debt in retirement

[Danmar]

But you do not have to invest in the stock market... I have bought a number of pref shares that pay steady dividends and am making north of 7% with very little principal change either way.... so, I do not consider myself mismatched....


Edit to add since I just read pb4uski's reply.... I have very little 'cash'.... I would have to sell something to pay off my debt... my assets have about a 50% basis so that is a good amount of cap gains.... It would harm me financially to pay off my debt.... I do not want to spend my ROTH money to do it either... I am happy with my debt level and monthly payments....

I wouldn’t say pref shares have the same risk profile as debt. As long as you understand the risks,carry on.

 

[Danmar]

But as a banker, you had a fiduciary duty to your depositors and shareholders, rules to follow and abide by and regulators monitoring what you did.

Having worked in finance in the life insurance industry I'm quite familiar with all of that and with asset-liability matching and disintermediatiion risk.

Since I'm managing this money for me rather than as a fiduciary, I can decide to take risks with my personal finances that would be foolhardy as a fiduciary. I recognize that I am taking some risk and it is a risk I am willing to take as the rewards have been good... but it could go sideways and reduce or wipe out my gains or even turn to losses.

I didn't borrow to invest in the stock market.... I took out the mortgage when we bought the property and refinanced to lower the interest rate in January 2012 rather than pay it off with taxable account funds which is a similar decision.... I kept the debt rather than paid it off. Also, since my AA is unchanged from before I took the mortgage, I didn't really invest the proceeds in the stock market but more in a 60/40 portfolio (and that is what the 6.6% is based on).

That said, our total debt is less than 10% of our net worth so it isn't a big bet in the whole scheme of things but the results hve been rewarding.

You obviously understand the risks. Carry on. Not everybody does.

 

[Danmar]

+1
This has worked for us

Given the markets, of course it has worked.

 

[Danmar]

+1
Another example that is not a mismatch is using a zero % card and keeping $ in the market. Both are short term. As long as one has the ability and desire to take the risk that assets will have to be pulled out at an uncertain future value to pay off the debt, I don't see a problem. Used this strategy before ER and have continued to use it post ER.

So you took (or didnt repay) money on your CC and invested in the market, and this is not a mismatch? I guess we need a better definition of what mismatch means. It’s not the rate on the debt that causes the mismatch, it’s the characteristics of debt vs equity.

 

[AndyS]

What's up with people taking the zero percent financing on new cars? Have things changed?

The last two new vehicles I purchases in 2000 and 2011 I would have had to give up a several thousand dollar incentive if I took the special low rate financing offer.

 

[pb4uski]

In my case I had come to terms on the car purchase based on an out-the-door cash price with three competing dealers and had intended to pay cash and then I noticed that the mfg was offering 1.9% financing and asked if I qualified and they said yes. But in my case the offer to customers was not a choice between a rebate or the 1.9% financing.

 

[Texas Proud]

What's up with people taking the zero percent financing on new cars? Have things changed?

The last two new vehicles I purchases in 2000 and 2011 I would have had to give up a several thousand dollar incentive if I took the special low rate financing offer.

Some of the offers do not have a cash incentive... it is only low or zero interest....

 

[Looking4Ward]

As long as my Vanguard dividends are paying roughly 2.5% I have no problem financing a vehicle at 1.9%. In fact I've currently got two of them like that.

Paid cash for a travel trailer and just a couple months ago a boat; can't get money that cheap for those sorts of things.

 

[AndyS]

Some of the offers do not have a cash incentive... it is only low or zero interest....

So even if you pay cash and don't take the special financing you pay the same price?

Seems to me then, they must have the financing interest cost built into the price of cars nowadays, regardless of how you pay for it? I wonder if this will become the standard business model for car companies in the future?


*

 

[Bestwifeever]

We turned down low rate financing on our new car and just paid cash for it even though there was a $500 rebate if we financed it. I love having no debt.

 

[Texas Proud]

So even if you pay cash and don't take the special financing you pay the same price?

Seems to me then, they must have the financing interest cost built into the price of cars nowadays, regardless of how you pay for it? I wonder if this will become the standard business model for car companies in the future?


*

Sure, you can say that the low interest cost is built in the price... but that is a non issue as I am getting the lowest price I can get....

You also have to remember that this is for the high rated credit borrowers... so the chance of default is much lower... and they have a funding facility that is very cheap money to them... 3 year money is less than 2%... and they do not have to discount the car to get it sold....

Also, since this is only to the best credit rating people they do not give it to everybody... a rebate is given to everybody....

