OT: Paying off mortgage, next step..

[CrookedLetta4Eva]

My wife and I expect to have our mortgage paid off within the next 6 months. We have considered an investment property and/or rental property.
We also have considered just adding to our savings(I know interest is ****). No interest in IRA.

We are both 30 years old, have one car payment and the regular monthly bills. No kids.

Looking for ideas of things to do with the money we will free up. Thanks to the Pack!

 

[Awwhellnaw]

30 years old and your mortgage is paid off? Would it be rude to ask what in the hell you do for a living? Sorry, sour grapes I guess.

 

[crackerjax]

My wife and I expect to have our mortgage paid off within the next 6 months. We have considered an investment property and/or rental property.
We also have considered just adding to our savings(I know interest is ****). No interest in IRA.

We are both 30 years old, have one car payment and the regular monthly bills. No kids.

Looking for ideas of things to do with the money we will free up. Thanks to the Pack!

Paying off mortgage before the car? Sounds like the Dave Ramsey plan but backwards.

 

[SkidKid]

30 years old and your mortgage is paid off? Would it be rude to ask what in the hell you do for a living? Sorry, sour grapes I guess.

We're in the same boat, but it'll probably 12 months. 32 years old. No car payment. It's pretty amazing how financially secure you can be if you don't pop out 3 kids at the age of 25.....

 

[ezsoil]

I agree that you should pay off the depreciating asset (the car) first unless there is an interest rate difference ...but you need to realize that you never really "pay off" or own your house ...you really only have an equity position ...you will always have to pay "rent" to your local taxing authority and they always have first position in the pecking order of liens. And depending on which state you are in, the taxes are increasing at a rate which is doubling every eight to twelve years.

 

[tatedog]

Just curious as to why no interest in IRA? Owning rental properties can be a great investment, but it's also a second job (at least).

 

[JacksonCPAdawg]

Good lord 30 and mortgage paid off? How many organs did you sell?

 

[fishwater99]

Buy a condo in Starkville and one on 30A before rates go up. You can also get some good deals in Colorado ski towns.

 

[Jeffreauxdawg]

Somebody hasn't made a trip to Omaha yet.. Don't worry, the double wide will be remortgaged like the rest of ours one day...


The no interest in IRA line is confusing. Put that hay in the barn now. You will be hard pressed to make enough money off rental property to pay for your aspirin. Too much dumb money in it these days... Put it in savings for now.. Read a few investment books... Talk to a Financial Planner. Find your fit.... But for the love of all that is holy, sock something away for retirement if you are not already.

 

[kired]

Obviously buy a bigger house with a much higher mortgage payment**

 

[aTotal360]

Buy a boat.

 

[coach66]

Madison Timber Company**, seriously

Diversify you have a long way to go

 

[o_Hot Rock]

Bug a plane and get your pilots license! You don’t have these problems of trying to figure where to put more money.

 

[WhiteShepherd07]

Congrats on having all your eggs in 1 basket at the top of the market

 

[TrueMaroonGrind]

Pay off that car first shouldn't take you long if you are paying off your mortgage so fast. No sense in having that debt linger unless it's no interest.

If you are planning on doing investment properties, get plugged in with people who are already doing it. It's a lot of work, but could make you money.

Also why no IRA? Do you have any retirement accounts yet?

 

[HumpDawgy]

State needs a new basketball arena.....just sayin'.

 

[Captain Ron]

Personally, I would be doing something for retirement and at age 30, it would be a Roth IRA. I get you said you are not interested in an IRA, but many folks don’t seem to understand how a Roth works in that you can take the money you invested out tax free before retirement which gives you a lot of flexibility.

If you already know all the ins and outs and still aren’t interested, then disregard.

 

[T-TownDawgg]

No kids?? Emu ranch. One look into their eyes, and you'll have to have one.

 

[CrookedLetta4Eva]

30 years old and your mortgage is paid off? Would it be rude to ask what in the hell you do for a living? Sorry, sour grapes I guess.

I’m in sales. Do not make six digits a year, just have been very frugal the last 7 years, with a heavy focus on paying off the mortgage. Pay 2k a month plus tax return money on a 170k mortgage and the principal drops quick.

To answer a few more questions..

Wife and I have very good 401s and we do not want to tie up more money for nearly 30 years in an IRA.

We did not focus on paying the car off first, because we just bought it four months ago.


The guy that is 32 with no kids and his mortgage is nearly paid off, that is awesome, and one of the main reasons we have also been fortunate enough to nearly pay off our mortgage also.

