Proceeds from home sale, invest, pay down debt, other?

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hightower
Posts: 627
Joined: Mon Dec 12, 2016 2:28 am

Proceeds from home sale, invest, pay down debt, other?

Post by hightower » Sun Jan 12, 2020 4:27 pm

Just sold our house. I have roughly 143k left over to either invest or pay off debt.
407k Mortgage, 30 years at 3.8%
63k Student loan at 2.6%, 20 year term, 339/mo
No other debt

37, married
Both of us work, ~300k income
We have the following accounts
My 401k 245k
Her 401k 100k
My Roth 50k
Her Roth 45k
HSA 12k
529 8k

The debt doesn't bother me. I'm leaning towards investing, but can't stomach to pull the trigger with the markets where they are (longest bull run in history, etc). It would be nice to say I'm done with student loans, but that interest rate and payment are so low it's hard to convince myself I need to. One caveat to consider is that I don't except our high income to last for very long. I really don't know how much longer I'll be in my line of work (I'll spare you the details as to why, but it's multifactorial). Could be 10, 20 years, could be 3. It's anyone's guess at this point. I'll continue as long as I can though.

My plan was to keep the money as cash or buy shares of a tax exempt bond fund for now and wait for a downturn to buy in to VTSAX. But, how much of a downturn? 20% maybe? Not sure. I know that everyone says "time in the market is more important then timing the market" but geez it's hard to stomach the thought of buying that much VTSAX now and then watching the market plummet in a few months or a couple years from now. I know, we don't know when the next market downturn will be, but does anyone really believe it's going to last much longer?

What would you do? 143k cash this week....Keep it as cash, wait to buy in? Buy stocks now? Buy bonds now? Pay off debt? Other ideas?

Wanderingwheelz
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by Wanderingwheelz » Sun Jan 12, 2020 4:32 pm

When I was your age I always paid down my debt as quickly as I possibly could. My wife and I had an income about equal to yours. Now at ages 48/44 we have the freedom to retire early if that’s what we chose to do.

My bottom line has always been to collect interest, never pay it. Any town I’ve ever lived in, the guy who owns the bank has the largest house for some reason.

I’d apply it to your mortgage.

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Watty
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by Watty » Sun Jan 12, 2020 9:54 pm

One option is to call your lender and ask them if they will "recast your mortage"(Google this). The way this works is if you pay your mortage down by 33%(or whatever makes sense) then your required monthly payment will be reduced by the same percentage. This could be very good in case something does happen to your income. The interest rate and length of the mortage would say the same.

hightower wrote:
Sun Jan 12, 2020 4:27 pm
I'm leaning towards investing, but can't stomach to pull the trigger with the markets where they are (longest bull run in history, etc).
Investing and getting a higher investing return is harder than it sounds because you will have a sequence of returns risk. Here is an example that I have posted before.
If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To pay off the mortage at the end of the second year you would need about $96.5K so you would need to gain back $12.5K and another $6,000 for the next years mortgage payments which combined is $18.5K. That would take a 22% return on the remaining $84K to get back to the point where you could pay off the mortgage.

In the past portfolios have declined in roughly one of four or five years depending on the asset allocation. (20 to 25 percent of the time)

https://personal.vanguard.com/us/insigh ... llocations

The sequence of returns risk can also go the other way and you could get lucky and have the first couple of years get good returns that would put you on the path for large gains over the years. There will sometimes be very optimistic projections on just how much better not paying off the mortgage could be but one limiting factor that needs to be considered is that few people actually keep a 30 year mortgage for the full 30 years. It is difficult to put a number on it but many people who own a home will sell it in less than 10 years.
Last edited by Watty on Mon Jan 13, 2020 1:21 am, edited 1 time in total.

mortfree
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by mortfree » Sun Jan 12, 2020 10:00 pm

I’d pay off the student loans.

Not sure when you obtained these (med school?) but at 37 years old the last thing I would want is a student loan payment.

You’ll still have 80k left and a 300k income for however long.

