Back in September, Mindy and I bought another home to live-in flip. Getting a good deal meant that we’d have to pay cash and close quickly. Here was our plan to come up with $350,000+ and what we’d do after:
September 2019: Sell $100,000 in stocks, borrow $200,000 from our HELOC, sell the Acura NSX ($45,000) and use cash savings to fund the home purchase.
January 2020: Sell $100,000 in stocks and pay off half of the HELOC.
Sometime in 2020: Get a mortgage on the new place. With the proceeds, pay off the rest of the HELOC, and invest the rest in the stock market.
One may ask why we didn’t just sell more stocks back in September to buy the home. The reason is that we’re trying to stay under the threshold for capital gains. In 2020, capital gains kick in over $80,000, so we mostly stay below that. Capital gains harvesting is pretty cool.
We just finished executing our plan. We closed on a mortgage of about $300,000 in mid-April and got incredibly lucky with the timing:
I’d love to say that I’m some kind of clairvoyant and had this incredible market timing all planned out, but that would be:
I had no idea the market would get slammed. No one did. I remember lamenting the fact that I’d have a large amount of money sitting out of the markets. Instead, Mr. Market went on vacation and I was able to buy back in at a lower price. I got lucky.
Side note: I would much rather be a little less wealthy and have had none of this COVID stuff thrashing the world.
Getting A Mortgage
A mortgage is one of the most controversial topics in the FIRE community. At the right rate, I love having a mortgage, but most don’t share my enthusiasm:
I have heard two arguments for paying off a mortgage:
Peace of mind: Of course, not having debt is a good feeling. But, I believe that this peace of mind is a case of short-term thinking with a little dose of cognitive dissonance. Most FIRE fans aren’t funding the rest of our lives with a huge chunk of cash. Instead, our money is in VTSAX where we expect it to grow over time and fund future needs. I’d also assume that most of us expect VTSAX to return more than 3.5% (current mortgage rate on a 30-year). If the above assumptions are true, why do folks want to lock in a smaller return? Peace of mind for me is a greater amount of money long-term.
Sequence of returns risk: a mortgage means greater monthly expenses. What if the market goes to hell right after you retire?
BIG ERN discusses it here and he’s correct. He’s a smart dude and a good guy, but there is one thing I don’t see in his article. If you use money to pay off your mortgage instead of investing it, you’re probably going to have a smaller amount of money when you begin retirement. What if instead of paying off your mortgage, you put the money into the markets prior to retirement? I don’t see this factored into his calculations (BIG ERN, I’ll update the post if you care to comment). In the meantime, remember that:
There is always a risk of NOT being in the markets.
I worry about inflation. While I don’t disagree with what governments are doing to help the humans of the world get through COVID-19, we’re creating a lot of debt. The way out of debt is inflation. If inflation does start to get a little wild:
Interest rates will go up: Would you get a mortgage if the interest rate was 0%? Given some time, this scenario may happen. My online bank currently pays 1.50%. I can see a time in the not-so-distant future when it’s paying 3.5% (the same as my mortgage) or higher.
Inflation hedge: Along the same lines, my mortgage rate won’t go up. But if inflation rears its ugly head, I’ll be paying it down with a dollar that’s worth less. Yay! Or maybe not, but you get the picture.
My situation is different from yours.
I’m not really retired in the traditional sense of the word. When most think about retirement, they form an image of seniors frolicking on the beach or playing endless rounds of golf. I think that this idea of retirement sucks. A life of leisure is incredibly unappealing. Meaningful work makes me happy.
I’ll probably always make money doing something (right now it’s writing on this blog and fixing up houses), so my withdrawals from savings will be less. Also, Mindy still works, so calling us anything even remotely related to retired (again, screw that word) is silly. These income streams make having a mortgage more palatable. However, we’ll still retain the mortgage when Mindy leaves her job and I shut down the blog.
In the meantime, I’m going to keep on building crazy things. My fancy curvy deck is almost done:
My basement is framed out. I even figured out how to install a pocket door in a floating wall:
I had never built a deck anywhere near this complicated or framed out a basement, but the challenge is where the fun is. I live for this stuff.
Next up, I’ll build a little backyard oasis with a pizza oven, fire pit, and pergola with a zip line attached.
And I’ll continue paying my mortgage so that the bank doesn’t repossess all of my projects.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.