Tilted Forum Project Discussion Community - View Single Post - Inherited House

DDDDave · 08-05-2005, 12:07 PM

First off.....congratulations......I always thought those stories of a rich uncle were BS....apparently not.

Do you live in this house? It does make a difference. If you do not live there then you can look at it as a cold, hard investment decision. If you do(or might) live there, you have to take in all the decisions regarding where you live...proximity to work, school, size of house, room for growth, neighborhood, etc.

As NoSoup was trying to say, you will not come out ahead borrowing money to reinvest in short term investments. Simplifying things greatly - borrow @ 6% - 1.5% mort. int. deduction = net 4.5% borrowing costs ; get 4% CD return - 1% income taxes = 3% income. That still works out to be only a net 'cost to borrow' of 1.5%. If you have a need for cash (start a business, buy an appreciating asset, college education) this house is a great source.

What it can also be is a great source of peace of mind. You say the house is worth $250,000. You could go to any bank or credit union and borrow say $75,000. You would not really need to 'qualify' for the mortgage as the Loan-to-value is low enough that they would basically just make you sign for it, with the house as collateral. Using the calcs. from above, the peace of mind of having $75,000 invested in a couple of accounts containing CD's and a reasonable stock/bond portfolio would cost you +/-$1,000./year. You would know that should anything happen, you could just sell some stock and you could raise cash quickly.

You need to remember that there will now be taxes and insurance on the property (whether you live there or not). You will want to be able to access some cash when these bills come due. If you do not want to go the way of a full-blown mortgage - then a home equity line-of-credit might be a more palatable option. You are approved for a loan up to a certain amount using your property as collateral. You start off at zero and the amount of the loan increases as you access the money. These accounts are usually accessed with what are essentially checks. It makes it very easy and quick to get to the money should a need arise. A lot of times these accounts are 'interest only' loans but the rate typically varies with the prime rate.

There is a ton of information available out there concerning these investments and strategies. Use it. It sounds like you are in a very enviable position. Don't makeany decision in a hurry.

Good Luck and again.....congrats.

08-05-2005, 12:07 PM	#3 (permalink)
DDDDave Addict Location: Sarasota	First off.....congratulations......I always thought those stories of a rich uncle were BS....apparently not. Do you live in this house? It does make a difference. If you do not live there then you can look at it as a cold, hard investment decision. If you do(or might) live there, you have to take in all the decisions regarding where you live...proximity to work, school, size of house, room for growth, neighborhood, etc. As NoSoup was trying to say, you will not come out ahead borrowing money to reinvest in short term investments. Simplifying things greatly - borrow @ 6% - 1.5% mort. int. deduction = net 4.5% borrowing costs ; get 4% CD return - 1% income taxes = 3% income. That still works out to be only a net 'cost to borrow' of 1.5%. If you have a need for cash (start a business, buy an appreciating asset, college education) this house is a great source. What it can also be is a great source of peace of mind. You say the house is worth $250,000. You could go to any bank or credit union and borrow say $75,000. You would not really need to 'qualify' for the mortgage as the Loan-to-value is low enough that they would basically just make you sign for it, with the house as collateral. Using the calcs. from above, the peace of mind of having $75,000 invested in a couple of accounts containing CD's and a reasonable stock/bond portfolio would cost you +/-$1,000./year. You would know that should anything happen, you could just sell some stock and you could raise cash quickly. You need to remember that there will now be taxes and insurance on the property (whether you live there or not). You will want to be able to access some cash when these bills come due. If you do not want to go the way of a full-blown mortgage - then a home equity line-of-credit might be a more palatable option. You are approved for a loan up to a certain amount using your property as collateral. You start off at zero and the amount of the loan increases as you access the money. These accounts are usually accessed with what are essentially checks. It makes it very easy and quick to get to the money should a need arise. A lot of times these accounts are 'interest only' loans but the rate typically varies with the prime rate. There is a ton of information available out there concerning these investments and strategies. Use it. It sounds like you are in a very enviable position. Don't makeany decision in a hurry. Good Luck and again.....congrats. __________________ I am just a simple man trying to make my way in the universe... "Go confidently in the direction of your dreams. Live the life you have imagined." - Thoreau "Nothing great was ever accomplished without enthusiasm" - Emerson