Ideas for those that 'played by the rules' to take advantage of the current situation

[einreb]

Bill Gross (PIMCO CIO) was on CNBC this morning and suggested that 30 year rates in the 4's were in our future. Right now you can get mid to low 5's

At 37, I'm running about a 35% loan to value on my house right now. I sold off some high flying equities last fall and paid down my mortgage a bit. I'm trying to get the balls to refi and pull some equity back out and do a Dogs of the Dow with the extra money.

Top 10 yielding stocks are returning a 6.2% dividends right now...

http://www.dogsofthedow.com/doggish.htm

I understand the downside risk to equity and dividend cuts, but this is not 'short term money'. Corporate paper is also giving some strong returns.

As a 'little guy', I don't know that I will often see money this cheap in my lifetime. Having been very conservative over the years, I don't see any other way as a taxpayer to take my share of the bailout pie.

Anyone considering something similar? Nuts?

[Jim Richards]

Bernardo, we (wifey and I) decided the market is going to suck for a while. Our approach is paying off the condo by this time next year. Then, our dual incomes will be havily into the market until we retire.

[Porsche-O-Phile]

The time to buy is upon us - the good news is that I believe it will be a good-to-great time to buy for the next couple of years so there's no hurry.

I'm already in discussions with realtors. Nice to think there might be a silver lining for people that had to weather such misery and frustration over the last few years, watching things go so utterly, stupidly out of control with respect to prices.

The Day of Reckoning is upon us, but that's only bad for the sinners. At least that's how I see it.

[Hugh R]

Me personally, I don't think I'd use HELOC $ to buy stocks. If they go south, you're losing on both ends, paying interest on the HELOC AND holding a losing stock. But then again, you could do very well. If it all goes further south, and you bail on your house, they can't take the stocks that you bought with the HELOC.

[Jim Richards]

Jeff, tell tabs to stay off of your computer.

[Porsche-O-Phile]

LOL! I needed that laugh today!

I was feeling this strange urge to go out and buy spoons today. I guess that splains it.

[onewhippedpuppy]

I'm a pretty conservative guy with my money, so buying stocks with a HELOC sounds pretty damn stupid to me. Stocks are like gambling, don't use money you can't afford to lose.

[scottmandue]

I'm a financial dunderhead... however I had dinner with my very bright friend who runs his own business, has a MBA, and was investing in the stock market (pulled all his cash out six months ago... or whenever it was everything started to turn to $hit)

We were at a sports bar and they had one of those car auctions on the big screen with 4-6M dollar Ferrari's for sale... he smiled at me and said "just wait... you are going to see a lot of toys for sale." He then related in the last big crash a mansions on the beach in Florida that original sold for $50K were going for $150.

I may have that dream house in Hawaii yet.

[911Rob]

Originally Posted by Hugh R

Me personally, I don't think I'd use HELOC $ to buy stocks. If they go south, you're losing on both ends, paying interest on the HELOC AND holding a losing stock. But then again, you could do very well. If it all goes further south, and you bail on your house, they can't take the stocks that you bought with the HELOC.

+1
Don't do it!

Refinance sure; but with a lower interest rate, a lower amortization rate and a slightly higher monthly payment. Pay that sucker OFF! Then join the ranks of kings!

30 year amortizations are just stupid! Anything over 20 years is foolish; go for 15 in your equity position.

[911Rob]

Originally Posted by scottmandue

I'm a financial dunderhead... however I had dinner with my very bright friend who runs his own business, has a MBA, and was investing in the stock market (pulled all his cash out six months ago... or whenever it was everything started to turn to $hit)

We were at a sports bar and they had one of those car auctions on the big screen with 4-6M dollar Ferrari's for sale... he smiled at me and said "just wait... you are going to see a lot of toys for sale." He then related in the last big crash a mansions on the beach in Florida that original sold for $50K were going for $150.

I may have that dream house in Hawaii yet.

OH Goody, Goody!!! I'm gonna buy this.......

[einreb]

Originally Posted by onewhippedpuppy

I'm a pretty conservative guy with my money, so buying stocks with a HELOC sounds pretty damn stupid to me. Stocks are like gambling, don't use money you can't afford to lose.

I'm not a suggesting heloc... just refi-ing a non-leveraged house and pulling out a bit of cash. 30 year fixed at 5.25% is historic lows. Dividend yields are high.

[tabs]

Maybe a good idea is to refi..at a much lower rate...then take the difference in payment and buy HIgh Grade Corporate Bonds that pay a higher rate of return then the interest you are paying on the loan.

You still have your liquidity, tax write off and if housing goes to nothing in value you still have the income stream and cash...

Also go for the longer term loan...so that your payment is the lowest it can be. Then start making an extra principle payment on your own every month. That way you screw with the amortization tables, and will pay off the loan in a shorter amount of time. That way you have the best of both worlds...a low payment if needed and shorter life of loan...

This is nutz n bolts type of stuff.

[911Rob]

sorry einreb but that's backwards main stream thinking. Dont do it.

The only people who should have a 25 or 30 year mortgage are the ones that are "just" getting into real estate and they can't qualify for the loan any other way than to take advantage of the lower monthly payment offered with these terms.

Start with a 15 year amortization and then go from there. How old will you be in 15 years? A few extra payments here and there and you can have that sucker paid off in 10 years. In 10 years the home will have appreciated too. You will be the KING of your castle!

Focus on the goal..... no mortgage in 10 years. SWEET!

From that point forward, you will have no mortgage on your home. If you want to do some investing, you can use a LOC; but only invest in things that pay huge dividends; like double your money.

