Author Topic: $100k available, what to do?  (Read 3413 times)

APowers

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$100k available, what to do?
« on: February 23, 2020, 07:25:28 AM »
Okay, so I got some really good news back from my lender the other day. I have been working through a refinance (possible cashout) on my house, in order to free up some working capital and/or reduce my mortgage payment.

Numbers:

Appraised value: $275k
Current principal owed: $185k
Current rate: 4.125%
Current PITI: $1,085
Escrow: ~$220

Initially, we were working off of a prior (relatively recent) appraisal of my home at $275k: thinking I could refinance to a loan amount of $220k (for an LTV of 80%, and a rate of 3.875%), and pull out ~$30k of cash. HOWEVER, the lender did their own appraisal as part of the underwriting process, and....

New appraised value: $365k

...which would allow me to cash out about $100k at a really low rate!

Which leaves me with the question: what is the best way to put that potential cash to work, investment-wise? Am currently contemplating a BRRR, but don't really have a good market in my own city for that.

nereo

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Re: $100k available, what to do?
« Reply #1 on: February 23, 2020, 08:44:54 AM »
the easy answer to this is to put that money to work following your Investor Policy STatement (IPS).  Hopefully you already have one, but if not now would be a good time to jot down your investment goals, strategy and preferred asset allocation.

Put another way, I would not invest this money any differently than sources of income (e.g. your paycheck).  Money is fungible.  So if your goal is to max out tax-advantaged accounts and then put all additional money into a 3-index-fund portfolio - do that.  You might want to consider how best to minimize your taxable burden but beyond that just invest this as you otherwise would.

I'm not well versed in the BRRR strategy so I won't comment on that specifically, but if you wouldn't use a BRRR without this extra cash, I'd think deep and hard about why you would now. Typically when people start thinking of a 'windfall' differently from their other income it doesn't end well.

APowers

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Re: $100k available, what to do?
« Reply #2 on: February 23, 2020, 08:53:43 AM »
the easy answer to this is to put that money to work following your Investor Policy STatement (IPS).  Hopefully you already have one, but if not now would be a good time to jot down your investment goals, strategy and preferred asset allocation.

Put another way, I would not invest this money any differently than sources of income (e.g. your paycheck).  Money is fungible.  So if your goal is to max out tax-advantaged accounts and then put all additional money into a 3-index-fund portfolio - do that.  You might want to consider how best to minimize your taxable burden but beyond that just invest this as you otherwise would.

I'm not well versed in the BRRR strategy so I won't comment on that specifically, but if you wouldn't use a BRRR without this extra cash, I'd think deep and hard about why you would now. Typically when people start thinking of a 'windfall' differently from their other income it doesn't end well.

Thanks!

I've been working on a BRRR-type strategy since before I learned I had potential access to this much liquid capital, so it's not a new thing to me (I already own a SFR, and currently airbnb my basement; I've done near-complete renovations on at least three houses, so not new to the construction/trades/renovation area either). I just have never had any real money to throw around in this world.

I don't really have an IPS, but have consistently focused on real-estate as my investment vector, so I pretty much assumed that's what I would do with this new source of capital. But at the same time, I'm kind of over the "always having a remodel project" situation, so am open to new approaches. I've considered pulling out the $100k, throwing it all in a VTSAX account, and using the 4% to cover the increase in mortgage payment, but that doesn't really appreciably change my cash-flow/passive income situation, which is what I really want to do.

Wintergreen78

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Re: $100k available, what to do?
« Reply #3 on: February 23, 2020, 09:03:48 AM »
I agree with nereoís advice. To me the big thing about having a plan is you can sit down and make decisions more objectively when you donít have a big stack of money in front of you that you are trying to decide how to handle right then. You just make the decision once, then as money comes in you donít need to think or stress about it, just execute your plan.

Deciding whether to focus on investing in index funds or real estate or cryptokitties really depends on the person. I know people have made index funds and real estate work, and Iím sure somebody has lucked out on cryptokitties, but whichever approach you take it is really helpful to say ďthis is my plan and Iím going to follow itĒ

waltworks

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Re: $100k available, what to do?
« Reply #4 on: February 23, 2020, 09:35:25 AM »
How "recent" was the $275k appraisal? A 30+% change in appraised value is a LOT. I'd be concerned, in your shoes, about the second appraisal being overblown and ending up underwater on the house.