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bogglizer
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by bogglizer » Sun Jan 12, 2020 10:27 pm

Student debt is evil. Always pay that off first. Student debt cannot be escaped by bankruptcy. You may think this will never happen, but so did all those bankrupt people.
My intellectual superiority will shortly be demonstrated here by a pithy quotation.

retire57
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by retire57 » Mon Jan 13, 2020 12:05 am

bogglizer wrote:
Sun Jan 12, 2020 10:27 pm
Student debt is evil. Always pay that off first. Student debt cannot be escaped by bankruptcy. You may think this will never happen, but so did all those bankrupt people.
+1

Financologist
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by Financologist » Mon Jan 13, 2020 1:03 am

Don't worry about your stomach. Considering your age and income, you'll be able to ride out the ups and downs of the market just fine (even if your income drops in 3 to 20 years from now). Use the cash to pay down your mortgage, beef up your investments and contribute to the 529. Perhaps 50%/25%/25% (or if you don't want more $ in the 529, then add more to the other buckets). You won't be able to borrow against your education again, but you can re-leverage your home should the need arise. For that reason and considering the low rate, the student debt can stay as is.

Good luck.

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AerialWombat
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by AerialWombat » Mon Jan 13, 2020 1:12 am

bogglizer wrote:
Sun Jan 12, 2020 10:27 pm
Student debt is evil. Always pay that off first. Student debt cannot be escaped by bankruptcy. You may think this will never happen, but so did all those bankrupt people.
This is not entirely accurate. It’s difficult, but certain student loan debt can be discharged in what’s called an adversarial proceeding. I flushed plenty of student loan debt in my Chapter 7.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

brad.clarkston
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Location: Kansas City, MO

Re: Proceeds from home sale, invest, pay down debt, other?

Post by brad.clarkston » Mon Jan 13, 2020 1:19 am

bogglizer wrote:
Sun Jan 12, 2020 10:27 pm
Student debt is evil. Always pay that off first. Student debt cannot be escaped by bankruptcy. You may think this will never happen, but so did all those bankrupt people.
+1 this - pay off smallest to largest and get rid of it.

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bogglizer
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by bogglizer » Mon Jan 13, 2020 1:22 am

AerialWombat wrote:
Mon Jan 13, 2020 1:12 am
bogglizer wrote:
Sun Jan 12, 2020 10:27 pm
Student debt is evil. Always pay that off first. Student debt cannot be escaped by bankruptcy. You may think this will never happen, but so did all those bankrupt people.
This is not entirely accurate. It’s difficult, but certain student loan debt can be discharged in what’s called an adversarial proceeding. I flushed plenty of student loan debt in my Chapter 7.
Good to know that the universe is not completely evil.

Student loans are also evil because the easy money directly drives up college tuition, forcing students to have no recourse but to...you guessed it...get student loans. But that is too existential for the question at hand.
My intellectual superiority will shortly be demonstrated here by a pithy quotation.

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CyclingDuo
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by CyclingDuo » Mon Jan 13, 2020 6:25 am

hightower wrote:
Sun Jan 12, 2020 4:27 pm
Just sold our house. I have roughly 143k left over to either invest or pay off debt.
407k Mortgage, 30 years at 3.8%
63k Student loan at 2.6%, 20 year term, 339/mo
No other debt
$470,000 debt
hightower wrote:
Sun Jan 12, 2020 4:27 pm
37, married
Both of us work, ~300k income
We have the following accounts
My 401k 245k
Her 401k 100k
My Roth 50k
Her Roth 45k
HSA 12k
529 8k
$460,000 investments
$143,000 cash leftover from home sale
$603,000


$603,000 investments/cash
$470,000 debt
$133,000 net positive

We would worry about the debt!

Pay off the student loans ASAP to get rid of that. Redirect the $339 a month that was going to the student loan to additional principal payments each month on the mortgage. Keep the remaining $80K from the home sale in your emergency fund.

That doesn't change your current household cash flow, but it does address the debt, the emergency fund, and any apprehension you have about investing the proceeds in the current market. Puts you in a stronger financial position going forward.

