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Tractor Talk Discussion Forum

O/T can it be done

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old

01-11-2007 10:21:26




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I have a friend that is selling his place. Now if he gets $100,000 for it can he then put that $100,000 in the bank in a saveing account and make it make the payemnts on a $70,000 loan. I say he will loose his shirit doing so but he says he can do it and keep the $100,000. Last I knew banks only pay out about 50% of what they take in on a loan. Or in other words they will pay you 3% on your money but charge you 6% for intest I'm I right or is he??
Thanks
I told him buy his new place out right then invest whats left over and he would be better off what say you guys?

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Ol Chief

01-11-2007 22:40:33




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
Regardsless of what our government tells us inflation is probably running about 4 % or more and will increase as time goes by.I think that inflation will wipe out your friend if he invests as he presently intends.



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8N'r--WI

01-11-2007 20:55:42




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
Old, I believe your buddies goal is to buy a 70k house and keep his 100k intact. If his plan is to take a 30 year mortgage, make the principal and interest payments (not including property taxes)each year from interest earned on the 100k, the bank will be real happy and your buddy will achieve his goal. Over the life of the mortgage, however, your buddy needs to have the discipline not to spend any of the 100K before he pays the mortgage off. 30 years is a long time.

I will side with you. Pay the 70K cash for the house (creates immediate equity), and save thousands in interest payments to a bank over 30 years. If he never spends the remainding 30k, and invests that at a rate of 5%, after 25 years, it will have grown to a bit more than 100K-another $.02 opinion--and lots of variables not thrown into the discussion--good luck to your friend with whatever he decides to do--Tim

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THEkyroastnear

01-11-2007 20:54:35




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
i thought the same thing on a money market cert. i had. by my reasoning the intrest should have paid a loan for a new 36 x 50 pole barn but it just does not work out. banks loans ect. have all that figured before the working man even tries to. they do not intend for you toget the upper hand in any way



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MSD

01-11-2007 20:38:18




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
My son has a 30yr mortgage at 4.65%. Took it out a couple of years ago. The banker told him at that time to borrow as much as he could because things would change and it would be pretty cheap money down the road. The same bank that has the mortgage is offering 5.35% on 13 month certificates. Don't forget compounding the interest on the $100000 and the declining loan amount. Also investing $100000 at one time , you should find some pretty could rates out there.

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tsix

01-11-2007 16:00:05




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
Old, the best mortgage rate I found with a quick search was 5.75% at 15 years. If he can find a bank that pays more than 5.75% interest on savings or other accessible account (CD's, money markets, etc. won't work), then he makes money. This assumes he had no fees or other such charges.



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Lincoln

01-11-2007 15:59:20




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
He might be thinking like this:

Monthly payment on $70,000 loan @5.75% interest is $408.50 or $4902.00 per year.

$100,000 principal would only have to make 4.9% interest per year to cover the payments on the $70,000 loan.

I think as long as he can beat the 5.75% rate by investing his money else where he will come out ahead. He won't do it in a savings account or CD but it shoud be pretty easy and relatively safe in a mutual fund.

Also capital gains tax does not apply to your primary residence if you have lived there for at least 2 years.

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glennster

01-11-2007 12:47:09




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
he has also to consider the capitol gain he will pay on what he sells his property for. example, if he paid 60k for the property and sold it for 100k, he has a 40k tax liability, depending on his tax bracket, uncle sam can take up to 40% of his 40k. i dabble in real estate investing myself, and what he needs to do is make his money work for him. he could consider buying some type of income / rental property. with the 100k he could use that as a down payment on up to a 500k property, assuming a 20% down payment. a general rule of thumb i use is the 1% rule. the monthly income for the property should be 1% of the purchase price of the property in order to cash flow the property and have a little left over at the end of the month. example, a 100k house would need to rent for $1000.00 per month, giving him 12000.00 per year income before expenses. he really needs to sit down with a good accountant/tax planner to devise a strategy.

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Don L C

01-11-2007 13:41:16




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 Re: O/T can it be done in reply to glennster, 01-11-2007 12:47:09  
Do you dont have to pay capital gains, if you are over 55 years old??....a few years back the goverment gave us this break, now I hink you can do this several times.....but I think you have to live in them when you oun them..... as I rember..... Don



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neblinc

01-11-2007 12:40:46




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
Don't you have to pay a capitol gains tax if you sell a property and don't buy another property within a certain amount of time?

Randy



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Rick Kr

01-11-2007 12:28:33




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
Old,
In short I would say no. Most banks will only loan up to 80% of value.

You can get 100% or even 125% value of your home but you are looking at a non-conventional loan and the interest rates go up accordingly.

For example, right now 30 year traditional loans are about 6.5%, the most aggressive money market accounts (constant income) are only about 4.5%.

As stated below most banks loan you money at an interest way higher than what they will pay you to "borrow" your money.

Thats kinda the short answer. I am not sure how you could go about that. Banks are not in the business of losing money.

Rick

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Jonfarmer

01-11-2007 12:02:47




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
They say the stock market gives an average return of 9% a year, but your talking about something thats not FDIC insured and there is a risk of losing money. Like another fellow said, he could put it in a CD, and the best I have seen is 4.75%, but he wouldn't have access to the money until the time is up on the deposit without getting hit with penalty fees for early withdrawl. The interest rates of CDs (certificate of deposit) very with the terms. There are also CDs offered that do not have a penalty fee for early withdrawl, but these pay less interest for that privelege. All banks have websites and will tell you what programs they currently offer and the interest rates, so check the banks in your area for more information.

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Rich Va

01-11-2007 11:06:26




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
He can get about 5% on a long term certificate of deposit. But, with all that money in the bank he'll want new tractors and trucks and soon all that cash will be gone.



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Walt Davies

01-11-2007 11:02:23




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
I took a $100,000 note on my last place at 8.5 it made the payment on my $66,000 at 8.0 loan on the new place with some left over. The bank would be dumb either invest it at 8 to 10 or try to carry the loan on the old place. Let the owner buy your new house for you. try to 5.5 to 6.5 on both loans and he should come out with some extra and his new place for free. Walt



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Fluggie in IA

01-11-2007 11:02:14




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
You are absolutely correct, Old! He can, however, negotiate a lesser loan percentage but not to equal your savings account. I see what he is trying to logistically create - the interest from the 100,000 should pay the payments on the 70,000. That would work if he wants the 70,000 loan to stretch out to about 50 years. Guess I perfer to have things paid for, but, that's just me!



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KIP in MX

01-11-2007 11:00:05




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
Letīs not forget that he will have to pay taxes on that 3% interest he makes.



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Triplerange

01-11-2007 10:46:50




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
I"d say you"re probably right...don"t know of a bank savings account that is anywhere close to a loan interest rate...ususally the interest rates are next to nothing.



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IaGary

01-11-2007 10:43:22




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 Re: O/T can it be done in reply to old, 01-11-2007 10:21:26  
In about 10 years he will pay about $130,000 on that $70.000 note at 6%.

In ten years at 3% on his $100,000 he will get 30,000 in interest earned if no princple was used.

If he uses the princple also it may work but there will be no money left.

I think you are right old unless he is helping with the payments with earned income form other sources.

Gary



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Gerald J.

01-11-2007 15:48:06




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 Re: O/T can it be done in reply to IaGary, 01-11-2007 10:43:22  
Look at annuities. They can often pay better than bonds or money market savings. Significantly better.

Gerald J.



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