As Nereo said, you need an actual plan before you start yanking out equity willy-nilly.

-W

L.A.S.

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Re: $100k available, what to do?
« Reply #5 on: February 23, 2020, 12:28:47 PM »
And what will happen to the mortgage payment? Does it go up? 

Also, you might be setting yourself up for making the classic mistake of taking on leverage while asset values are high and using it to buy more assets also now near at an all time high... Just let it sink in a bit. Leverage magnifies gains but also losses.

APowers

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Re: $100k available, what to do?
« Reply #6 on: February 23, 2020, 03:21:13 PM »
Walt-- The $275k appraisal was last year, the $365k appraisal was within the last couple weeks. Not far apart, timewise. IMO, the $275k is in line with what *I* think the house is worth, the $365k is in line with current market values (RE market here is exploding, and I'm in a high-demand neighbourhood). I don't expect values to collapse anytime soon, given the factors that make my location valuable.

I highly agree that I need a plan, and shouldn't just borrow because it's available.

Celery-- Mortgage payment would go up from ~$1100 to ~$1600. I am fully aware that I won't be getting all this capital for free. I have always been extremely careful not to overleverage myself, so highly doubt I'm going to throw caution to the wind now. If I do go through with a cash-out this large, I intend to do so with a plan and reasonably diligent research beforehand. It's just that I can make plans that are potentially 4x as big as I was thinking before, and there are more possibilities open to me than were before, when I only had $10-20k to work with.

waltworks

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Re: $100k available, what to do?
« Reply #7 on: February 23, 2020, 07:38:05 PM »
What is your larger financial situation? Other investments, emergency fund, etc?

-W

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Re: $100k available, what to do?
« Reply #8 on: February 23, 2020, 07:52:47 PM »
Today's environment is long bull runs and very low unemployment, which can make it seem permanent.  When companies hit trouble, you are more likely to see stock market losses and job losses at the same time.  That's why there's a need for emergency funds, rather than investing every dollar.

You are essentially leveraging your income - your job is the bond that pays off the mortgage.  When did your industry have a layoff?  Can you picture an event like Boeing shutting down, or China's main car producing region shutting down?  Also worth mentioning that just about every financial crisis involves leverage (dot-com crash was more hysteria than leverage).

In your situation, I'd want to imagine a few scenarios and guess the chance of each one happening.  Worse case, bad case, average case, and even promotions / ongoing stock market gains.  Try and get a well rounded view of what might happen, so that when you leverage up you are prepared.


APowers

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Re: $100k available, what to do?
« Reply #9 on: February 23, 2020, 09:37:04 PM »
What is your larger financial situation? Other investments, emergency fund, etc?

-W

Larger picture: I'm self-employed in the handyman/property maintenance field, with more work available than I can reasonably handle in the part-time hours I choose to work (i.e., during school hours). I make $15-30k doing this (if I focused on it, and put in all the part-time hours, more like $25-40k). I own my SFR outright (owe nothing, worth ~$130-150k), it cash flows $500-900/month. My airbnb nets me ~$1200/mo on average. My normal monthly expenses are ~$2200 on average (including current mortgage). I've got >$8k in ready cash, with another $10k in my emergency fund.

I don't have a lot of capital to work with, but I'm generally at a position of strength here. Even worst case scenario, the extra $500/mo mortgage payment would be a pain, but wouldn't break me.

waltworks

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Re: $100k available, what to do?
« Reply #10 on: February 24, 2020, 08:19:00 AM »
Yikes, a RE downturn would kill you...

I would not take any money out of the house (is this the AirBnB?) right now. I might look at selling it, though. $12k or so a year in profit (are you self managing it too?) on a place worth $365k is pretty terrible.

Take those proceeds and dump them in a nice boring 60/40 stock/bond fund, as well as enough cash for 6-12 months expenses. Write an IPS.

-W

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Re: $100k available, what to do?
« Reply #11 on: February 24, 2020, 08:57:55 AM »
Yikes, a RE downturn would kill you...

