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Tim Conti

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Hi Forum, first I am a huge believer in Millionaire Script having read both books Unscripted and Millionaire Fastlane. I still am working full-time but I have a side hustle which will soon be my main hustle. The side hustle pays out a consistent residual payment that my family can almost live on, but still working full-time to improve my cash position.

After reading and rereading the chapters that are relevant to this discussion I am still confused about the allocation for Cash-Investments-Debt. I owe about $450k on my current mortgage on a 30-year fixed rate of 3.25%. My question for the forum is do I pay down my debt first, and then continue to build a cash position and then start moving into investments that yield a 5% minimum? Do I kill the debt before I do anything else? Thanks in advance!

Build Cash Reserves?
Investments that yield 5%
Pay down/off mortgage
 

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I owe about $450k on my current mortgage on a 30-year fixed rate of 3.25%.

I'm always a fan of paying debt down for a guaranteed return. In this case, the guaranteed return is 3.25%.

That might not seen exciting, and strictly financially speaking, it is better to allocate the money in better yields. But those yields also have downside risk.

I also come from a place where having NO MORTGAGE is incredible wonderful and really frees up a lot of discretionary cash.

Welcome Tim!
 

Martzee

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Hi Forum, first I am a huge believer in Millionaire Script having read both books Unscripted and Millionaire Fastlane. I still am working full-time but I have a side hustle which will soon be my main hustle. The side hustle pays out a consistent residual payment that my family can almost live on, but still working full-time to improve my cash position.

After reading and rereading the chapters that are relevant to this discussion I am still confused about the allocation for Cash-Investments-Debt. I owe about $450k on my current mortgage on a 30-year fixed rate of 3.25%. My question for the forum is do I pay down my debt first, and then continue to build a cash position and then start moving into investments that yield a 5% minimum? Do I kill the debt before I do anything else? Thanks in advance!

Build Cash Reserves?
Investments that yield 5%
Pay down/off mortgage
My personal approach is that I only kill the debt which has a higher interest than my investments can make. For that, I look at my investments in two separate categories - trading options, and dividend investing. With my options trading, I make about 30% - 50% annually. So I do not take this rate into account. My dividend investments yield is currently 4.3% (entire portfolio yield), So I pay down all debt with interest higher than that, which is pretty much everything except the mortgage. Besides paying off my debt, I still save a small amount to my savings reserves and investing (I trade and invest as a business so I build up my business too but my ratio is like 4 - 4 - 2 (debt - business - savings).

On top of it, look at it this way, if you save money which can generate a 12% return annually in the next 30 years, or focus on paying a debt which costs you 3.4% annually in the next 30 years, what will make you better off 30 years from now? I think, in this case, the math is clear and easy... (in about 15 years, you can withdraw your investment and pay your mortgage off completely, if you want to).

Of course, it goes down to math and your financial situation. If your investments can make more than 12% annually and you can pay the mortgage faster than 15 years or with higher investments/business returns faster than what your returns can return, e.g. your investments generate income to pay off your mortgage in 5 years but you still can pay your mortgage off faster than 5 years, then still go for paying off the mortgage.

I owe $288k on my 30yr mortgage at 3.5% so to me it would be wasting money paying off that mortgage. I rather use that money to generate income and then that income will pay the mortgage off...
 
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Tim Conti

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I'm always a fan of paying debt down for a guaranteed return. In this case, the guaranteed return is 3.25%.

That might not seen exciting, and strictly financially speaking, it is better to allocate the money in better yields. But those yields also have downside risk.

I also come from a place where having NO MORTGAGE is incredible wonderful and really frees up a lot of discretionary cash.

Welcome Tim!
Thanks, MJ you are an inspiration. I just wish I read your book 20 years ago! The only advice I can't follow is my wife won't let us move out of Chicago :) Best Wishes, Tim
 

Tim Conti

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My personal approach is that I only kill the debt which has a higher interest than my investments can make. For that, I look at my investments in two separate categories - trading options, and dividend investing. With my options trading, I make about 30% - 50% annually. So I do not take this rate into account. My dividend investments yield is currently 4.3% (entire portfolio yield), So I pay down all debt with interest higher than that, which is pretty much everything except the mortgage. Besides paying off my debt, I still save a small amount to my savings reserves and investing (I trade and invest as a business so I build up my business too but my ratio is like 4 - 4 - 2 (debt - business - savings).