 

[Lachien]

Roth contributions is good advice

...if you are eligible for Roth contributions. Your household income may have eclipsed eligibility, at which point I guess you could backdoor convert (question for the pros: if you backdoor into a Roth can you still pull out your original contributions?).

Being in a Roth doesn't mean you have to be exposed to stocks, which you probably already know. A very conservative approach could be 80% SHV and 20% NEAR which is close to a competitive short term CD yield without the committment (this is the strategy of the robo investing company Betterment's Smart Saver product that is low risk). This strategy would at least help you battle inflation losses (probably nothing else) until you decide if you want to liquidate to invest in real property. Or if the market takes a huge dip and you smell value you could start converting it over to low cost market index funds.

Are you avoiding the market because you are expecting big corrections and don't want to be exposed? It's ok to be a bear I'm just trying to learn where you are

 

[coach66]

Just remember there's been few times better than now to take on debt, just

make sure you are going to make more money than you are paying out. Debt has been the vehicle to great wealth for many
so don't think it's da debil.

 

[Shamoan]

I own a rental property. It can be a bit risky, as renters don't always respect the property, and markets can be up and down. If you go that direction, location is key. High demand areas close to schools, hospitals, and things to do are important. If the opportunity to purchase a multi-unit rental appear, look there first. You don't want to jump right back into an extended mortgage payment with little to no return, so multi-unit rentals allow more bang for the buck. If you are just now buying, it's certainly a more long-term investment that has its own risks.

 

[patdog]

...if you are eligible for Roth contributions. Your household income may have eclipsed eligibility, at which point I guess you could backdoor convert (question for the pros: if you backdoor into a Roth can you still pull out your original contributions?).

Pretty sure the new tax bill passed last year eliminated the backdoor Roth conversions.

 

[jb1020]

Rental Property

Seems like a no brainer. Buy low in a good school district. If you're in a place like Rankin Co you can easily find homes in decent shape for less than $100k. 3 bed/2 bath that can rent for about $1000 a month if not more.

You're obviously good with money. Save up about $40-50k and put down. Your mortgage on it would be $400 and you'll have it paid off in no time. You could probably buy a new one every 2-3 years and by the time your 45 you'll be making $5-6k a month.

Cash them out at anytime.

 

[Maroonbulldog]

If you are going to buy investment propert-you will get much better rate, and an easier financing path by cashing out on your current home and Just pay cash for the investment. The risk adjustments for loan pricing jump up considerably simply because it’s an investment. Investments require 20% down and preferably 25% to get away from the worst pricing adjustments.


You can cashout on a conventional loan up to 80% and avoid mortgage insurance and still get a fixed rate.

You are going to have debt either way- whether it’s on your investment property or your primary- may as well take the option that saves you the most money IMO

 

[UpTheMiddlex3Punt]

For a long time, auto interest rates were insanely low. I financed my minivan purchase with a loan that had a 2.65% interest rate over five years. I don't think 15 year mortgages ever hit that low.

 

[AllbyMyRelf]

If you don’t like the rate in savings, maybe take a look at money market funds.

 

[Wizard.sixpack]

about to pay off mortgage at 30 years old with no kids??!!.........YOU BASTARD. (no offense it is just the JEALOUSY coming out)

 

[forestdepth]

My wife and I expect to have our mortgage paid off within the next 6 months. We have considered an investment property and/or rental property.
We also have considered just adding to our savings(I know interest is ****). No interest in IRA.

We are both 30 years old, have one car payment and the regular monthly bills. No kids.

Looking for ideas of things to do with the money we will free up. Thanks to the Pack!

I hope you and your spouse have been maxing out your 401ks and IRAs each year before making extra mortgage payments...

 

[forestdepth]

Pretty sure the new tax bill passed last year eliminated the backdoor Roth conversions.

Wrong

 

[forestdepth]

I’m in sales. Do not make six digits a year, just have been very frugal the last 7 years, with a heavy focus on paying off the mortgage. Pay 2k a month plus tax return money on a 170k mortgage and the principal drops quick.

To answer a few more questions..

Wife and I have very good 401s and we do not want to tie up more money for nearly 30 years in an IRA.

We did not focus on paying the car off first, because we just bought it four months ago.


The guy that is 32 with no kids and his mortgage is nearly paid off, that is awesome, and one of the main reasons we have also been fortunate enough to nearly pay off our mortgage also.

Money in 401ks and IRAs can be accessed with just a little bit of planning with no penalty. If you aren't maxing out both of these financial tools then you are leaving tons of money on the table. Look at the Roth conversion ladder.