Let me share this with you, OP - twice I have had rentals in markets that were booming.  Both times events completely out of my control basically screwed my fundamentals.  The first was during teh 'Great Recession' when people in our affluent area were foreclosing all over the place, and the entire market tanked for years.  The second time was in another city when a developer built up a bunch of 'luxury condos', overshot the neighborhood, went bankrupt and they got sold off at steep discounts to rental agencies, driving everyone else's values into the toilet.

Take-home message is to be wary of over-leveraging and to make sure you have multiple layers of safety.  Local RE markets can and will plummet with no predictibility.  Make sure you can weather all different types of economic s**t storms, whether its personal job loss, recession, a bad developer, bankruptcy of the largest employer, a drug epidemic, etc.  Black swans happen, and RE is not immune.

G'luck.

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Re: $100k available, what to do?
« Reply #12 on: February 24, 2020, 11:20:13 AM »
I would take the cash out and put it all in equities. Putting it in real estate leaves you way too concentrated in one sector in one or two markets as far as I am concerned.

APowers

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Re: $100k available, what to do?
« Reply #13 on: February 24, 2020, 03:07:35 PM »
Yikes, a RE downturn would kill you...

I would not take any money out of the house (is this the AirBnB?) right now. I might look at selling it, though. $12k or so a year in profit (are you self managing it too?) on a place worth $365k is pretty terrible.

Take those proceeds and dump them in a nice boring 60/40 stock/bond fund, as well as enough cash for 6-12 months expenses. Write an IPS.

-W

Maybe I'm missing something, but how would a RE downturn kill me? If the RE market here tanked-- I'm not planning on selling anyway, so nbd. If the RE market also tanked for my SFR, well, I'm not planning to sell it either, so worst case, I lower the rents by a few hundred. Again, nbd, I just might work a bit more to compensate. Even minus all my current passive income, my living expenses are *still* well below my earning capacity...

The airbnb house is also my home-- I live here *and* it nets $12k, so it's pulling double duty as residence and income property. Selling and investing the proceeds doesn't seem like it would net me any better cashflow than I already have ($340k-$180k owed= x 4%=~$550/mo, but I'd have to go buy/rent another place and pay rent/mortgage there, which would eat all that cashflow and then some).


waltworks

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Re: $100k available, what to do?
« Reply #14 on: February 24, 2020, 03:50:57 PM »
Gotcha - the Airbnb is your residence, that makes it just fine. What is the other home without the mortgage rented for? I'm confused about how many homes you own and what you owe, I guess. It's

Your handyman gig is also housing dependent - that's what we're all saying. ALL of your income AND your NW is tied up in real estate. That's no bueno. A lot of people who bought RE in the last decade (and people who bought stocks, too) think they're geniuses right now and, like you, are looking to lever up/double down on what has worked in the past.

All we're saying is that if you're going to lever up more, at least diversify into another asset class.

-W
« Last Edit: February 24, 2020, 03:56:06 PM by waltworks »

waltworks

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Re: $100k available, what to do?
« Reply #15 on: February 24, 2020, 04:03:52 PM »
It's also worth noting that according to your own numbers, you're within spitting distance of FI right now (maybe an annual shortfall of $2k?) In that position, taking on more leverage and risk is dumb. If you love RE, use your handyman earnings to pay off the mortgage on the primary or alternately to invest in some boring index funds. Ramp down work as you see fit and do whatever you want.

A refi would maybe get you there - I'm seeing 3.375% for top tier scenarios today and I'll bet that improves until people stop freaking out about the Covid-19. Even if rates don't drop more than that, you'll save yourself close to $1000 a year. Dump some of that spare cash in at the same time and you'd be "officially" FI. Congrats!

That's a pretty safe glide path. Taking $100k out of your house just because you can probably isn't.

-W
« Last Edit: February 24, 2020, 04:12:37 PM by waltworks »

use2betrix

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Re: $100k available, what to do?
« Reply #16 on: February 24, 2020, 06:43:44 PM »
The market is not in a state that I would pull $100k out of a mortgage to invest... Maybe if it were 2009 or 2010...

L.A.S.

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Re: $100k available, what to do?
« Reply #17 on: February 24, 2020, 08:02:02 PM »
waltworks makes some very good points..

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Re: $100k available, what to do?
« Reply #18 on: February 24, 2020, 11:09:42 PM »
I would take the cash out and put it all in equities. Putting it in real estate leaves you way too concentrated in one sector in one or two markets as far as I am concerned.

