Be mortgage free or continue with 2 homes

[NWMD]

Another consideration is whether you want to have that much net worth tied up in two assets. I live in your area and have seen the housing boom. I can't imagine that this rate is sustainable but I also spent $17 on a cheeseburger this week. It seems like everyone around here has monopoly money.

It seems like the market should go up but if it crashes the suburbs usually take the beatings before the cities. Also, I don't think single family home rentals make sense here anymore unless you have access to lower cost properties. This would make me nervous. I'd probably cash out and put the money in something more diversified.

[naruto]

Update:- decided to sell the house to lower stress. Will put on market in few weeks.

[White.Beard.Doc]

Update:- decided to sell the house to lower stress. Will put on market in few weeks.

While the house price appreciation may continue, I also would have taken the course that you are. Sell now while the getting is good, take the tax write off, and diversify the holdings a bit.

[Molar Mechanic]

I'm glad you found an answer that works for you. You can't go broke paying down debt, and you have to respect your personal risk tolerance.

If it were me, I'd sell now and lock in $500k in tax free cap gains, but I'd invest the proceeds rather than put into a low interest rate, tax deductible mortgage.

If I were feeling more aggressive I'd consider the short term rental options and list it as an AirBnB to take advantage of the ability to depreciate the house including a cost segregation study and to maximize income compared to a long term rental. After 2.5 years, I'd sell the house while I still could claim to have lived there for 2 out of 5 years.

[StarTrekDoc]

We inadvertently did this with the house move. $1.25M and sold $1.95M after 200k improvements. -- just max'd out. and entering new house closing in 3 weeks that we locked in pricing in 9/2020 build contract. -- Totally serendipity. But budget for refushinings blossoming now with all the inflation issues everyone is realizing.

The good thing is the house we locked into is also up 300k+ for new builds already before even moving in

For you renters -- I can see the enticement of no mortgage suck. Watching 1M+ sitting in the bank is very nice to see....and so tempting to go to quick Vegas run

[naruto]

I'm glad you found an answer that works for you. You can't go broke paying down debt, and you have to respect your personal risk tolerance.

If it were me, I'd sell now and lock in $500k in tax free cap gains, but I'd invest the proceeds rather than put into a low interest rate, tax deductible mortgage.

If I were feeling more aggressive I'd consider the short term rental options and list it as an AirBnB to take advantage of the ability to depreciate the house including a cost segregation study and to maximize income compared to a long term rental. After 2.5 years, I'd sell the house while I still could claim to have lived there for 2 out of 5 years.

now the million dollar question (literally and figuratively) what to do with the proceeds -pay down the new home mortgage and be debt free or invest? if invest where to invest?

[White.Beard.Doc]

now the million dollar question (literally and figuratively) what to do with the proceeds -pay down the new home mortgage and be debt free or invest? if invest where to invest?

This is a tough decision. Markets and assets are grossly overvalued by historical standards due to current government monetary and fiscal policy. Safer options for earning a decent return are almost non-existent. No one knows when the music will stop. But high inflation may likely lead to higher interest rates, and the stocks and asset prices will eventually come down to more typical levels. Speculation is rampant, driven by the fed. Tread carefully!

[Larry Ragman]

This is a tough decision. Markets and assets are grossly overvalued by historical standards due to current government monetary and fiscal policy. Safer options for earning a decent return are almost non-existent. No one knows when the music will stop. But high inflation may likely lead to higher interest rates, and the stocks and asset prices will eventually come down to more typical levels. Speculation is rampant, driven by the fed. Tread carefully!

While I claim no crystal ball, I do think these basic expectations drive three reasonably clear choices. First, I agree selling the original home is the right answer. Proceeds are more or less capital gains free, or at least the first $500k. OP not really that interested in land lording.

But what do do with the proceeds: Pay off low interest mortgage on current residence or invest at historically high market and asset prices in a declining market environment? Here the murky future comes into play. Biggest factor for me is OP’s timeline.
1. The choice that I think most closely aligns with the OPs interests (he says in his post wants to be debt free) is pay down the mortgage, then dollar cost average the amount of the newly freed mortgage payments into a total stock market index as a long term investment plan.
2. The choice if inflation is coming, and markets declining, is to sit on the $500k (i.e., cash in Ally Bank, CDs, or whatever). If inflation goes to 4% or more that mortgage is going to look good in a few years. Use the cash to buy once market prices subside. But come on, who knows how to time the buy?
3. Finally, what I would do if the timeline is long term (15-20 years) is keep the low cost mortgage and immediately invest the funds in the market. Yes, likely decline near term but up longer term. Many threads on lump sum v. Deploying large sum in several increments. Lump sum better over the long term, but averaging into the market over a year or two may psychologically help with getting started with the investment plan while the market high.

#1 is most straightforward and hard to argue with. #2 requires too many market timing choices to go right. #3 probably makes the most money long term, but requires some faith in market probabilities over time. I’m 60, so I’d go with #1. If I were 45 and planning to work 15 more years I’d go with #3.

[Molar Mechanic]

2. The choice if inflation is coming, and markets declining, is to sit on the $500k (i.e., cash in Ally Bank, CDs, or whatever). If inflation goes to 4% or more that mortgage is going to look good in a few years. Use the cash to buy once market prices subside. But come on, who knows how to time the buy?

Are you stating that the correct response to future inflation is to sit on cash? That is quite contrary to the conventional wisdom that the best situation to be in through inflation is holding assets.

[Larry Ragman]

Are you stating that the correct response to future inflation is to sit on cash? That is quite contrary to the conventional wisdom that the best situation to be in through inflation is holding assets.

No, first I would not pick this option. But perhaps to your point, the logic is that holding the mortgage is a correct response to inflation. Independently, wait for the stock market to go through its bear market then buy in with the cash not deployed to pay down the mortgage. The reason I don't think this is a good option is timing is hard.

[chucki]

In times of inflation, owning hard assets is the best bet. Hard asset = real estate = your house. Pay off mortgage, the money is going into a hard asset and reducing/eliminating debt. 2 birds with one stone, IMO. Of course, there are much savvier investors here than me, but I l like the simplicity of it. And there's no dollar value you can put on being debt-free.

[naruto]

In times of inflation, owning hard assets is the best bet. Hard asset = real estate = your house. Pay off mortgage, the money is going into a hard asset and reducing/eliminating debt. 2 birds with one stone, IMO. Of course, there are much savvier investors here than me, but I l like the simplicity of it. And there's no dollar value you can put on being debt-free.

owning hard assets with mortgage in time of inflation? or owning it outright? tricky spot

[Lordosis]

If you really thought inflation was going on a tear you would want to avoid paying extra on a mortgage. Why use today's valuable money when you can use tomorrow's less valuable money?

But we cannot predict the future so just stick to your IPS

[naruto]

Update. Put the house on market , got an offer within 5 days 15% above asking price. With everything said and done after paying for capital gain tax ,realtor fee ,and setting aside some money for home improvement ,I will have around1.1M left. I can use that to pay current mortgage (around 1.4M) .My current rate in 2.25% 10/1 . Or i can invest that. Better half wants to use this money to pay off mortagage

[wideopenspaces]

Update. Put the house on market , got an offer within 5 days 15% above asking price. With everything said and done after paying for capital gain tax ,realtor fee ,and setting aside some money for home improvement ,I will have around1.1M left. I can use that to pay current mortgage (around 1.4M) .My current rate in 2.25% 10/1 . Or i can invest that. Better half wants to use this money to pay off mortagage

Marriage is about compromise so if you want to invest and they want to pay down the mortgage, put half to each goal.