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  1. #1
    Join Date
    Mar. 26, 2005
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    Default Fiscal Gurus - what makes the most sense?

    I am coming into an inheritance.
    Not enough to buy my own island, but enough to get some needed repairs to the house & farm done and have some left over.

    Which option makes more sense for the leftover:
    1 - pay off 50% of exisiting mortgage
    2 - add to pitiful retirement monies

    I could easily halve my current mortgage payment that includes an escrow for RE taxes & insurance.
    And I'd still have something to add to the retirement funds.

    This would make bill-paying a helluva lot easier each month.
    Or, I could continue to scramble for the mortgage every couple of months and make my retirement cushion a little more comfortable.

    What say you Ants?
    (I am definitely a Grasshopper)
    *friend of bar.ka*RIP all my lovely boys, gone too soon:
    Steppin' Out 1988-2004
    Hey Vern! 1982-2009
    Cash's Bay Threat 1994-2009



  2. #2
    Join Date
    Jun. 7, 2006
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    Buy a rental property with the 50% of your existing mortgage and let the tenant there pay your house mortgage.



  3. #3
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    Default

    meup: not enough to do that unless I bought a real fixer-upper mess.
    And then I wouldn't have the funds to fix 'er up.
    My current mortgage is pretty small - the escrow is more than half the payment.
    But by paying down principal I could probably shave off at least 25% of the current payment.

    Besides: I've been a landlord (for some 20+yrs) and NTYVM ever again.
    I had some good tenants, but the bad ones were a trip.
    *friend of bar.ka*RIP all my lovely boys, gone too soon:
    Steppin' Out 1988-2004
    Hey Vern! 1982-2009
    Cash's Bay Threat 1994-2009


    1 members found this post helpful.

  4. #4
    Join Date
    Oct. 9, 2012
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    Washington State
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    Default

    I don't know if it's the 'right' thing to do but I would pay down the mortgage. I like extra breathing room month to month, and you can still add to the retirement account albeit at a slower rate. Two birds an all that.


    1 members found this post helpful.

  5. #5
    Join Date
    Jul. 31, 2007
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    15,135

    Default

    How deeply do you want to look at your whole life?

    I ask because in order to answer this question, you'd have to think of both your farm and your retirement investments as investments. Then it becomes a math problem.

    IMO, you just need to ask yourself whether you will make more paying off the farm or putting that dough in the stock market. (And good luck with that.)

    So you need to ask questions like: What's the interest rate on my mortgage? Do I have a broker that I think can make me more than that per annum on my investments? How much time do I have before I need that cash to actually retire? Do I think my farm will increase in value? Are does the tax deduction on the mortgage's interest make a difference in your day-to-day living?

    IMO, this is a great time to see a Certified Financial Planner or two.
    The armchair saddler
    Politically Pro-Cat



  6. #6
    Join Date
    Feb. 28, 2006
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    The rocky part of KY
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    Default

    The mortgage COSTS you interest, the retirement fund EARNS you interest - which one will add up to more over the long haul, and are you truly able to pay your retirement fund without saying, just this month I need money for hay, or a show, or a new transmission, you get the picture.


    We paid off the mortgage, even at 4.75 it was costing us more than having money in the bank (although some things pay better, but it's hard to get a guarantee of that, you could also lose your shirt in stocks), but that extra money got sucked up pretty quickly by a more lavish lifestyle. I'm not talking caviar, I'm talking horses, tools, not brown bagging it every single day. Having a direct transfer into your retirement or increasing the percent if it's an employer paid plan is probably a good idea.

    I can't speak to investing in rental property because i don't know how much money you have vs what rental properties cost, and because you have to like being a landlord at least a little or it's not that great a deal.
    Courageous Weenie Eventer Wannabe
    Incredible Invisible



  7. #7
    Join Date
    Jun. 7, 2006
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    Quote Originally Posted by ReSomething View Post
    The mortgage COSTS you interest, the retirement fund EARNS you interest - which one will add up to more over the long haul, and are you truly able to pay your retirement fund without saying, just this month I need money for hay, or a show, or a new transmission, you get the picture.