On top of it, look at it this way, if you save money which can generate a 12% return annually in the next 30 years, or focus on paying a debt which costs you 3.4% annually in the next 30 years, what will make you better off 30 years from now? I think, in this case, the math is clear and easy... (in about 15 years, you can withdraw your investment and pay your mortgage off completely, if you want to).

Of course, it goes down to math and your financial situation. If your investments can make more than 12% annually and you can pay the mortgage faster than 15 years or with higher investments/business returns faster than what your returns can return, e.g. your investments generate income to pay off your mortgage in 5 years but you still can pay your mortgage off faster than 5 years, then still go for paying off the mortgage.

I owe $288k on my 30yr mortgage at 3.5% so to me it would be wasting money paying off that mortgage. I rather use that money to generate income and then that income will pay the mortgage off...
Thanks for the reply. It does make sense, but I don't have the ability to trade options. And if you save money with a 12% return, you can't get 12% from bank savings or CD, so isn't there a fair amount of risk to get 12% return? Versus a no-risk paying down the mortgage?
 

alexkuzmov

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Hi Forum, first I am a huge believer in Millionaire Script having read both books Unscripted and Millionaire Fastlane. I still am working full-time but I have a side hustle which will soon be my main hustle. The side hustle pays out a consistent residual payment that my family can almost live on, but still working full-time to improve my cash position.

After reading and rereading the chapters that are relevant to this discussion I am still confused about the allocation for Cash-Investments-Debt. I owe about $450k on my current mortgage on a 30-year fixed rate of 3.25%. My question for the forum is do I pay down my debt first, and then continue to build a cash position and then start moving into investments that yield a 5% minimum? Do I kill the debt before I do anything else? Thanks in advance!

Build Cash Reserves?
Investments that yield 5%
Pay down/off mortgage
Hey Tim,

Thats one hell of a mortgage you got there.
Lets say that you decide to payoff the debt first.
How do you plan on doing it?
 

Tim Conti

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Hey Tim,

Thats one hell of a mortgage you got there.
Lets say that you decide to payoff the debt first.
How do you plan on doing it?
I would throw one lump sum payment at it to start from savings. And then every month any windfall from my full time gig or side hustle I would throw at it (once core expenses are paid for month). Also thought about taking 100% of the commission payments from the side hustle each month to pay down the mortgage. Our only debt is the mortgage.
 

Martzee

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Thanks for the reply. It does make sense, but I don't have the ability to trade options. And if you save money with a 12% return, you can't get 12% from bank savings or CD, so isn't there a fair amount of risk to get 12% return? Versus a no-risk paying down the mortgage?
Over time, markets go up. So, if you take that additional money and invest it just into the index (SPY), in the next 15 years, it will be up even with recessions along the way. If you started saving the cash 15 years ago you would start buying the SPY index for as low as $118 a share. If you did that regularly every month invested just $100 dollars or 150 dollars every month (or more), during the 2008 crisis you would be buying as low as $69 a share. Today, you would have tripled your money. And in the meantime received about a 2.2% dividend every year(better than CD or a savings account).


mkt.png


and if you want some cash preserving investment vehicle, use the ICSH fund. It holds value and pays a 2.20% dividend. I use it in lieu of a savings account:


icsh.png


As you can see, the fund is pretty much growth-less it holds value (it fluctuates within 0.50 cents) only, so it is almost like a bank account. The drop in 2020 looks scary but it was only a drop of 3.5% while the entire market dropped 40%, so to me, no big deal. And it pays the 2.2% annual dividend (compare to 0.80% high yield savings accounts today).

This all depends on your risk appetite. But, risk in the market and risk in the business seem equal to me. You can spend years and tons of money developing a business and yet in the end fail and start over. The same is the stock market or real estate market.
 

alexkuzmov

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I would throw one lump sum payment at it to start from savings. And then every month any windfall from my full time gig or side hustle I would throw at it (once core expenses are paid for month). Also thought about taking 100% of the commission payments from the side hustle each month to pay down the mortgage. Our only debt is the mortgage.

Are there any special conditions for the loan?
For example:
Lump sum payment only goes to the principal or not?
Do you have a max % on the fixed rate or can the lender alter it?
Any limits on how much and when you can pay?
etc.
 

