Well, many of the people who have been speculating in real estate have ARMs or balloon payments that are going to erase any inflationary protection. I did mistakenly attribute another poster's comment about needing the "write-off" to you which is why I wrote the bit about the deduction. And you are right about what might happen if your house were to double in value but, at this stage, that is extremely unlikely. So what I am trying to say is that when the huge number of people with "creative" mortgages and no equity either can't aford their new payment and also can't move because they are upside-down on the loan, they are going to default and the bank will foreclose. I predict a huge economic slump once this starts to happen. I don't get why people don't realize that asset inflation is not generating real wealth. If your house increased in value by 20%, the only way to realize that gain is to sell it or to draw the money out in the form of a second mortgage. If you sell it, you still have to live somewhere else and any comparable place you are looking at is also going to cost more. If you take the second mortgage (now called a home-equity loan) then you can very quickly be upside-down on the loan and will be unable to move unless you can cover the gap with cash. All I'm trying to say is that the current real estate hysteria is not much different than tulip bulbs were several hundred years ago.

 

Dell, what you are doing is more accurately called speculating and not investing. There is a significant difference. When I went to Med school and had to borrow money, that was an investment in my future. Just like borrowing to build a factory would be. Borrowing against the equity in your home to stick it in the stock market is speculation that the equities and your house will continue to follow the trend of the last few years. Remember when the tech bubble popped?

 

And your thinking is exactly why the smart stock market traders will ALWAYS make money. Thank you very much. By definition, the stock market is not an investment...it is purely, 100%, speculation just as is whether you will wake up tomorrow or not.

 

hamilton....I am not going to get into a pissing contest with you since you assume that I am a speculator (which I am not) and as well somebody that is upside-down in my home. My wife graduated med school with ZERO student loan debt and I borrowed ZERO for my graduate work (Ph.D). We do not specualte nor invest with HIGH risk. We own a considerable portion of our home and are nowhere near upside down. By the way, I made a nice chunk of change on my house in Las Vegas before I moved out here last year (almost double). But you know what? I at no time SPECULATED in buying that home. That home was an investment and it just so happened that we made more than we thought we would. We hoped for enough to break even or even have some down payment money after the 4 years we owned it.

So, there is NO specualting here. I invest. Thanks for playing.

 

997S (with X-51), 997TT, Carrera GT and a heated/air conditioned "house" with a "loft" (lift) for them to live in!

 

Simply put:

You borrow $300k for your mortgage at 5%
You inherit $300k when your rich uncle dies
You invest the $300k in an array of mutual funds that return 9% a year
You EARN 4% more than you would paying off your house!

 

Actually more than 4% since you have deducted the interest on your taxes. But nonetheless, good basic example to illustrate the point.

 

Or, as some doomsayers on this board like to think:


You borrow $300k for your mortgage at 5%
You inherit $300k when your rich uncle dies
Your house value falls by 50%
You invest the $300k in an array of mutual funds and lose it all
You become homeless and pennyless, forever wandering the earth looking for direction.

 

 

Why spoil this thread that could have been fun.

 

Actually less than 4% because although you get the deduction on the 5% you also have to pay taxes on the 9%.

 

If you want to be technical about it.....actually NOT. Capital gains have a more favorable tax treatment as well as much of the dividends. Mortgage tax deduction applies to your tax bracket and not just 15% as do much of the dividends and gains.

 

Oppps! Obviously I meant 253mph!!!

 

I was hoping someone could explain the effect of the Alternative Minimum Tax with respect to the Captial Gains on the investment income. A little time spent on the phase out of the itemized deductions would also be a lot of fun! I live in California so be sure to bring in those lovely taxes as well. I am sure there are a few folks from New York, so those taxes will be just as fun. We could then round that out by going over the various fund managers and how the conservative ones are getting a 10 to 15 percent return. If I could get a constant return any where in that range, I may be able to seriously consider the original question in the post.... Oh yea, that's right, how would I spend alot of money!

I would start with about a 80 foot boat, that would certainly be a great way to reduce my bank account while having a great time. It would be big enough to strore plenty of water toys and accomodate several friends in comfort. It is also a size that you don't necessarily need a crew to enjoy, which would be my personal preference...at least for another 10 to 20 years.

A couple houses in different climates would be great also, maybe throw in a jet.

And certainly a few fun cars.

Lastly, trusts for all the family members as well as some charitable trusts.

Now let's get back to the tax discussions!

Kris

 

I'm in the process of rebalancing my portfolio right now and note that for an S&P 500 Index fund the returns for 2006 were over 15%, approx 7% average over 5 years, 8% over 10 years and 12% since inception in 1976. 10-15% annual returns are not unrealistic.

If I had crazy amounts of money, I would invest it in the stock market. Nothing sweeter than your money working for you to make more money.

Oh, and maybe a few extra deer whistles, you can never be too careful