Author Topic: Lucy needs some splainen  (Read 13817 times)

lucy

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Lucy needs some splainen
« on: August 23, 2012, 07:03:44 PM »
I received my inheritance from my Father who passed on Christmas day 2010. The first thing we did was pay off credit cards,which was not that much, maybe 3000, then bought a used car, (cash) for my Husband. The only debt that we have is our mortgage, the balance is 83000.00 It is a condo in fl. The housing market has killed my equity, and right now I went from 124000. in value down to less than 50,000. I was just laid off from a job I worked for 15 years, so now we are down to one income. My children are grown, and out of college, and on their own.My Husband has 1 child still living with the X which we are paying out 1000. a month for the next 3 years, then we are done with that.
My question is this...I have had this money in savings for almost 2 years now..we want to move to the beach, which is only 20 minutes  east from us, and my husband works there so he is spending 300 a month in gas to and from. I have liquid cash of 260,000. right now. I am afraid of stocks, and investing in money market etc. I don't even want it in the bank, and I was thinking of paying off my current mortgage (83000.) and spending about the same amount in cash on a Townhome at the beach for about the same price paying cash, and renting out the one we are in now.
OR...
Renting out the one we are in now, and  NOT paying it off, but  spending about 150,000. on a house with little or NO hoa fees at the beach, and paying cash for it. This would still leave 100k in a savings acct, and I have about 28k in my 401.
I am thinking we would be saving the 300 he spends in gas to drive out there for work, and, what we rent our current condo for would pay for the dues and the mortgage. The mortgage payment is 613.oo and the Dues are 300 a month, if we rented this out , it would pay for itself for the next few years , then we could sell it and hopefully get our equity back.
I need some advise, and I hope that you can help me.


James

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Re: Lucy needs some splainen
« Reply #1 on: August 23, 2012, 07:27:09 PM »
My thought would be to pay off the condo you are currently in right away.  No reason to keep cash and the mortgage at the same time unless you are willing to invest the cash.  So start with that.


Then you need to decide if you want to be landlords.  That is a big decision, you need to read up on the implications, verify the possible rent you could receive, etc.  If you are willing to take than on I think keeping the old condo when you purchase a new one is a good idea, since the alternative is simply sitting on the cash and watching it decline due to inflation.


Buying a condo near the beach makes sense if that is where and how you wish to live long term.  What to buy and how much to spend are complicated questions so I don't feel I can comment on that, but it certainly makes sense to quit spending 300 on gas and all that time traveling.

lucy

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Re: Lucy needs some splainen
« Reply #2 on: August 23, 2012, 09:02:43 PM »
Thank you James, I didn't mention that my current mortgage interest on the condo is 6.75% also.

Maybe I should be asking this instead....
IF you had 250,000. 00 in the bank in a savings account, what would you do with it?   We  are still paying a high interest on a mortgage, and it is upside down. Florida has been hit hard, and home values have dropped  almost in half. But that being said, there are a lot of foreclosures, and great deals and we really want to move to the beach.

This is the first time I have posted on this site :-)
I need some advise, I have read so many other questions on here, and there have been so many of you with great advise, I know I can get more than one person to help me out with this decision. I have been trying to decide for the past year what to do .

Thanks again.

JohnGalt

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Re: Lucy needs some splainen
« Reply #3 on: August 23, 2012, 10:27:31 PM »
I find it interesting that you're afraid of the stock market and even having money in the bank, yet are comfortable with real estate even though you've lost 60% of the value in your condo.  Is it that real estate is something tangible you can touch and see? 

Paying off the 6.75% mortgage (or at least paying off enough to be able to refinance to a lower rate) would be my first priority. 

If the beach is where you want to be and it's closer to hubby's work and you can get a good deal - by all means move to the beach.  As far as keeping the condo goes... you'll need to run the numbers (including all expenses, vacancies, etc).  It will of course depend on the amount of rent you can get, but I'd imagine that the 300 in dues will kill it as a good rental.  You'll also need to decide if landlording is for you - though if stocks and banks are out, you may not have many other options. 

