How I Got The Vette IV
Now you’ve read the first three blogs in this series (I, II, III) and you’re motivated, you’ve started investing in yourself by reading and asking questions, and you’ve started putting money in a retirement account, or have done a lot of research and found a stock you’d like to invest in. What next? For me, the next step was to buy a house. I could have put down a sizable down-payment on the Corvette and financed the rest with a low-interest auto-loan (since I took those earlier steps to improve my credit), but I didn’t. First of all, there’s no way I’m parking a $50,000 car anywhere, but in a one- or two-car garage. Second, buying a dream car before a house is simply a bad financial decision. For me especially, Here’s why.
There are many ways to make money, or increase your worth by purchasing a home. First, they generally appreciate. Sometimes, very slowly, but over the long haul, they go up in value more steadily than a stock.
Next, as a home mortgage is paid off you can benefit financially because the interest you pay on the mortgage is tax deductible, which means almost everything you pay into your mortgage for the first few years reduces the amount of money you get taxed on. For me, that means my taxable income will be reduced by about $30,000. Not only does that put me in a lower tax bracket, but that means the taxes on the $30,000 (assuming I’m in a 30% bracket) would amount to $9000 I don’t have to give to the IRS. Not only do you get to deduct the interest payments on the loan, so too can the property taxes be deducted. Yet another opportunity to lower my tax bracket, and the amount of taxes I have to pay.
Also, there’s always the chance that you might buy a home for less than it’s actually worth, which I was fortunate enough to do. In the San Francisco Bay Area market I was purchasing in, it was unheard of to get a home without being in a bidding war. The first several homes I tried getting into had over a dozen offers (some over 2 dozen), and all of them went at least $50,000 over the asking price. Fortunately, I came across a nice older couple that had the clarity of mind to realize what a nice person I was and let me buy the home at $15,000 over their asking price. The home was easily worth $50,000 more than even that amount, which meant that my worth had immediately gone up by $50,000. Conveniently enough, that’s exactly how much the Vette would cost.
The last way to make money on a home that I’ll discuss is renting. After buying a home, a room can be rented out to help pay for the mortgage. Or, just rent the whole house out and stay in your apartment, or your parent’s house. Uhh, right. If you live in a market where the rental amount is more than the mortgage, you’ll be making money every month. I haven’t gone that way yet, but it’s definitely in the plans for my next investments.
In any case, for the monthly amount you put into a home, there are many ways to get at least some of that money back with little to no effort. Not only that, but in the case where the value of your home is more than what is owed on the mortgage, the extra, or home equity, belongs to you. Your 15, 30, or 45 year loan can then be replaced by a higher value loan that can pay off your first mortgage and put the rest in your hands as cash. Of course, you’ll still have to pay it back, but in the meantime, you can use that money to pay off old bills, taxes, high interest credit cards, auto loans … auto loans?
A 6 year auto loan for a $50,000 car at 5% is about $800/month. Paying that off with by refinancing my home with a new 30 year loan means I can pay for the car entirely, which I’ll be doing next week. The $600/month I save I can put back into my 401K. So now, I have the title to the $50,000 car. Because its value is now incorporated into my home mortgage, the interest paid on that money is now tax deductible. Also, I can take a little extra out to pay for the damn insurance, along with a few other bills … and maybe take a trip or something.
So there you have it. It wasn’t a short process, but it was fruitful. Let’s recap. Buying a home gives you several tax benefits in the way of potentially reducing your tax bracket, and by reducing the amount of overall tax you’d have to pay. You can gain equity as the home appreciates, or gain it instantaneously if you’re fortunate enough to pay less for a home than what it’s actually worth. Renting the property out can provide an income stream that is every bit as reliable, and even more profitable than investing in stocks. Lastly, you can use (leverage) the equity of your home to make purchases, pay off and consolidate other debts, or just to put some cash in your pocket.
Let’s go over how I got to this point. First I invested in myself. I conditioned myself to believe that I could accomplish something worthwhile. I read and took action to improve the way I saved and treated money, and I took steps to improve my credit. The money I saved I put into stock purchase plans and 401K plans that were supplemented by my company and put me in a better position with respect to being taxed. With this money, I bought a home, which will provide an even better tax shelter, in addition to providing me with the leverage to buy a Corvette outright, and put some extra cash in hand.
I should mention that the car was bought initially with an $8,000 down payment. The $42,000 financed at 4.7%APR over 6 years comes out to almost $700 a month; an amount that I really can’t afford and never intended to continue paying for 6 years. By refinancing my home mortgage that monthly payment will be reduced to less than $200/month and I’ll have the title to the car. Had I bought the car first I would have lost $120,000 that I’ve gained in home equity over the past few months, paid significantly more in taxes last year, been stuck with 6 years of $700/month payments, and may not have been able to afford to get into a home at all with the rate of home appreciation in my areal.
