All Forum Posts by: Account Closed

I'm in the market to buy a new house and am looking for some thoughts on the pros and cons of 15- or 30-year mortgages. 

My husband and I paid off our current home's mortgage in 2008, and it's been a great feeling to be completely debt-free. That really reduced our costs and allowed us to invest more in retirement accounts. However, we cannot live off of our retirement accounts today and we really need to diversify our income.

For that reason, we plan to take on a mortgage when we move and to use the proceeds from the sale of our home for real estate investing. While I'm okay with the idea of having a mortgage again, I'm struggling to choose between and 15- or 30-year term. 

My first instinct is to go for the 15-year mortgage because I can build equity more quickly and I would avoid being highly-leveraged on my personal residence. However, most real estate investors have to borrow money anyway, and there is no cheaper money that what you can borrow on your own home. A 30-year mortgage would free up more of today's dollars for investing...

I really need to figure this out before I find a house to make an offer on. : )

So what's your vote: 15- or 30-year, and why?

Is there another option I should be considering?

Thanks for you help!

Hi Jerry, you can withdraw money tax-free and without penalty from your Roth up to the amount of your original contributions. So if you put in $11k that has now grown to $13.5k, you can withdraw $11k and do whatever you want with it. But if you liquidated the account, you would pay a 10% tax on the $2.5k that are your earnings over and above your original contributions. 

However, as you'll see in this rather dry IRS publication https://www.irs.gov/publications/p590b/ch02.html, you can avoid this 10% tax if you use the amount over your contribution for qualified exception, including the purchase of a first home. 

You say that you are currently renting. If you have not purchased a home in the past, you might want to consider buying a duplex for yourself and renting out the other half. And if you want to take house-hacking even further, you could take on a roommate or air bnb a room in your side of the duplex. If you want to retire in 7 years, you will need to be creative!

As for the rollover IRA, the IRS will let you withdraw up to $10,000 for a first home purchase.

https://www.irs.gov/retirement-plans/plan-particip...

You can call Vanguard or Fidelity or whoever is holding your accounts and they can help walk you through the rules and the process.

Personally, I would avoid gutting the accounts. The contribution portion of your Roth account is a decent back-up to a cash emergency fund, which you need in life generally and definitely if you want to be a real estate investor. Something to consider!

Hi Scott, thanks for taking this topic on. When I sell my house next spring, I am going to be in this very situation. It's a great opportunity, but also a great responsibility. The larger the sum, the more there is to lose... 

In your work, I'd love to see a point of view on risk management/risk tolerance that takes this dynamic into account. For example, would you recommend diversification in terms of both assets and the TIMING of asset acquisition? Under which conditions would it make sense to invest all at once versus over time? 

Good luck finding some examples to learn from. I look forward to seeing what comes of this!

Good point! Thanks, Soh.

I was listening to an old BP podcast recently and heard what I thought was an interesting tip: get your personal mortgage at a local portfolio lender as a way to establish a relationship that can be leveraged for future investment lending. The guest shared that in his opinion paying an extra quarter of a percent was worth the price of building a relationship with a lender.

Has anyone tried this in the Puget Sound region? 

Thanks!