nocones wrote: Let's say you were a dummy who fell for the ploy of paying off your mortgage. You've got a house that would support a ~180k mortgage with no PMI. Are you suggesting I'm stupid for not tapping that equity and investing it?
IMO, yes.
Mathematically, yes.
Emotionally, having a paid off home does have some security value/stress relief to some people.
Nocones:
What you have with no mortgage is called "A sure thing"; an asset that should appreciate without you having to give 3.5% to the bank.
The other thing to consider is value propositions. What value does a paid off house have? In my case, I value peace of mind. Peace of mind means I get to care a little less about more and more E36 M3. And its recession proof.
So, for arguments sake, lets say that my peace of mind is as valuable to me as the mortgage money is to the bank. So, having hocked my peace of mind along with the house tittle, the combined cost of the mortgage is now 7%.
What this means is that you need to find a guaranteed "sure thing" investment that pays 7% after taxes. Just to break even. And if you want to make a 3.5% return on investment, you need a 10.5% return. Call me when you find it. It does not exist in Canada.
Perhaps with the ability to claim mortgage money against tax liability the numbers will sway a bit, but regardless, peace of mind does have value and if you want to make rational financial decisions, you should put a number on that value and use it for all of your budgetary decisions. For the majority of consumers, the number seems to be a big fat 0. That is what has allowed the financial sector to drive North America into a financial wall at full speed.
Why wouldn't you just pay off the house and then invest the money that you were using to make the payment? That's what we're doing. I'd much rather have that extra $2000/month (once I've paid my 30yr mortgage in 7 years and saved ~$100K in interest payments) to put toward something that will make me money at the same time that my house goes up in value, than be getting a minimal amount of interest return from an investment at the same time as paying just slightly less in interest on my house. But, I'm digressing from the topic of the post...
SVreX wrote: One more problem... Dad's don't read. Seriously. Statistics show vastly larger numbers for engaging women than men online (except cars and probably porn).
This statement is somewhat troubling. I'll have to look into a bit more (Google analytics). Everything else you mentioned makes total sense, and it's kind of what I've heard previously. By the way, that's a nice looking blog your wife is running.
DustoffDave wrote:SVreX wrote: One more problem... Dad's don't read. Seriously. Statistics show vastly larger numbers for engaging women than men online (except cars and probably porn).This statement is somewhat troubling. I'll have to look into a bit more (Google analytics). Everything else you mentioned makes total sense, and it's kind of what I've heard previously. By the way, that's a nice looking blog your wife is running.
the cars make sense or the porn makes sense?
i barely read about cars anymore and porn doesn't necessitate reading. the only stuff i read anymore is the cat in the hat and goodnight moon or along those lines.
the only blogs i read are about saving me money at the store, and even then i skip right to the highlighted parts about the biggest returns for a minute of looking for a coupon online.
DustoffDave wrote:SVreX wrote: One more problem... Dad's don't read. Seriously. Statistics show vastly larger numbers for engaging women than men online (except cars and probably porn).This statement is somewhat troubling. I'll have to look into a bit more (Google analytics). Everything else you mentioned makes total sense, and it's kind of what I've heard previously. By the way, that's a nice looking blog your wife is running.
I will be very interested in what you find out.
DustoffDave wrote: Why wouldn't you just pay off the house and then invest the money that you were using to make the payment? That's what we're doing. I'd much rather have that extra $2000/month (once I've paid my 30yr mortgage in 7 years and saved ~$100K in interest payments) to put toward something that will make me money at the same time that my house goes up in value, than be getting a minimal amount of interest return from an investment at the same time as paying just slightly less in interest on my house. But, I'm digressing from the topic of the post...
1) The return on investment is not "minimal" from your investments. S&P 500 has averaged ~7% after inflation since its inception. Edit, actually its higher than that. The 25yr annualized return as of 2013 was... 12.98%
2) Your home will appreciate (or not) regardless of whether or not you have paid off the mortgage.
NOHOME's point is that it has a peace of mind value. This is true, value that as you will.
IMO, there is also a peace of mind value to having that money not in a mortgage. If you dump an extra $250k in your house, you can't access that money without either taking out a home equity loan/new mortgage, where if its in simple taxable investments like a mutual find, its a matter of a few clicks to access it if some E36 M3 were to hit the fan.
Anyway, yes an early payoff may have some peace of mind value. It may be a much better deal in Canada. In the US, other investments favor the invest instead of early payoff big time. Run the numbers on it.
Early payoff of a home mortgage wasn't an option.
OP said the money could only be used to start a business.
$40K is nothing to sneeze at. But it's also not much to start a business with.
I'm a high-rise window cleaner who has done a fair bit of residential work. I've worked for about a dozen companies and feel I've seen some of the best around as well as some dead ends. Even with experience in my industry and a good head on my shoulders, I don't envy the task of running a business.
That said, a window cleaning business is within reach for $40K and will almost certainly be profitable if you invest enough time and effort. Pressure washing and roof cleaning are other choices that you could look at.
Here is a new one on me.
Was at my sisters and thought they had bought a new gas BBQ.
Nope...They had a "Guy" clean the thing.That is all he does.
They also have a "Guy" who comes around ever few years to pressure wash the deck.
These jobs do require a high suburban population density.
Has not been mentioned, but the other thing that these two businesses have going for them is a high CASH factor. This can be a good thing.
Other ideas that fit yur budget: Paintless dent repair franchise. Upholstery repair (FiberNew) Bumper cover repair. (The last two wont work if you are color blind)
My younger brother started his current business (resealing pool decks and concrete work) with money he made from pressure washing. He started with a rather cheap one and a 4x8 trailer he pulled with a Nissan Xterra. There's good money in it, but it's not exactly the easiest thing in the world.
SVreX wrote: OP said the money could only be used to start a business.
Question for the OP... does the $40k come with an equity split? Meaning is the family member expecting partial ownership of said business? That could open up a whole different can of worms.
In reply to BradLTL:
Nope, it's mine, free and clear. No need to pay it back, no buy-in from family member.
I have been self employed for over 25 years. One thing I have noticed about the small business people around me that are successful, is that they have been at one thing for a very long time. I am far busier than my competition, and I attribute that in part to putting in the time. My brother who is I am pretty sure a millionaire a few times over has been doing the same obscure little thing for almost 30 years. Another friend with a very successful propane business started it as a summer job 30 years ago in high school. So my message is that it doesn't really matter what you choose, there is no such thing as an overnight success. You will burn through your 40 and a whole bunch more, and it will be for nothing if you are not prepared to put many hours and years into whatever you choose.
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