 

[johnson86-1]

We're in the same boat, but it'll probably 12 months. 32 years old. No car payment. It's pretty amazing how financially secure you can be if you don't pop out 3 kids at the age of 25.....

Pop three kids out when you're in your mid to late 30's and then talk to me about how smart you feel.

We had kids later and it was financially beneficial, and it's not like we're so old that it's really hard, but it is harder physically, and we also won't still be young when our kids are off the payroll, we presumably won't be as young when we have grandkids, etc. There are good and bad to both approaches; it's not like one way is smart and the other dumb though.

 

[johnson86-1]

Couple of thoughts/responses:

Why no interest in the Roth? I agree that if you aren't making six figures and have paid off a $170k house at 30, you probably don't need to do anything beyond maxing two 401ks for retirement. But the Roth is a pretty good place to put an emergency fund, and it also give you the opportunity to do some tax arbitrage in retirement. based on what I assume your spending must be, assuming rates don't go up (or really, exemptions/standard deduction down significantly), you can probably life on tax free withdrawals from your 401k, but if you want more spending than that, you can top it up with withdrawals from a Roth, essentially making that 401k money never taxed.

Doing a Roth now also will make it easier/more tax efficient for you to set up a Roth conversion ladder if you want to retire before 59 1/2. (Also, pretty sure the Roth conversion wasn't eliminated; the ability to recharacterize was. This won't be an issue now since you aren't making six figures (unless both you and your wife make high 5 figures and combine to bump up against the limit), but just FYI for potential roth conversion ladder in the future.

W/r/t 401ks, I'm unclear whether you're maxing that out or not. If you aren't, I would. Again, with your relatively low spending, you can potentially turn a lot of that money into never taxed money.

Don't buy real estate at a market peak just because interest rates are low; if you wanted to play that game (I'm assuming somebody that focuses on paying off their mortgage wouldn't be), it'd be better to do a cash out refinance with your house, put that money into some high hield savings (there are credit unions paying 4 or 5% interest now on up to $250k if you can qualify for them, so it would be almost a break even proposition other than closing costs), and do a cash purchase of real estate when the interest rates go up and drive prices down. That way, you get low interest and low prices, rather than low interest rates in exchange for high prices.

If you do purchase rental properyt now, don't just use a cash out refi b/c of rates; yes, you'll get lower rates, but your interest won't be deductible unless you itemize. So compare the savings from rates to the savings in taxes (may not be much if you use 401k contributions to keep yourself in a low tax bracket, but still run the numbers).

 

[TheStateUofMS]

Pretty sure the new tax bill passed last year eliminated the backdoor Roth conversions.

delete

 

[TheStateUofMS]

I’m in sales. Do not make six digits a year, just have been very frugal the last 7 years, with a heavy focus on paying off the mortgage. Pay 2k a month plus tax return money on a 170k mortgage and the principal drops quick.

To answer a few more questions..

Wife and I have very good 401s and we do not want to tie up more money for nearly 30 years in an IRA.

We did not focus on paying the car off first, because we just bought it four months ago.


The guy that is 32 with no kids and his mortgage is nearly paid off, that is awesome, and one of the main reasons we have also been fortunate enough to nearly pay off our mortgage also.

Tax deferred investments should be your best friend. You can do that in real estate as long as you roll proceeds from real estate transactions into other similar type properties. You really need to pay for rentals in cash though otherwise you're going to be paying a mortgage plus expenses and taxes for a long time until the rental is paid off. Folks think being a landlord is easy but it's anything but easy. You'd be surprised how hard it is to get people to pay on time and how hard it is to get someone out of a house who's not paying, not to mention they will tear up your house as well.

If you can pay cash for a rental, it's an immediate return on your investment in the form of income, which you'll also pay taxes on every year (passive activity rules apply but expense deductions are also allowed, which probably increases expenses more since you'll likely need a CPA). Adding another mortgage in a cooling off housing market with likely increasing taxes over time might not be the best route, but like others have said, if you want to go this route, go learn from somebody. It's not easy like many people think.

If I were you, I would just be investing in an ETF in a brokerage account. You can buy the VOO or SPY (S&P500 ETFs) and just keep adding to that. The market has been down a lot lately, so it's a really good time to add over the long term and you have no penalties for taking money out whenever you want. You'll only pay taxes on dividends and interest received (even if it's reinvested) for the tax year they are received and no capital gains until you actually sell all or part of the position. If you hold for over a year before having to cash out some of your investments (each purchase of stock/mutual fund has it's own holding period), you'll get favorable long term capital gain treatment which is 15% for most tax payers and you said you're not in the highest income tax bracket, so the 15% LTCG should apply to you. You will have access to the funds with no restrictions as well.