lucy

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Re: Lucy needs some splainen
« Reply #4 on: August 24, 2012, 05:40:13 AM »
I feel that stock's are too risky, I have seen friends loose their whole savings that way.  The company that I worked for for 15 years is a good example, some of my friends lost their whole retirement in stock when it fell. Besides, I don't feel very comfortable investing in something that I don't fully understand. As far as the bank, interest is very low, it has sat in a savings account for almost 2 years and hasn't made anything . CD'S are at an all time low...money market is risky, I am sure there are safe ways to go there but they do not pay that much.
As far as my condo goes, I bought it 15 years ago for 56000.00 , I was single at the time, and since then it had helped me out of a few ruts, I re-financed 3 different times, and used some equity, made some up-grades etc. So I REALLY have not lost . I also think that realestate Market is going to come around in a few years. If we rented this one right now we would get 950-1000 for rent, that would cover the payment. I would be VERY particular about who I rented to also.
Another thing is that I am not a spring chicken, I am 56-my husband is 51. We both want to live at the beach when we retire.
We don't know if we should use 150k to buy a nicer place at the beach, and not pay off the condo we are in now, but just rent it...OR pay it off, and spend the other 80K to buy something less expensive . Since we are in our 50's its not like we have 30 years of investing left, so to have a retirement home paid for is very comforting for us both.
I guess that because this is money that my Father worked and saved his whole life for, I am trying to be very cautious with it. I feel  very strongly that my Father expected me to make wise choices. I am SO afraid of squandering it away on something foolish, or risky. He gave me a once in a lifetime opportunity, .
Remember, I am not working right now..I just joined the ranks of the unemployed and Fl job's are not easy to come by right now.
I think that if I rented our condo, and sold it in a few years that  we will make money on the condo.
I also think that even if we purchased something at the beach, that we could even sell it in a few years, and that would be a much better investment that staying in a savings account.
As you can see, I am not a risk taker. lol

Oh, and in three years we will not have a 1000.00 month child support payment either. :-)
« Last Edit: August 24, 2012, 05:47:26 AM by lucy »

James

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Re: Lucy needs some splainen
« Reply #5 on: August 24, 2012, 06:27:18 AM »
I think you need to realize that you can't avoid risk.  You have lost roughly $35,000 of the "value" of you inheritance by keeping it in the bank the last two years.  Inflation is eating away at it and the value will slowly drop over the long term.


I highly suggest you research index fund investing.  There is a huge difference between investing in individual stocks and investing in index funds.  I'm not telling you that is what you have to do, only that your concern about investing is probably higher than it should be.


I have no idea of any rational for not paying off the existing condo.  That is guaranteed return starting the day you pay it off.  Even if you rent it for enough to cover the mortgage, just pay it off and then put the rent check in your bank instead of paying the mortgage.  It should be a nice little monthly payment which could help you over the years.


So pay off the mortgage, buy something for as little as possible by the beach, and find a way to invest the remainder for your retirement.  Otherwise when you need money for retirement the actual value of your savings won't cover the costs and you will be very poor in retirement and burn through your savings quite quickly.

lucy

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Re: Lucy needs some splainen
« Reply #6 on: August 24, 2012, 06:57:15 AM »
James, I have no idea what "index fund investing" is. Sorry, but maybe that is why I am so nervous about investing. I a so afraid of loosing. :/
Splain please.

JohnGalt

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Re: Lucy needs some splainen
« Reply #7 on: August 24, 2012, 08:24:26 AM »
James, I have no idea what "index fund investing" is. Sorry, but maybe that is why I am so nervous about investing. I a so afraid of loosing. :/
Splain please.

Index funding investing means buying into "stocks" that are really just combinations of the stocks of many companies.  You can buy indexes that have you invested in the entire stock market.  You can even buy indexes that will invest you some percentage in the stock market and the rest in bonds or treasury notes.  The best thing about index funds is that you're not just investing a single company, you're investing in broad markets.  So, if one company goes under, it won't hurt you much because they'll only make up a small % of your total investment.   At any given time, some parts will go up, others will go down - but you'll just experience what happens to the average of them all. 

You should do some research before getting into anything - but here are a couple of funds you might want to check out. 

Vanguard Moderate Growth Fund - 42% Total US Stock Market, 40% Total Bond Market, 18% International Stock
https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/productoverview?strategy=1184121321

Vanguard Retirement Income Fund - much more conservative at 45% Total Bond Market, 21% Total Stock Market, 20% Inflation Protected Securities, 9% International stock, and 5% Money Market (cash)
https://personal.vanguard.com/us/funds/snapshot?FundId=0308&FundIntExt=INT


James

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Re: Lucy needs some splainen
« Reply #8 on: August 24, 2012, 09:20:29 AM »
James, I have no idea what "index fund investing" is. Sorry, but maybe that is why I am so nervous about investing. I a so afraid of loosing. :/
Splain please.

