Author Topic: Sold house and moved into rental.  (Read 3504 times)

maybecherie

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Sold house and moved into rental.
« on: December 02, 2015, 07:55:59 AM »
I just sold my house and received a 48,000 dollar check.  I moved into my rental property 6 blocks down the street.  I owe 51, 000 @ 4.5% interest.  I really want to pay off my house, but is that the smart thing to do?  I have no interest in ever owning a rental property again.  We plan to live in the house for another 10 years.  We both max out our 401K and have no other debt.

chubbybunny

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Re: Sold house and moved into rental.
« Reply #1 on: December 02, 2015, 08:33:00 AM »
You didn't mention anything about how much other cash you have available to you.  If you've got at least a 6 month emergency fund saved up, then yes, I would say go for it. Also, will you owe any taxes on the house sale?  Might need to hang on to some just in case...

totoro

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Re: Sold house and moved into rental.
« Reply #2 on: December 02, 2015, 09:00:26 AM »
I don't know how it works in the states exactly but isn't mortgage interest tax deductible?  If this is the case I'm not sure why you would pay off the mortgage rather than just investing the proceeds?  Seems like you would have more of a return after tax?

frugaliknowit

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Re: Sold house and moved into rental.
« Reply #3 on: December 02, 2015, 09:12:11 AM »
Echo Suzanny.  What is your current cash position?  Personally, if I had adequate cash reserves, I'd pay it off.

There's probably no tax benefit to a $45k mortgage unless you have a ton of other writeoffs to take you above the standard deduction.  My mortgage is around $70K and I'm "throwing grenades" at it because the tax benefit is almost $0.

maybecherie

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Re: Sold house and moved into rental.
« Reply #4 on: December 02, 2015, 11:17:16 AM »
We have a emergency fund and we waited two years for no capital gains tax. I don't think there much tax benefit to a 50k mortgage. I was trying to look up if we should pay it off in the new year and got all this information online about keeping the money and investing instead of paying it off. It kind of threw me for a loop from the original plan of paying it off.

Dicey

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Re: Sold house and moved into rental.
« Reply #5 on: December 02, 2015, 11:29:29 AM »
How much is in your EF and how much do you have saved for retirement?

It could make a lot more sense to beef up the retirement accounts instead of paying off the mortgage. If you want to RE, beefing up the non-retirement accounts is also a smart move. I doubt that you are paying enough interest to exceed the standard deduction, especially without a rental, but you should be able to invest and earn more than 4.5% long term even without the mortgage interest deduction.

For starters, each of you can do a Roth for 2015 and 2016 if you haven't yet done so.

Dicey

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Re: Sold house and moved into rental.
« Reply #6 on: December 02, 2015, 11:37:05 AM »
Also, your topic title is misleading. Perhaps "Sold House and Moved Into Our Rental", would be more accurate, since you did not, in fact, become a tenant.

chubbybunny

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Re: Sold house and moved into rental.
« Reply #7 on: December 02, 2015, 11:41:51 AM »
If you want to pay it off, then I say go for it.  Math wizards on here will tell you that you'll do better earning 7.5% in the stock market instead of saving 4.5% on mortgage interest. HOWEVER, would you go out right now and get a mortgage so that you can invest in the stock market?  Sounds a bit too risky to me when put that way. Peace of mind might be worth the couple percentage points you might miss out on. I don't know of any investments guaranteeing a 4.5% return.  The higher returns just come with more risk. 

I'll revise my first suggestion, though. 

1. cash emergency fund
2. roth contributions (2015 & 2016)
3. pay off mortgage

Bearded Man

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Re: Sold house and moved into rental.
« Reply #8 on: December 02, 2015, 10:31:26 PM »
I like the paid off rental house I have. I always have a paid off place to live...