Crazy and probably stupid investment question.
#3037375
04/26/22 09:31 PM
04/26/22 09:31 PM
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Joined: Apr 2003
Posts: 12,234 Looking for a way out of Middl...
IMGTX
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OP
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Let's say you have 100k in your house as equity. S&P 500 pretty much guarantees a 10% reasonably safe return. Interest Rates are at 2% to 3% on a home loan. Let's say you do a cash out refinance and got that 100K in equity in cash and invested it in an S&P 500 fund. It seems to me that the investment would earn more than the interest being paid on the loan. Your home appreciation wouldn't be changed. So you would net net 7% return on your equity that would normally earn nothing. I know there are investments which would earn more money but with better returns come bigger risks so I like the S&P 500 for the lack of risk in this example. It can't be that simple. I know I am missing something here.
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Re: Crazy and probably stupid investment question.
[Re: IMGTX]
#3037425
04/26/22 10:47 PM
04/26/22 10:47 PM
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Joined: Nov 2003
Posts: 10,228 Colleyville
3hundred
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I Live Here
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You'd be gambling with your home equity. With recession looking more and more likely, I wouldn't do it. FWIW, my meager portfolio came from savings that are earning nada. I don't have immediate need for the funds so I'm prepared to ride it out. Keeping 3 years living expenses in reserve. https://www.yahoo.com/now/stocks-sink-inflation-recession-fears-184011387.html
'68 Fury Convertible '69 300 Convertible '15 Durango 5.7 Hemi '16 300 S Hemi
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Re: Crazy and probably stupid investment question.
[Re: 3hundred]
#3037457
04/26/22 11:55 PM
04/26/22 11:55 PM
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Joined: Jan 2003
Posts: 20,171 Park Forest, IL
slantzilla
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How about taxes on the money you make? That would take a good percentage.
"Everybody funny, now you funny too."
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Re: Crazy and probably stupid investment question.
[Re: IMGTX]
#3037469
04/27/22 12:16 AM
04/27/22 12:16 AM
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Joined: Feb 2015
Posts: 2,070 CA
crackedback
top fuel
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top fuel
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CA
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Home loans aren't 3% anymore. They are in the 5+% for a 30 year now.
You can have big equity draw downs during bad periods. 30-50% from peak levels.
Learn to sell puts or put spreads using the money as collateral. Worst case you buy the shares at a lower price while generating monthly income to pay the fully amortized note. If you get shares put on you, wheel it and sell calls against the stock.
Everything has risk, no free lunches.
Last edited by crackedback; 04/27/22 12:19 AM.
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Re: Crazy and probably stupid investment question.
[Re: Stanton]
#3037546
04/27/22 10:19 AM
04/27/22 10:19 AM
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Joined: May 2019
Posts: 6,227 nowhere
Sniper
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Let's say your home is currently worth $200k and its payed off. Let's say you take that $100k mortgage and invest it. In the future there is a recession (or a a foreign war) and the market tanks - you're investment loses 50%. Then the bottom falls out of the housing market to the tune of 50%. Now your home is fully mortgaged (no more equity) AND you only have $50k in assets. You're so screwed it ain't funny.
I think the wise thing to do if you decided to do this would be to take a few bucks and invest in a tent - so you don't have to scramble for one when you become homeless. Unless he's planning on living off his investments (he can't) he's not going to lose the the house. As long as he can afford to make the payments without the investment income he's ok and no one is going to loan him on his equity if he can't afford to make the payments. Pretty sure no one is going to count potential investment returns as income to pay a loan. The markets will, eventually, recover, stock and housing. I think there are some chicken littles running around. Now to answer the question the OP is asking I think), will he make money on it? Eventually, you might make more in interest than you are paying out in interest, but you still have to pay the principal too. So odds are you will not net anything back to you till the loan is finally paid off. As a long term investment into a safe vessel it might be ok, but I don't know that it's the best way to go. Might just be smarter to put that prospective loan payment into the market instead and eliminate the wait period of paying back the loan.