That's a good question, and there a ton of information on that here and all over many books, etc.  I highly suggest a your read a good book on finances, if you want we can recommend some.  Reading a book can give a better overall impression than reading on the internet simply because it's laid out as a complete package and you work your way through it.  Just take your time to figure it out, we aren't suggesting you jump into things without knowing what you are doing.  But make you do figure it out, you can loose a lot of potential simply by sitting things out for long stretches.

But start by paying off that mortgage, you instantly go from making nothing on that amount to making over 6%.  Then you can sit back and figure the rest out.

lucy

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Re: Lucy needs some splainen
« Reply #9 on: August 24, 2012, 09:40:52 AM »
Thank you both for your input..I really appreciate that.

I will pay off this mortgage first...then dive into the rest..although, i went searching the topic today about Index Funds, and it may as well me written in Chinese. I am just not up on all this financial talk. I AM trying to get it though. I hate to make mistakes, especially costly ones, and even more, I HATE to fail.

But thank you for your suggestions, I will discuss with my adviser at my bank, they have been trying to convince me to do SOMETHING with this money for 2 years, and I am so afraid of failure, that I have let it sit.

At least I didn't go and trade my 03 paid off 350Z for a new one like I really wanted, :-)  I ended up talking myself out of it. Mine is paid for, looks new still, and has no issues, and low miles. But I SO want that 370 Z . I am very self disciplined. hehe

James

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Re: Lucy needs some splainen
« Reply #10 on: August 24, 2012, 10:17:28 AM »
Thank you both for your input..I really appreciate that.

I will pay off this mortgage first...then dive into the rest..although, i went searching the topic today about Index Funds, and it may as well me written in Chinese. I am just not up on all this financial talk. I AM trying to get it though. I hate to make mistakes, especially costly ones, and even more, I HATE to fail.

But thank you for your suggestions, I will discuss with my adviser at my bank, they have been trying to convince me to do SOMETHING with this money for 2 years, and I am so afraid of failure, that I have let it sit.

At least I didn't go and trade my 03 paid off 350Z for a new one like I really wanted, :-)  I ended up talking myself out of it. Mine is paid for, looks new still, and has no issues, and low miles. But I SO want that 370 Z . I am very self disciplined. hehe


The self discipline is wonderful in this day and age of instant gratification!  Even though I was a little critical of the lost investment potential the last couple years, I'm very impressed it has not been spent.  You are being very wise to consider your options carefully.


Remember that the bank you are going to talk to doesn't earn anything from you paying off your mortgage.  Just be wary of anyone offering advice when they are in a position to make money off of certain decisions you may make.

lucy

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Re: Lucy needs some splainen
« Reply #11 on: August 24, 2012, 11:36:11 AM »
Thanks James...

I have been thinking about this for weeks, is it not better to rent out our condo, without paying it off, and then we would have more cash to purchase a Condo or Towhhome, or House closer to the beach, I worry that if I spend more than half on this unit, I won't have enough left for what I want at the beach.

              Present Condo 83000.00  6,75 % interest   613,00 a month
                                                               Condo Dues 300.00  a month
                                                                             
          Savings acct              265,000.00

If we pay off the present condo, there won't be enough Cash to purchase at the beach.
remember, I want to leave 100,000.00  in savings for investing, and savings. emergency funds.

would it be better to just rent this out, and in 3 years or so, sell it and get my equity out when the market turns around?
There are so many great deals at the beach right now, I'd hate to pass them up.

I don't know, still thinking this thing out. I hate making money decisions.

reverend

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Re: Lucy needs some splainen
« Reply #12 on: August 24, 2012, 12:07:09 PM »
Well, you're here and you're reading. That's a good first step towards letting your money work for you.  The way I see it is that $500K invested with 8% return would give me more than enough ($40K/year, minus taxes) to live off of for the rest of my life.

You might not be in a spot where you are too worried, but seeing your money grow over time is always nice, that way if you need/want to pay off a mortgage, you can. If you want something nicer to live in, you can buy it. It's all about being comfortable and not have to sweat where the money comes from.


If you could invest at least SOME of your money (say, $30K - you could afford to lose it, even if it stings real bad) in an index fund or a dividend reinvestment plan of a reliable stock (Coca Cola, Johnson&Johnson etc) and see what it does. If it's grown in five years, you could put in another $10K or whatever your current situation allows.