Overall, buying a car generally isn’t a good way to spend money. However, me being a car nut, and a long time Corvette fan, I chose to make an exception. From here on out, though, I’ll continue to save and invest every dime. Hopefully, you will too.
There are many ways to make money, or increase your worth by purchasing a home. First, they generally appreciate. Sometimes, very slowly, but over the long haul, they go up in value more steadily than a stock.
Next, as a home mortgage is paid off you can benefit financially because the interest you pay on the mortgage is tax deductible, which means almost everything you pay into your mortgage for the first few years reduces the amount of money you get taxed on. For me, that means my taxable income will be reduced by about $30,000. Not only does that put me in a lower tax bracket, but that means the taxes on the $30,000 (assuming I’m in a 30% bracket) would amount to $9000 I don’t have to give to the IRS. Not only do you get to deduct the interest payments on the loan, so too can the property taxes be deducted. Yet another opportunity to lower my tax bracket, and the amount of taxes I have to pay.
Also, there’s always the chance that you might buy a home for less than it’s actually worth, which I was fortunate enough to do. In the San Francisco Bay Area market I was purchasing in, it was unheard of to get a home without being in a bidding war. The first several homes I tried getting into had over a dozen offers (some over 2 dozen), and all of them went at least $50,000 over the asking price. Fortunately, I came across a nice older couple that had the clarity of mind to realize what a nice person I was and let me buy the home at $15,000 over their asking price. The home was easily worth $50,000 more than even that amount, which meant that my worth had immediately gone up by $50,000. Conveniently enough, that’s exactly how much the Vette would cost.
The last way to make money on a home that I’ll discuss is renting. After buying a home, a room can be rented out to help pay for the mortgage. Or, just rent the whole house out and stay in your apartment, or your parent’s house. Uhh, right. If you live in a market where the rental amount is more than the mortgage, you’ll be making money every month. I haven’t gone that way yet, but it’s definitely in the plans for my next investments.
In any case, for the monthly amount you put into a home, there are many ways to get at least some of that money back with little to no effort. Not only that, but in the case where the value of your home is more than what is owed on the mortgage, the extra, or home equity, belongs to you. Your 15, 30, or 45 year loan can then be replaced by a higher value loan that can pay off your first mortgage and put the rest in your hands as cash. Of course, you’ll still have to pay it back, but in the meantime, you can use that money to pay off old bills, taxes, high interest credit cards, auto loans … auto loans?
A 6 year auto loan for a $50,000 car at 5% is about $800/month. Paying that off with by refinancing my home with a new 30 year loan means I can pay for the car entirely, which I’ll be doing next week. The $600/month I save I can put back into my 401K. So now, I have the title to the $50,000 car. Because its value is now incorporated into my home mortgage, the interest paid on that money is now tax deductible. Also, I can take a little extra out to pay for the damn insurance, along with a few other bills … and maybe take a trip or something.
So there you have it. It wasn’t a short process, but it was fruitful. Let’s recap. Buying a home gives you several tax benefits in the way of potentially reducing your tax bracket, and by reducing the amount of overall tax you’d have to pay. You can gain equity as the home appreciates, or gain it instantaneously if you’re fortunate enough to pay less for a home than what it’s actually worth. Renting the property out can provide an income stream that is every bit as reliable, and even more profitable than investing in stocks. Lastly, you can use (leverage) the equity of your home to make purchases, pay off and consolidate other debts, or just to put some cash in your pocket.
Let’s go over how I got to this point. First I invested in myself. I conditioned myself to believe that I could accomplish something worthwhile. I read and took action to improve the way I saved and treated money, and I took steps to improve my credit. The money I saved I put into stock purchase plans and 401K plans that were supplemented by my company and put me in a better position with respect to being taxed. With this money, I bought a home, which will provide an even better tax shelter, in addition to providing me with the leverage to buy a Corvette outright, and put some extra cash in hand.
I should mention that the car was bought initially with an $8,000 down payment. The $42,000 financed at 4.7%APR over 6 years comes out to almost $700 a month; an amount that I really can’t afford and never intended to continue paying for 6 years. By refinancing my home mortgage that monthly payment will be reduced to less than $200/month and I’ll have the title to the car. Had I bought the car first I would have lost $120,000 that I’ve gained in home equity over the past few months, paid significantly more in taxes last year, been stuck with 6 years of $700/month payments, and may not have been able to afford to get into a home at all with the rate of home appreciation in my areal.
Overall, buying a car generally isn’t a good way to spend money. However, me being a car nut, and a long time Corvette fan, I chose to make an exception. From here on out, though, I’ll continue to save and invest every dime. Hopefully, you will too.
posted by moluv at 2:57 PM
1 Comments:
Thanks for your story. It is inspiring. I found your page by looking for an honest review of a penny stock guy Peter Leeds. That was helpful too. thanks.
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