So maybe a clean break is in order?

EdFred

EdFred

Taxi to Parking
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Feb 25, 2005
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White Chocolate
I have a big wad of cash I see sitting in the bank from the sale of the plane - and it would pretty much eliminate the mortgage that I have hanging out there. Michigan ecomony sucks, I only flew 70 hours last year, I'm seeing an economic recession come July, 61.56 is up in May, my only student is signed off, my medical expires in August, and my CFI expires in October. I'm thinking maybe I should just pay off the house and walk away.
 
that sure would make it hard to get to Sidnaw
 
You may be right, it may indeed be time for the break.

But never never just walk away. Walk towards. Make a plan, find out what you want to do, pursue your dream, etc. but have a plan other than "I don't want to do that anymore."

-Skip
 
Didn't I understand that a deal on a Comanche was near? However, I sympathize with your concern.

HR(noticing that N2212R is still a flashing memorial)
 
That's a tough call. I've been flying for over 30 years and this is the first time I've had similar thoughts. It appears the feds, the insurance companies, and the oil companies are winning. I intend to keep it up since I just dropped a wad on a new engine of the Bonanza and for the Husky, but if things don't change significantly the end of flying as I know it today is in sight.

Good luck with your decision.
 
why not? you can always get another plane later. how low is your interest rate on your house (rhetorical question, you don't have to answer)? if it is really low and you are getting a tax break still, you could also invest your money, earn more interest than you pay on your mortgage, and wait and see if you need to do so later.
 
A pilot must have the deepest commitment, the most serious mind. All his life has Ed has looked away... to the future, to the horizon. Never his mind on where he was. Hmm? What he was doing. Hmph. Adventure. Heh. Excitement. Heh. A pilot craves these things. You are reckless in your thoughts of walking away.

Yes, a pilot's strength flows from the plane. But beware of the ground side. Anger, fear, aggression; the dark, ground side of the Force are they. Easily they flow, quick to join you in a fight. If once you start down the dark path, forever will it dominate your destiny, consume you it will!

yoda.jpg
 
Depends on the interest rate on the mortgage, Ed. Just do the math. It's there to guide you...depending on the rate/Taxes, you might be BETTER having the mortgage.

Now, I missed Scott's near simultaneous post, and I'm ashamed....:(
 
Ed, is the company doing well? If your income is stable there really is no reason to be too frightened about the MI recession and be hasty to pay off the morgage. MI will recover it's got a great location with the lakes eventally the property values will come back, now is really the time to be buying up realestate in MI if one has the money. Is there anouther reason this is crossing your mind? Getting board now that the challenge is gone?

Missa

Edit: Love Scotts post... I'm going to have to save that one...
 
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woodstock said:
why not? you can always get another plane later. how low is your interest rate on your house (rhetorical question, you don't have to answer)? if it is really low and you are getting a tax break still, you could also invest your money, earn more interest than you pay on your mortgage, and wait and see if you need to do so later.
Click to expand...

Before long we're going to be looking at a great time to take that big wad of cash and invest it. Checking my investments, I'm down about 7% since the new year. Ouch! Luckily I happen to be looking to put more money into the stock market in the near future, and a recession tends to be a good time to invest since this stuff is cyclical and, so long as you're investing for the long term, it'll give you a better return on investment. Ideally, you'll predict exactly where the low point is and invest then.

Back to the plane question - recessions also tend to mean that the prices on "luxury" goods (like airplanes - most people don't realize they're a necessity) decrease. My suspicion is that you'll see prices on planes dropping, as people try to get out of ownership. You'll probably be looking at what amounts to a great time to buy, assuming you can afford it. If I'm lucky, that'll mean I'll find a great deal on that Aztec I'm looking for in nice condition. :) Ultimately, you need to figure out what your priorities are and if this happens to be one of them. I certainly can understand, though, if your situation encourages you to head elsewhere. Cars and motorcycles are still a lot cheaper if you still want a toy...

What about the idea of an experimental? Something smaller and less expensive that has a smaller investment associated with it?
 
Or........
Do what everybody else up in the Great White North would like to do (or so it seems).
Sell the house, move down here buy a house for cash, use the remaining funds for an LSA.