It's a way to dip your toes in the water. :)

JohnGalt

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Re: Lucy needs some splainen
« Reply #13 on: August 24, 2012, 12:23:26 PM »
Thanks James...

I have been thinking about this for weeks, is it not better to rent out our condo, without paying it off, and then we would have more cash to purchase a Condo or Towhhome, or House closer to the beach, I worry that if I spend more than half on this unit, I won't have enough left for what I want at the beach.

              Present Condo 83000.00  6,75 % interest   613,00 a month
                                                               Condo Dues 300.00  a month
                                                                             
          Savings acct              265,000.00

If we pay off the present condo, there won't be enough Cash to purchase at the beach.
remember, I want to leave 100,000.00  in savings for investing, and savings. emergency funds.

would it be better to just rent this out, and in 3 years or so, sell it and get my equity out when the market turns around?
There are so many great deals at the beach right now, I'd hate to pass them up.

I don't know, still thinking this thing out. I hate making money decisions.

I would expect you'd get a better mortgage rate on the beach house than the 6.5% you're paying now on the mortgage. 

Here's my suggestion...

Pay off the current mortgage - this leaves you with $182,000 cash.  Park the $100,000 that you don't want tied up in real estate where ever you are most comfortable.
This leaves you with $82,000 in cash and $50,000 in equity in the condo for real estate.

Run the numbers on the condo.  Will it pull enough rent to cover maintenance, taxes, insurance, vacancies (50% of rent to this is a rule of thumb, but you need to figure out a real number - don't forget to include the replacement cost of anything you'll need to replace / how long it lasts) + $300/mo in HOA + property management (even if that manager is you, you should still be getting paid for that work)?  If it is and you want to be a landlord - keep it and rent it out.  Use the $82,000 cash as a down payment on your beach property and then aggressively pay it off (or better yet buy something for less than that if possible).
If the numbers don't work on the condo, sell it and take the $50,000 equity + $82,000 cash and buy your beach house or buy a beach house and put a down payment on another investment property where the numbers do work. 
« Last Edit: August 24, 2012, 01:49:17 PM by JohnGalt »

James

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Re: Lucy needs some splainen
« Reply #14 on: August 24, 2012, 12:46:08 PM »
I worry that if I spend more than half on this unit, I won't have enough left for what I want at the beach.

              Present Condo 83000.00  6,75 % interest   613,00 a month
                                                               Condo Dues 300.00  a month
                                                                             
          Savings acct              265,000.00

If we pay off the present condo, there won't be enough Cash to purchase at the beach.
remember, I want to leave 100,000.00  in savings for investing, and savings. emergency funds.

The key is to step back from where you are and figure out where you want to be.  Then figure out the best way to get there.  You have done the first part, you have figured out you want to rent this condo and buy one at the beach.  There are many ways to get there, but leaving $83,000 at 6.75% interest isn't a good place to stay.  So how can we avoid that?

Saving: 265,000

Minus 100,000 reserve leaves you with 165,000 to use.

Paying off mortgage leaves you with 82,000.

Now take out a new mortgage at the old condo for as much as possible.  80% of 50,000 is 40,000, so I'll use that number.  Add the 40,000 to the 82,000 and you get 122,000 to spend on the beach condo.  If you purchase a beach condo for 150,000 then you will have another mortgage for 28,000 so your total of the two mortgages will be 68,000, and the rental you get from your old condo will more than pay for both of them.  Remember that rates at down around 3.5% right now, so you will save both by having a lower total in mortgage as well as half the interest rate.

But wait, why have two mortgages?  The mortgage on the old condo is for a rental, which can complicate things and cause a higher rate.  Not sure if that would affect you, but it's possible.  So I would probably just take out one mortgage on the new condo and leave the old one paid off.  The numbers are identical, but now you only have one mortgage to worry about.

The end result is a drop in the amount of the mortgage and a drop in the interest rate by about half.
-----

While I was writing this John posted with better info than my own, so go with his thoughts...  :)

Jamesqf

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Re: Lucy needs some splainen
« Reply #15 on: August 24, 2012, 12:59:31 PM »
Index funding investing means buying into "stocks" that are really just combinations of the stocks of many companies. 

Not exactly.  What you're describing here are mutual funds in general.  Index funds are a particular type of mutual fund that invests in the stocks that make up a particular index, such as the Dow or S&P 500.  The theory is that this keeps expenses very low, since the fund managers don't have to do research &c, they just buy the listed stocks.