    We paid off the mortgage, even at 4.75 it was costing us more than having money in the bank (although some things pay better, but it's hard to get a guarantee of that, you could also lose your shirt in stocks), but that extra money got sucked up pretty quickly by a more lavish lifestyle. I'm not talking caviar, I'm talking horses, tools, not brown bagging it every single day. Having a direct transfer into your retirement or increasing the percent if it's an employer paid plan is probably a good idea.

    I can't speak to investing in rental property because i don't know how much money you have vs what rental properties cost, and because you have to like being a landlord at least a little or it's not that great a deal.
    Where are you getting 4.75+ in the bank???



  8. #8
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    Jul. 31, 2007
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    Quote Originally Posted by meupatdoes View Post
    Where are you getting 4.75+ in the bank???
    Exactly. That's what I mean by a "math problem." If you are paying more in interest than you are making (all other things being equal), you are doing it wrong.

    But meupatdoes looks right to me on the investment front, too: Rental property is the new "Plastics" so far as I'm concerned.
    The armchair saddler
    Politically Pro-Cat



  9. #9
    Join Date
    Feb. 16, 2010
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    Jacksonville, FL
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    What is your interest rate on the property? What is your balance? You say your retirement account is "pitiful" so I would put it in the retirement account. We're not likely to ever see interest rates as low at they are again. If you are currently at an interest rate on your mortgage more than 1% over 3.75% you should try to refinance. If you do a 15 year mortgage you can probably get 2.75%. I'm refinancing right now from 4.75% to 3.75% and I'm going to save $150/month in interest. I like the idea of having a fixed rate of 3.75% and having the liquid cash to work on another investment with.

    I plan on saving to by an investment property, but I see you're not so interested in that. Otherwise I would recommend that. It's just such a good time to buy property with prices so low, inventory so high, and interest rates at record lows. You don't have to buy local if you're priced out of your area's market. You just need a reputable Property Management company.

    When you think about comparing rates of return you also have to consider the tax benefit of having the interest deduction. I don't know what you're tax situation is, but keep that into account when you do your comparison.



  10. #10
    Join Date
    May. 17, 2010
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    Where humidity isn't just a word, it's a way of life.
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    Default

    If you lower your mortgage payments, how fast can you, using the monthly extra, increase your retirement funds?
    That may be a win-win for you; less stress of the mortgage payment amount, but knowing the retirement is increasing at the same time.


    1 members found this post helpful.

  11. #11
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    Quote Originally Posted by mvp View Post
    But meupatdoes looks right to me on the investment front, too: Rental property is the new "Plastics" so far as I'm concerned.

    In Buffalo and the surrounding areas it is not too difficult to find a 40% return on a rental property.

    So you buy a duplex in the ghetto for $19,900 that is currently rented and comes complete with tenants (!!) at $950 a month.
    Or you buy a duplex in a nicer neighborhood for $65,000 that rents at $2k a month.

    Get five or six of those going and retire at 35.


    See: thread where I am selling my house and getting a duplex.



  12. #12
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    4.75 was the rate of interest on the mortgage. Even the money market fund is far lower than that. I'm not sure savings even keeps up with the rate of inflation any more.

    My family had rental property and I can tell you quite a few stories about even the good tenants. You have to crunch the numbers and then be able to deal with all the issues that a tenant might create. For an example one of the duplexes we paid water in order that the tenants would care for the landscaping, well our model tenant liked to garden and planted some beautiful, thirsty plants as well as letting the grandkids run through the sprinklers on the lovely lawn. Can you say $$$$? We put in a deck and a patio when they left.
    Courageous Weenie Eventer Wannabe
    Incredible Invisible



  13. #13
    Join Date
    Nov. 8, 2007
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    1,142

    Default

    Paying down the mortgage IS adding to your retirement--less money you need to come up with to live once you retire. Assuming you're going to stay on the farm.



