Saturday, July 13, 2013

Pay down my mortgage or invest?

For my records, and to tackle this question, I have found the following articles to help answer it.  Note: Unless you can predict the future...there is no "right" answer until time tells us so.
  1. Afford Anything's take on the matter:  http://affordanything.com/2013/03/22/pay-off-your-mortgage-or-invest-in-the-stock-market
  2. Investopedia, "Why Leveraged Investments Sink." http://www.investopedia.com/articles/optioninvestor/07/leverage_underwater.asp
  3. Mr. Money Moustache - http://www.mrmoneymustache.com/2012/02/24/pay-down-the-mortgage-or-invest-more-a-winwin-question/

I will have more comments on this in the future, though I'm not sure how much I can add to these great articles.  More than anything, this post is to help me build a resource center for this question.
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2 comments:

  1. AAJuly 14, 2013 at 7:56 AM

    The times call for one to be a cautious investor. Therefore, pay up your mortgage, and refinance to take advantage of a better rate for the remaining loan period. With the remainder of the cash, buy stock in a company that's growing (E.g. - GE).

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  2. AAJuly 14, 2013 at 8:23 AM

    With regard to the Mr. Money Moustache article - the writer describes 'Scenario 2' (buying 4 homes with 25% downpayment for each one) as better than 'Scenario 1' (paying up 100%).

    Here are the loopholes in Scenario 2:
    1. The writer is assuming that he will easily find 4 properties that will each cost him not more than $100K. Rarely will you find all 4 in the same location and of the same quality.
    2. He assumes that all 4 will yield a rental of $1200 p/m. That rarely happens - as a landlord, your objective is to get your property rented out asap as you are losing money everyday. More often than not, you will end up cutting the rent to lure a good tenant.
    3. The writer assumes the properties will get rented out immediately. That rarely happens unless the tenants are already living there.
    4. The writer doesn't consider additional costs for which you will need operating funds. E.g. - home insurance, repairs, maintenance, fees (if its a condo), home warranty, tax, filing fees (to register the property under a LLC, annual report fees, etc)...
    5. Mortgage payments will eat up the income. Additionally, every 15-20 years, the landlord will have to pay for roof/driveway repairs ($10,000 per property).

    It's not that simple.

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