Mortage paid. Now what?

How to avoid signing your life over to a mortgage
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scoaste
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Mortage paid. Now what?

Post by scoaste » Mon Sep 03, 2018 2:29 pm

This is my first post, so be nice :D It's too late to advise me to NOT be a slave to a mortgage. I found out about the FIRE movement too late to employ a different strategy. I am now in my 50s so won't be able to enjoy the E in FIRE as much.

But anyway, to my question: Now that the house is paid off, should I use the opportunity to save, or should I sell the house and invest the lump sum? Some think we may be near housing as well as a stock market tops, so the question may be more pressing. Some figures, if it helps with the answer:
  • Home value: $265K according to Zillow (I suspect I could get up to 15% more in a hot market, but it may be cooling)
  • Previous mortgage payment (with escrow so includes the taxes/ins below): $1500
  • Property taxes: $465/month
  • Insurance: $125/month
  • HOA: $14/month
Just for argument's sake, let's say I could net 260K capital gain after commissions. If I could get a 7% historical annual gain on low cost index funds, that amounts to approx $1300 a month after tax. I could probably find a decent house to rent where I live for about $1500-2000 a month.

What say you?

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BRUTE
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Re: Mortage paid. Now what?

Post by BRUTE » Mon Sep 03, 2018 2:36 pm

does scoaste like living in the house?

scoaste
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Re: Mortage paid. Now what?

Post by scoaste » Mon Sep 03, 2018 2:41 pm

BRUTE wrote:
Mon Sep 03, 2018 2:36 pm
does scoaste like living in the house?
I could live somewhere quieter, but otherwise it's not bad.

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unemployable
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Re: Mortage paid. Now what?

Post by unemployable » Mon Sep 03, 2018 2:54 pm

You have to live somewhere, even if it's a tent or a stranger's couch. What's your objective? Selling a house and moving somewhere else has substantial friction costs.

What is the value of your other assets (ie, non-house net worth) and how much are you spending a month including the cost to carry the house (which is at least $600, probably more)?

George the original one
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Re: Mortage paid. Now what?

Post by George the original one » Mon Sep 03, 2018 7:45 pm

If you've lived in the house long enough, capital gains of $260k is mostly not taxed for a single person. Especially if you can document a few repair/maintenance/improvement costs from years of ownership.

Another option vs. selling is to rent out all or a part of it.

Personally I'm of the opinion that you should just live in it, particularly if it's a high COL area.

sky
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Re: Mortage paid. Now what?

Post by sky » Mon Sep 03, 2018 8:29 pm

Live in the house and find ways to minimize your expenses.

Noal
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Re: Mortage paid. Now what?

Post by Noal » Tue Sep 04, 2018 12:48 pm

If I could get a 7% historical annual gain on low cost index funds, that amounts to approx $1300 a month after tax. I could probably find a decent house to rent where I live for about $1500-2000 a month.
Would that be your only income? It's just that you would be spending more than you make on housing alone based on the above.

scoaste
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Re: Mortage paid. Now what?

Post by scoaste » Tue Sep 04, 2018 1:03 pm

unemployable wrote:
Mon Sep 03, 2018 2:54 pm
What's your objective?
To make the best financial decisions to retire early.
unemployable wrote:
Mon Sep 03, 2018 2:54 pm
What is the value of your other assets (ie, non-house net worth) and how much are you spending a month including the cost to carry the house (which is at least $600, probably more)?
Total other assets approx $600K, almost all tax deferred. To carry the house... as in utilities, maintenance, etc? I think you hit it about right.

scoaste
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Re: Mortage paid. Now what?

Post by scoaste » Tue Sep 04, 2018 1:04 pm

George the original one wrote:
Mon Sep 03, 2018 7:45 pm
Another option vs. selling is to rent out all or a part of it.
I've thought of that. I've also thought of maybe buying a rental property using my equity as collateral.

scoaste
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Re: Mortage paid. Now what?

Post by scoaste » Tue Sep 04, 2018 1:06 pm

Noal wrote:
Tue Sep 04, 2018 12:48 pm
Would that be your only income?
No, I net about $4400 from my occupation.

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unemployable
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Re: Mortage paid. Now what?

Post by unemployable » Tue Sep 04, 2018 1:51 pm

scoaste wrote:
Tue Sep 04, 2018 1:03 pm
To make the best financial decisions to retire early.

Total other assets approx $600K, almost all tax deferred. To carry the house... as in utilities, maintenance, etc? I think you hit it about right.
So at a 4% withdrawal rate you can live off $2000/month. This has to include all your carrying costs for housing, so if those right now are $800 (adding in utilities and allowance for maintenance) that leaves $1200/month for everything else. Can you live on that?

Read up on 72t withdrawals if you don't know what they are. With what you've written you can very roughly take out around $30k/year from your retirement accounts. This will be taxable as ordinary income, and the amount you take out cannot be changed until age 59, so if you want this method to fund the entirety of $2k/month expenses you don't have much margin for error right now.

With what you've said, I'd work for another year or two before doing anything drastic, unless you're confident you can cut your monthly expenses to well under $2000.

If it were me with $850K of total net worth, though, I'd buy a $150k house and live off something like $1500/month, which would be a withdrawal rate of barely 2.5% of liquid net worth of $700k. And I'd have to work some months to spend that $1500, like by blowing it gambling or something.

Lucky C
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Re: Mortage paid. Now what?

Post by Lucky C » Wed Sep 05, 2018 6:55 pm

I bet the drawdown of stock prices over the next decade will far exceed any drawdown of your home value in the same time period (I assume you're not in an extreme housing bubble area based on your home value). The U.S. stock market right now is most similar to the 1929 and 2000 extremes where market euphoria was followed by a "cash is king" environment. At some point in the next few years, you would almost certainly be wishing you had the home equity instead of index funds. 0% is an optimistic return for U.S. stocks over the next decade.

If you invested in 100% U.S. stocks and they were to return to historical average valuations (ignoring the likely scenario of eventually continuing further into undervalued territory) your $260k would drop down near $100k. Of course a more balanced asset allocation would be somewhat less terrible.

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Re: Mortage paid. Now what?

Post by jacob » Wed Sep 05, 2018 7:10 pm

Yeah ... we were talking about this as the ERE meetup last week. My main point was that it's supremely important to have total confidence in your long-term investment strategy because when you ERE/FIRE, it's important to figure out a strategy that makes you SWAN (sleep well at night). However, if your personal SWAN is based on flimsy evidence like reading a few blog posts or a single book, now is the time to get cranking and building a solid foundation so you have a solid foundation. Deadline is anywhere between tomorrow and years from now or maybe longer. My point is that everybody should have any informed opinion when it comes to their income whether they're working or no longer working.

See http://earlyretirementextreme.com/start ... sting.html

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