In Other Words (with apologies to Phil Harris)​

People brag, people boast,
And consistently drink a toast
To a place that a lot of them place on top of the heap.
Are they wrong? Are they right?
Is there reason for their delight?
I must live in doubt till the day that I find out.​

Is it true what they say about Dixie?
Does that sun really shine all the time?
Do them sweet magnolias blossom
Round everybody's door?
Do folks keep eatin' possom
Till they cain't eat no more?
Is it true what they say about the Swanee?
Is the dream by that stream so sublime?
Do they laugh, do they love,
Like they say in every song?
If they do, that's where I belong.​

Now if you like a sweet magnolia lane,
Gals as sweet as sugar cane,
Then hop the nearest choo choo train,
'Cause it's all aboard for Dixie.
If you like to hear that southern drawl,
And gals who say "I loves ya-all,"
Then they ain't no use for you to stall,
You better get on down to Dixie.​

And if you like to hear them melodies
With old Virginnia harmonies,
And "Mammy" songs on bended knees,
It's time you went to Dixie.​


And if you like that real hospitality,
The B-flat blues and General Lee,
They ain't no other place to be,
Just fly on down to Dixie.​

Now when you're 'round that there Swanee shore,
You just go and knock on any door
And then ask them who won that civil war,
'Cause they gonna' tell you down in Dixie.
I'm gonna' pack my shoes and walkin' stick,
My cotton shirt and my banjo pick.
If you need me, you can reach me quick,
I'm on my way to Dixie.​

'Cause it's true what they say about Dixie.
Uh - huh that sun really shines all the time,
And them sweet magnolias blossom
'Round everybody's door,
And the folks keep eatin' possom
Till they can't eat no more.
Uh - huh it's true what they say about old Swanee.
Yes, a dream by that stream is so sublime.
And they laugh, and they love
Like they say in every song,
Yes, it's true, and it's mine all mine!
:blowingkisses:​
 
This thread a blatant troll.

But I agree, Scott's Yoda is the definitive answer.
 
bbchien said:
Depends on the interest rate on the mortgage, Ed. Just do the math. It's there to guide you...depending on the rate/Taxes, you might be BETTER having the mortgage.
Click to expand...

Care to explain that in a little more detail, Bruce?
 
Greg Bockelman said:
Care to explain that in a little more detail, Bruce?
Click to expand...

example:
If Ed is paying 6% on his mortgage, but, is in the 33% tax bracket - he is effectively paying about 4% interest on his mortgage. You should be able to invest at a better rate than 4% pretty easily.
 
Ed, if you aren’t happy flying, if you don’t have a love and a passion for it, then find another way to spend your money in your pursuit of happiness. But before you do, you might ask yourself why you started flying in the first place and if you were ever happy flying. If you are worried about how much money you are spending on a new airplane, then fly cheaper.

I can’t even begin to explain why I HAVE to fly. If either Tom or I lose our medical, we will sell both airplanes and go light sport. It doesn’t matter how much we spend on flying; we WILL keep doing it! We live a meager lifestyle with old crappy vehicles in an old beat-up farmhouse so that we can afford to fly. It’s our life. I have NO idea how much my trip last year cost. I don’t want to know. And Tom never told me, never complained about it and he would not complain about the money spent if I said I wanted to do it again.

In writing a book about my trip I am trying to find the words to adequately describe why I love flying and my airplane and how my life is better because of flying. Sometimes when you try to describe a passion in words, you fall short of doing so adequately. Sometimes that passion can be rekindled when sharing it with someone else. That’s why I love to take people flying, especially when I provide them with a new positive experience. It charges my batteries somehow.

The following paragraph WAS the final paragraph in my article that just came out about the contest, except the editor took it out.


The Citabria may not be the best aerobatic mount in a contest, but it IS my magic carpet that takes me to interesting places, introduces me to exciting adventures, and is my avenue to meet wonderful people. It did that and more the weekend we flew to Kansas City for the aerobatic contest! I’m glad I didn’t do the one-eighty before the contest was over.


So, after all of your soul-searching, if walking away is what makes you happy, then go for it.
 
Diana said:
The following paragraph WAS the final paragraph in my article that just came out about the contest, except the editor took it out.


The Citabria may not be the best aerobatic mount in a contest, but it IS my magic carpet that takes me to interesting places, introduces me to exciting adventures, and is my avenue to meet wonderful people. It did that and more the weekend we flew to Kansas City for the aerobatic contest! I’m glad I didn’t do the one-eighty before the contest was over.
Click to expand...

Stoopid editor.
 
woodstock said:
example:
If Ed is paying 6% on his mortgage, but, is in the 33% tax bracket - he is effectively paying about 4% interest on his mortgage. You should be able to invest at a better rate than 4% pretty easily.
Click to expand...
See now I don't follow that logic at all.

Ok, he's paying a mortgage. For sake of simplicity, lets say its $1,000 a month.

He's paying 6% but thanks to the tax break he's really only paying 4%.
What? No he isn't. That's just a numbers game.

He's PAYING 6% to my way of thinking.