Our interest rate was 1.9%.... so probably paying them what their rate is....

 

[Texas Proud]

We turned down low rate financing on our new car and just paid cash for it even though there was a $500 rebate if we financed it. I love having no debt.

Did they not tell you that you could pay 100% the very first month I would treat is like a CC and pay it off and get the $500 less the little amount of interest... maybe $50 or so...

 

[pb4uski]

We turned down low rate financing on our new car and just paid cash for it even though there was a $500 rebate if we financed it. I love having no debt.

Why didn't you take the financing and the $500 and then just pay off the loan.... I've done it more than once... easy money.

 

[daylatedollarshort]

I think one of our cars has a zero or maybe it is a 1% rate. I asked the dealer the cash price and there was no discount for cash. Since we bought the car we keep getting offers in the mail to change the rate to something higher but with a longer payback period to lower our monthly payments. So I guess that is why they like the loans - those have the potential to be converted to higher rates later on.

 

[ERD50]

Originally Posted by Bestwifeever View Post
We turned down low rate financing on our new car and just paid cash for it even though there was a $500 rebate if we financed it. I love having no debt.

Did they not tell you that you could pay 100% the very first month I would treat is like a CC and pay it off and get the $500 less the little amount of interest... maybe $50 or so...

Why didn't you take the financing and the $500 and then just pay off the loan.... I've done it more than once... easy money.

+3 - I've done that. Make one payment and done.

-ERD50

 

[rayvt]

I've done that too. Took the financing bonus and the paid it off the next month.

But we just bought a popular Honda model where they don't give any financing or cash-off incentives.

You are right, too, about these 1.9% and 1.99% loans only go to people with high credit ratings. We got 1.99% (the dealer matched our CU so we took it from him) but my son with a so-so credit rating got a 7% rate. Well, ours was 5 years and his was 7, and the rates are higher for those long terms, but still...

Chatting with the finance guy, he said very few people qualified for the 1.99% rate. Probably most of us here have nosebleed FICO scores.

And dagnab it, my 7% SOHOM preferred stock just got called. Dang, I was making 5% on the difference.

 

[GravitySucks]

What's up with people taking the zero percent financing on new cars? Have things changed?

The last two new vehicles I purchases in 2000 and 2011 I would have had to give up a several thousand dollar incentive if I took the special low rate financing offer.

In 2011 if I didn't take the 0% loan I would not get the $500 rebate.
Made no sense, but their game their rules, I'll play to my advantage.

 

[dallas27]

I currently have debt in the low six figure range, consisting of three mortgages on professionally managed rental properties. It’s less than 2% of my NW, and falling, as OPM (other people’s money) pays it off. As each mortgage is retired, cash flow is freed up to increase mortgage payments on the next. I have three other properties paid off already. When all the mortgages are paid off, I will have about half a million dollars in equity and a reliable monthly income stream.

Exactly why i don’t like real estate, the only way to maintain excess returns is stay leveraged, and deleveraged to increase cash flows make you inefficient per capital dollar. You’ll be fine, I just hate the optimization paradox that real estate creates.

Neither here nor there, facebook here in Raleigh NC is now showing ads for real-estate builders and buyers seeking capital from the public at 15% IRR, 5 year investment, 50k min. Last time I saw these kind of signals in common places was the billboards in vegas before the crash. Wondering if we are entering phase 3 of the real estate cycle now, the fed is raising rates after all.

 

[Nightcap]

Exactly why i don’t like real estate, the only way to maintain excess returns is stay leveraged, and deleveraged to increase cash flows make you inefficient per capital dollar. You’ll be fine, I just hate the optimization paradox that real estate creates.

Neither here nor there, facebook here in Raleigh NC is now showing ads for real-estate builders and buyers seeking capital from the public at 15% IRR, 5 year investment, 50k min. Last time I saw these kind of signals in common places was the billboards in vegas before the crash. Wondering if we are entering phase 3 of the real estate cycle now, the fed is raising rates after all.

I just received word that a unit in my condo development was going on the auction block in a couple weeks. The owners took out a reverse-mortgage several years ago. Advanced age and ill health removed both to nursing homes last year.

I actually spent a couple hours wondering if this might be a good investment, if I could get it for a decent price. After all, I'm intimately familiar with the condo association - I'm the chair. We're just completing a major reno that has increased valuations across the board, and this is a desirable location.

And then I thought, if I know that, others certainly do too. Others with deeper pockets and more skills and contracting connections than me.

