Need LDS Perspectives on Financial Decision

[coolcats]

I have gotten lots of "advice" from financial people, but they don't understand the prophets' admonitions to get out of debt.

Here is my situation. We have been quite blessed to have our house paid off even though we are in our early 30s. It is not a fancy or really big house, but it fits our needs.

However, it is in West Valley City, UT, for those of you who know it. Granted, it's in one of the nicer areas of the town. Overall it's been a decent place to live. However, a couple of weeks ago, our nice vinyl fence was tagged all over by gang members, apparently expanding their turf. It bothers me to have that influence around. Additionally, we don't feel like the schools are that good here.

We can move to a nicer part of the valley and get a comparable home if we carry a mortgage of about $40,000. I also wouldn't mind getting another bedroom or two because we may end up with more kids. So then we'd have a mortgage of about $80,000, which is still well within our means. With such a place in a nicer part of the valley, I'd feel like we could stay there all the time our kids are growing up. I'm not sure if I feel that way now.

Given the admonitions to get out of debt, what are your thoughts on the situation? Especially given the economy these days? I have a good job and there's no imminent threat of losing it. But you never know. I'd also almost feel like I'm being ungrateful for the many blessings which we have been given.

Edited November 27, 2008 by coolcats

[tubaloth]

The key the church has always stressed with a House is not to get something that you can't afford.

If you feel like you can afford the 80k, and can still save money for that rainy day then so be it.

If 40k was living on the edge then the church would advice against it. Its matter if you feel like you are living within your means. Don't go so over the top that it catches up to you later.

You well make the right call!

[BenRaines]

Here is how I see it. You stated that the house you currently live in is paid for. I would look for a house to fit your needs in a neighborhood where you are happy living for the next 20 years or so. As long as you can afford it without having to stretch too far. Then I would rent the house out that you have and are currently living in. The rental would provide a good part of your payment on the new house and in time should appreciate. I know all about the current market, I am on my sixth decade of living. The current market is not normal and real estate, long term, has been a good investment. Your rental should appreciate along with your new home over the years and the rental will help pay for the new house.

This is not get rich quick and own a lot of houses but over the last 40 years those who have made money in real estate have done it by buying one house, after a while, letting renters make the payment and buying another. Since yours is paid off your renters can help you buy another. I have never considered your primary residence as an investment. You always have to live somewhere.

Ben Raines

[gabelpa]

We're planning our own move totry andgetahold of a long-term family home. I just had a few questions.

Do you know the current market value of your house?

Could it be sold given the area and financial climate?

Have you considered either self-building or a one-off contract built house?

[coolcats]

We're planning our own move totry andgetahold of a long-term family home. I just had a few questions.

Do you know the current market value of your house?

Could it be sold given the area and financial climate?

Have you considered either self-building or a one-off contract built house?

Our house is currently worth between $205 and $215k. At least that is what the Realtor told us. That matches with what other houses in the area have sold for in the last month. So yes houses are selling, though not easily, and not for what they would have sold for last year.

Yes, I have considered having a house built and plan to investigate more. I appreciate the advice given so far. Happy Thanksgiving everyone!

[skylercollins]

Our house is currently worth between $205 and $215k. At least that is what the Realtor told us. That matches with what other houses in the area have sold for in the last month. So yes houses are selling, though not easily, and not for what they would have sold for last year.

Yes, I have considered having a house built and plan to investigate more. I appreciate the advice given so far. Happy Thanksgiving everyone!

Have you considered renting it and using the income on another house? That is the first thing I would consider if I had a house that was paid for and I didn't want to live there any more. Then you can afford a bigger mortgage with the extra rental income.

[coolcats]

Yes ... I'm thinking about doing that. A couple of problems -- it is in nice shape and I don't want renters to destroy it. Plus my money for a down payment is tied up in it. But I may be able to mitigate those concerns somehow.

[a-train]

What about saving up? Only a small portion of your monthly payment on a mortgage will go toward principle. However, the whole amount of your monthly contribution to a savings will stay in your pocket.

Are there other people in your family in a similar situation? Perhaps someone building up a down payment or something? What you could do is pool your funds. Imagine two parties pay $500 a month each into a common fund, in forty months (3 years, 4 months) you would have the total. You would buy your place at the forty month mark, but keep paying the $500 a month into the fund for another forty months upon which time the second party would have $40,000. Of course, none of this accounts for interest earned which helps also.