Tim Conti

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Over time, markets go up. So, if you take that additional money and invest it just into the index (SPY), in the next 15 years, it will be up even with recessions along the way. If you started saving the cash 15 years ago you would start buying the SPY index for as low as $118 a share. If you did that regularly every month invested just $100 dollars or 150 dollars every month (or more), during the 2008 crisis you would be buying as low as $69 a share. Today, you would have tripled your money. And in the meantime received about a 2.2% dividend every year(better than CD or a savings account).


View attachment 35812


and if you want some cash preserving investment vehicle, use the ICSH fund. It holds value and pays a 2.20% dividend. I use it in lieu of a savings account:


View attachment 35813


As you can see, the fund is pretty much growth-less it holds value (it fluctuates within 0.50 cents) only, so it is almost like a bank account. The drop in 2020 looks scary but it was only a drop of 3.5% while the entire market dropped 40%, so to me, no big deal. And it pays the 2.2% annual dividend (compare to 0.80% high yield savings accounts today).

This all depends on your risk appetite. But, risk in the market and risk in the business seem equal to me. You can spend years and tons of money developing a business and yet in the end fail and start over. The same is the stock market or real estate market.
very insightful thank you. I do have invest in a low fee index fund but I should look at SPY.
 

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I have thought of this for a few years and I am always somewhere in between. I pay a little extra that I wouldn't notice if I kept it and put as much as I can into investing (not only the market).
I just lowered my mortgage to 2.85% from 4.5%. I was already paying extra(not a lot, but enough to bring 30 down to 22 years). With the refi I can act like nothing has changed and it knocks it closer to an 18 year. This isn't much, but I can do better with investing and paying extra makes me feel like I am making progress.
I'm only 33, so while I want to be debt free, my focus is on investments and business. I don't think I will be in this house for 10 more years...probably not even 5. If it was my forever home I imagine I would like the freedom of having zero debt.
 

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Damn, a $450k mortgage in Chicago. Unfortunately, there doesn't seem to be much appreciation in Chicago. You need to convince your wife to let you move! lol

I am also in the MJ camp of having little or no debt. However, I did use alot of debt to purchase my real estate. Then I used my ecommerce profits to pay down those mortgages.

The main issue with investing is that it is possible to lose that money. If you had $450k and you put it into the stock market and then it became worth $400k, would you be able to stomach it? So it really depends on your risk tolerance.

You say that you can find investments that yield 5% minimum. What are those? 5% after taxes would be a wash with a 3.5% loan.
 

MJ DeMarco

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I owe about $450k on my current mortgage on a 30-year fixed rate of 3.25%

How much equity in the house?

Do you have high-rate loans like credit cards?

If your only debt is your home, I'll stick to my original advice and take the guaranteed return-- start taking out big chunks of your mortgage. If you pay excess principle early in the loan, you knock out dozens of payments and reduce the life of the loan.
 

Tim Conti

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How much equity in the house?

Do you have high-rate loans like credit cards?

If your only debt is your home, I'll stick to my original advice and take the guaranteed return-- start taking out big chunks of your mortgage. If you pay excess principle early in the loan, you knock out dozens of payments and reduce the life of the loan.
$307k in equity and zero credit card debt (no other loans). Our only debt is the house. I am going to start paying down the 30 year principle in chunks, but also be mindful of the other opportunities outlined in the book!
 

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$307k in equity and zero credit card debt (no other loans). Our only debt is the house. I am going to start paying down the 30 year principle in chunks, but also be mindful of the other opportunities outlined in the book!

To be honest I think that's a great strategy. Try imagine your life without the mortgage. When debt free, life overhead sinks to just basic necessities; food, property taxes, gas, and insurance.
 

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an idea:
make double (or triple) principal payments ..... or refi for 15 yr and keep making the same (added principal) payments

put a set $xxk into an investment fund. use it to 'turn $1 into $2'. buy small companies, setup a family of online businesses, look for partners, create other revenue streams ...... use any free cashflow to pay that mortgage
this one is KEY. you will LEARN so much!!

real estate .... maybe in the area you want to move ..... find a few rentals and make a few trips to 'see them' ...... might get the boss to think about moving ..... use any free cashflow (after reserves / paydowns) to pay that mortgage
 

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$307k in equity and zero credit card debt (no other loans). Our only debt is the house. I am going to start paying down the 30 year principle in chunks, but also be mindful of the other opportunities outlined in the book!
Or if your wife would allow... sell the home, get a tax free capital gain. Buy a new house for $300k, and have no mortgage instantly. Do you really need to be in a $750k house at this point in your lives?
 
