[quote=CA renter][quote=flu]But seriously….Let’s say your choice is to take $XXXk and pay off your house or $XXXk and say spread the risk among a rental property, a dividend fund, and maybe some cash….
Paying 30year off is 3.5% that one bought in recent times. Ok good. Now what? No income generated from it. No monthly income from it, all you got to count on is appreciation (which may/may not happen…what if you did pay it off, only to see your primary property value fall as some doomdayer’s say it would…)…
On the other hand taking the same $XXXk+ and spreading the risk among say a rental which these days is like 5-8% (excluding any appreciation), a reasonably stable dividend fund (preferably tax exempt) which most likely is above 4% (excluding any gain recently), and CD is like 1%…
Again, if you’re young, trying to build wealth. the riskier choice to me is to concentrate everything of the $XXXk into 1 asset class, your primary home, versus spreading the risk among different asset classes. Your primary home very well may underperform everything else.(I guess if you’re already in retirement, with sufficient nest egg. Different strategy, because you want to try to be debt free as much as possible and preserve capital, versus try to accumulate wealth.)
And lastly, for people who can’t pay off their home completely immediately, but try to “pay off early” at the expense of using that money to generate income elsewhere….To me that’s the most risky strategy…Because while you’re trying to pay off your primary off early, you’re counting all your eggs on your primary home AND counting on everything else in your life to work out(like your career/health/job)
If suddenly you have no income because you lose your job/business/health (and yes, shit does happen)…..your remaining mortgage on primary home becomes a huge dead anvil liability…..You still need to continue to make monthly payments, regardless of how much extra payments you’ve made…how much equity you have is meaningless(since you can’t borrow/cash-out refi from it when you are unemployed)…and any potential future appreciation is meaningless if you have to sell at prevailing market condition when you are unemployed….And then you still will need a place to live… When you’ve concentrated everything into paying your primary home off early and did nothing else, you have no cash flow when your unemployed and no other stream of income….On the other hand, it’s very unlikely that you will be unemployed at the same time that (a) all your tenants will also stop making monthly payments, (b) your dividend fund come crashing down, (c) your CD refuses to pay you 1%, and (d) stock market tanking simultaneously at the same.. If that’s happening, the entire world is crumbling, and you’ve got bigger problems to worry about.[/quote]
If you have no mortgage, the savings on mortgage interest is like tax-free income. This is “tax-free income” (savings) can be invested every month. This is one of the safest ways to make a return on your money, especially if you never intend to sell your house (don’t worry as much about home price fluctuations).
Yes, the value of one’s house can go up or down, but so can the value of all the other investments you’ve mentioned.
As far as you losing your job at the same time as a tenant not paying rent and the stock market crashing, etc…sounds exactly like what happens during severe recessions/depressions, which aren’t nearly as rare as some might want to believe. With a paid-off house, if one is wise enough to set aside the money that’s being saved by not making monthly mortgage payments, there should be sufficient enough savings to make it through a fairly prolonged period of unemployment, and you don’t have to worry about losing your house because you can’t afford to make the mortgage payment. For many people, this peace of mind is worth a million dollars.[/quote]
Why would I want to pay off my house now (which I can if I wanted to) at 2.5% when dumpy places here or Bay Area can produce 5-8% coc right now?
(And folks that have to ask where, obviously haven’t been looking for the past 2 years..)
It’s contrary to what you would believe if you think dollar is gonna weaken and home prices are not going to materially appreciate (although I think you believe home prices aren’t going to rise, but I think they will)..
Present value of US dollar is worth more now than it will be 10-20 years from now. That’s gonna be pretty evident, because we keep printing the toilet paper USD like there’s no tomorrow.
“Hope” is hoping property values appreciate in a meaningful way such that what extra you put in now in cash is worthwhile. “Safety” is an illusion… There is nothing “safe”, everything has risk to varying degree, whether one wants to believe it or not.
All those people doing refi’s with negative points and getting cash back I couldn’t figure out why for the longest time. But then when I ran through the numbers, it made sense. In some cases, doing a refi- with negative rebates added gave you a rebate of $XXXX dollars now… It added an extra total $XXXX+ZZ dollars to the entire balance on the new loan… The new ZZ dollars was so insignificant, that the cost of getting money $XXXX “now” was worth a hell of lot more than than $XXXX+ZZ, because ZZ extra dollar clearly was so small that it would be insignificant 30 years later….