This process, put into an account compounding monthly interest at 2.5% would actually have you at just over $40,500 at month 39 with over $1500 in interest earned.

-a-train

Edited November 28, 2008 by a-train

[skippy740]

I have gotten lots of "advice" from financial people, but they don't understand the prophets' admonitions to get out of debt.

Here is my situation. We have been quite blessed to have our house paid off even though we are in our early 30s. It is not a fancy or really big house, but it fits our needs.

However, it is in West Valley City, UT, for those of you who know it. Granted, it's in one of the nicer areas of the town. Overall it's been a decent place to live. However, a couple of weeks ago, our nice vinyl fence was tagged all over by gang members, apparently expanding their turf. It bothers me to have that influence around. Additionally, we don't feel like the schools are that good here.

We can move to a nicer part of the valley and get a comparable home if we carry a mortgage of about $40,000. I also wouldn't mind getting another bedroom or two because we may end up with more kids. So then we'd have a mortgage of about $80,000, which is still well within our means. With such a place in a nicer part of the valley, I'd feel like we could stay there all the time our kids are growing up. I'm not sure if I feel that way now.

Given the admonitions to get out of debt, what are your thoughts on the situation? Especially given the economy these days? I have a good job and there's no imminent threat of losing it. But you never know. I'd also almost feel like I'm being ungrateful for the many blessings which we have been given.

At the ROOT of your question, it is an EMOTIONAL question, NOT a financial question.

You are asking yourself what you FEEL would be the most comfortable to you.

Please remember that the Church gives general counsel on finances, but they are NOT in the business of providing professional financial advice.

(Note: I am a licensed financial advisor and strategist.)

For financial efficiency, I would've told you to NOT pay off your house because:

1) There is no rate of return on your equity

2) You will need tax deductions where you can get them (home mortgage interest) and those deductions WILL become more valuable as taxes WILL increase (regardless of who is President)

3) Your equity is at risk to market forces that are beyond your own control

I personally think it's better to BE ABLE TO pay off your house when you want, but keep your equity and your cash separate.

When your Assets are equal or greater than your Liabilities, then you are not "in debt" or "in the red" for your entire financial picture because you have the ABILITY to eliminate that debt whenever you so choose.

But my thoughts are not for everybody.

The reason for moving isn't rooted in finances, it's safety and security.

Don't ask a financial question when the finances are a consequence of your real question.

Your real question is: Should we move?

If so, how do we afford it?

Is this a wise course of action for the family?

The numbers will help you with other aspects, but it's NOT a financial question you're really asking.

I hope this helps some.

[skylercollins]

Yes ... I'm thinking about doing that. A couple of problems -- it is in nice shape and I don't want renters to destroy it. Plus my money for a down payment is tied up in it. But I may be able to mitigate those concerns somehow.

Though not common, there are good renters out there. There's also ways to incentivize treating the property well such as big deposits or monthly inspections with fines/penalties. I don't know about single family rentals but with apartments, I hear it's better to keep lease terms to 6 months.

[skippy740]

My parents moved our family right before I went into high school for rather similar reasons. They moved to a larger home and almost doubled the mortgage payment.

If we didn't move:

1) I don't think I would've served a mission

2) I don't think my 2 younger brothers would've served missions

3) We would've had some rather negative influences in our lives because of the gang influences in that old neighborhood

So, there was a larger financial COST to that decision, but there were other side benefits that were worth MORE than the money it took to help get the family in a better environment.

[skylercollins]

For financial efficiency, I would've told you to NOT pay off your house because:

1) There is no rate of return on your equity

2) You will need tax deductions where you can get them (home mortgage interest) and those deductions WILL become more valuable as taxes WILL increase (regardless of who is President)

3) Your equity is at risk to market forces that are beyond your own control

For #2, trading interest payments for tax deductions is silly as most of the time you pay more in interest than you save in tax deductions. It's a great benefit while you need the mortgage, but not when you don't.

[skippy740]

For #2 - I can prove that it's more financially efficent to keep the mortgage as long as possible ASSUMING that you can afford a larger payment and are saving the difference into something more "wealth-producing".

During retirement, most people are losing many of their tax deductions and if they still have a mortgage to pay, it will help.

