Tiny Houses

[Gunga_Galunga]

I am not a SMF apologists, I think he makes the fool of himself more than not. But in this case he is not wrong. It is a legit strategy that many employ. Others employ your strategy too. There is no right or wrong just more conservative vs aggressive.

You are also making a lot of assumptions in your take. Who is to say the stock/fund didn't double/ triple/ 10x in a year on top of any dividend it paid? Grant it, they could drop too.

As for the liquid part you keep mentioning, they are both liquid. Not sure what you mean as a person could sell their shares and pay off the loan at anypoint.

The key to this is 1975's comment about them coming late in his career. At that point, you don't take risks on the money unless you have a big chunk of change already safely tucked away. And if you're still paying a mortgage at that time, it's unlikely you have a large enough safely net. Last thing you need is a 30-40% haircut in the market so you can wait and hope it comes back.

The last person on this board I'd take financial advise from is SMF.

 

[PittPharm2002]

The key to this is 1975's comment about them coming late in his career. At that point, you don't take risks on the money unless you have a big chunk of change already safely tucked away. And if you're still paying a mortgage at that time, it's unlikely you have a large enough safely net. Last thing you need is a 30-40% haircut in the market so you can wait and hope it comes back.

The last person on this board I'd take financial advise from is SMF.

Ding ding ding
Its why he’s unemployable

 

[DaveTrout]

You people give me chest pains.

 

[joeydavid]

$60K, not $40K, but in any event if you stayed invested, sure it would come back. Because, in fact, it did.

I mean the S&P grew 23.5% in 2009, and then another 12.8% in 2010. So after two years you'd basically be back at your $100K. After five years you'd have had around $143K. After ten years, even with dropping $40K in the first year, you'd have turned your $100K into approximately $206K.

Your math is bad on this one.

Top to bottom the S&P 500 was down 53%. That's leaving you $47k subtract a withdrawal (if I'm following SMF gibberish above). If the mortgage payment is $8k/yr; you are still at roughly $40k.

You do the rest of math, it's a path to zero on the investments with a mortgage balance left. Typically, what he's suggesting simply doesn't work out to the positive.

 

[Sean Miller Fan]

The key to this is 1975's comment about them coming late in his career. At that point, you don't take risks on the money unless you have a big chunk of change already safely tucked away. And if you're still paying a mortgage at that time, it's unlikely you have a large enough safely net. Last thing you need is a 30-40% haircut in the market so you can wait and hope it comes back.

The last person on this board I'd take financial advise from is SMF.

Again, it depends on the exact scenario which is why the first thing I said on this is his financial advisor might have given him very bad advice. I said "might." It mostly depends on the interest rate of his mortgage was and market conditions at the time. Also, you factor in other debt, other investments, total net worth, etc. If someone is 70 years old, still paying a mortgage and has a net worth of 50K, yea, its probably not a good idea to take any risk.

But, generally, if you have a low rate mortgage or student loan and hit the lottery for 100K, its best to invest the money instead of paying off low-interest debt.

 

[Gunga_Galunga]

Again, it depends on the exact scenario which is why the first thing I said on this is his financial advisor might have given him very bad advice. I said "might." It mostly depends on the interest rate of his mortgage was and market conditions at the time. Also, you factor in other debt, other investments, total net worth, etc. If someone is 70 years old, still paying a mortgage and has a net worth of 50K, yea, its probably not a good idea to take any risk.

But, generally, if you have a low rate mortgage or student loan and hit the lottery for 100K, its best to invest the money instead of paying off low-interest debt.

All your scenarios ignore risk.

I get it. We're a country swimming in debt, and banks and investment firms continuously parrot your advise. Ever wonder why?

It's precisely why everyone continues swimming in debt instead of becoming Robert Kiyosaki.

 

[Sean Miller Fan]

All your scenarios ignore risk.

I get it. We're a country swimming in debt, and banks and investment firms continuously parrot your advise. Ever wonder why?

