Author Topic: Acreage Payoff  (Read 1104 times)

rachekc

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Acreage Payoff
« on: March 10, 2017, 02:24:38 PM »
Hello fellow mustachians.  I am fairly new here, as you can tell by the 5 O' Clock shadow.  I stumbled across this site when searching for something else and glad I did.  I am hooked and read posts all the time (even at work).

Back in 2005 I bought 40 acres of land to eventually build a house on it.  That didn't quite pan out as my wife and I bought a house with 5 acres.  I bought the land for $3500/acre and currently owe about $76k at 6.5% interest.  I kept it because I see growth heading that way and feel eventually it will be worth twice what I paid for it.

I have about $130k in savings and my question is, is it a better idea to go ahead and payoff the land or continue with the payments?  I know it seems like a silly question but taking a $76k hit on the savings intimidates me.

ditheca

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Re: Acreage Payoff
« Reply #1 on: March 10, 2017, 02:46:03 PM »
6.5% is a very high rate.  If you have no other debts, strongly consider paying this off.

If you are maxed out on 401k and IRA (tax advantaged) savings for the year, then definitely pay this off before starting on taxable investments.

At 6.5% interest for 10 years, the bank has already doubled their money...

Retire-Canada

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Re: Acreage Payoff
« Reply #2 on: March 10, 2017, 06:51:57 PM »
At 6.5% interest for 10 years, the bank has already doubled their money...

So assuming $100K mortgage @ 6.5% and 2% inflation with a 10yr term:

- total cost of mortgage in Year 1 $$ = ~$23.4K
- $1 in Year 1 = $1.22 in Year 10
- to break even you'd need to sell land for ($100K + $23.4K)* 1.22 + realty fees/taxes in Year 10 $$ = $150.5K + realty fees/taxes

So if you sold the land for $200K in Year 10 and realty fees/taxes were less than $49.5K you'd turn a profit.