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Did I just throw good money away after bad?


By burritos   Follow   Fri, 28 Oct 2011, 5:50am PDT   1,362 views   9 comments
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Paid off my mortgage on one of my rental properties. Originally purchased 2004 for 176k. Zestimate is 160K. Original mortgage was 6.125%, 30 year fix for 140k. Paid amount today was 117k. My cash flow was -$100 a month. It will now be +$700 a month. In hindsight, I would have been better off waiting for the bubble burst and buying now, but what's done is done. Arguably, I could have leveraged myself out even more and purchased 1-2 more properties, but I already have 4 and don't want to leverage myself to the hilt. I could buy more stocks/mutual funds, but I'm already doing that to the tune of 9k a month. I could hoard more cash, but 176k(the original cost of my home) in my bank account was getting me $165 a month, but now after PITI, I'll be getting $700/mo. Yes I know this portion of money is now sidelined in the home and will not generate wealth. But I do feel more secure.

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Seattle Investor   Fri, 28 Oct 2011, 6:00am PDT   Share   Quote   Permalink   Like   Dislike     Comment 1

Why not just refinance, get that rate down (probably turn the negative CF to positive) and keep your cash working elsewhere.

Sounds like you're plenty secure, financially if you are really putting away 9K/month so why the need to feel more secure? Go out and make money.

burritos   Fri, 28 Oct 2011, 6:10am PDT   Share   Quote   Permalink   Like   Dislike (1)     Comment 2

Seattle Investor says

Why not just refinance, get that rate down (probably turn the negative CF to positive) and keep your cash working elsewhere.

Sounds like you're plenty secure, financially if you are really putting away 9K/month so why the need to feel more secure? Go out and make money.

Cause it doesn't get rid of the debt. I'll get more properties when I downsize the current debt.

¥   Fri, 28 Oct 2011, 7:09am PDT   Share   Quote   Permalink   Like   Dislike     Comment 3

>Yes I know this portion of money is now sidelined in the home and will not generate wealth.

you misspelled 'yield'

you or your money is not really 'generating' any wealth here. Somebody else is actually doing that.

burritos   Fri, 28 Oct 2011, 9:50am PDT   Share   Quote   Permalink   Like   Dislike     Comment 4

Bellingham Bill says

>Yes I know this portion of money is now sidelined in the home and will not generate wealth.

you misspelled 'yield'

you or your money is not really 'generating' any wealth here. Somebody else is actually doing that.

“Nessuna soluzione . . . nessun problema!„

Well no duh. When does money ever create wealth?

seaside   Fri, 28 Oct 2011, 4:40pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 5

burritos says

176k(the original cost of my home) in my bank account was getting me $165 a month

What bank and the type of the account please.
My bank pays 0.05 APY or something and what I am getting is about a lunch at McDonald. It's rather insulting.

jworm   Fri, 28 Oct 2011, 6:26pm PDT   Share   Quote   Permalink   Like   Dislike     Comment 6

seaside says

burritos says

176k(the original cost of my home) in my bank account was getting me $165 a month

What bank and the type of the account please.

My bank pays 0.05 APY or something and what I am getting is about a lunch at McDonald. It's rather insulting.

HSBC online savings pays a 0.8 APY, http://www.us.hsbc.com/1/2/1, . You could also try investing with LendingClub. I have a 18.16% yearly return over 2 years with no defaults.

burritos   Sat, 29 Oct 2011, 4:31am PDT   Share   Quote   Permalink   Like   Dislike     Comment 7

jworm says

seaside says

burritos says

176k(the original cost of my home) in my bank account was getting me $165 a month

What bank and the type of the account please.

My bank pays 0.05 APY or something and what I am getting is about a lunch at McDonald. It's rather insulting.

HSBC online savings pays a 0.8 APY, http://www.us.hsbc.com/1/2/1, . You could also try investing with LendingClub. I have a 18.16% yearly return over 2 years with no defaults.

https://home.ingdirect.com/products/products.asp?s=ElectricOrange

1.1% for accounts over 100k.

corntrollio   Mon, 31 Oct 2011, 8:30am PDT   Share   Quote   Permalink   Like   Dislike     Comment 8

seaside says

My bank pays 0.05 APY or something and what I am getting is about a lunch at McDonald.

If you can't find 20 times that, you aren't looking hard enough. It's quite trivial to find a 1.1% account, as people have mentioned. You don't even have $100K in the bank to do it.

burritos says

Original mortgage was 6.125%, 30 year fix for 140k.

Getting rid of this mortgage was a no brainer. The question is whether it would have been worth doing a re-fi as people mentioned.

burritos says

My cash flow was -$100 a month.

Also a no-brainer to make the cash flow positive. If you don't have positive cash flow, what's the point? Then you're depending on the eventual sale price overcoming the significant losses + transaction costs, which is more like speculation than investment.

burritos says

It will now be +$700 a month.

No idea if the $700/mo equals all costs, but that's nearing 5% annual return on equity if you assume equity is $176K and 5.25% if you take the Zestimate seriously. You'd do better with leverage, but also be taking more risk. And you could always take another mortgage on this place in the future if you wanted to. It doesn't sound like you want to invest more money than you currently do, but if you change your mind, it's easy enough to do. Having this paid off gives you flexibility and security for what you want to do in the future.

TPB   Mon, 31 Oct 2011, 8:37am PDT   Share   Quote   Permalink   Like   Dislike     Comment 9

If you save that 700 every month you'll have 84K in 10 years.
The value of your place could realistically be anywhere from what it is worth today or it could be double. There is no crystal ball.

You've saved your self at least that same 700 a month in interest payments on your mortgage.

I think you did great.

In ten years, you might be the smartest man in the room.

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