Posted on 02/28/2011 10:58:00 AM PST by STD
Dear FReepers,
I'm looking for advice about taking the equity out of my vacation home. As I watch real estate plummet, is it time to cash out of that house while I can still get value out? After applying for a home mortgage; 30 years at 4.3% they are willing to give me 650K. Taking that money and putting it into commodities, I think I can grow my out of this economy. What do the rest of you guys think about this idea? I would also appreciate advice on where to invest this 650K? Thank You FReepers, my valuble brain trust
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Sell. I second that. Then keep X in cash, X in that etc.
How does he pay the P+I on the 650K like that, I gueuss around 4000 / monthe before real estate property taxes.
I agree with Minn, I have owned a couple of vacation homes.
Newer really used them enought to justify the cost, sold them and cruise now. I can cruise at least twice a year and haven’t come near to using up the money from the sale.
I would take the equity.
As bad as this sounds, should values continue their decline (which seems extremely likely), you might never have this opportunity again.
As to where to invest, just be careful, as we are in a period where even conservative investments can quickly go bad.
Helicopter Ben is running the printing presses.
The cash you take out will be depreciating
immediately and accruing an interest penalty.
Do you really believe you can make more than
the liability accruing with interest + inflation on
that equity?
You are essentially borrowing 650K and then gambling that borrowed money on the commodities market that can either go up or down. So, let's analyze the possibilities in the outcome flow chart:
If the commodities investment does great, you will look like a genius and have the money to prove it.
What if the commodities market takes a hit?
Are you prepared to pay off that 650K mortgage over the next 30 years or will you be forced to either default on the loan or develop a taste for Purina Cat Chow?
If you can afford to pay off the loan if the commodities investment tanks, roll the dice if you feel lucky.
If you cannot afford to repay that loan if your commodities investment tanks, you will then lose the vacation house, and your money and your credit rating.
If you cannot pay off the loan if the commodities investment tanks, it is deja vu all over again.
Isn't that how this financial disaster came about?
With people gambling borrowed money they could not afford to repay if the markets went South?
Gambling with borrowed money you cannot afford to repay if Lady Luck turns against you is nothing more than playing Russian Roulette with your finances and your future.
If you are so afraid of the housing market crashing any further, sell the house and recover money that actually belongs to you and not to the bank. Then, if you can afford to lose that money, risk it in any way you want.
I’d stand pat. I think commodoties are in a far over-extended bubble (blame professional speculators for running them up). All bubbles eventually pop.
30 yr money at 4.5% for a second home sounds like a very good deal - we’ll probably not see that again for a very long time.
I’m pretty confident we have begun a big inflationary cycle. What is interesting to me, is that real estate historically hasn’t done that well in that type of environment. Check out this analysis - might get much worse before it gets much better.
http://gonzalolira.blogspot.com/2011/02/inflation-hyperinflation-and-real.html
Equities and in particular commodity based equities are a good hedge. I’m reading a great book now called “When Money Dies” - its about the hyperinflation of the Weimar Republic. It was first printed in the 70’s and was reprinted this past year given the similarities that we are facing. Anyway, the German Stock market tripled from 1922 to 1924 and did a decent job of protecting purchasing power.
Don’t overlook mid-2013 calls on guillotine manufacturers.
We’re going to need lots of them.
This is a week old:
http://www.tradingmarkets.com/stocks/commentary/inflection-point-for-mr-market-1457054.html
I’m inclined to agree with Former MSM Viewer in this instance.
If you look at the stock market, many of the “principals” of most firms are cashing out of their investments. Insider activity on most companies show a decided trend of these folks to take their money now.
Where they are putting it, I do not know. But it is going somewhere. I cannot recommend commodities as I think that many are overpriced in a heated market. Too many people are seeking stability in commodities which has them over priced.
Right now I am buying Real Estate in selected places at rock bottom prices. Finger Lakes in NY, Northern Mich, Lake of the Ozarks. Waterfront only.
Yes I guess you would need to pay the mortgage...
We took some of our money out of the country, though it was a hassle. freepmail me about it. Some real estate plays may be worth it, even in this economy. Everything is risky, even commodities.
So, she changed it to let's keep the house on LI and but a snow-bird house down south for when we retire. I say when that day comes let's sell all the property on LI (we are landlords), buy the house we want where we want and come back to visit a few weeks a year. We could easily rent a condo here for a month at a time...or go to London instead, or Buenos Aires or Spain or Asia...
Nothing ties you down like a vacation home.
Roger, thank you
I’m assuming the house is located where prices are still declining (IOW, anywhere but DC of late).
Honestly, in that situation, I’d sell the thing in an effort to max out my capital gain. I have little confidence that we will see rising prices anytime in the foreseeable future.
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