 

[Dawgtini]

Pop three kids out when you're in your mid to late 30's and then talk to me about how smart you feel.

We had kids later and it was financially beneficial, and it's not like we're so old that it's really hard, but it is harder physically, and we also won't still be young when our kids are off the payroll, we presumably won't be as young when we have grandkids, etc. There are good and bad to both approaches; it's not like one way is smart and the other dumb though.

Boom. Ditto. Tell my kids all the time there is a reason most people have kids young. I’m the guy their friends think is the grandpa due to my gray hair. I’ll be a gramps at the same age as some will be great grands. Definitely pros and cons. Still recommend doing it sooner rather than later for the energy and stamina factor alone.

 

[Len2003]

I wound start putting more in a retirement account be that an IRA or a 401K. You'd be surprised at how much something as small as a couple of hundred dollars a month can accumulate over the decades.

 

[PineGroveBully]

Hookers and blow

 

[ezsoil]

I’m in sales. Do not make six digits a year, just have been very frugal the last 7 years, with a heavy focus on paying off the mortgage. Pay 2k a month plus tax return money on a 170k mortgage and the principal drops quick.

To answer a few more questions..

Wife and I have very good 401s and we do not want to tie up more money for nearly 30 years in an IRA.

We did not focus on paying the car off first, because we just bought it four months ago.


The guy that is 32 with no kids and his mortgage is nearly paid off, that is awesome, and one of the main reasons we have also been fortunate enough to nearly pay off our mortgage also.

Well it it looks like you are in good shape...just the fact that you have a plan, are working the plan and are seeing results....you aren't squandered opportunities...it all really comes down to personal preferences and what is important in your life...as I have gotten older, the tax implications are what drive my decisions as taxes eat a far bigger share of the pie than most people realize. ..I was a lot like you...paid off my house by 32 but my wife and I maxed the 401 K contributions out for 25 years and that is where a majority of my wealth is...I was retired at 52 and able to access that money through a 72T equal distribution....I used the 401K as a way to avoid taxes at my highest earning years at a 35% rate versus today which is just over 10% ...

regardless of what you decide, you are in great shape and just the fact that you have a plan puts you ahead of most folks.

 

[Webbmoore]

Here is what I would do. One invest in the market in utility stocks and use dividend reinvestment plan. You will basically get a 8 percent return on Southern Company or Duke Power. Dividend tax is 18 percent! It’s safe investing and long term. My family has owned Duke Power since 1922(I think that is right) and it’s never missed a dividend payment.

Next by a house in FL. Use VRBO or Air B&B to rent it out during the winter months. 30A is not a good place to invest as the Canadians like to go a little bit more south in the winter, sorry redneck Riveria. I have a place in Dunedin, FL that I paid 165k and was 205k after updating. It’s rented all winter and I make money on it. 125 a night... Make sure you homestead your house in FL... also Clearwater does not let you use vrbo or air B&B so make sure you check before you buy. Also very important. After you rent one winter to people they tend to contact you directly and then your free to contact them directly and not pay fees to Air B&B. I have a Canadian couple that has rented my place Dec-Feb for the last 3 years. Cash is king!

Next become a FL resident! No state income tax. You have to have one employee in FL if you own your business and that is your accountant...

Not sure what you do but it’s very easy to become a FL resident. Make sure you register your cars in FL, register to vote, etc. If you work in MS or wherever you will pay MS tax on that income but will not pay it on your investment income state. Get a LLC for your property...

Other investment is in Branson, MO. Build a cabin on the Lake that sleeps 20. You will have to come up with 150/175k, place cost about 700ish a piece. They rent for 650-800 a night depending on the time of year. I have 3 and building 3 now. I normally clear 75k on each on per year and use about 50k of that to pay them down quicker.

As for me I’ve not had to put into a 401k or Roth because I’m getting ready to retire from the military after 25 years as an Officer. My take home/VA is 7500 or so a month so I invested in properties and did not have to sink anything into a 401k/IRA... I’m a little different on that side of investing.

This thread will invite a bunch of haters to be honest. I hear this a lot “must be nice to have a military retirement and healthcare”, my response, “it sure is but 3 tours and a round in the back in Afghanistan has made me realize how nice it is and how much I have earned it.”

Let me know if you have any questions.
Webb