Author Topic: How to allocate current funds/refinancing house-and unsure of future career  (Read 651 times)

zoochadookdook

  • Bristles
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  • Age: 27
Hey all. 27 later this month.
 
Current assets
total assets for sale from business(1 month to liquidate)
6000
13714 liquid checkings/saving
2000 random stocks/crypto
40,000 HYSA Ally
27000 Roth ira vanguard (still have 3200 to contribute this year)


Debt
13200 owed in student loans. No interest until july. Have put them off as I plan to pay with credit cards to meet cash back bonuses and net a few grand off it (yes I know you can't use a CC to pay student loans but you can buy vanilla cards/use those or a checking service)

Closing costs on house refinance: 2000?

Current living expenses:
Mortgage/taxes/insurance: 900
Utilities $300
food/fuel:$300
misc. whatever needs repair/extra expenses 200

Current income: 22/hr w2 full time. No benifits. Have a review in 4 months that they will consider direct hiring me with healthcare/401k match. Comes out to 45k/yr or around 36k after tax. Kind of sucks as I'm required to take a hour unpaid lunch.

I can net around 30-35k/year working self-employed (did it through college) on MUCH nicer hours but no benefits/etc and no scalability which I'm considering pursuing. I have the drive and want to succeed as an entrepreneur and going back to self-employed would alot me time to pursue that which a 45hour week does not.



So there's a few things that are happening right now. The first is mortgage related.

My father and I bought a house 3.5 years ago.


I was self-employed at the time/after write-offs didn't have the income for a traditional mortgage so the way we did it was he took a variable rate loan against his 401k (around 5% avg)


I've made all the payments/costs and lived in the house the entire time while finishing school and now have a job that is net 45k/yr I've been at for 2 months. For obvious reasons, I'm looking to get a fixed rate.


I owe 97k on the principal of the loan, 15k privately to my father. House should be worth 190k (purchased at 141, market has gone up).  I'm looking at a cash out refinance right now and the best rate I've found on a 30 year cash out refi (which it has to be due to no lien being on the title and such) is 4.5%. I plan on making the 15 year payments.

I know the rate is a bit on the high side and was wondering if I should pay down a lump of the balance sooner/alocate funds elsewhere which brings me to the second thing

How should I best allocate funds?

I'm not attached to the house that much. I enjoy it but don't plan on starting a family/marrying/similar anytime soon. It's a place to stay and at the least I could turn it into a rental if I wanted to keep it/not sell it (should pull in 1400/1500 month). I'd like to pursue self-employment/starts ups and travel a bit in the future but I'm not sure how much money I should tie up in an untouchable investment account as I don't know what I'll be doing in the future. I currently have over 60k in liquid/easy liquid and I'm just wondering what exactly I should do with it that makes the most sense from a financial perspective. I finally moved the bulk to a HYSA but other than the 13k in student loan pay offs-what else should I do with it?

If I go back to self-employment temporarily I need maybe 10k liquid max-but I have the option of my father as a partner for any future endeavors and just am not sure what makes the most sense for allocation currently.

dougules

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I'm surprised nobody has answered you yet.  I'll take a stab at it. 

I've got as many questions as answers, though:

What is your total spending? Is the $1700/mo everything?

What are you doing for health insurance right now?

What is the interest rate on the student loans once it kicks in?

Why do you want to do a cash out refi?  At 4.5% I don't think you're going to do any better anywhere else with the money at the moment unless you have some specific entrepreneurial project in mind. 

As for any specific plans for extra cash, it depends on what you are planning to do.  I'd try to pay your dad back first. 

How much do you think you will need for starting any business pursuits?  I'm talking projects that have a reasonable chance of making a decent return on your time and capital, not hobbies that barely pay for themselves.  I would keep that much fairly liquid. 

I'd also keep about 6-8 months of living expenses fairly liquid.  This is a topic for debate, though. 

If you rented your current house out or sold it, where would you live?  Staying in the house is probably the best option if you like your current amount of living space, but moving might be good specifically if you were willing to downsize significantly.  You'll just have to plug the numbers into a rent vs. buy calculator.  Also keep in mind that if you rent your current house out you may have to refinance because your current mortgage probably requires it to be owner occupied. 

With any other cash that you don't think you'll need in the next few years I'd start out with maxing out the Roth.  Then I think you will do very slightly better by putting it into the 4.5% mortgage vs putting it into low expense ratio mutual funds.  This is another topic for debate, though, and there have been several threads related to it.  A search engine can get you to them so you can help draw your own conclusions.

zoochadookdook

  • Bristles
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  • Posts: 407
  • Age: 27


What is your total spending? Is the $1700/mo everything?


Yep 1700/month for everything, gas, food, living, insurance etc

What are you doing for health insurance right now?

I have to get a plan by next month. This is going to be part of the allocation as it seems a HSA plan seems to be a good option due to the tax savings. Having trouble sussing through the myriad of them.

