Author Topic: "Parking" money long term (8+ years) or pay down rental property?  (Read 1034 times)

DapperD123

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Im in the military and hit 12 years active service in 2 days.
I own a house in NM (since Dec '12) that's currently being rented out. There is a high probability I will be stationed there again before I hit my 20 year mark so that is why I didn't sell it when I moved.

I don't plan on buying another house while I am in, so my wife and I want to start saving for the transition into our next chapter.
So I look to the future and see two or three possible options.

After expenses, retirement account contributions, investments, and fun money is taken out; I've got about $17K annually I can put towards something or "park". That number will grow with promotions, two year bumps, annual raises, etc.

Option 1: I can park this money in some sort of account to use once I hit my 20 year mark. (CD, mutual fund, index funds, etc?)
Option 2: Take all this extra money and pay off the rental house in NM quickly.
Option 3: Both?

Personally I like the idea of parking all the money in an account and using it when I hit 20 years. That's $136K without making anything from interest and not including any bumps in the annual contribution.
At my 20 year mark/transition time out from the military I could sell my NM rental and use the equity + this parked account to hopefully buy the next house cash.

Does that seem like the best option?








 

waltworks

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Re: "Parking" money long term (8+ years) or pay down rental property?
« Reply #1 on: December 25, 2017, 10:05:13 PM »
Depends on the interest rate on the mortgage and your long term goals/preferences.

You will find tons of debate about the wisdom of paying off a mortgage vs investing in general (other investments will yield more and hence have your money working harder, if you've got a ~4% rate) but in your case:
1: You can write off mortgage interest from your rental income. That's a pretty good reason to keep the mortgage.
2: You have a pretty long time horizon where some volatility/risk (say, in stocks) isn't too big of a deal. If you're playing the long game, low interest debt is almost always worth paying as slowly as possible.
3: The house isn't very liquid, so if you pay it off and then decide you'd have preferred to invest in something else (or need the cash for something) you'll need to sell it (or HELOC) to access the money. Selling will be costly since you've lost your capital gains exemption at this point. Most other investments will be nice and liquid, big advantage.

Assuming you are maxing tax advantaged accounts, I'd just dump the money in a taxable account at whatever asset allocation you prefer. If you want to pay off the mortgage as a lump sum in the future, you can just do that. In the meantime, keep writing off the interest and investing.

-W

Dicey

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Re: "Parking" money long term (8+ years) or pay down rental property?
« Reply #2 on: December 25, 2017, 10:20:05 PM »
Your horizon is long enough that I'd go Jlcollinsnh Stock Series all the way. I'm in the "Don't Prepay Your Mortgage Club", so I wouldn't advise that, of course. Put it into a diversified, low cost, taxable portfolio and don't look back.

DapperD123

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Re: "Parking" money long term (8+ years) or pay down rental property?
« Reply #3 on: December 26, 2017, 04:54:50 AM »
Your horizon is long enough that I'd go Jlcollinsnh Stock Series all the way. I'm in the "Don't Prepay Your Mortgage Club", so I wouldn't advise that, of course. Put it into a diversified, low cost, taxable portfolio and don't look back.

Depends on the interest rate on the mortgage and your long term goals/preferences.

You will find tons of debate about the wisdom of paying off a mortgage vs investing in general (other investments will yield more and hence have your money working harder, if you've got a ~4% rate) but in your case:
1: You can write off mortgage interest from your rental income. That's a pretty good reason to keep the mortgage.
2: You have a pretty long time horizon where some volatility/risk (say, in stocks) isn't too big of a deal. If you're playing the long game, low interest debt is almost always worth paying as slowly as possible.
3: The house isn't very liquid, so if you pay it off and then decide you'd have preferred to invest in something else (or need the cash for something) you'll need to sell it (or HELOC) to access the money. Selling will be costly since you've lost your capital gains exemption at this point. Most other investments will be nice and liquid, big advantage.

Assuming you are maxing tax advantaged accounts, I'd just dump the money in a taxable account at whatever asset allocation you prefer. If you want to pay off the mortgage as a lump sum in the future, you can just do that. In the meantime, keep writing off the interest and investing.

-W

The mortgage is a fixed 3%, so it's definitely a low interest debt for the long term. Also we are maxing our tax advantage accounts.
I'll start moving forward with option 1 and figuring out a couple options to put this money in.

Thanks again for the posts. This is the route I wanted to go, but I wanted to have a "crazy check" before I proceeded.
I appreciate the information.