my wife's income without losing any quality of life (travel, eating out, our sick house, etc). That will allow me to take significant risks with my firm to grow it more, and also allow me to put 100% of my significant income into investments without worrying what happens to that money.
In short, it is a tool to make me LESS risk averse.
Hope that makes sense.
Date: January 3rd, 2017 12:07 PM
yeah I would
I have owned a house mortgage-free, an amazing release of pressure knowing that your home is fully yours and that nobody can ever fuck with that no matter what happens
then save like crazy for a short while and buy that investment property
(THIS IS NEITHER LEGAL ADVICE NOR QUALIFIED FINANCIAL ADVICE)
Date: January 3rd, 2017 12:16 PM
I would argue that it might make economic sense once we recognize that human beings are naturally somewhat risk averse
the amount of stress that even a small uncertainty about keeping your family house, your most basic source of shelter and security, is intense for some people
pay off the house and then all future savings streams are upside gains to your positive portfolio rather than reducing the amount you are behind
idk we are all different but that is how I see it as a moderately risk averse guy
Date: January 3rd, 2017 12:22 PM
Author: EEYORE (email@example.com)
You have a low fixed deductible interest rate on a large sum of money; why do you want to get rid of that, particularly when inflation is expected to increase soon?
An alternative would be to put the 850K in some dividend index fund which spins off about 3% every year in dividends, which would roughly cover your monthly HOA, insurance, and property tax fees.
Date: January 3rd, 2017 12:27 PM
Pay-off mortgage, find local bank to loan you back 50%-70% of the home's value at a fraction of your current rate due to you having 100% equity (this matters). Put the loaned cash in an LLC. Invest in local RE, profit...
Date: January 4th, 2017 12:57 PM
Author: Los Angeles Real Estate Agent
Yes... usually seller agent and buyer agent split the 4-6 percent commission.
But the point is: sellling your house will be the easiest thing you can do to generate you $100k+... $800k is impressive and don't you want more? You think that's "enough"...
Date: January 3rd, 2017 1:52 PM
Author: Main Force Patrol (Everybody’s got a game plan until they get punched in the mouth)
I have put a lot of thought into structuring my finances to accommodate your situation. Given your somewhat unique circumstances, almost all of the standard advice is inapplicable to you. All of your personal financial decisions need to be made from the perspective of maximizing the growth of your practice while maintaining as many future options as possible.
I assume you are already a partner in your firm given the dollar amounts you are discussing. The credited course of action will depend significantly on the current capitalization of your firm, your portfolio of cases, and your likely expenses in the short and medium term to work up your cases. It is also a really good idea for people in your position to focus on minimizing fixed, periodic cash outflows so you don't stress during the lean times, but it will be of little personal benefit for you to eliminate a monthly mortgage payment if your partner(s) can't do the same since you will want to avoid the development of a significant imbalance of your respective capital accounts, which almost invariably results in the firm breaking up.
Last, and perhaps most importantly, you should give significant consideration to what is considered to be standard practice in your local plaintiff's bar for capitalizing and financing plaintiff's firms. It is usually best if all partners have similar financing arrangements (i.e., similar amounts of cash contributed and similar types of personal assets pledged as collateral), which helps to minimize the possibility of future disagreements with respect to disbursements and servicing of firm debts.
Date: January 3rd, 2017 12:39 PM
dont pay off all off it. going from 850K to 100K liquid is retarded
Payoff like like 300K and invest the 600K in a diversified manner
And in 2020 or so pay off another 250K or so
there is a big difference between 850K liquid vs 100K liquid. what if she loses the job and your business is going through a downturn? 100K is not enough
Date: January 4th, 2017 12:49 AM
Author: ReTRUMPulus (never count out a MUSCLE NUT)
Maybe pay 150k off to get to 50% equity?
I think that is a strong psychological place to be without sacrificing the tax efficiencies discussed earlier and your low, fixed rate while leaving you open to other options and cushioned with more significant liquidity.
From there you have 700k cash so maybe buy a 400K piece of RE that has a 8-10% cap rate all cash, so thats a couple of grand net of management per month in the mail which can theoretically reduce your monthly nut materially. Maybe get a line on the building from a bank you want to develop a long term relationship with but you dont use it.
Then maybe put the remaining 300k somewhere in a few HY CD's for a year or so and chill/see what develops, dont let it burn a hole in your pocket