In Lucy's position, I'd probably go with an index fund, or an income-type fund that has a good share of its investments in bonds &c.  The important thing to remember in investing is that you are in it for the long term, and that if you panic and sell in a down market (as many people did in 2008) you lock in the losses.  But if you stay the course, the markets eventually recover.

Another thing to look at is the interest rate on your mortgage.  If you don't decide to pay it off, you should refinance to a lower interest rate.  Going to 4% should save you over $100/month.

lucy

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Re: Lucy needs some splainen
« Reply #16 on: August 24, 2012, 01:05:10 PM »
Wow, now I have even more to think about...BUT, both great options.. I will take  your ideas with me to my Banker...and btw, they don't hold my Mortgage. I think they would be willing to help me figure out what to do. They even provide me with a free Financial Adviser, I  just had  issues with trust. I keep thinking about all those people who lost their retirement and life savings listening to advise of those kind of people who gain on your losses. Scares me.

Thanks again Guys!

James

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Re: Lucy needs some splainen
« Reply #17 on: August 24, 2012, 01:08:09 PM »
JohnGalt:  You might want to fix your math, 265,000 - 83,000 = 182,000 not 167,000...  :)

Jamesqf:  She is underwater in her condo so she can't refinance the 83,000.  She needs to put about 43,000 into it to refinance.

James

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Re: Lucy needs some splainen
« Reply #18 on: August 24, 2012, 01:19:57 PM »
Wow, now I have even more to think about...BUT, both great options.. I will take  your ideas with me to my Banker...and btw, they don't hold my Mortgage. I think they would be willing to help me figure out what to do. They even provide me with a free Financial Adviser, I  just had  issues with trust. I keep thinking about all those people who lost their retirement and life savings listening to advise of those kind of people who gain on your losses. Scares me.

Thanks again Guys!

I don't want to belabor the point, but I want to clarify what my concern was.  Your bank is paying the financial adviser who is giving you advice.  In many circumstances that will be fair and good advice, but in many other circumstances it will be advice that benefits the bank they work for.  So they might suggest, "Don't pay off that mortgage due to... (it will make sense because they are very skillful and educated)...  You should really invest in ... (whatever investment vehicle they have at the bank that makes them a nice commission)..."

So go to the bank and get their advice, nothing wrong with that.  But make sure you independently verify that the plan is sound before taking any action.  It is very much worth spending a couple hundred going to an independent financial adviser if needed to make sure you aren't making mistakes at this point that could cost you many thousands down the road.

lucy

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Re: Lucy needs some splainen
« Reply #19 on: August 24, 2012, 01:30:05 PM »
You have a point there James ..and believe me, I thought about that when they came to my home to speak to me last time. And I told them I have to think about this, then they kept calling me, over, and over..and ..you get the point. That is why I have not done anything yet,  I felt that it may be better to not do anything than make a big mistake.

I am so glad I found this site, before I found the forum, I wrote to Mr. Mustache, and on that page it suggested to place questions on the forum. I didn't really want to put my personal business out there, but now am glad I did.

You guys are pretty smart!

JohnGalt

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Re: Lucy needs some splainen
« Reply #20 on: August 24, 2012, 01:56:51 PM »
You have a point there James ..and believe me, I thought about that when they came to my home to speak to me last time. And I told them I have to think about this, then they kept calling me, over, and over..and ..you get the point. That is why I have not done anything yet,  I felt that it may be better to not do anything than make a big mistake.

I've never dealt with a financial adviser before so maybe I just don't know how it works... but someone coming to your house to try to convince you to invest your money somewhere and then calling over and over sends up all sorts of red flags to me.  They have to get paid for those house calls somehow and this sounds like a sales tactic to me.  Sales people are usually paid on commission - which will, often, put their compensation incentives at odds with your best interests. 

JohnGalt

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Re: Lucy needs some splainen
« Reply #21 on: August 24, 2012, 01:58:04 PM »
JohnGalt:  You might want to fix your math, 265,000 - 83,000 = 182,000 not 167,000...  :)


Good catch... she had mentioned $250,000 at some point earlier so that's what I had in my head.  My numbers are now fixed.

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Re: Lucy needs some splainen
« Reply #22 on: August 24, 2012, 02:20:20 PM »
I would run some numbers before paying off the mortgage on the condo.  It will be helpful to know what is your annual income or current tax bracket.