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Or if your wife would allow... sell the home, get a tax free capital gain. But a new house for $300k, and have no mortgage instantly. Do you really need to be in a $750k house at this point in your lives?

I personally like this a lot for another reason...

My state collects the lion's share of their plunder via property taxes, which does beg the question if we actually have property rights of not... But that is beside the point..

What I like better about this model than a state income tax model is choice. I can choose my own tax burden by choosing my consumption level.

I like the idea of simultaneously getting a paid off home and also reducing the property tax burden.

Granted, I have no problem with people that want live more lavishly... I will do that too, just somewhere I didn't feel like I was feeding my adversary by doing it.
 

Tim Conti

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I personally like this a lot for another reason...

My state collects the lion's share of their plunder via property taxes, which does beg the question if we actually have property rights of not... But that is beside the point..

What I like better about this model than a state income tax model is choice. I can choose my own tax burden by choosing my consumption level.

I like the idea of simultaneously getting a paid off home and also reducing the property tax burden.

Granted, I have no problem with people that want live more lavishly... I will do that too, just somewhere I didn't feel like I was feeding my adversary by doing it.
$300k doesn't buy much of a house where we live unfortunately.
 

biophase

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We live in the Western Suburbs of IL.

I think you can find alot of decent homes for $300k in your area. That area of Chicago isn't like LA where you can only find a studio for $300k. I can't think of any suburb where you can't get a house for $300k-$350k. Maybe in the Barrington North and South, Kildeer or Inverness? It's not like you are in Glencoe.

It all comes down to whether you can sacrifice now to have an easier life later on. You are probably also paying $15k a year in taxes. Imagine going from that to no mortgage and $5k in taxes. That's an instant $5k a month in savings. That's a way better return than anything you could invest in now.

All I'm saying is to look at it as an option. You may thank yourself 10 years from now.
 

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Hi Forum, first I am a huge believer in Millionaire Script having read both books Unscripted and Millionaire Fastlane. I still am working full-time but I have a side hustle which will soon be my main hustle. The side hustle pays out a consistent residual payment that my family can almost live on, but still working full-time to improve my cash position.

After reading and rereading the chapters that are relevant to this discussion I am still confused about the allocation for Cash-Investments-Debt. I owe about $450k on my current mortgage on a 30-year fixed rate of 3.25%. My question for the forum is do I pay down my debt first, and then continue to build a cash position and then start moving into investments that yield a 5% minimum? Do I kill the debt before I do anything else? Thanks in advance!

Build Cash Reserves?
Investments that yield 5%
Pay down/off mortgage
It really depends on your risk appetite and investment outlook.

I think it is good to have a large cash reserve first. People always underestimate how much cash they need. If you really see a market bottom that you want to invest you need cash too.

Having that huge reserve of cash built up as too priority, then I would consider paying down the mortgage. At this current level of asset prices I would not be too interested to take up the risk to invest for yield.

The hot topic in the investment community is, are we heading towards a hyper-inflationary future? I don’t know but for sure I sense volatility is something we should expect. If inflation goes out of control you already stand to gain from your fixed rate mortgage, which is your biggest investment. Having the cash as extra dry powder to catch buying opportunity in any short term deflationary assets mega sales is a good feeling.
 

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Another reason why I like paying down a mortgage and owning your house CLEAR is because it is a hard asset.

They way the money-printers are running in overdrive, it's nice to know that if there is mega-inflation or some kind of "dollar reset", your house should carry its value. The only financial tie your house carries is its carrying cost and the property taxes. Unfortunately, if shit hits the fan, I wouldn't expect any politician in Illinois to protect homeowners, which nowadays, is deemed "rich".
 

Tim Conti

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Another reason why I like paying down a mortgage and owning your house CLEAR is because it is a hard asset.

