Author Topic: Question - What would you do?  (Read 2341 times)

WannaBFree

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Question - What would you do?
« on: January 06, 2017, 09:52:58 AM »
We have been going back and forth trying to figure out what to do and decided to reach out to you for advice.
We are not mustashian, but do live beyond our means.
So here is our situation. 
Our gross income between DH DW is 230K plus bonus 15%ish. This is fairly recently that we started making 6 figures incomes. We have paid all of our students loans (80K) and other debts and have two mortgages (see below) and a 11K car loan at 0.9% with 2.5 years remaining. We started maxing out our 401(k)s this year.
We have a house - valued at 500K with remaining 290K in our mortgage 15-yr mortgage -14 years left at 2.875%
We also have a rental valued at 280K with remaining mortgage of $115K  -  15yr mortgage 11 years left at 3%. Rental is ok it brings about 250-300 per month in cash flow and has been very easy and problem-free to rent out in the past.
We have about 160K in our 401(k) and 140K in cash just sitting there basically earning nothing.
So, we have been thinking about our next course of action as it comes to our cash stash:

1.   Pay off our Rental this would bring an additional 1K per month in passive income that could be used to pay off our mortgage sooner or invest.

2.   Sell rental between our proceeds from rental and the cash stash we could pay off our house which would eliminate our 2K mortgage payment that could go into investment fund

3.   Use our cash stash money to invest (another rental or something else?)and leave mortgages alone.

Some additional facts I think the housing market is in somewhat of a bubble house values are way past their pre-recession levels. Builders are catching up to the shortage of inventory and rents have started to slowly go down.

If you were in this situation, what would you do? Any advice is GREATLY appreciated!

Cwadda

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Re: Question - What would you do?
« Reply #1 on: January 06, 2017, 10:23:51 AM »
If you are worried about real estate, there are other avenues i.e. taxable account for VTSAX. Your interest rates are fantastic though for those mortgages. I'm assuming they're fixed?

Have you already maxed your traditional IRAs and HSA accounts?

Quote
Some additional facts
What area do you live? This sounds more like speculation than facts. Would you consider selling your $500k home and moving somewhere smaller? There's always risk associated with investments, whether that's real estate or the stock market.

You definitely don't want $140k cash sitting there, doing nothing.

WannaBFree

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Re: Question - What would you do?
« Reply #2 on: January 06, 2017, 11:22:54 AM »
Thank you for your reply!
Mortgage rates are fixed. We don't have HSA as we have great insurance through employer taht is no High Deductible and is pretty affordable.
I will look into traditional IRAs.

Not really looking into selling our house - it's expensive, but not huge. We are in HCLA - Denver suburbs.
We like our house and our neighborhood - great schools, community, etc.


sisto

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Re: Question - What would you do?
« Reply #3 on: January 06, 2017, 12:32:26 PM »
Definitely read this link that gives advice for investing order:
http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153

Cwadda

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Re: Question - What would you do?
« Reply #4 on: January 06, 2017, 01:35:26 PM »
Yes, if you haven't already, max Traditional IRAs for both 2016 and 2017. Don't worry, it's not too late for 2016. You get until this April.

That'll get you $5500 for each you and your wife times 2 years. That's $22,000 you can immediately sock away and it comes out of your taxable income. Nice!

After that, you can follow the basic totem pole in the link sisto kindly provided.

Cwadda

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Re: Question - What would you do?
« Reply #5 on: January 06, 2017, 01:46:40 PM »
Here are some options that I would consider if I were in your situation:

Scenario 1
1. Fully max Traditional IRAs for both you and your wife for 2016 and 2017. $118k cash remaining
2. Set aside $20k for checking (i.e. property taxes coming up, credit cards, etc) $100k cash remaining
3. Put $100k towards 20% downpayment on another rental property where cashflow is good and brings you a good return

Scenario 2
1. Steps 1 and 2 from above
2. Put $100k in a taxable Vanguard account
3. option a) Cash out refinance one or both your properties (depends a lot on interest rates here, you already have very low interest rates)
3. option b) Take a Home Equity Line of Credit and use it to purchase another rental property either as cash or towards another down payment

WannaBFree

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Re: Question - What would you do?
« Reply #6 on: January 06, 2017, 04:07:35 PM »
So it looks like we won't qualify for a Traditional IRA as we make too much money :(:(:(
I guess it is a good problem to have, but still...it sucks!

Thank you for your suggestions -  will consider them when making a decision!



Saving in Austin

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JLee

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Re: Question - What would you do?
« Reply #8 on: January 07, 2017, 10:31:01 PM »
Does the $250-300/mo in income from your rental account for maintenance/expenses and income taxes?   $230k invested would likely return a lot more than $300/mo on average (that's only 1.56% return).