Not sure if this forum or Business and Investing is more appropriate, but here is the scenario and Q.

Buy a house in 2017 for $300,000
For purposes of scenario, let say you pay it off but need to upgrade
Sell house in 2024 for $550,000

So now you have $500,000 and can use cap gains exception to keep all profits.

Would you put all 500,000 into next house and not have a mortgage, or add 500,000 to your existing investment portfolio, take out an 80% mortgage, and use the gained earned interest from investments to make mortgage payments?

Theoretically, in a solid market, your earned interest would be higher than your mortgage interest rate.

Does that make sense?

Diggity said:

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Opinions differ, but I would be loathe to dump a bunch of money into equities right now.

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Thats kinda my thing. not a terrible idea but not a fan of the timing at all. Would you need the profits from the investments to be able to make your payments? Look at history, and there are 10-year periods where people didn't make a dime.

Today's uncertainty mixed with still relatively high rates, Id take the paid off house. You can always refi if rates come down more and the stock market takes a plunge.

Too much market uncertainty and I think we are doomed to a huge recession/crash if the dems keep the white house.

Minimum ROI is the cost of the mortgage. So rates are stepping 6% and you need a higher return than that floor. Not an easy decision if you factor the risk to make more the. 6%.

The theory is sound. However, I share other poster opinions.

Savings or CDs can pay more than 5% right now. But you probably need to clear 8% for break even considering taxes. Thats not easy to do at current equity prices.

Too much timing risk of dumping it all into equities now.

Personally, I value having financial flexibility at some level, and not having all my money tied up in my house. What other investment opportunities come your way? Putting 30% into a couple rentals? Again, may be not the best time for that and you're taking on more leverage to do it (depends on how averse to this you are).

If you're asking me, I'd probably find some middle ground between the all or none options presented. Not a lot of risk, and you have access to your money.

Put 40-50% down. Max out your 401k. Grab some good bond/debt (can get some shares high yield corporates in the 6.5% range), and park the rest into high yield interest savings at 5% and buy vtsax over the next 5 years. This is probably more conservative than straight dumping it all into a vanguard targeted retirement fund now. Still leaves flexibility if decent investment opportunities pop up. Maybe you come out ahead, maybe you won't, but you won't be too far off and you'll have access to your $.

Also, would also suggest a financial advisor. I am not one - I am just offering my opinion.

Red Pear Felipe said:

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Would you do a cash out refinance on your paid for house with the HOPE of earning more on stocks? In my opinion, there are too many uncertainties with your scenario. I don't think you're looking at different scenarios such as the market crashing, job loss, long term illness, etc.

I'd rather have a paid for house and then go all in on investing now that you don't have a mortgage payment. If you were to lose your job, you wouldn't have to stress too much knowing your house is paid off. Those are my $.02.

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Holy Dave Ramsey take

MookieBlaylock said:

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Red Pear Felipe said:

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Would you do a cash out refinance on your paid for house with the HOPE of earning more on stocks? In my opinion, there are too many uncertainties with your scenario. I don't think you're looking at different scenarios such as the market crashing, job loss, long term illness, etc.

I'd rather have a paid for house and then go all in on investing now that you don't have a mortgage payment. If you were to lose your job, you wouldn't have to stress too much knowing your house is paid off. Those are my $.02.

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Holy Dave Ramsey take

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You say that, but the path risk on that strategy doesn't look so hot when mortgage rates are 5-6%

AK2... I don't think you posted it but current age plays a role here as well. Obviously the older one gets the more risk becomes a factor, IMO.

IF you go the mortgage/investing route, you could DCA the $500K to help offset market activity. Maybe something like $100K per year over 5 years and then break that down into monthly or quarterly dumps. Whatever you feel comfortable with.

Personally, I would pay off mortgage and then go aggressive investing income that would have been used there. I enjoy the feeling of not owing folks money. Same goes for car notes down the road. Unless, of course, 0% financing is available.

Good problem to have... best of luck!

Appreciate everyone's insights.

I agree on the aspect of knowing it's paid off, but I also like the idea of (barring a terrible downturn), having that money earning interest and worst comes to worst I can pull it out and payoff the loan at any given time.

I see the pros and cons for both, but neither really seems to be more ideal.

One thing to think about based off of your response. Worst case but possible.

You invest the $500k and take out mortgage. Market downturn so now your $500K is worth $400K. Job gets cut so you need funds to pay off mortgage. Turns into a double whammy. You pull funds at a depressed value. That to me would be the pit fall of thinking, I'll just pull funds if we need them. Timing might not always match up.

I would say odds are good you will be fine. Folks have been crying we are due for a huge correction, recession, etc for years. If you were to hold money out based on that you have missed some pretty awesome returns. Maybe split the difference... put a larger down payment, make monthly note smaller, and invest $250K.