They way the money-printers are running in overdrive, it's nice to know that if there is mega-inflation or some kind of "dollar reset", your house should carry its value. The only financial tie your house carries is its carrying cost and the property taxes. Unfortunately, if shit hits the fan, I wouldn't expect any politician in Illinois to protect homeowners, which nowadays, is deemed "rich".
MJ, it is funny how you get many different perspectives from the same question right? But I do see everyone's point. I am also not going to sell my house and move into a 1500 square foot house to own it free and clear. I get the concept but it isn't viable. But here is what I can do. keep some cash, pay down debt, and focus on the unscripted money system!!
 

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MJ, it is funny how you get many different perspectives from the same question right? But I do see everyone's point. I am also not going to sell my house and move into a 1500 square foot house to own it free and clear. I get the concept but it isn't viable. But here is what I can do. keep some cash, pay down debt, and focus on the unscripted money system!!
You could become a private lender. Most private lenders require a 30% down payment on real estate and you would finance the rest at 9-10%. At least.....that's what my broker would set me up with. If by some chance it is defaulted on, which is extremely rare, you get to sell the real estate to get your money back. Find a lender that specializes in private/hard money loans and see what they say.
 

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You could become a private lender. Most private lenders require a 30% down payment on real estate and you would finance the rest at 9-10%. At least.....that's what my broker would set me up with. If by some chance it is defaulted on, which is extremely rare, you get to sell the real estate to get your money back. Find a lender that specializes in private/hard money loans and see what they say.
30% down payment...

Wait a second...

In the worst case scenario,

That's like buying a house at 70% value with none of the risks or headaches of flipping a home.


That's a fantastic business! Lol

I'd take that every day.
 

biggeemac

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30% down payment...

Wait a second...

In the worst case scenario,

That's like buying a house at 70% value with none of the risks or headaches of flipping a home.


That's a fantastic business! Lol

I'd take that every day.
Yup, I am building a house currently on a property that I purchased through a hard money loan. Cost was 185k and I put down 60k (9% interest rate). If I default, guess what.....my private lender gets to sell the property at market value, or even on a fire sale. He gets his money back plus my down payment money. My broker does these types of transactions all the time.

Keep in mind.....hard money loans are also known as bridge loans. People usually use these loans on properties that either are not bank lendable, or perhaps the borrowers credit is not up to par. Either way, its a good and safe way to make money with your money and its backed by the real estate itself. My lender has only had one or two foreclosures in his 15 years of doing these transactions, so they are pretty safe.
 

thechosen1

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Yup, I am building a house currently on a property that I purchased through a hard money loan. Cost was 185k and I put down 60k (9% interest rate). If I default, guess what.....my private lender gets to sell the property at market value, or even on a fire sale. He gets his money back plus my down payment money. My broker does these types of transactions all the time.

Keep in mind.....hard money loans are also known as bridge loans. People usually use these loans on properties that either are not bank lendable, or perhaps the borrowers credit is not up to par. Either way, its a good and safe way to make money with your money and its backed by the real estate itself. My lender has only had one or two foreclosures in his 15 years of doing these transactions, so they are pretty safe.
Well, I can see the draw to both sides here.

Flipping houses is a great process if you're good at it.

But the lender definitely has a huge edge. The math, the risk, and the returns are going to be in his favor all the time! Pretty smart on his part...

This sounds like a win-win. Flipping sounds better when you have less money, lending seems better when you already have multiple millions in cash.
 

biggeemac

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Well, I can see the draw to both sides here.

Flipping houses is a great process if you're good at it.

But the lender definitely has a huge edge. The math, the risk, and the returns are going to be in his favor all the time! Pretty smart on his part...

This sounds like a win-win. Flipping sounds better when you have less money, lending seems better when you already have multiple millions in cash.
Well, I can see the draw to both sides here.

Flipping houses is a great process if you're good at it.

But the lender definitely has a huge edge. The math, the risk, and the returns are going to be in his favor all the time! Pretty smart on his part...

This sounds like a win-win. Flipping sounds better when you have less money, lending seems better when you already have multiple millions in cash.
Correct, but you don't even have to have millions in cash. You could have a home that is paid off. Do a cash out refinance at todays rates and invest the cash into a hard money loan and collect the 6-7% spread.....while remaining in possession of your home. Your home effectively becomes an investment vehicle....that you get to use.
 

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