It's precisely why everyone continues swimming in debt instead of becoming Robert Kiyosaki.

I've alluded to risk many times in this thread. Risk works both ways though. Its risky to pay off a low-rate mortgage when that money could potentially have made a lot of money in the market instead.

 

[Joe the Panther Fan]

Your math is bad on this one.

Top to bottom the S&P 500 was down 53%. That's leaving you $47k subtract a withdrawal (if I'm following SMF gibberish above). If the mortgage payment is $8k/yr; you are still at roughly $40k.

You do the rest of math, it's a path to zero on the investments with a mortgage balance left. Typically, what he's suggesting simply doesn't work out to the positive.

I was going by the year to year numbers rather than the top to bottom. But in any event, if you left the money in there it absolutely would have come back. As it always has.

On the other hand, at this point I'm not even pretending to follow SMF's gibberish.

 

[joeydavid]

I was going by the year to year numbers rather than the top to bottom. But in any event, if you left the money in there it absolutely would have come back. As it always has.

On the other hand, at this point I'm not even pretending to follow SMF's gibberish.

I'm fairly certain he was talking about investing while paying down a mortgage with the gains. That's what I was explaining. Withdrawals in a considerable down market is a bad outcome most of the time.

 

[PittPharm2002]

I was going by the year to year numbers rather than the top to bottom. But in any event, if you left the money in there it absolutely would have come back. As it always has.

On the other hand, at this point I'm not even pretending to follow SMF's gibberish.

Sure
Because if you’re in it long term- the crashes help lower cost average .
But, of course - that’s not exactly a winning strategy if you are using that initial investment and needing to deduct from it every month to pay your mortgage .
Which was the very simple point which seemed to befuddle the guy who doesn’t understand how future value of money works

 

[Pitt1975]

Guys. I’m 71. Graduated from Pitt in 1975. I’m sure there are some advantages in your investment strategies.
My whole premise is that being debt free at 65 made the transition to retirement remarkably easy for my bride and myself.
I don’t have a pension. My income is SSI and my ML retirement account. Got lucky buying real estate here (HHI) in a down market.
The only way I could afford this, was having no debt. Worked out amazingly well.
Hope you all have the transition that we’ve had to retirement. It was stress free.
Got lucky. But no debt was our key to being very liquid on our next adventure.

 

[Dointhatrag]

If you are young you are better off investing the money than paying off your mortgage. God I hate agreeing with SMF but he is directionally right this time.

 

[Gunga_Galunga]

If you are young you are better off investing the money than paying off your mortgage. God I hate agreeing with SMF but he is directionally right this time.

There isn't a single person arguing against that. Nobody.

I'm guessing you missed where Pitt1975 said the money came late in his career.

 

[Dointhatrag]

There isn't a single person arguing against that. Nobody.

I'm guessing you missed where Pitt1975 said the money came late in his career.

At that point pay off all debts except mortgage. Mortgage is dependent on rate 1975 is locked in at. If less than 3% ( like mine) there is no way I would pay it off. I would invest in something conservative, which still pays a higher APR than 3%

 

[PittPharm2002]

At that point pay off all debts except mortgage. Mortgage is dependent on rate 1975 is locked in at. If less than 3% ( like mine) there is no way I would pay it off. I would invest in something conservative, which still pays a higher APR than 3%

Buddy - there is no reason or advantage to paying a mortgage at that point in your life .
None
You are getting zero tax benefits

 

[PittPharm2002]

If you are young you are better off investing the money than paying off your mortgage. God I hate agreeing with SMF but he is directionally right this time.

Sure - so long as you ignore taxes , and have another way of paying your mortgage for 5 years , first .

 

[Gunga_Galunga]

At that point pay off all debts except mortgage. Mortgage is dependent on rate 1975 is locked in at. If less than 3% ( like mine) there is no way I would pay it off. I would invest in something conservative, which still pays a higher APR than 3%

Well, from 1975's posts, this happened a while ago, when nobody was getting 3% guaranteed. And it would need to pay higher than 3% APR to net 3% after tax.