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

awval999
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by awval999 » Mon Jan 13, 2020 6:57 am

CyclingDuo wrote:
Mon Jan 13, 2020 6:25 am
hightower wrote:
Sun Jan 12, 2020 4:27 pm
Just sold our house. I have roughly 143k left over to either invest or pay off debt.
407k Mortgage, 30 years at 3.8%
63k Student loan at 2.6%, 20 year term, 339/mo
No other debt
$470,000 debt
hightower wrote:
Sun Jan 12, 2020 4:27 pm
37, married
Both of us work, ~300k income
We have the following accounts
My 401k 245k
Her 401k 100k
My Roth 50k
Her Roth 45k
HSA 12k
529 8k
$460,000 investments
$143,000 cash leftover from home sale
$603,000


$603,000 investments/cash
$470,000 debt
$133,000 net positive

We would worry about the debt!

Pay off the student loans ASAP to get rid of that. Redirect the $339 a month that was going to the student loan to additional principal payments each month on the mortgage. Keep the remaining $80K from the home sale in your emergency fund.

That doesn't change your current household cash flow, but it does address the debt, the emergency fund, and any apprehension you have about investing the proceeds in the current market. Puts you in a stronger financial position going forward.

CyclingDuo
You need to account for the value of the real estate in your calculation. #bogleheadmath

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CyclingDuo
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Re: Proceeds from home sale, invest, pay down debt, other?

Post by CyclingDuo » Mon Jan 13, 2020 7:57 am

awval999 wrote:
Mon Jan 13, 2020 6:57 am
CyclingDuo wrote:
Mon Jan 13, 2020 6:25 am
hightower wrote:
Sun Jan 12, 2020 4:27 pm
Just sold our house. I have roughly 143k left over to either invest or pay off debt.
407k Mortgage, 30 years at 3.8%
63k Student loan at 2.6%, 20 year term, 339/mo
No other debt
$470,000 debt
hightower wrote:
Sun Jan 12, 2020 4:27 pm
37, married
Both of us work, ~300k income
We have the following accounts
My 401k 245k
Her 401k 100k
My Roth 50k
Her Roth 45k
HSA 12k
529 8k
$460,000 investments
$143,000 cash leftover from home sale
$603,000


$603,000 investments/cash
$470,000 debt
$133,000 net positive

We would worry about the debt!

Pay off the student loans ASAP to get rid of that. Redirect the $339 a month that was going to the student loan to additional principal payments each month on the mortgage. Keep the remaining $80K from the home sale in your emergency fund.

That doesn't change your current household cash flow, but it does address the debt, the emergency fund, and any apprehension you have about investing the proceeds in the current market. Puts you in a stronger financial position going forward.

CyclingDuo
You need to account for the value of the real estate in your calculation. #bogleheadmath
Yes, you are correct. However...

I purposely left home equity out of the discussion (outside of paying off the student loan debt and redirecting that loan payment towards building more home equity via extra principal monthly payments). No need to guess the amount of home equity the OP has. Whether they put 20% down or more - it still doesn't change the view of their liquid assets and household cash flow to service the debt. If they put 20% down, then we know the answer. Although net worth is fun to look at, all the Boglehead threads with debates on net worth vs. investment portfolio/cash that we retire on has swayed us that the latter view is more important than the net worth view. We are a pair of odd ducks that considers a home one lives in as an expense. An expense that never goes away whether the debt is retired or not - until you sell or pass. The PI- portion of the expense of PITI may go away with debt retirement, but the -TI, repair/maintenance rolls on and on and on...until we sell or pass.

Most of us are not going to retire on our net worth, but on our investments - so felt it prudent to point out the amount of accumulated investments/cash to date vs. the amount of accumulated debt as to what we would address with the sale proceeds from the previous home: debt and building an emergency fund.

Feel free to toss in another $100K or whatever their home equity is to the net positive figure. Probably the only way it would sway us would be if their equity is low enough that they are paying PMI, then the suggestion to use the former home proceeds of $143K might alter.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

daheld
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Location: Midwest US

Re: Proceeds from home sale, invest, pay down debt, other?

Post by daheld » Mon Jan 13, 2020 8:44 am

I'd pay off the student loans immediately and invest the rest. You make enough money, particularly relative to the cost of your new home, that you should not have an issue paying the mortgage off early AND investing/saving aggressively.

