Which of his advise do you disagree with? While I don’t necessarily practice all he preaches, you have to admire someone who was bankrupt who has subsequently done so much.

Noah

Noah

I disagree with his advice to pay off the mortgage. I follow Ric Edelman on this one.
Let’s use $100,000 for can example. You can get a mortgage today for about 4% (maybe less).
If you have $100,000 I believe you are better off investing that. The Stock market has returned appx10% over the LONG RUN. Plus you can deduct you interest(the government effectively pays a portion of your mortgage)

Plus you have access to cash. If all your money is in the home you have to refinance to get cash out. In the case of a job loss that would be difficult.

As a CPA I think you can provide some insight here

Scan, I would disagree with you on paying off the mortgage. It may be good while you are working, but as you retire or get near retirement, it can take a large investment to have the cash flow to pay the monthly mortgage payment. Taking a $1500 monthly mortgage payment (not a large mortgage payment in todays market) and assuming a 5% return (which is pretty high in this day and time) it would take an investment of $360,000 to make the $18,000 per year ($1,500 per month) to make the payment. And that is assuming there is no federall income tax on the $1,500 per month. Factoring in the taxes, you would need even more investment cash flow to net after taxes the monthly morgage payment. I know the interest is tax deductible but Obama could take that away from us in a heart beat.

Bottm line you have something that works for you and Alligator Rose and I have a mortgage free home that works for us. Simply put a difference of what is important to each of us.

Just my $.02 worth.

Hope to see you in the casino soon. I love many of your posts and look forward to meeting you in person.

Doc

Doc,

A $315,000 mortgage at 4% interest over 30 years would have a $1,500 monthly payment. At 2.75% interest you could get $367,500 for that $1,500 per month.

That is a fairly large asset to leave sitting in your house earning no money. With mortgage interest rates at historical lows it makes sense to borrow against the equity to invest the principal in higher yielding investments as long as you can afford the mortgage payments. Yes, there are rules regarding what you do with the principal so you have to follow the rules to be able to deduct the interest.

Accelerate the payments and you will pay even less in interest while the principal can still be earning a higher yield.

Everyone’s situation is unique and has to be analyzed individually. But I do not think you can not discount a mortgage as a bad investment for everyone.

Well said, everyone’s situation is different. Here is an article by Ric Edelman. If you are not familiar with him he is a well known financial advisor. You can catch archived episodes of his radio show at his website

Here is the article. http://www.ricedelman.com/cs/education/ … icleId=232

Good article Scan,

Thanks for posting it. I love the example of Smart Sam and Nervous Nick. It is a perfect analogy to my Self Fulfilling Prophecy article about craps.

I find numerous investments, be they financial or gambling, replete with those type of situations. One needs to look at all the angles to get a complete picture.

I was in the mortgage business for almost 20 years. During that time I always advised people to not pay off their mortgage because if you invested that money, the future value in 30 years was higher than the payoff of the house. So you would have the cash to pay it off if you wanted and also have an nice cash reserve.

Since 1951, the avg return on the S&P 500 was 12.18%. I believe the avg rate of mortgages during the same time is 7%.

The problem with our advise was that people pulled money out on their own houses to invest in not only safe, long term investments, but other frivolous things as well. Then the perfect storm hit. The real estate prices went down; people lost their jobs and the S&P500’s returns plummeted.

I now follow Dave Ramsy advise about paying everything off, included the house you live in. Just as a safety net and a security blanket. The house that we live in should not be an investment vehicle, it where my family sleeps, I need that place to stay safe.

On other real estate I whole headedly agree with Ric Edleman that the property should not be paid off. In fact I believe in having the longest fixed rate mortgage possible. Between the low rates, the tax benefits of writing off the interest and raising rents, and the inflationary pricing of your asset rising while making a fixed payment, is a no brainier and a cash cow.

The attachment carries a presentation click here for file that we used to show to people about the benefits of having cash in hand v a paid off house. It makes sense when the economy is robust and everything is fine. But when things are not fine, the devastating loss off a house causes more trauma on the psyche than any other financial loss sustained.

As I wrote earlier, each to his own. The peace of mind of having cars, home and no other debt (except for the credit card which is paid in full each monty) gives me a great deal of peace of mind. Go with what works for you. Both are good choices. These is more to life than return on investment. Don’t misunderstand me other investments are great. Alligator Rose and I have several other investments. A debt free home is simply part of the balanced package.

Doc

Even if I paid my mortgage the onerous taxes of the Peoples Republic of New Jersey would still hound me.

On top of state Income Taxs, state sales tax, various user fees I have to pay $18,000 real estate taxes it is criminal!!!