I know this won't be popular here, but I'm doing pretty much a similar deal simply because jumbo loans are suddenly cheaper than conforming loans.  I'm only shaving 70 bps off my rate, but pulling cash out to 'make' it a jumbo loan nets me $100k at an effective rate (vs. not refinancing) of 1.08% for 30 years fixed, including all fees.

Most of it will go into individual stocks in despised sectors, namely Tobacco (MO sporting a 7.7% div yield) and Oil (RDS.B with a 7.9% div yield).  This will create $8,150 of annual dividend income per $100k, and the MO div (RDS.B not so much) will continue to grow *almost* every year. 

To put into context, this isn't a YOLO move but rather an aggressive tilt built in to my IPS that allows for high-quality stocks to be overweight when they get (subjectively) too cheap. I'm sure it'll burn me sometime, but for now I'll take my chances on the best performing American stock of the last century (MO) and the source of the dividends that funds the Queen of England (RDS).  This also adds roughly $400 per month cashflow above and beyond the increased mortgage payment.

I AM NOT SUGGESTING YOU DO THIS!   I am wrong a lot and even if this does turn out be be right for me it might not be right for you!  Best of luck with whatever you decide!


AdrianC

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Re: $100k available, what to do?
« Reply #19 on: February 25, 2020, 06:41:07 AM »
I've considered pulling out the $100k, throwing it all in a VTSAX account, and using the 4% to cover the increase in mortgage payment, but that doesn't really appreciably change my cash-flow/passive income situation, which is what I really want to do.
What do you mean by "using the 4% to cover the increase in mortgage payment"? Where's the "4%" coming from?

This is just me...but doing a cash out refi to invest in stocks is a really risky move. Yes, I know, un-callable leverage and all that. Just remember that stocks can, and will at some point, lose 50% of their value. Can you hold on through that? Do you currently have a lot of money in stocks? There is no substitute for personal experience.

APowers

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Re: $100k available, what to do?
« Reply #20 on: February 26, 2020, 07:44:39 AM »
Gotcha - the Airbnb is your residence, that makes it just fine. What is the other home without the mortgage rented for? I'm confused about how many homes you own and what you owe, I guess.

Your handyman gig is also housing dependent - that's what we're all saying. ALL of your income AND your NW is tied up in real estate. That's no bueno. A lot of people who bought RE in the last decade (and people who bought stocks, too) think they're geniuses right now and, like you, are looking to lever up/double down on what has worked in the past.

All we're saying is that if you're going to lever up more, at least diversify into another asset class.

-W
I own two properties:

(1) SFR: out of state, no debt. Gross rent = $1050/month, net ~$700-900.
(2) Current residence: owed $185k, airbnb in the basement. Net rent = ~$1100-1300/month.

It's also worth noting that according to your own numbers, you're within spitting distance of FI right now (maybe an annual shortfall of $2k?) In that position, taking on more leverage and risk is dumb. If you love RE, use your handyman earnings to pay off the mortgage on the primary or alternately to invest in some boring index funds. Ramp down work as you see fit and do whatever you want.

A refi would maybe get you there - I'm seeing 3.375% for top tier scenarios today and I'll bet that improves until people stop freaking out about the Covid-19. Even if rates don't drop more than that, you'll save yourself close to $1000 a year. Dump some of that spare cash in at the same time and you'd be "officially" FI. Congrats!

That's a pretty safe glide path. Taking $100k out of your house just because you can probably isn't.

-W

I know I'm almost there....if I tighten the screws a bit, I'm basically at super-lean-FI. To be so close is a bit relieving and devilishly frustrating at the same time. I don't really love RE, but it has been the only place where I have been able to make a decent return without leveraging beyond my income limits or requiring a lot of capital (both my houses are dripping with sweat-equity, lol!).

I will revisit my numbers with a straight refi + cash to lower the mortgage payment. I think I may like that more than the available cash. I *do* still want to bump up my passive income, I"m just not sure exactly how, and real estate is the one area I'm familiar with.

APowers

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Re: $100k available, what to do?
« Reply #21 on: February 26, 2020, 07:48:00 AM »
I've considered pulling out the $100k, throwing it all in a VTSAX account, and using the 4% to cover the increase in mortgage payment, but that doesn't really appreciably change my cash-flow/passive income situation, which is what I really want to do.
What do you mean by "using the 4% to cover the increase in mortgage payment"? Where's the "4%" coming from?