Go talk to someone who is in the position YOU want to be in AND no one else! Share this with your wife and see how excited she gets!

[911Rob]

Note: my reply was not to TABS, we posted at exactly the same time

[onewhippedpuppy]

Originally Posted by einreb

I'm not a suggesting heloc... just refi-ing a non-leveraged house and pulling out a bit of cash. 30 year fixed at 5.25% is historic lows. Dividend yields are high.

Isn't that pretty much the exact same thing? Either way you're taking equity out of your home, right? The refi is only wise if you're going to a lower interest rate, not to pull out equity. In our current state, owning your home (or most of it) is a good place to be.

[tabs]

Spoons right now are worrisome...if the economy goes south and people are worried about paying the rent and putting food on the table..I don't care what it is it will be sold for pennies on the dollar. That is what happened in the great Depression.

On the other hand the government is doing everything it can to start the music once again and reinflate the economy. To that end they have turned on the printing press full blast..which eventually will water down the currency. Then every hard asset including RE will go through the roof in value, making any loans against it look cheap.

Take your choich as to which way it will go?

My solution is to hedge and sell a bit here and a bit there to raise cash.

On 11/22 I had 18 items at auction. Twelve sold...netting me 25% under LOW estimate..I am still profitable by nearly 18% on those items, however some of the items I have had for a long long time. So I would say that my items were overall weak. That is not to say that some items just blazed away reaching unheard of prices...A Winchester 94 circa 1900 with factory install scope in near new condition for $48,000.00. Or an EMPTY UMC 44 Colt CARDBOARD Ammunition box for $4200.00...yes $4200.00. Should have bought cardboard and not the fking spoons. The remaining 6 items will be reauctioned in January...

[cgarr]

Home equity, The new oxymoron

[onewhippedpuppy]

Our real estate is up by 10% this year. Homes are still selling fairly well. Not everywhere is as bad as LA or Phoenix.

[einreb]

Originally Posted by tabs

Maybe a good idea is to refi..at a much lower rate...then take the difference in payment and buy HIgh Grade Corporate Bonds that pay a higher rate of return then the interest you are paying on the loan.

That is a good option. Corporate stuff is returning ridiculous yields right now. I'm being greedy and looking for the equity position gain too.

Originally Posted by tabs

You still have your liquidity, tax write off

Agree.

Originally Posted by tabs

Also go for the longer term loan...so that your payment is the lowest it can be. Then start making an extra principle payment on your own every month. That way you screw with the amortization tables, and will pay off the loan in a shorter amount of time. That way you have the best of both worlds...a low payment if needed and shorter life of loan...

I also agree with this. i dont think the spread between 15 and 30 year mortgages is that much.

Originally Posted by 911Rob

sorry einreb but that's backwards main stream thinking. Dont do it.

mainstream is to pull equity and buy a hummer (either kind). Im talking leveraging a bit to buy into high yielding blue chips.

Originally Posted by 911Rob

The only people who should have a 25 or 30 year mortgage are the ones that are "just" getting into real estate and they can't qualify for the loan any other way than to take advantage of the lower monthly payment offered with these terms.

I would argue that it can be treated as an asset allocation later in life. Is it proper to tie up your entire net worth in your home?

Originally Posted by 911Rob

Start with a 15 year amortization and then go from there. How old will you be in 15 years? A few extra payments here and there and you can have that sucker paid off in 10 years. In 10 years the home will have appreciated too. You will be the KING of your castle!

Again, not sure it the spread is worth it. The payment flexibility is nice on a 30 year vs 15... especially if you keep some focus on making extra payments.

Originally Posted by 911Rob

Focus on the goal..... no mortgage in 10 years. SWEET!

I could sell equities in this down market and do that now. I dont think thats a good move, do you? maybe you're right... dunno.

Originally Posted by 911Rob

From that point forward, you will have no mortgage on your home. If you want to do some investing, you can use a LOC; but only invest in things that pay huge dividends; like double your money.

Where do I send the check?

Originally Posted by 911Rob

Go talk to someone who is in the position YOU want to be in AND no one else! Share this with your wife and see how excited she gets!

There's a joke in there somewhere.

[911Rob]

Sorry I wasn't intending to joke with you?

The way I see it is you have 2 choices when you do something like this.
1. You are going to do something totally new that's never been done before
2. You are going to do something that's been done before

If you choose #2; then go find the people who have done it and ask them how they did it. Then do it that way.

What TABS said is genius and most likely works for him? But holy Bjeezass that would take me a minute or two to figure out and has to be calculated, maintained and orchestrated exactly to be successful. My experience in life has taught me that things dont always go according to my plan; ha!

The thing about debt is that there is good debt and bad debt. Good debt makes you money; bad debt costs you money. I try very hard to work with only good debt.

At one point in my life I was sooooo focused on "no debt" that I just paid everything off. I sat there for 3 years basking in my so called success; then I went back into debt making RE investments. If you already know that you can be debt free and are prepared to jump to being a good debt investor; then I'd say go for it! I just wouldn't do it with a 30 yr amortization?

Once you are debt free (at least in your mind?); it is easy to hold the cards close to your chest and make investments that are fun, exciting and can easily double your money. I do RE, but there's hundreds of ways to make money. I'm excited about the future.... I've got a ton of RE I'm sitting on right now and when people start cutting checks again I'm gonna have fun unloading it. Till then I'll just enjoy 4x4ing in my Hummer

You're a smart guy; I'm sure you'll do very well.