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URL:  https://boards.fool.com/once-you-have-paid-off-your-mortgage-you-are-29012764.aspx

Subject:  Re: How much is enough? Date:  1/7/2011  10:21 PM
Author:  Goofyhoofy Number:  68150 of 97992

Once you have paid off your mortgage you are limited in the ability to get the equity out if you want to make different investments.

I would disagree here. It's trivial to refinance; we've done it several times, including once when we extracted $200k to improve the downpayment on the Chicago home. It might be difficult to sell (although the sales in our building in Boston have taken under 60 days, most under 30 days, even in 2009 and 2010. But I acknowledge that's an unusual market.)

Well, for last year I put $22,000 of non-deductible contributions toward 401k/IRA, and this year it will be about $30,000.

There is much to be said for putting money into IRA's or 401(k)s timely, because it's one of those "you can't go back and do it later" type things. f you miss the contributions for a year, you don't get a do-over. But if the monies are over-and-above and going into a taxable account, then it might make sense. It did for us, and once the payments went away the cash buildup elsewhere seemingly gushed at us.

Ie. there would be about $70/month left for profit.
That's $840/year out of $200,000 equity or 0.4% net yield, plus all the headaches of being a landlord and managing it myself. Negative yield if not 100% occupied or not paid on time.
Needless to say I'm not keeping the old home :)


I didn't "keep the old home" because I'm smart. I got a call from Westinghouse on Friday telling me to be in Pittsburgh on Monday morning. Corporate emergency sort of thing. I went, lived in a corporate apartment, and after a few months I got a call from a guy who said "I understand you have a furnished apartment that's not in use. Would you rent it to me for a few months?" I said "Yes", and about 8 months later I was still in Pittsburgh, he was still in the apartment, and it was time to do something because he was leaving and it was clear I was staying in Pittsburgh.

So I cleared out the furniture (moved permanently to Pittsburgh) and found a tenant for another year, which turned into... well, you get the idea.

We've had very little trouble with tenants; none to speak of. No evictions, no problems, scant damage. Along the way we've upgraded, which gets to be deductible (while improving the value and allowing depreciation against the rental) and as a bonus, we get a tax-deductible trip to Boston (where my brother and sister still live) every year "to inspect the property."

So all in all it's been terrific on almost every level. Small initial invesment, very large appreciation, good cash flow, tax benefits, etc. Not right for everyone, I agree, but so infinitely better than "a bank account" it's hard to say anything but "fabulous deal. Do it again, a dozen times."
 

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