First and foremost I would look into refinancing the 6.75 rate. Contact your current mortgage company and see if if they could help you refinance without paying points or fees from your pocket. There is significant savings to be made immediately after the refinance. DO THIS BEFORE PURCHASING THE NEW HOUSE BY THE BEACH. The reason is that interest rate on your primary residence is lower than the interest rate on an investment property.

If you could refinance and rent out your current condo, then the mortgage payment, interest, HOA, insurance, are all fully deductible.  And since this is a condo, you don't have much to maintain other than keeping up the interior condition.  4% of 84,000 is $400 a month, plus 300 in HOA. See if you could charge $1200 a month to be safe and maintain a positive cash flow.

You still have 250K to spend, now buy your beach condo with cash and save the rest of the money into a diversified investment portfolio.  I'd go for a mixture of long and short term treasury bonds, muni bonds, index funds (stocks) and precious metals. 

Also, there are fee based financial investors who do not receive commissions from investment companies.

reverend

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Re: Lucy needs some splainen
« Reply #23 on: August 24, 2012, 03:34:06 PM »
Paying off the first place, then take a new mortgage out on it (and pocket the cash for a down payment on a beach condo) WHILE YOU ARE STILL IN THE FIRST CONDO makes it a primary residence and thus the most beneficial interest rate.

THEN you shop for the new condo on the beach and finance THAT as the primary residence ("we're moving in there as soon as we buy it") and get the beneficial rate on that.  Meanwhile, you still have the good rate on the old condo.

That's my thinking - is there a reason that wouldn't work? Nobody would come knocking asking if the first place is rented out and should pay a higher APR?

$_gone_amok

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Re: Lucy needs some splainen
« Reply #24 on: August 24, 2012, 04:07:07 PM »
Paying off the first place, then take a new mortgage out on it (and pocket the cash for a down payment on a beach condo) WHILE YOU ARE STILL IN THE FIRST CONDO makes it a primary residence and thus the most beneficial interest rate.

THEN you shop for the new condo on the beach and finance THAT as the primary residence ("we're moving in there as soon as we buy it") and get the beneficial rate on that.  Meanwhile, you still have the good rate on the old condo.

That's my thinking - is there a reason that wouldn't work? Nobody would come knocking asking if the first place is rented out and should pay a higher APR?

It will work, but with the first condo fully paid for, she won't be able to take advantage of the tax benefits of rental expenses (mortgage, HOA, etc). 

JohnGalt

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Re: Lucy needs some splainen
« Reply #25 on: August 24, 2012, 04:16:00 PM »
Paying off the first place, then take a new mortgage out on it (and pocket the cash for a down payment on a beach condo) WHILE YOU ARE STILL IN THE FIRST CONDO makes it a primary residence and thus the most beneficial interest rate.

THEN you shop for the new condo on the beach and finance THAT as the primary residence ("we're moving in there as soon as we buy it") and get the beneficial rate on that.  Meanwhile, you still have the good rate on the old condo.

That's my thinking - is there a reason that wouldn't work? Nobody would come knocking asking if the first place is rented out and should pay a higher APR?

I think there will be language in the refinance contract saying that you need to occupy it for at least 12 months. 

Jamesqf

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Re: Lucy needs some splainen
« Reply #26 on: August 24, 2012, 05:48:03 PM »
It will work, but with the first condo fully paid for, she won't be able to take advantage of the tax benefits of rental expenses (mortgage, HOA, etc).

Why not?  Not mortgage, of course, since there isn't one, but HOA dues and so on should be deductable as expenses, shouldn't they?

reverend

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Re: Lucy needs some splainen
« Reply #27 on: August 24, 2012, 10:40:22 PM »

It will work, but with the first condo fully paid for, she won't be able to take advantage of the tax benefits of rental expenses (mortgage, HOA, etc).

Why not? Rental expenses are rental expenses, no matter if the condo is paid or not.  If there are HOA fees, taxes and maintenance, it's all expenses, but if there's no mortgage, then the rental income goes into her pocket rather than paying towards the condo.

Quote from: JohnGalt
I think there will be language in the refinance contract saying that you need to occupy it for at least 12 months.

I'm sure there is. :)  Who will ensure that is followed?  I mean, you live there a month or two and suddenly something came up and you have to move!  Luckily you managed to rent it out so the bank still gets their money. :)


lucy

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Re: Lucy needs some splainen
« Reply #28 on: August 26, 2012, 07:06:15 AM »
We were think a lot about all of the advise , and are going today to meet with a realtor to see what deals are at the beach today.
However,  I was also thinking about another option.