Why - He's getting taxes back because he's paying interest. Now if this is a $1000/mo mortgage at 6% then his mortgage is about 167k, and if its young mortgage, about 830 of that is going to interest, every month (gradually decreasing).

So for 12 months he pays ~830 to interest and 170 to principal, thats $9,960 in the first year paid to interest. In the 33% tax bracket, that gets him a deduction that nets ~$3,280 in a tax reduction (maybe a rebate).

So he spends $9,960 to get back $3280 and he can invest that but he needs to make 300% on that 3280 to get back to even. Good luck...

On the other hand, if he pays off the mortgage, he pays no interest, nothing's going to interest. Sure, he loses a tax break - he pays $3280 more in taxes this year, but he's UP $6680 in interest that he DOESN'T pay. Pay $3280 in taxes to keep 200% more in your pocket? I'll take it. Oh, AND full equity in the house...

Tax deductions are not a benefit of mortgages - they're a mitigating factor, if you ask me.

I'd be really interested in finding out if I'm looking at this all wrong, but so far nobody has ever been able to show me that its better to be in debt than not to be.
 
The day I stop flying the best part of me will die.

In answer to Chuck, I think its because you can take all that cash you didn't spend and go invest it for something that gives you a 10% return. Never worked for me, I just go and blow it on airplanes.
 
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Greebo said:
See now I don't follow that logic at all.

Ok, he's paying a mortgage. For sake of simplicity, lets say its $1,000 a month.

He's paying 6% but thanks to the tax break he's really only paying 4%.
What? No he isn't. That's just a numbers game.

He's PAYING 6% to my way of thinking.

Why - He's getting taxes back because he's paying interest. Now if this is a $1000/mo mortgage at 6% then his mortgage is about 167k, and if its young mortgage, about 830 of that is going to interest, every month (gradually decreasing).

So for 12 months he pays ~830 to interest and 170 to principal, thats $9,960 in the first year paid to interest. In the 33% tax bracket, that gets him a deduction that nets ~$3,280 in a tax reduction (maybe a rebate).

So he spends $9,960 to get back $3280 and he can invest that but he needs to make 300% on that 3280 to get back to even. Good luck...

On the other hand, if he pays off the mortgage, he pays no interest, nothing's going to interest. Sure, he loses a tax break - he pays $3280 more in taxes this year, but he's UP $6680 in interest that he DOESN'T pay. Pay $3280 in taxes to keep 200% more in your pocket? I'll take it. Oh, AND full equity in the house...

Tax deductions are not a benefit of mortgages - they're a mitigating factor, if you ask me.

I'd be really interested in finding out if I'm looking at this all wrong, but so far nobody has ever been able to show me that its better to be in debt than not to be.
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yep, you are right, he is paying 6% - but he's getting some money back as a tax break - effectively reducing that overall "hit" to less than the 6% he is actually paying.

If the interest payment, minus the tax break, equals an overall number that is less than what he can get in interest in an investment, then he is better off investing the money.

you can get a money market for about 5% pretty easily, as of a few weeks ago (no idea what today looks like, could be more, less). if you put your money in a really liquid account that you could access immediately in an emergency if you HAVE to pay off the mortgage (loss of job, etc.) and said liquid account is paying better than you are NET paying as a result of said mortgage interest, minus said tax break - you may as well let it earn money for you.
 
I "walked away" after I sold my first plane. The expense, the time to stay proficient, the time to keep the plane at "my" level of confidence in its condition, new children, new house, all conspired to convince me I couldn't afford it.

I got over it after a year of going cold turkey. The money I spent on rentals for the next 17 years before we got the IAR could have bought us two decent planes in the interim.

For me it's not about the money. It's about the value received. Only you can make that subjective call.
 
I can personally attest that not having a mortgage is freeing. Your shelter is 100% safe except for property taxes. Your home base is in no danger if you lose a job, etc. I don't know what you pay monthly on your mortgage; however, that monthly payment is, with the mortgage paid off, now freed up. Significant amount of cash that always could be used in aviation, should you decide to use it that way. Whether having a mortgage is useful to you at tax time depends on your individual situation, one size does not fit all. When you go to bed at night, you can think that no matter what happens, you have your home and it is yours and it is no danger of being taken. [Perhaps it is obvious I grew up with what might be politely described as "no money."]

And, yes, I have a plane.
 
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woodstock said:
yep, you are right, he is paying 6% - but he's getting some money back as a tax break - effectively reducing that overall "hit" to less than the 6% he is actually paying.

If the interest payment, minus the tax break, equals an overall number that is less than what he can get in interest in an investment, then he is better off investing the money.
Click to expand...
If he has to have the mortgage, sure, he's better off taking that tax refund and investing it, but he still has to earn 300% on that tax refund to make up for all the interest he paid in the first place. He pays 9k, he makes back 3k, he's 6k behind to start with.

