JD, I agree with most of your points, but I have to disagree with you on the point of paying off mortgages. Consider this:
Return on investment: He doesn't say what the interest rates are on his mortgages, but around 6 percent seems likely for rental property. Which means when he pays down a mortgage, he's locking in a six percent rate of return. Maybe less if he's in a high enough tax bracket, since he's losing the interest deduction, so let's say five percent. That's better than bank interest, but not that great for what is in effect a 20+ year CD.
Risk: What if he pays down the mortgage on a house that's under water, then it ends up going into foreclosure? He loses every nickel that he paid against the principal. If you have a house with a 50,000 mortgage that's worth 10,000, does it really matter whether the bank forecloses against a $45K principal versus a $50K principal?
Liquidity: This is my main issue. You and I agree he should build up a significant cash reserve. Any money he pays against mortgage principal isn't going into his reserve. You can ride out pretty much any crisis if you have enough cash on hand. In fact, a financial crisis can turn into a major opportunity IF you have enough cash.
Now a disclaimer: This is a case where I don't necessarily follow my own advise. My wife and I try to pay down our mortgages, and we do own three houses free and clear. We have one house that's deeply under water, yet we've paid down the balance significantly. I can rationalize this by saying the interest rate on that house is the highest of our mortgages, but realistically we should have walked away from the place years ago. Instead we have an 850 credit score and a money pit we'll never unload.
We sell tractor parts! We have the parts you need to repair your tractor - the right parts. Our low prices and years of research make us your best choice when you need parts. Shop Online Today. [ About Us ]
Today's Featured Article - Women and Tractors - More Views From the Farmer's Wife - by Teri Burkholder. The top ten reasons why the judges wouldn't let you participate in the stock antique tractor pull: Hey, this is stock! It came with that V8 in it! That "R" on my tires stands for "really old" not radial! Blue gas? We thought it was a pretty color! What wire hooked to my throttle?
... [Read Article]
Latest Ad:
Sell 1958 Hi-Altitude Massey Fergerson tractor, original condition. three point hitch pto engine, Runs well, photos available upon request
[More Ads]
All Rights Reserved. Reproduction of any part of this website, including design and content, without written permission is strictly prohibited. Trade Marks and Trade Names contained and used in this Website are those of others, and are used in this Website in a descriptive sense to refer to the products of others. Use of this Web site constitutes acceptance of our User Agreement and Privacy Policy
TRADEMARK DISCLAIMER: Tradenames and Trademarks referred to within Yesterday's Tractor Co. products and within the Yesterday's Tractor Co. websites are the property of their respective trademark holders. None of these trademark holders are affiliated with Yesterday's Tractor Co., our products, or our website nor are we sponsored by them. John Deere and its logos are the registered trademarks of the John Deere Corporation. Agco, Agco Allis, White, Massey Ferguson and their logos are the registered trademarks of AGCO Corporation. Case, Case-IH, Farmall, International Harvester, New Holland and their logos are registered trademarks of CNH Global N.V.