Topic Author
hightower
Posts: 627
Joined: Mon Dec 12, 2016 2:28 am

Re: Proceeds from home sale, invest, pay down debt, other?

Post by hightower » Tue Jan 14, 2020 8:14 pm

CyclingDuo wrote:
Mon Jan 13, 2020 6:25 am
hightower wrote:
Sun Jan 12, 2020 4:27 pm
Just sold our house. I have roughly 143k left over to either invest or pay off debt.
407k Mortgage, 30 years at 3.8%
63k Student loan at 2.6%, 20 year term, 339/mo
No other debt
$470,000 debt
hightower wrote:
Sun Jan 12, 2020 4:27 pm
37, married
Both of us work, ~300k income
We have the following accounts
My 401k 245k
Her 401k 100k
My Roth 50k
Her Roth 45k
HSA 12k
529 8k
$460,000 investments
$143,000 cash leftover from home sale
$603,000


$603,000 investments/cash
$470,000 debt
$133,000 net positive

We would worry about the debt!

Pay off the student loans ASAP to get rid of that. Redirect the $339 a month that was going to the student loan to additional principal payments each month on the mortgage. Keep the remaining $80K from the home sale in your emergency fund.

That doesn't change your current household cash flow, but it does address the debt, the emergency fund, and any apprehension you have about investing the proceeds in the current market. Puts you in a stronger financial position going forward.

CyclingDuo
For the record, we put a full 20% down ($102000) so we do have some equity in the property. Our net worth is somewhere around 700k if you don't include any of our other paid for assets (cars, valuables, etc). But, you're right, there's a decent amount of debt compared to investable assets. I am thinking about just ramping up my monthly payments to the student loan and getting rid of it that way. We usually have around 5-6k left over each month after taxes, bills, spending, 401k contributions, etc. If I started redirecting at least part of that to the student loan, it would be gone pretty quickly. That's how I got rid of my other 200k of student loans.
The problem is I have a brother in law who has convinced my wife that this student loan is nothing to worry about since the interest is so low. Her whole family has always regarded him as the financial guru of the family (he's a VP at a bank, has been investing since high school, is incredibly frugal, etc.) so it's hard to convince her otherwise.

Topic Author
hightower
Posts: 627
Joined: Mon Dec 12, 2016 2:28 am

Re: Proceeds from home sale, invest, pay down debt, other?

Post by hightower » Tue Jan 14, 2020 8:17 pm

CyclingDuo wrote:
Mon Jan 13, 2020 7:57 am
awval999 wrote:
Mon Jan 13, 2020 6:57 am
CyclingDuo wrote:
Mon Jan 13, 2020 6:25 am
hightower wrote:
Sun Jan 12, 2020 4:27 pm
Just sold our house. I have roughly 143k left over to either invest or pay off debt.
407k Mortgage, 30 years at 3.8%
63k Student loan at 2.6%, 20 year term, 339/mo
No other debt
$470,000 debt
hightower wrote:
Sun Jan 12, 2020 4:27 pm
37, married
Both of us work, ~300k income
We have the following accounts
My 401k 245k
Her 401k 100k
My Roth 50k
Her Roth 45k
HSA 12k
529 8k
$460,000 investments
$143,000 cash leftover from home sale
$603,000


$603,000 investments/cash
$470,000 debt
$133,000 net positive

We would worry about the debt!

Pay off the student loans ASAP to get rid of that. Redirect the $339 a month that was going to the student loan to additional principal payments each month on the mortgage. Keep the remaining $80K from the home sale in your emergency fund.

That doesn't change your current household cash flow, but it does address the debt, the emergency fund, and any apprehension you have about investing the proceeds in the current market. Puts you in a stronger financial position going forward.

CyclingDuo
You need to account for the value of the real estate in your calculation. #bogleheadmath
The PI- portion of the expense of PITI may go away with debt retirement, but the -TI, repair/maintenance rolls on and on and on...until we sell or pass.
I totally agree with this and it's something I think about often. Darned taxes. Fortunately I'm very handy so repairs/maintenance are no problem and insurance is pretty cheap. But, those taxes. We live in an area with good schools, so the taxes aren't cheap.

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