As I mentioned earlier, we are paying 1000.00 a month for child support , with 3 years left to pay. Would it be a better move to pay this condo off, stay where we are for 3 years? Then,in 3 years, selling this condo, which would pretty much allow us the opportunity to move anywhere along the coast we wanted. We love St Augustine Beach, Crescent Beach, or even the West Coast of Fl. I know that the prices will probably go up, but that means ours would also, then we could sell and have our original equity back. The only issue is that my Husband would still be spending 300-350 a month in gas driving to work.

Decisions ..decisions, decisions. ..

@JohnGalt....your right about the Bank advisers , and that was why I told them to stop calling me, even though they kept telling me that I needed to do something with the money rather than let it just sit in the bank, their persistent calling was making me feel pressured. When I feel pressured I do nothing. So THAT is the reason that it has been sitting for so long.

Still thinking things through , and we  will definitely be looking into some investing. Cautiously , patiently, but looking. :-)

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Re: Lucy needs some splainen
« Reply #29 on: August 26, 2012, 11:06:05 AM »
With $100,000 to invest, you may want to consider calling Vanguard and asking for a financial consultation/education session.  They will recommend Vanguard funds, of course, but they will not give you a heavy sales pitch.  And it would be good counterpoint to whatever the bank suggests.  One of the big factors in any investment you might make is the cost of the investment.  Vanguard has the lowest fees in the industry.  Anything the bank recommends will either have large (hidden) upfront costs, steep fees to claim your money back, or high ongoing fees.

JohnGalt

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Re: Lucy needs some splainen
« Reply #30 on: August 27, 2012, 08:30:26 AM »
We were think a lot about all of the advise , and are going today to meet with a realtor to see what deals are at the beach today.
However,  I was also thinking about another option.

As I mentioned earlier, we are paying 1000.00 a month for child support , with 3 years left to pay. Would it be a better move to pay this condo off, stay where we are for 3 years? Then,in 3 years, selling this condo, which would pretty much allow us the opportunity to move anywhere along the coast we wanted. We love St Augustine Beach, Crescent Beach, or even the West Coast of Fl. I know that the prices will probably go up, but that means ours would also, then we could sell and have our original equity back. The only issue is that my Husband would still be spending 300-350 a month in gas driving to work.


It sounds to me like you are looking to use the 1000/mo that you are now paying in child support to allow you to look at more expensive houses on the beach.  If that's how you will look at the money, I would recommend finding a place now that fits in with your current budget so that you can redirect the full 1000/mo towards savings when those payments end.

$_gone_amok

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Re: Lucy needs some splainen
« Reply #31 on: August 27, 2012, 12:49:41 PM »
@Lucy,

You might want to outline some of your short term and long term goals. How much longer does your husband plan to work? What will be your income and cash flow post retirement? Answering these bigger questions will help you decide which financial decision is the best for you.


$_gone_amok

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Re: Lucy needs some splainen
« Reply #32 on: August 27, 2012, 12:54:06 PM »

It will work, but with the first condo fully paid for, she won't be able to take advantage of the tax benefits of rental expenses (mortgage, HOA, etc).

Why not? Rental expenses are rental expenses, no matter if the condo is paid or not.  If there are HOA fees, taxes and maintenance, it's all expenses, but if there's no mortgage, then the rental income goes into her pocket rather than paying towards the condo.


If her concern is not to have a huge cash flow (rent) immediately, I see no reason to maintain a small cash flow on borrowed money and use her inheritances on something else rather than pour it into the condo.  I think its a terrible decision to pay off a loan that's underwater because you are essentially throwing away money.

grantmeaname

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Re: Lucy needs some splainen
« Reply #33 on: August 27, 2012, 01:18:17 PM »
I think its a terrible decision to pay off a loan that's underwater because you are essentially throwing away money.
It's not any different than paying off a loan that's not underwater, unless you're referring to intentional default. You signed a contract to borrow money, and the fluctuating value of the property you bought has nothing to do with that.

$_gone_amok

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Re: Lucy needs some splainen
« Reply #34 on: August 27, 2012, 02:11:11 PM »
I think its a terrible decision to pay off a loan that's underwater because you are essentially throwing away money.
It's not any different than paying off a loan that's not underwater, unless you're referring to intentional default. You signed a contract to borrow money, and the fluctuating value of the property you bought has nothing to do with that.