This is just me...but doing a cash out refi to invest in stocks is a really risky move. Yes, I know, un-callable leverage and all that. Just remember that stocks can, and will at some point, lose 50% of their value. Can you hold on through that? Do you currently have a lot of money in stocks? There is no substitute for personal experience.

"using the 4%" meant following the 4% safe withdrawal rule. Sorry for the confusion. Yes, I agree that mortgaging to invest in stocks is really risky, but I can't say I haven't thought about it. I don't currently have any money in stocks, so essentially zero personal experience there.

waltworks

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Re: $100k available, what to do?
« Reply #22 on: February 26, 2020, 07:54:44 AM »
Ok, got it.

50% rule says your low end out of state rental is doing a LOT worse than you think, but that's sort of standard thinking for many people. I can't imagine your total overhead is ~$200 a month even just for taxes and insurance. No management costs? No vacancies anticipated, ever? No repairs or Capex?

All you really need to do is refi. I'd hold off, rates are almost certainly going to come down more. I would not be at all surprised if you could get 3% on an owner occupied refi in a month or two.

Put your income from handyman work into some sort of boring index fund going forward.

Refi savings + dividends from $50k worth of index funds will put you over the top easily. Then if you want to work toward fatter FIRE you can keep working a little bit. Or not.

-W

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Re: $100k available, what to do?
« Reply #23 on: February 26, 2020, 09:05:01 AM »
I'd also add AP that you need to value your time in these RE endeavors.  You mentioned you have a ton of sweat equity in those houses.  That sweat equity costs time.  Time you could be making money at your handyman business.  Take THAT money and invest it aggressively.  The S&P went up 30.4% last year and all you had to do was take the 5 minutes to invest.

I'm super guilty of this as I actually just sold a "solid" rental that really was less than solid when comparing all the factors.  I owned it for 15 years. Life would have been way easier if I just invested that money. 

One time I got a quote for a paver walkway that I thought was high so I figured I'd do it myself (40 plus feet with curves).  I spent the better part of 2 weeks doing it.  It was backbreaking work and difficult.   In the end I would have been better off just contracting it out because I made way more than that at my regular job.  Same for flips.  I've always made money, but if I costed out my labor on them it was just an OK return.  I enjoy it so I don't get too upset about it but you definitely need to account for your time.

APowers

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Re: $100k available, what to do?
« Reply #24 on: February 26, 2020, 11:37:51 AM »
Ok, got it.

50% rule says your low end out of state rental is doing a LOT worse than you think, but that's sort of standard thinking for many people. I can't imagine your total overhead is ~$200 a month even just for taxes and insurance. No management costs? No vacancies anticipated, ever? No repairs or Capex?

All you really need to do is refi. I'd hold off, rates are almost certainly going to come down more. I would not be at all surprised if you could get 3% on an owner occupied refi in a month or two.

Put your income from handyman work into some sort of boring index fund going forward.

Refi savings + dividends from $50k worth of index funds will put you over the top easily. Then if you want to work toward fatter FIRE you can keep working a little bit. Or not.

-W

Agreed that my SFR won't average long-term that high. I generally rely on a figure of $500/mo when trying to figure FI numbers. Actual net last year was $725/mo, accounting for everything (mgmt, repair, ins, taxes) except capex.

I am definitely going to refi-- I will run the numbers with the lender the other way (i.e., how to get the lowest payment possible, vs how much equity is available), and see what that will do for me.

Thanks for the perspective!

AdrianC

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Re: $100k available, what to do?
« Reply #25 on: February 26, 2020, 11:39:19 AM »
"using the 4%" meant following the 4% safe withdrawal rule. Sorry for the confusion. Yes, I agree that mortgaging to invest in stocks is really risky, but I can't say I haven't thought about it. I don't currently have any money in stocks, so essentially zero personal experience there.
Ah, no problem.

I think you should ramp up your investment in stocks over time. That's how most people do it, and they get a feel for it gradually. Most folks don't borrow $100K and dump it into the market with no prior experience.

