Pay off (2nd home) debt or invest more?

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GottaRun
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Joined: Mon Apr 28, 2014 11:17 pm
Location: NC & MN

Pay off (2nd home) debt or invest more?

Post by GottaRun » Sat Apr 14, 2018 3:41 pm

Wife and I are relocating out of state, from ND to NC.

We just signed purchase agreement to sell our current home in North Dakota.

We owe $170K on current home, the purchase agreement is for $730K.

After real estate/closing fees looking at $690K from current home.

We also owe $330K on our lake home in NW Minnesota; have 15 year mortgage on lake place @ 3.25%.

Planning to pay off current home debt ($170K), lake debt ($330K) and wife college debt $40K) with net.

After paying all debt should walk away (invest) about $690 (home) - $540K (debt) = $150K.

Is paying off lake home in full the correct assumption? any thoughts would be appreciated...thx in advance.

planning to rent for a year in AVL then putting about $200K down on a home.

delamer
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Re: Pay off (2nd home) debt or invest more?

Post by delamer » Sat Apr 14, 2018 4:41 pm

The answer depends in part on how much of your net worth will be tied up in the lake house of you pay it off.

In other words, what liquid assets do have in addition to the lake house? If you only have $100,000 in liquid assets then don’t tie up your assets in an illiquid house. If you have $1 million in liquid assets then paying off the lake house makes a lot more sense.

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Pajamas
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Re: Pay off (2nd home) debt or invest more?

Post by Pajamas » Sat Apr 14, 2018 5:21 pm

You should sell the lake house, too, if you are moving that far away from it.

emoore
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Re: Pay off (2nd home) debt or invest more?

Post by emoore » Sat Apr 14, 2018 6:12 pm

Pajamas wrote:
Sat Apr 14, 2018 5:21 pm
You should sell the lake house, too, if you are moving that far away from it.
+1. I'd love a lake house in NW Minnesota but I live in Denver and it would be too far to use a lot. NC is even further. Going that far will probably get old really fast.

GottaRun
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Location: NC & MN

Re: Pay off (2nd home) debt or invest more?

Post by GottaRun » Sat Apr 14, 2018 6:15 pm

wife and I are planning to spend summer and fall in MN when we retire......spend winters down in NC

lake home is about 8% of our total assets.

thx!

Tal-
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Re: Pay off (2nd home) debt or invest more?

Post by Tal- » Sat Apr 14, 2018 6:20 pm

Paying off so much tax-advantaged, low interest debt is unlikely to produce the highest return (i.e. you may get a better return investing that cash), but if the ~400K vacation home is ~8% of your net worth, you're obviously doing great financially, and probably don't need to worry about maximizing the return.

In either case, assuming retirement is 5+ years out, I agree that selling the vacation home is the best option today. Unless you're really partial to the current house, when you retire, you can buy a different house at that time.
Debt is to personal finance as a knife is to cooking.

delamer
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Re: Pay off (2nd home) debt or invest more?

Post by delamer » Sat Apr 14, 2018 6:21 pm

GottaRun wrote:
Sat Apr 14, 2018 6:15 pm
wife and I are planning to spend summer and fall in MN when we retire......spend winters down in NC

lake home is about 8% of our total assets.

thx!
If it is that low a percentage, it really doesn’t matter what you do in terms of the mortgage. So no reason not to pay it off.

malabargold
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Re: Pay off (2nd home) debt or invest more?

Post by malabargold » Sat Apr 14, 2018 7:06 pm

On average, stocks signicantly outperform real estate over time.

So, usually better off buying retirement place when you retire.
Plus maintenance and taxes, etc.

If you decide to hold onto the place, you have a low mortgage rate: don’t pay it faster than you have to, keep the balance in a low-cost index fund of your choice

Patrick584
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Re: Pay off (2nd home) debt or invest more?

Post by Patrick584 » Sat Apr 14, 2018 7:23 pm

With the mortgage interest basically going away, the choice is obvious. You are choosing between paying a 4 % mortgage and taxable investing. If you treat the mortgage as a 4% guaranteed tax free return on investment it is a much better investment than 4-5% bond returns that are subject to taxes. You should pay off the mortgage instead of fighting the consequences of increased income (taxes and loss of other financial aid).

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