I am not suggesting to default. I am suggesting that liquid cash gives her more flexibility and can become better kind of investment than cash paid to an underwater loan if she could keep the loan afloat with rental income.  She is better off to make the minimal payments to keep the loan than make an lump sum payment.

grantmeaname

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Re: Lucy needs some splainen
« Reply #35 on: August 27, 2012, 02:40:06 PM »
Okay, I didn't realize you were referring to its liquidity. Thanks for clearing that up for me.

lucy

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Re: Lucy needs some splainen
« Reply #36 on: August 27, 2012, 03:57:08 PM »
@$_gone_amok

That is exactly what I was trying to say..why pay of the present condo, why not just rent it out, and let someone else make the payments, I do not care at this point if it is cash flow, it is just saving it and in a year or so we can sell. The only reason we have not done this yet is the worry of having a renter who may not take care of it, I have been in this condo community for 15 years, and I have seen some horror stories.  But if we can find a good renter, it will be worth it.

Then, we can use the 150 to spend on something at the beach, or get in one that may need repair, and hopefully find a great deal, and spend some $ to re-model it. We just might come out better on our investment.

$_gone_amok

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Re: Lucy needs some splainen
« Reply #37 on: August 27, 2012, 04:22:39 PM »
@lucy

Your questions are still actions rather than goals.  If you already have all your post retirement income worked out and the inheritance is truly just spending money then I'm all for buying the beach condo.  You mentioned that you have 28K in your 401K, do you plan to draw a pension?

James

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Re: Lucy needs some splainen
« Reply #38 on: August 27, 2012, 05:43:21 PM »
That is exactly what I was trying to say..why pay of the present condo, why not just rent it out, and let someone else make the payments, I do not care at this point if it is cash flow, it is just saving it and in a year or so we can sell.


Because of the high interest rate.

HeidiO

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Re: Lucy needs some splainen
« Reply #39 on: August 28, 2012, 01:00:16 AM »
So you have a condo worth less than $50,000 that you owe $83,000 on?  And you don't want to live there?  Can you use your $ to buy the house you want, then short sale the condo you don't want?  Or some variation on that theme.
Heidi

lucy

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Re: Lucy needs some splainen
« Reply #40 on: August 28, 2012, 06:42:05 AM »
Heidi, I was wondering about that too. People are short saling every day. But I wonder if a Bank will do that if you have enough in savings to pay for it. If  we short sale, then we would only have to pay off the home value..correct?  Or would we have to pay the difference ?

James

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Re: Lucy needs some splainen
« Reply #41 on: August 28, 2012, 01:06:03 PM »
Heidi, I was wondering about that too. People are short saling every day. But I wonder if a Bank will do that if you have enough in savings to pay for it. If  we short sale, then we would only have to pay off the home value..correct?  Or would we have to pay the difference ?

You would probably have to stop paying your mortgage for a while, let them think it's going into foreclosure, and then try and force them to agree to a short sale.  And if they find out about your cash then they will just sue you and take the money, plus a ton of extra for court costs, etc.  Not something I would toy with, but of course it doesn't hurt to call them and ask, they might have a program to help you out.

HeidiO

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Re: Lucy needs some splainen
« Reply #42 on: August 28, 2012, 02:09:50 PM »
I don't know whether it is a good idea to short sale, or be forclosed on, but I try to look at my finances as a business would.  I would call and find out exactly what happens in a short sale.  The bank probably wouldn't sue you, since they have to agree to a short sale.  Or a foreclosure.  Talk to someone who knows what that would do to your credit and evaluate the options.  Talk to a realtor about listing it, and figure out exactly how much you are likely to have to pay when you sell. 
  This will be controversial, but I'm gonna mention it as a way to offer another way of looking at credit/forclosure/etc.  When I have a loan with a big corporation, I don't put a lot of emphasis on the morals.  I wouldn't do fraud, but if it is legal?  A corporation like these banks abide by laws, not morals.  This is a business transaction, they are exchanging their fees and interest payments for the risk of my defaulting.  They have already been paid.  They designed the deal, and it has been weighted to benefit them - that is why they have so much profit. 
  To summarize, huge multinational corporations make decisions based on law (hopefully) and profit, so when I deal with them I try to do the same.  Humans make decisions based on law, profit and morals, so when I deal with them I do the same.
Heidi