There's no substitute for personal experience when it comes to seeing money you used to own not be there anymore. It's worse if you're leveraged. If you'd dumped that $100K into VTSAX last Wednesday, as of last night your balance would show $92.5K. Some folks can't handle that.

APowers

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Re: $100k available, what to do?
« Reply #26 on: February 26, 2020, 11:50:06 AM »
I'd also add AP that you need to value your time in these RE endeavors.  You mentioned you have a ton of sweat equity in those houses.  That sweat equity costs time.  Time you could be making money at your handyman business.  Take THAT money and invest it aggressively.  The S&P went up 30.4% last year and all you had to do was take the 5 minutes to invest.

I'm super guilty of this as I actually just sold a "solid" rental that really was less than solid when comparing all the factors.  I owned it for 15 years. Life would have been way easier if I just invested that money. 

One time I got a quote for a paver walkway that I thought was high so I figured I'd do it myself (40 plus feet with curves).  I spent the better part of 2 weeks doing it.  It was backbreaking work and difficult.   In the end I would have been better off just contracting it out because I made way more than that at my regular job.  Same for flips.  I've always made money, but if I costed out my labor on them it was just an OK return.  I enjoy it so I don't get too upset about it but you definitely need to account for your time.

I hear you on valuing my time. For me, that has generally worked the *other* way. For a majority of my working life, my working wage has been $15/hr or less; so every time I weigh between "do it myself" and "hire someone", it has always come out in favour of doing it myself vs paying a contractor >$50-100/hr. Even now, I generally make ~$30/hr (net), and it rarely calculates in favour of hiring someone so I can work instead.

Also, when I DIY, I often learn new skills and ideas that I would never have learned otherwise, plus, my kids can "help" which is good for them (and also saves me money on childcare costs).

waltworks

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Re: $100k available, what to do?
« Reply #27 on: February 26, 2020, 11:59:45 AM »
Whoa, you live on $26k a year *with multiple kids*, with over half that being mortgage? As in, <$1000/mo in *all* other expenses?

Holy shit. That is freaking amazing. I figured you were single. Our family of 5 spends twice what you do a month (outside of the mortgage), and we're pretty darn frugal (basically free ACA healthcare, inexpensive homecooked food/never eat out, take the bus everywhere, get all clothes as hand-me-downs or thrift store, ultra cheap phone plan, no TV, etc).

You should post a case study, you guys are killing it.

-W
« Last Edit: February 26, 2020, 12:14:48 PM by waltworks »

MustacheAndaHalf

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Re: $100k available, what to do?
« Reply #28 on: February 26, 2020, 06:52:45 PM »
If people don't want to sell their homes, won't that impact the amount of work available for you?  Meaning, isn't there a situation where your work and real estate investments take a hit at the same time?

This might be a good week to check if mortgage rates have dropped.  Investors fleeing the stock market went to treasuries, which has driven down the yield.  I don't know the impact on 30 year treasuries, but those might impact mortgage rates.

APowers

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Re: $100k available, what to do?
« Reply #29 on: February 26, 2020, 08:20:24 PM »
If people don't want to sell their homes, won't that impact the amount of work available for you?  Meaning, isn't there a situation where your work and real estate investments take a hit at the same time?

This might be a good week to check if mortgage rates have dropped.  Investors fleeing the stock market went to treasuries, which has driven down the yield.  I don't know the impact on 30 year treasuries, but those might impact mortgage rates.

I mainly do maintenance and small repair jobs (the stuff that other contractors don't like because it's "too small"), so even in a market where houses aren't selling, I still expect to be fixing doors and drawers and dishwashers in rental houses.

Definitely will double check mortgage rates.

waltworks

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Re: $100k available, what to do?
« Reply #30 on: February 26, 2020, 08:35:46 PM »
If you lived through the 2008-2010 time period, you know that lots of landlords and homeowners stopped doing all maintenance (and stopped paying the mortgage, too). It was indeed grim for contractors and handymen!

I'm certainly not saying that is likely again, but it can and has happened that RE and RE related jobs crash at the same time.

-W

ChpBstrd

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Re: $100k available, what to do?
« Reply #31 on: February 26, 2020, 09:11:06 PM »
So the plan is to borrow a six-figure sum at 3.875%, invest it in the stock market, and earn the difference in returns?