Plus, how many people were at 3% 6-8 years ago that didn't pay a bunch to get there?

 

[Pitt1975]

If I could have been debt free at 35, I would have had a “lot” more money invested than I have now.
It’s amazing what you can do with your income when you have zero debt. Invest as you please, with debt free income.
Pay cash for a car.
Plus the stress level in your life drops to zero. No worries.
Ready cash for college, weddings, or whatever.
And…..my expenses were a hell of a lot less, than what you guys are paying out of pocket now.

 

[Sean Miller Fan]

Buddy - there is no reason or advantage to paying a mortgage at that point in your life .
None
You are getting zero tax benefits

You dont pay off low-rate debt!!!! What part of that dont you get? If you have a loan at 3% and you have extra money, invest it unless you are basically poor and cannot afford any type of risk.

 

[Dointhatrag]

Well, from 1975's posts, this happened a while ago, when nobody was getting 3% guaranteed. And it would need to pay higher than 3% APR to net 3% after tax.

Plus, how many people were at 3% 6-8 years ago that didn't pay a bunch to get there?

I bought my current home in 2018 at 4.25% and refinanced in 2020 at 2.65% I paid no extra for points. Some people have good credit. People need to pay attention to rates. I cant help if people werent smart enough to refinance when rates came down. That was their first investment error.

 

[Dointhatrag]

I'm really surprised at the lack of financial understanding on this board. I assumed most on here lived in million dollar homes not in their mom's basement. Maybe a tiny home would be best for those folks.

 

[Sean Miller Fan]

I'm really surprised at the lack of financial understanding on this board. I assumed most on here lived in million dollar homes not in their mom's basement. Maybe a tiny home would be best for those folks.

Me too. Its concerning actually. I mean not paying off low-interest debt and investing any extra money you have instead of making extra payments is basic common sense. If you have a 2% or 3% mortgage, that is essentially free money the bank lent you.

 

[Gunga_Galunga]

I bought my current home in 2018 at 4.25% and refinanced in 2020 at 2.65% I paid no extra for points. Some people have good credit. People need to pay attention to rates. I cant help if people werent smart enough to refinance when rates came down. That was their first investment error.

Right, you had 4.25% in 2018, not under 3%. That's the timeframe mentioned.

 

[Mikefln]

Me too. Its concerning actually. I mean not paying off low-interest debt and investing any extra money you have instead of making extra payments is basic common sense. If you have a 2% or 3% mortgage, that is essentially free money the bank lent you.

I missed it the first go around and I was in your camp because of it. The gentleman was coming close to the end of his career. He was not going to have income to pay the mortgage anymore only the investment. In that situation he did the right thing paying off the mortgage. It only makes sense to not payoff the mortgage if you are paying it off with income and letting the investment compound and grow.

 

[PittPharm2002]

You dont pay off low-rate debt!!!! What part of that dont you get? If you have a loan at 3% and you have extra money, invest it unless you are basically poor and cannot afford any type of risk.

Why do you think making less net % because you’re paying interest on a loan - is a better idea than pure margin ?
Buddy - please tell us where you work , so I can advice folks away

 

[PittPharm2002]

I bought my current home in 2018 at 4.25% and refinanced in 2020 at 2.65% I paid no extra for points. Some people have good credit. People need to pay attention to rates. I cant help if people werent smart enough to refinance when rates came down. That was their first investment error.

Depends on how much debt you have - since you’re paying the loan fees , so your break even is diminished .
Sounds like you had plenty left on your mortgage so it made sense .

 

[Sean Miller Fan]

Why do you think making less net % because you’re paying interest on a loan - is a better idea than pure margin ?
Buddy - please tell us where you work , so I can advice folks away

You dont understand finance. That's ok. If you have low-rate debt and you arent poor, you dont pay it off.