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Re: Crazy and probably stupid investment question.
[Re: LilRed7879]
#3037579
04/27/22 11:48 AM
04/27/22 11:48 AM
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Joined: Nov 2003
Posts: 10,228 Colleyville
3hundred
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I Live Here
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Not crazy at all but definitely comes with major risks as many have pointed out.
A little different version is in my case I had cash from the sale of some family land and instead of paying off my 2% mortgage, I chose to put it all in the market.
Similar thought process - put into a broad US market ETF and let it earn 7/10% while I continue to pay off the 2% mortgage like normal.
Hopefully, it all works out - I guess for me the key is long term - I can pay the mortgage no matter what happens AND I do not need the money for 10+ years. 7/10%, that's part of the trouble isn't it? With "published" inflation rates ~ 8.5% ( I expect more increases as the fed "fights" inflation) plus long term capital gains tax of 15%, you have to get 9.8% just to break even. If you take short term gains the tax rate is your top rate for income tax purposes. On the other hand, my house is appreciating considerably faster than our income. So your home equity is probably on the rise pretty strongly. For most people in the US today, their net worth (median) IS the equity in their home.
'68 Fury Convertible '69 300 Convertible '15 Durango 5.7 Hemi '16 300 S Hemi
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Re: Crazy and probably stupid investment question.
[Re: Sniper]
#3037584
04/27/22 12:06 PM
04/27/22 12:06 PM
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Joined: Apr 2003
Posts: 12,234 Looking for a way out of Middl...
IMGTX
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Thank you for all the opinions and advice. Very informative and helpful. Just to be clear I am NOT going to get the equity out of my house and invest it. I am to chicken to take financial risks of any kind. I was just toying with an idea I won't follow through on, but it sounded like it may work. Obviously if it was a good idea everyone would do it. Might just be smarter to put that prospective loan payment into the market instead and eliminate the wait period of paying back the loan. This however is an idea I had not thought of and may try.
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Re: Crazy and probably stupid investment question.
[Re: IMGTX]
#3064120
07/31/22 05:10 PM
07/31/22 05:10 PM
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valeriialol
Unregistered
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valeriialol
Unregistered
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You're right that investing in stocks is more profitable than credit histories. But this type of investment should be approached with the utmost forethought. To assess the company's profitability, you need to study all the documents and reviews of this company. To determine if the company was on the verge of bankruptcy and how great the financial outlook was. I chose to buy shares from restaurants and companies producing household chemicals because they are always in demand and therefore have a solid financial position. So if you want to go that route, you can learn more about chick fil a stock . I'd love to hear about your experience with stock purchases.
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Re: Crazy and probably stupid investment question.
[Re: IMGTX]
#3064125
07/31/22 05:32 PM
07/31/22 05:32 PM
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Joined: May 2005
Posts: 4,708 Florida
BDW
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Florida
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Let's say you have 100k in your house as equity. S&P 500 pretty much guarantees a 10% reasonably safe return. Interest Rates are at 2% to 3% on a home loan. It can't be that simple. I know I am missing something here. As we've seen it's not simple, S&P is DOWN 25% YTD, and I suspect there's more downside coming. It does average 7-8% over the long haul, but bad timing has bankrupted many who jumped in at wrong time.
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Re: Crazy and probably stupid investment question.
[Re: Andrewh]
#3064228
08/01/22 07:35 AM
08/01/22 07:35 AM
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Joined: Dec 2007
Posts: 2,684 Des Moines IA
Soopernaut
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there is a no risk investment of 10k a year, with I-bonds. right now the interest is over 9 percent. it is tied to inflation and changes every 6 months. if you don't need it for over a year it is a good place to park money you don't "need" but don't want to risk either. worst case it makes 0, but you can't lose money in it. You can also put any tax return of $5000 or less into them. That is in addition to the $10,000 max per year you can purchase otherwise. I've heard of someone overpaying their taxes just for this purpose.
1970 Dodge d100/eventually going on a 77 D100 frame
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