What happens if the next 20 years of stock market returns look like Japan starting in the 90's? Or if the next 10 years has a zero total return? Returns could be lower than your loan rate and you could bleed cash for years - all while owing more than what you could liquidate for.

There's no rule saying that can't happen, although I hear a lot of talk here about how stocks are an inherently higher returning asset. Actually, returns are a bit lumpier than that - and a period of bad returns could last the remainder of your lifetime (see the 1920s-30s or the 1970s or the dot-com bust).

Last point: 3.8..% isn't even that competitive of a rate for margin loans. Interactive Brokers now offers rates as low as 2.18%:
https://www1.interactivebrokers.com/en/index.php?f=18069

APowers

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Re: $100k available, what to do?
« Reply #32 on: February 26, 2020, 09:54:50 PM »
Whoa, you live on $26k a year *with multiple kids*, with over half that being mortgage? As in, <$1000/mo in *all* other expenses?

Holy shit. That is freaking amazing. I figured you were single. Our family of 5 spends twice what you do a month (outside of the mortgage), and we're pretty darn frugal (basically free ACA healthcare, inexpensive homecooked food/never eat out, take the bus everywhere, get all clothes as hand-me-downs or thrift store, ultra cheap phone plan, no TV, etc).

You should post a case study, you guys are killing it.

-W

Umm...thanks!? Maybe it makes a bit more sense that I'm like "HOLY COW, A HUNDRED THOUSAND DOLLARS!!!?!?!?" with this whole refinance thing, lol!

$26k/yr spending, yes. Two adults, two kids (ages 7 & 8). Mortgage is $1160, so basically half the expenses are mortgage. Income this last year (2019) was $39k, which is way above-average for me-- average over the last 10 yrs has been $27-28k.


APowers

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Re: $100k available, what to do?
« Reply #33 on: February 26, 2020, 10:01:38 PM »
So the plan is to borrow a six-figure sum at 3.875%, invest it in the stock market, and earn the difference in returns?

What happens if the next 20 years of stock market returns look like Japan starting in the 90's? Or if the next 10 years has a zero total return? Returns could be lower than your loan rate and you could bleed cash for years - all while owing more than what you could liquidate for.

There's no rule saying that can't happen, although I hear a lot of talk here about how stocks are an inherently higher returning asset. Actually, returns are a bit lumpier than that - and a period of bad returns could last the remainder of your lifetime (see the 1920s-30s or the 1970s or the dot-com bust).

Last point: 3.8..% isn't even that competitive of a rate for margin loans. Interactive Brokers now offers rates as low as 2.18%:
https://www1.interactivebrokers.com/en/index.php?f=18069

No, that's not the plan. I said I thought about it, but I can't figure a way that it works to my benefit to borrow to purchase stocks. The plan is to find a way to use relatively cheap access to capital to generate significant positive cash flow; I've been assuming that will be real estate, as that's the only place I know to make that kind of return. But I'm also considering following Walt's advice and doubling down on my current position of strength by using the low price of borrowing to reduce my current level of expenses, and then build on that to diversify my investment in a direction other than real estate.

waltworks

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Re: $100k available, what to do?
« Reply #34 on: February 27, 2020, 07:10:26 AM »
How the hell did you qualify for a mortgage in the first place?

-W

APowers

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Re: $100k available, what to do?
« Reply #35 on: February 27, 2020, 02:05:45 PM »
How the hell did you qualify for a mortgage in the first place?

-W

Haha! I....don't really know, tbh. I have a good credit score?  I was making $15/hr when we bought our house in CO, and about half of that was income they couldn't count (not enough self-employment history). Į\_(ツ)_/Į

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Re: $100k available, what to do?
« Reply #36 on: February 27, 2020, 03:54:51 PM »
APowers, do whatever you want really.. Just keep in mind that many of the of the unrecoverable financial blunders that people have made in the previous decades have included taking on lots of debt when times are good as well as using as collateral a necessary asset such as a house or investments in an investment portfolio. Basically you are trying to reach a higher level of wealth using other peopleís money.  There is nothing novel here and it can backfire tremendously. 

To me, it sounds like you would be better off leaving your home equity alone and just trying to diversify into stocks by investing on a regular basis. 

Good luck.

APowers

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Re: $100k available, what to do?
« Reply #37 on: February 27, 2020, 10:24:09 PM »
Whoa, you live on $26k a year *with multiple kids*, with over half that being mortgage? As in, <$1000/mo in *all* other expenses?