  14. #14
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    Jul. 31, 2007
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    ^^^ Yabbut, making money is work. So landlording is work of a particular kind. Ain't no such thing as "passive income" for most of us. It really does help to just know that you can get your hands dirty one way or another and simply welcome the kind of PITA work that pays the most.
    The armchair saddler
    Politically Pro-Cat



  15. #15
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    Quote Originally Posted by meupatdoes View Post
    In Buffalo and the surrounding areas it is not too difficult to find a 40% return on a rental property.

    So you buy a duplex in the ghetto for $19,900 that is currently rented and comes complete with tenants (!!) at $950 a month.
    Or you buy a duplex in a nicer neighborhood for $65,000 that rents at $2k a month.

    Get five or six of those going and retire at 35.


    See: thread where I am selling my house and getting a duplex.
    In CA it was very upside down, no returns like that, and I've looked at duplexes here in KY, NOT in the hood, sorry, I'm done with that, and we flirt with negative cash flow here as well. As I recall it, the great low rates aren't offered for non-owner occupied property, a duplex skirts around that. So it can be done but it is really regional.
    Courageous Weenie Eventer Wannabe
    Incredible Invisible



  16. #16
    Join Date
    Jan. 18, 2002
    Location
    canada
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    376

    Default

    I would pay down the mortgage and any other bills that i had. e.g. credit card.
    Then i would take the money you are saving per month and put 3/4 into a retirement fund and the other 1/4 into repairs on the farm.
    Its just as important to keep up the maintenance on the farm, as it keeps the value of the property up. Most likely at some point you will be selling so you should get a good return on your investment.
    just my opinion of course.
    www.tayvalleyfarm.com
    My other home.



  17. #17
    Join Date
    Feb. 16, 2010
    Location
    Jacksonville, FL
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    813

    Default

    Quote Originally Posted by ReSomething View Post
    4.75 was the rate of interest on the mortgage. Even the money market fund is far lower than that. I'm not sure savings even keeps up with the rate of inflation any more.

    My family had rental property and I can tell you quite a few stories about even the good tenants. You have to crunch the numbers and then be able to deal with all the issues that a tenant might create. For an example one of the duplexes we paid water in order that the tenants would care for the landscaping, well our model tenant liked to garden and planted some beautiful, thirsty plants as well as letting the grandkids run through the sprinklers on the lovely lawn. Can you say $$$$? We put in a deck and a patio when they left.
    A good rule of thumb is to consider you're only going to "make" 50% of the rent. So when looking at rental properties to see if they are cash flow positive you need to half the rent. You also need to fund a capital improvement account from a percentage of rent proceeds for any rental property.

    I currently have a loser rental property. I would never have purposefully gotten the property has a rental, it was my previous residence. As soon as feasible I'm getting it off the books. BUT, my Garage Apartment is a very good rental for me. You just have to do your homework when looking for properties. Obviously you can get screwed by very bad tenants so it's not risk free. But not much in life is.



  18. #18
    Join Date
    Jan. 18, 2011
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    219

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    I would pay down the mortgage, then keep adding to your retirement account.

    It sounds like the mortgage payment is a struggle. Make that less of a struggle. This is your life.


    1 members found this post helpful.

  19. #19
    Join Date
    Aug. 25, 2007
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    The first question is "What is your long term goal?" When you answer that question you'll have the beginnings of an answer on allocating your windfall.

    G.
    Mangalarga Marchador: Uma Raça, Uma Paixão



  20. #20
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    Jul. 31, 2007
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    Quote Originally Posted by meupatdoes View Post
    See: thread where I am selling my house and getting a duplex.
    Didn't you buy your place, like, 10 minutes ago? Be sure to ask about the tax implications of looking like a flipper. I think you need to be in a primary residence at least 2 years to be exempt from too much tax on your profits.

    (Ask my horse trainer friend who put $20K into fixing up/staging her home *before* she explored this basic question how she knows.)
    The armchair saddler
    Politically Pro-Cat



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