 

[Sean Miller Fan]

What do you guys think of corporations buying up single-family homes to rent? Some are blaming these corporations for part of the reason why prices are what they are since their purchases reduce inventory. I'd say while I dont like it, we shouldn't regulate against it but I have a feeling that's coming. This is a small part of the problem.

I think the one thing that people miss is while there are many reasons why housing prices are high, the primary reason is there has been a cultural shift in America to buy and build bigger homes and spend much more of your paycheck on your mortgage than your parents did. Today's generation values bigger and expensive homes. These homes weren't around 30, 40, 50 years ago. Our parents were happy in a modest house by today's standards.

 

[USN_Panther]

What do you guys think of corporations buying up single-family homes to rent? Some are blaming these corporations for part of the reason why prices are what they are since their purchases reduce inventory. I'd say while I dont like it, we shouldn't regulate against it but I have a feeling that's coming. This is a small part of the problem.

I think the one thing that people miss is while there are many reasons why housing prices are high, the primary reason is there has been a cultural shift in America to buy and build bigger homes and spend much more of your paycheck on your mortgage than your parents did. Today's generation values bigger and expensive homes. These homes weren't around 30, 40, 50 years ago. Our parents were happy in a modest house by today's standards.

Larger homes would use more construction resources and materials and drive up the costs of those.

 

[PittPharm2002]

You dont understand finance. That's ok. If you have low-rate debt and you arent poor, you dont pay it off.

Like I said -
Just tell us where you work.
#unemplyable

 

[Sean Miller Fan]

Like I said -
Just tell us where you work.
#unemplyable

Hypothetical scenario:

- 45 year old
- $100K left on 3% mortgage
- Middle to upper middle class so not rich but also not struggling. Living fairly comfortably
- Comes into 100K somehow

Should this person

a) pay off the mortgage
b) invest the money and continue using his paycheck to pay the mortgage
c) invest the money and take a monthly withdrawal to pay the mortgage
d) some combination of b and c

You are the expert to I'm interested to hear your thoughts

 

[Pitt1975]

Maybe I’m naive. But if you paid off your mortgage, wouldn’t you have more money to invest?
Or you could buy a second home, since your first mortgage is paid in full.
My second home purchase doubled in value in 7 years. My investments did well, but they didn’t double in value.

 

[PittPharm2002]

Hypothetical scenario:

- 45 year old
- $100K left on 3% mortgage
- Middle to upper middle class so not rich but also not struggling. Living fairly comfortably
- Comes into 100K somehow

Should this person

a) pay off the mortgage
b) invest the money and continue using his paycheck to pay the mortgage
c) invest the money and take a monthly withdrawal to pay the mortgage
d) some combination of b and c

You are the expert to I'm interested to hear your thoughts

Already answered above
And be happily retired by 50.
Because I actually have worked for a living since I was 14.
Since I’m easily and readily employable due to having actual skills .

 

[PittPharm2002]

Maybe I’m naive. But if you paid off your mortgage, wouldn’t you have more money to invest?
Or you could buy a second home, since your first mortgage is paid in full.
My second home purchase doubled in value in 7 years. My investments did well, but they didn’t double in value.

Correct take .
SMF thinks it’s better to use debt to invest , instead of cash .

 

[Sean Miller Fan]

Maybe I’m naive. But if you paid off your mortgage, wouldn’t you have more money to invest?
Or you could buy a second home, since your first mortgage is paid in full.
My second home purchase doubled in value in 7 years. My investments did well, but they didn’t double in value.

Yes you could but you'd be starting your investment at $0 instead of $100,000 and $100,000 grows faster than $0 with monthly contributions. That's the whole point. This is basic finance. Soufie's lack of financial awareness is embarrassing.

 

[Sean Miller Fan]

Correct take .
SMF thinks it’s better to use debt to invest , instead of cash .

