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Input on buying expensive house

Posted: Sun May 02, 2021 5:33 pm
by NewMoneyMustBeSmart
Summary: Help me strategize how to finance new expensive house

In contract for $2.5M to close July 31, 2021 (90 days away). Trying to decide best way to finance it. We have plenty of assets/cash; credit score 800, income high etc...

Your input appreciated!

I have a few questions, some strategic and some tactical:

1. I understand I can write off as mortgage interest $750k of mortgage but not anything beyond as mortgage interest deduction
2. I understand that if I buy the house with $1.75M of cash, and then do a 2nd mortgage, cash-out-refi, or HELOC, and take that cash and buy stocks with it, I can write off this interest as an investment expense ($50k in first year). I understand I can write it off against investment gain, and I expect to have that much.
3. What's the best strategy to achieve #2? What are any risks or issues I should consider?
4. I refi-ed a year or so ago, and finding it weary to play the dial-a-mortgage broker game. Anyone y'all can recommend for best rates? So far it seems like Schwab's 0.75% discount through rocket mortgage/quicken might be best?
5. Should I get a full mortgage to lock it in for now, and then later pay off the $1.75M right before I refi? Or is a 6 month window needed?
6. Is it better to do a 2nd mortgage or HELOC? The 2nd mortgage would be ideal, but I'm being told companies won't go cash out refi at this level these days

Thanks again for your input.

Re: Input on buying expensive house

Posted: Mon May 03, 2021 8:45 am
by bloom2708
If you have plenty of money, just go with no mortgage. That is the best strategy. Or the smallest first mortgage you can.

Would you pay $40k in interest to save $5k in taxes by getting well over the ~$25k standard deduction for a married couple? Similar to would you give away $50k to save $10k in taxes? Maybe. Some do. You give me a dollar and I give you a quarter back. Not a great "deal".

If you have plenty of resources, what purpose would a 2nd or HELOC bring to the table other than hassle?

I would go for the "less is more", "keep it simple" strategy.

Re: Input on buying expensive house

Posted: Mon May 03, 2021 9:08 am
by KlangFool
OP,

Is this a non-recourse loan? If yes, why not look into an interest-only mortgage? Aka, you are "renting" the house. You get all the upside of the house. You are protected on the down side.

KlangFool

Re: Input on buying expensive house

Posted: Mon May 03, 2021 9:23 am
by Watty
NewMoneyMustBeSmart wrote: Sun May 02, 2021 5:33 pm 2. I understand that if I buy the house with $1.75M of cash, and then do a 2nd mortgage, cash-out-refi, or HELOC, and take that cash and buy stocks with it, I can write off this interest as an investment expense ($50k in first year). I understand I can write it off against investment gain, and I expect to have that much.
I am not sure about that but using leverage for investing adds lots of risk and it has gotten lots of people into trouble. Sure you expect to have a gain and there is a good chance that you will but you could also have a bear market and your investments could be down 40% and using leverage would make that even worse.

There are also lots of threads you can look up about how a mortgage is like a negative bond and how you have effectively have an asset allocation that is a lot more aggressive than you should have.

There is an old saying, "Never tell a child not to put beans in their ears." which implies if you tell someone not to do something they will likely do it just because they had never thought of doing it before.

I hesitate to say this but if you really want to use leverage in your investing there are better ways to do this like options or margin loans that have an even lower interest rate at some brokerages.

https://www.interactivebrokers.com/en/index.php?f=46376