Hi FastLaners,
I have a “good” problem to work through but am really wavering on this one. I would love some advice from folks who have been in my shoes or have experienced this or thought through the scenario:
I just had my cash offer accepted on a home. The closing is in about 1.5 months and I am now debating if I should close with “all cash” or try to get a 15- or 30-year fixed rate mortgage in the next 1.5 months while I wait because of how low rates are and the opportunity costs associated with tying up that much capital in a home. Here are some relevant facts:
Pros Of a Paid Off Home:
I very much like the thought of a paid off home, freedom, and low monthly bills. If my company ever tanked my investments would provide enough income to pay for everything. This also would allow me to invest my net worth (minus the amount I put into the cash payment for the home) in slightly more aggressive funds since I know I will be able to afford all of my bills no matter what with a paid off home (If I pay off the home, I will definitely not have bonds for a while since I’m only 34 + a paid off mortgage acts like a bond basically + the home can appreciate (so it actually acts like a bond that appreciates). I may incorporate a small portion of my portfolio to CEF Muni Bonds Funds since I’m a high-income earner.
I also save on closing costs (although I will pay for an inspection still and may even do an independent appraisal for peace of mind)
The home would only make up about 16% of my net worth if I paid with cash (and more like 10% to 13% when you factor in my ownership of my company). So this would diversify 10% to 16% of my net worth into something new (a personal residence). Although, I don’t know that the home value would grow at the same rate as the stock market over the next 30 years (I doubt it even though the home is in a great area that has been appreciating).
Pros Of a Mortgage:
I am only 34 and have an 800+ credit score. I can probably get a great 15- or 30-year fixed rate mortgage (maybe close to 2%?). If history tells us anything, the stock market will likely grow faster over the next 30 years than this piece of real estate (if I’m even in this home that long) - but of course, I could be wrong with the market at all time highs right now and the fear that we would have returns like the Japanese market it's past 30 years. I understand the math of this all… put 20% down, finance the rest at 2%-3% fixed rate and invest this in the market and “hopefully” get 8% over the long run. Of course the 8% is not guaranteed and some experts are thinking it may only average 4% to 6% after this bull run is over.
But the thing is, I already have most of my net worth in the stock market. I’ve saved most of my income since I started my business in my early 20s. I’m now 34 and have about $3.36 million in a well-diversified portfolio of low-cost index funds. So this home will just take about 10% - 15% of my net worth and place it in something that may appreciate 3% to 5% (it’s in a good area that has been appreciating over time). White appreciating slower, it does diversify and would be good in a bear market or economic crash scenario (or if my company ever stops being profitable).
Closing:
I love the security, peace of mind, and preparedness for a down market a paid off home gives me. I have a slight FI/FIRE mindset, mixed with a Dave Ramsey mindset, mixed with an @MJ DeMarco mindset.
But because I’m only 34 and could get a great mortgage rate, I don’t like the thought of not optimally allocating my money + the opportunity costs of investing more in a home rather than the markets (even though I’ll still have much more in the markets still and only about 10% to 16% of my net worth would be in this home).
Do you have any thoughts? Thank you for your help.
I have a “good” problem to work through but am really wavering on this one. I would love some advice from folks who have been in my shoes or have experienced this or thought through the scenario:
I just had my cash offer accepted on a home. The closing is in about 1.5 months and I am now debating if I should close with “all cash” or try to get a 15- or 30-year fixed rate mortgage in the next 1.5 months while I wait because of how low rates are and the opportunity costs associated with tying up that much capital in a home. Here are some relevant facts:
- The home costs $650,000 (after I fix up some things before moving in I'd guess I'd pay $680,000)
- My liquid net worth is $4.1 million (mostly invested in a well-diversified portfolio of low cost index funds in a brokerage account, as well as a SEP, and some other alternative investments)
- When you factor in my company, my net worth is probably in the $5 to $6 million range
- My credit score is in the 800s
- I’m a single male who is 34 years old
- I live in Florida in the USA
- I founded and own a U.S. company (this is where I have made my money)
- I have no debt
- I have about 400k of my Net Worth sitting in cash right now.
Pros Of a Paid Off Home:
I very much like the thought of a paid off home, freedom, and low monthly bills. If my company ever tanked my investments would provide enough income to pay for everything. This also would allow me to invest my net worth (minus the amount I put into the cash payment for the home) in slightly more aggressive funds since I know I will be able to afford all of my bills no matter what with a paid off home (If I pay off the home, I will definitely not have bonds for a while since I’m only 34 + a paid off mortgage acts like a bond basically + the home can appreciate (so it actually acts like a bond that appreciates). I may incorporate a small portion of my portfolio to CEF Muni Bonds Funds since I’m a high-income earner.
I also save on closing costs (although I will pay for an inspection still and may even do an independent appraisal for peace of mind)
The home would only make up about 16% of my net worth if I paid with cash (and more like 10% to 13% when you factor in my ownership of my company). So this would diversify 10% to 16% of my net worth into something new (a personal residence). Although, I don’t know that the home value would grow at the same rate as the stock market over the next 30 years (I doubt it even though the home is in a great area that has been appreciating).
Pros Of a Mortgage:
I am only 34 and have an 800+ credit score. I can probably get a great 15- or 30-year fixed rate mortgage (maybe close to 2%?). If history tells us anything, the stock market will likely grow faster over the next 30 years than this piece of real estate (if I’m even in this home that long) - but of course, I could be wrong with the market at all time highs right now and the fear that we would have returns like the Japanese market it's past 30 years. I understand the math of this all… put 20% down, finance the rest at 2%-3% fixed rate and invest this in the market and “hopefully” get 8% over the long run. Of course the 8% is not guaranteed and some experts are thinking it may only average 4% to 6% after this bull run is over.
But the thing is, I already have most of my net worth in the stock market. I’ve saved most of my income since I started my business in my early 20s. I’m now 34 and have about $3.36 million in a well-diversified portfolio of low-cost index funds. So this home will just take about 10% - 15% of my net worth and place it in something that may appreciate 3% to 5% (it’s in a good area that has been appreciating over time). White appreciating slower, it does diversify and would be good in a bear market or economic crash scenario (or if my company ever stops being profitable).
Closing:
I love the security, peace of mind, and preparedness for a down market a paid off home gives me. I have a slight FI/FIRE mindset, mixed with a Dave Ramsey mindset, mixed with an @MJ DeMarco mindset.
But because I’m only 34 and could get a great mortgage rate, I don’t like the thought of not optimally allocating my money + the opportunity costs of investing more in a home rather than the markets (even though I’ll still have much more in the markets still and only about 10% to 16% of my net worth would be in this home).
Do you have any thoughts? Thank you for your help.
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