Of course its better to use other people's money to invest than your own! If someone gives you free money to invest in the market, you dont say no. 2% and 3% mortgages or student loans arent free money but pretty close to it.

 

[Pitt1975]

Yes you could but you'd be starting your investment at $0 instead of $100,000 and $100,000 grows faster than $0 with monthly contributions. That's the whole point. This is basic finance. Soufie's lack of financial awareness is embarrassing.

But you are still paying down debt. I might not be the sharpest knife in the drawer, but with no bills, my investments grew rapidly.
I was a commissioned salesperson my whole life, and that sure took a lot of heat outa the kitchen.

 

[PittPharm2002]

Of course its better to use other people's money to invest than your own! If someone gives you free money to invest in the market, you dont say no. 2% and 3% mortgages or student loans arent free money but pretty close to it.

It’s your money - just you’re paying the bank with your mortgage as collateral .
Bro
It’s okay
Try actually getting a job .
I already did the future value of money calculation for you in the thread .
And it wasn’t close .
Investing $1k a month for 10 years vs deducting $1k a month from
Your initial $100k is just math .
You aren’t growing $100k , you’re growing a declining base every month .

Get on Glassdoor and find someone to let ya intern to gain some real word experience .
It’s why at 46 I’m already talking about retirement .
Probably as soon as my 12 year old to college .
Just to buy a little more employer health insurance coverage .

 

[Sean Miller Fan]

It’s your money - just you’re paying the bank with your mortgage as collateral .
Bro
It’s okay
Try actually getting a job .
I already did the future value of money calculation for you in the thread .
And it wasn’t close .
Investing $1k a month for 10 years vs deducting $1k a month from
Your initial $100k is just math .
You aren’t growing $100k , you’re growing a declining base every month .

Get on Glassdoor and find someone to let ya intern to gain some real word experience .
It’s why at 46 I’m already talking about retirement .
Probably as soon as my 12 year old to college .
Just to buy a little more employer health insurance coverage .

You need to stop because you are embarrassing yourself with every post. Have you ever heard of buying on margin? I doubt it but its when a brokerage company essentially gives you a loan against your brokerage account to invest more. And you used to even be able to write this interest off as an itemized deduction until the Trump tax cut eliminated 99% of people's ability to itemize. Point is people do this. Probably not a great idea right now because rates are very high. Its better to use other people's money, like I said but you dont get that. Some people also take out other types of loans to invest including myself. Took out a large line of credit back in 2008 during the Great Recession to make some easy money. Bunch of idiots were selling out of the market so the financial wizard that I am, I got my bank to give me some money, invested it, paid a little interest (the horror!), made a lot of money and then paid them back. I assure you the amount of money I made was more than what I paid in interest and taxes.

 

[NCPitt]

It’s your money - just you’re paying the bank with your mortgage as collateral .
Bro
It’s okay
Try actually getting a job .
I already did the future value of money calculation for you in the thread .
And it wasn’t close .
Investing $1k a month for 10 years vs deducting $1k a month from
Your initial $100k is just math .
You aren’t growing $100k , you’re growing a declining base every month .

Get on Glassdoor and find someone to let ya intern to gain some real word experience .
It’s why at 46 I’m already talking about retirement .
Probably as soon as my 12 year old to college .
Just to buy a little more employer health insurance coverage .

The math (Assumes no taxes for anything):

SMF Scenario:
Keep paying the mortgage at $1k per month for 10 years = $120k expenses
Invest $100k at 5%, reinvesting gains monthly = $164.7k future value
SMF Net gain = $44.7k

Souf Scenario:
Pay off mortgage = $100k expenses
Invest 1k per month at 5%, reinvesting gains monthly = $155.9k future value
Souf Net gain = $55.9k

Souf is right.

But wait

At a return of 7% rather than 5%:

SMF Net gain = $81k
Souf Net gain = $74.1k

SMF is right.