Just a short distance away from me is a series of islands and sandbars that comprise one of the largest seal haul-outs in the Northeast. The sands are strewn with fine fat seals, basking in the sun. And just off-shore, great white sharks prowl hungrily.

I have a good retirement plan in place. No sense in being chum.

 

[Texas Proud]

I just received word that a unit in my condo development was going on the auction block in a couple weeks. The owners took out a reverse-mortgage several years ago. Advanced age and ill health removed both to nursing homes last year.

I actually spent a couple hours wondering if this might be a good investment, if I could get it for a decent price. After all, I'm intimately familiar with the condo association - I'm the chair. We're just completing a major reno that has increased valuations across the board, and this is a desirable location.

And then I thought, if I know that, others certainly do too. Others with deeper pockets and more skills and contracting connections than me.

Just a short distance away from me is a series of islands and sandbars that comprise one of the largest seal haul-outs in the Northeast. The sands are strewn with fine fat seals, basking in the sun. And just off-shore, great white sharks prowl hungrily.

I have a good retirement plan in place. No sense in being chum.

But they might not.... you do not go to auction unless you were not able to sell in the regular market... this is a last resort....

You might as well check it out... if the price is low take it.... if the money gets high walk away....

 

[Nightcap]

But they might not.... you do not go to auction unless you were not able to sell in the regular market... this is a last resort....

You might as well check it out... if the price is low take it.... if the money gets high walk away....

I've watched a number of sales this year. Units tend to go within a month, at close to asking price.

This property is owned by the bank that issued the reverse-mortgage. They have not put it on the market at all.

I have a pretty good idea what this place would sell for as-is, based on the comps. Even if I could get it for 25% less, it would not be worth it to me. It would eat up the liquid assets I've reserved for renovations, hedging against sequence of returns risk, and paying off my own mortgage. I have neither the talent nor the inclination to do even cosmetic renovations, and I don't want to be a landlord. The return on investment just isn't enough to justify the risk.

I'll attend the auction (if for no other reason than it's going to be held within spittin' distance of my front door), but I have no business in that market.

 

[Texas Proud]

I've watched a number of sales this year. Units tend to go within a month, at close to asking price.

This property is owned by the bank that issued the reverse-mortgage. They have not put it on the market at all.

I have a pretty good idea what this place would sell for as-is, based on the comps. Even if I could get it for 25% less, it would not be worth it to me. It would eat up the liquid assets I've reserved for renovations, hedging against sequence of returns risk, and paying off my own mortgage. I have neither the talent nor the inclination to do even cosmetic renovations, and I don't want to be a landlord. The return on investment just isn't enough to justify the risk.

I'll attend the auction (if for no other reason than it's going to be held within spittin' distance of my front door), but I have no business in that market.

The question is will people interested show up...

I used to work at a bank... one of the guys on our floor was responsible for putting in bids for closed banks... this was a LONG time ago, so not the last round of bank failures....

He said that every time he went to put in a bid for a bank he had two bids... the one he calculated it was worth the the bank and $1... when it was time to hand the bids over if nobody else was in the room he handed them the $1 bid.... said the bank got a good number of closed banks doing this...


So maybe do what is needed to qualify to bid and if nobody comes or if there is little interest you might get a great deal...

 

[Nightcap]

The question is will people interested show up...

I used to work at a bank... one of the guys on our floor was responsible for putting in bids for closed banks... this was a LONG time ago, so not the last round of bank failures....

He said that every time he went to put in a bid for a bank he had two bids... the one he calculated it was worth the the bank and $1... when it was time to hand the bids over if nobody else was in the room he handed them the $1 bid.... said the bank got a good number of closed banks doing this...


So maybe do what is needed to qualify to bid and if nobody comes or if there is little interest you might get a great deal...

You know, you have a good point. While I very much doubt that no one will show, it doesn't cost me much of anything to have a $10,000 certified check in my pocket.

 

[foxfirev5]

You know, you have a good point. While I very much doubt that no one will show, it doesn't cost me much of anything to have a $10,000 certified check in my pocket.

Nice thing about your situation is that you have nothing to lose. The real estate market is one of the last inefficient frontiers. You should know what it is. Set your lowball price and hope for a windfall. It happens every once in a while. Keep the mindset that you don't care one bit and they have to almost give it to you. Much better than a casino as there is little downside if your right.

If it doesn't work out you still have your cash. No worries.

 

[Carpediem]

You know, you have a good point. While I very much doubt that no one will show, it doesn't cost me much of anything to have a $10,000 certified check in my pocket.

Please keep us posted on your outcome. I'm curious how many people show up. Thanks.