I'm looking at a MACRO-Economic view of someone's financial situation, not just the aspect of $1 in interest to get back $.30 of tax deduction. There are many other areas that require coordinating and measuring to see how viable those ideas are.

(I'd try to post it here, but it would be far too difficult.)

[skylercollins]

For #2 - I can prove that it's more financially efficent to keep the mortgage as long as possible ASSUMING that you can afford a larger payment and are saving the difference into something more "wealth-producing".

During retirement, most people are losing many of their tax deductions and if they still have a mortgage to pay, it will help.

I'm looking at a MACRO-Economic view of someone's financial situation, not just the aspect of $1 in interest to get back $.30 of tax deduction. There are many other areas that require coordinating and measuring to see how viable those ideas are.

(I'd try to post it here, but it would be far too difficult.)

Absolutely. If I can minimize my mortgage payment with say a 5/1 option arm, and make 12% a year on the accumulated difference, then after 30 years I'd have half a million dollars and a paid for house. But if I already have a paid for house, then it would better take the entire would-be mortgage payment and invest it, as I'm sure you'd agree.

[skippy740]

12% is not a realistic number.

Perhaps more like 6-7% can be found in a simpler, less risky way.

[skylercollins]

12% is not a realistic number.

Perhaps more like 6-7% can be found in a simpler, less risky way.

Well that depends on if or how it's managed.

[Elgama]

well I am going with my Dad for this one - he managed to retire comfortably at 50, never wastes anything, he paid off his mortgage and any debts as soon as he could. like he said until he did the house wasn't his it was partly the banks. He has 4 foreign holidays a year, manages to keep at least 2 women and has no financial stress what more does he need financially?

In OP case I would move but with the smallest mortgage possible as for me safety overrides finance.

Personally I rent my home my rent is about £176 a month so cheaper than the local average for my house size by about £400 we have weighed up buying a house but have worked out we can actually an awful lot of money by retirement if we don't we can cover missions, college etc and be financially secure without being in a single £1 worth of debt. I like that

[BenRaines]

Realistic rates of return are in the 6-8 percentage rate for long term. That is considering peaks and valeys that come along when investing. I know of no money manager or portfolio manager who will project with 12% earnings.

If someone has a method to consistently earn 12% on their money then they should start a mutual fund and make millions for themselves with OPM Other People's Money.

Ben Raines

[skylercollins]

Realistic rates of return are in the 6-8 percentage rate for long term. That is considering peaks and valeys that come along when investing. I know of no money manager or portfolio manager who will project with 12% earnings.

If someone has a method to consistently earn 12% on their money then they should start a mutual fund and make millions for themselves with OPM Other People's Money.

Ben Raines

Of course, past performance does not guarantee future results. I understand this company does pretty well with their management.

But that's about all I understand at this point .

[skippy740]

Of course, past performance does not guarantee future results. I understand this company does pretty well with their management.

But that's about all I understand at this point .

That website [expletive deleted].

If they can't put together a decent website, I would severely discount their reputation in asset management.

I'd look at Goldman Sachs, American Funds, BNY Mellon, Oppenheimer Funds, Franklin Templeton. Just their websites would make me feel much more comfortable.

[...]

Okay, I think we've taken this thread too far off-course of the original post. (I apologize because I helped cause it to detract from the original purpose.)

[skylercollins]

That website [expletive deleted].

If they can't put together a decent website, I would severely discount their reputation in asset management.

I'd look at Goldman Sachs, American Funds, BNY Mellon, Oppenheimer Funds, Franklin Templeton. Just their websites would make me feel much more comfortable.

[...]

Okay, I think we've taken this thread too far off-course of the original post. (I apologize because I helped cause it to detract from the original purpose.)

This isn't first hand knowledge, but it is reliable, that the Church works with Foxhall. To what extent I couldn't say, but I've heard good things about them from good sources.

[StrawberryFields]

Back to the OP.

I agree with the poster that said that this decision is really one of safety and security. I know the area of West Valley. With what you are saying about the gang influence I would personally try to sell and get out of there. If your home is in good condition you have an advantage of some other sellers at the price point and area. It is true the house values are down. All housing markets down and I hear that your price point of your current home is selling the best. To upgrade now is a good choice for you IMO because there will be room to negotiate especially with your cash from selling your current home. These are just my opinions and should be held as such. :)