Holy shit. That is freaking amazing. I figured you were single. Our family of 5 spends twice what you do a month (outside of the mortgage), and we're pretty darn frugal (basically free ACA healthcare, inexpensive homecooked food/never eat out, take the bus everywhere, get all clothes as hand-me-downs or thrift store, ultra cheap phone plan, no TV, etc).

You should post a case study, you guys are killing it.

-W

Umm...thanks!? Maybe it makes a bit more sense that I'm like "HOLY COW, A HUNDRED THOUSAND DOLLARS!!!?!?!?" with this whole refinance thing, lol!

$26k/yr spending, yes. Two adults, two kids (ages 7 & 8). Mortgage is $1160, so basically half the expenses are mortgage. Income this last year (2019) was $39k, which is way above-average for me-- average over the last 10 yrs has been $27-28k.

I take that back. Actual spending in 2019 was ~$22k. I made $39k net, and for sure spent: $12k on a kitchen remodel, $3.5k on a bathroom reno, and >$1.5k on landscaping (I tracked remodel expenditures a lot more closely than normal spending this year). I didn't end the year much different financially (better, if anything) than I started, so all other spending must have been the difference-- $22k, or ~$1850/month.

*looooooong exhale*

*has existential crisis*

I.....think I need to switch gears toward making FIRE plans instead of OMY plans.

waltworks

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Re: $100k available, what to do?
« Reply #38 on: February 28, 2020, 07:10:21 AM »
I think you need to track your actual spending. Sounds like you don't really know what it is.

If you are actually spending $22k a year, yes, you are FIRE.

Again, post a case study. I want to see how it's even vaguely possible to live a modern (ie, access to this forum, own a car, etc) lifestyle with a family of 4 in a HCOL area and spend well under $1000 a month doing so.

-W

APowers

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Re: $100k available, what to do?
« Reply #39 on: February 28, 2020, 09:47:21 AM »
I think you need to track your actual spending. Sounds like you don't really know what it is.

If you are actually spending $22k a year, yes, you are FIRE.

Again, post a case study. I want to see how it's even vaguely possible to live a modern (ie, access to this forum, own a car, etc) lifestyle with a family of 4 in a HCOL area and spend well under $1000 a month doing so.

-W

I've tracked my spending religiously for the previous 9 years, so last year I didn't feel compelled to track quite as closely, based on how consistent we've been historically. I'm 90% certain that my back-of-the-envelope estimate is about as accurate as rounding everything off to the thousands' place.

APowers

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Re: $100k available, what to do?
« Reply #40 on: March 03, 2020, 11:26:47 PM »
@waltworks -- I wrote up a case study, just for you.

Also, updates.

I contacted my credit union, and they will be more than happy to open up a HELOC for nearly $100k, at a 4.5-5% rate. So there's easy cash capital available there, with no commitment required unless/until I have a solid plan for it. In light of that, I am going ahead with the refinance on only my remaining principal, which should bring down the PITI payment by about $150/month (lender told me the exact numbers, I just can't remember them off the top of my head), with a rate of 3.25%.

This allows me to keep my low-expense position of strength, while not forcing me to make any investment decisions in a time-deadlined crunch. It also still leaves me an option to access a ginormous pile of capital if I need it for a good investment opportunity.

Missy B

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Re: $100k available, what to do?
« Reply #41 on: March 04, 2020, 11:13:26 PM »
I would take the cash out and put it all in equities. Putting it in real estate leaves you way too concentrated in one sector in one or two markets as far as I am concerned.                                                                     

Most of it will go into individual stocks in despised sectors, namely Tobacco (MO sporting a 7.7% div yield) and Oil (RDS.B with a 7.9% div yield).  This will create $8,150 of annual dividend income per $100k, and the MO div (RDS.B not so much) will continue to grow *almost* every year. 


Sinner! You're going to Hell!
Kidding. I'm always listening to naive people who think that eventually all the 'bad' companies stock value will go down, down, because 'good' people don't own 'bad' companies. Damn straight they do, especially if they're getting a 7% dividend:)
I looked at Altria and wasn't sure I liked the lawsuit potential there... but then it probably isn't any worse than owning J&J.