What is the interest rate on the student loans once it kicks in?
Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them seperately before the interest start date (6/15/19) but after that they combine
$13,292 will be at 4.27% if I don't pay off any of the seperate balances prior. I was going to use a Chase Ink Unlimited card to buy vanilla dot giftcards (2500) and pay down the 5.05% portion. This comes with a bonus cash back of 500$. That will settle the rate at 4.1% for 11,000





Why do you want to do a cash out refi?  At 4.5% I don't think you're going to do any better anywhere else with the money at the moment unless you have some specific entrepreneurial project in mind. 

I don't want to, but due to their being no lien on the property and my father's loan against his 401-this is the best option. It's locked in at 4.25 now and should close Friday. Total is 116k, 1.8k are taxes/insurance escrow. 2.2k closing everything. 112K check will be given to my father. He'll settle my 97k loan against his 401 at Edward jones and keep the other 15 I owed him.
 

How much do you think you will need for starting any business pursuits?  I'm talking projects that have a reasonable chance of making a decent return on your time and capital, not hobbies that barely pay for themselves.  I would keep that much fairly liquid. 
I'm not entirely sure. I know I need around 8k for liquid inventory when running resale available monthly- depending on what I pursue next (evaluation a whole lot from outdoor work on driveways, to business marketing, to woman's self-defense seminars, to pming and funding house flips etc) it could fluctuate. I don't really have anything I've ever thought to pursue financially that didn't have some sort of attractive profit margin attached.

 

If you rented your current house out or sold it, where would you live?  Staying in the house is probably the best option if you like your current amount of living space, but moving might be good specifically if you were willing to downsize significantly.  You'll just have to plug the numbers into a rent vs. buy calculator.  Also, keep in mind that if you rent your current house out you may have to refinance because your current mortgage probably requires it to be owner occupied. 

It really depends on what I pursue. I wouldnt mind buying a complete renno to build equity in/sell a few years down the road for no taxes on gains-rinse and repeat. Worse comes to worse I used to rent a room in my current house and could do the same without renting the entire one out. This would give me travel/income flex with a dwelling.

With any other cash that you don't think you'll need in the next few years I'd start out with maxing out the Roth.  Then I think you will do very slightly better by putting it into the 4.5% mortgage vs putting it into low expense ratio mutual funds.  This is another topic for debate, though, and there have been several threads related to it.  A search engine can get you to them so you can help draw your own conclusions.
[/quote]

I was looking at the vanguard total stock index fund vs paying down the mortgage/4.1% sl. I'm not really set on either right now.  Something interesting is I can open a SE 401K and fund it up to 19,000; even it I only make 500/month on the side SE and recognize it all as profit-it's all tax deffered and can go straight in.

The plan of attack is: Find a HSA/health plan. Learn more about them.

Max Roth Ira (3200 more for 2019).

Math out SE 401 Contributions for 2019/base it off these next 3 months-open that.

Now we're onto taxable investments-I should have around 55k at this point. Let's leave 10k as a business flow fund/emergency fund in Ally HYSA

Figure out how to allocate the rest (Pay down loans/mortgage principal OR invest all in easily liquitable fund such as Vanguard VTSAX)

Sorry I've been stressing out over the "right" moves to make and it really depends on a million things.


dougules

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Why do you want to do a cash out refi?  At 4.5% I don't think you're going to do any better anywhere else with the money at the moment unless you have some specific entrepreneurial project in mind. 

I don't want to, but due to their being no lien on the property and my father's loan against his 401-this is the best option. It's locked in at 4.25 now and should close Friday. Total is 116k, 1.8k are taxes/insurance escrow. 2.2k closing everything. 112K check will be given to my father. He'll settle my 97k loan against his 401 at Edward jones and keep the other 15 I owed him.

I didn't realize the loan was all to your father. 

Quote
With any other cash that you don't think you'll need in the next few years I'd start out with maxing out the Roth.  Then I think you will do very slightly better by putting it into the 4.5% mortgage vs putting it into low expense ratio mutual funds.  This is another topic for debate, though, and there have been several threads related to it.  A search engine can get you to them so you can help draw your own conclusions.

I was looking at the vanguard total stock index fund vs paying down the mortgage/4.1% sl. I'm not really set on either right now.  Something interesting is I can open a SE 401K and fund it up to 19,000; even it I only make 500/month on the side SE and recognize it all as profit-it's all tax deffered and can go straight in.

The plan of attack is: Find a HSA/health plan. Learn more about them.

Max Roth Ira (3200 more for 2019).

Math out SE 401 Contributions for 2019/base it off these next 3 months-open that.

Now we're onto taxable investments-I should have around 55k at this point. Let's leave 10k as a business flow fund/emergency fund in Ally HYSA

Figure out how to allocate the rest (Pay down loans/mortgage principal OR invest all in easily liquitable fund such as Vanguard VTSAX)

It seems like you have a lot of the plan figured out already.  I wouldn't sweat the invest vs pay down debt question.  It sounds like there's not a huge difference, and you win either way.   

Quote
Sorry I've been stressing out over the "right" moves to make and it really depends on a million things.

A lot of managing finances is psychological.  Learning how to take a step back and breathe is more important than people think.