If he doesn't have to have the mortgage, then he's better off IMO paying 3k more in taxes and 9k LESS in interest, so he's starting out 6k ahead.

I get the idea - its an attempt to make a mortgage look like its leveraging, but it isn't. He's not borrowing money at a low rate to invest at a high rate. He borrowed money to buy a house. He's paying interest, but getting some back in the form of tax refunds. That's not leveraging, thats just lessening the pain.

you can get a money market for about 5% pretty easily, as of a few weeks ago (no idea what today looks like, could be more, less). if you put your money in a really liquid account that you could access immediately in an emergency if you HAVE to pay off the mortgage (loss of job, etc.) and said liquid account is paying better than you are NET paying as a result of said mortgage interest, minus said tax break - you may as well let it earn money for you.
Click to expand...

Easily addressed. Pay off the mortgage, then set up a HELOC, and don't draw on it. I'm in closing for a $46k heloc now with Schwab. 10 year draw and it costing me $255 in mortgage taxes, with no interest UNTIL I draw on it. Once closing is done, I'll have a checkbook I can draw on if I need it at any time.

In my case, I'm about to buy a rental property, thus the heloc - but Ed could do the same and have 100k sitting around in liquid equity costing him nothing but the initial closing costs.
 
woodstock said:
example:
If Ed is paying 6% on his mortgage, but, is in the 33% tax bracket - he is effectively paying about 4% interest on his mortgage. You should be able to invest at a better rate than 4% pretty easily.
Click to expand...

True but that does not factor in risk. There IS a value to risk, although not defined.
 
Greebo said:
If he has to have the mortgage, sure, he's better off taking that tax refund and investing it, but he still has to earn 300% on that tax refund to make up for all the interest he paid in the first place. He pays 9k, he makes back 3k, he's 6k behind to start with.

If he doesn't have to have the mortgage, then he's better off IMO paying 3k more in taxes and 9k LESS in interest, so he's starting out 6k ahead.

I get the idea - its an attempt to make a mortgage look like its leveraging, but it isn't. He's not borrowing money at a low rate to invest at a high rate. He borrowed money to buy a house. He's paying interest, but getting some back in the form of tax refunds. That's not leveraging, thats just lessening the pain.



Easily addressed. Pay off the mortgage, then set up a HELOC, and don't draw on it. I'm in closing for a $46k heloc now with Schwab. 10 year draw and it costing me $255 in mortgage taxes, with no interest UNTIL I draw on it. Once closing is done, I'll have a checkbook I can draw on if I need it at any time.

In my case, I'm about to buy a rental property, thus the heloc - but Ed could do the same and have 100k sitting around in liquid equity costing him nothing but the initial closing costs.
Click to expand...

But he wouldn't be investing the tax return, he would be investing the money that he would have used the pay off the house. If he's renting money (morgage) for 6% and someone else is renting his money (investing) for 8% he comes out 2% better off investing the money rather then paying off the morgage. if you drop the 6% down becuase of tax benifit to effectivly 4% the he's 4% better off investing the money then paying off the morgage.

The other thing is can he get a HELOC at a better rate then his current morgage?

Missa
 
woodstock said:
why not? you can always get another plane later. how low is your interest rate on your house (rhetorical question, you don't have to answer)? if it is really low and you are getting a tax break still, you could also invest your money, earn more interest than you pay on your mortgage, and wait and see if you need to do so later.
Click to expand...

bbchien said:
Depends on the interest rate on the mortgage, Ed. Just do the math. It's there to guide you...depending on the rate/Taxes, you might be BETTER having the mortgage.

Now, I missed Scott's near simultaneous post, and I'm ashamed....:(
Click to expand...

Yeahbut, it depends on the interest rate of the mortgage accounting for the tax deduction vs. the rate on other debt. If Ed would be debt free, he's ahead by any measure.

It amazes me that common wisdom seems to be that it's better to have an interest deductible debt than no debt at all.

As Dave Ramsey points out, millionaires don't take on debt.

Yea, as Liz says if you have a really low fixed interest rate mortgage you could also make the calculation to see if you can invest the money very conservatively and get a better return. The way I see it, the banks are the pros at that game and I'm not.

Now: Best mortgage rate 5.5%(?), CD's pay 2.5%(?) Don't think it works.
 
Missa said:
But he wouldn't be investing the tax return, he would be investing the money that he would have used the pay off the house.
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Ahhh, I see - you're saying keep the mortgage at an effective 4%, and invest the money from the sale of the plane at > 4%.

Ok - I misunderstood - I thought we were just talking about what would have been his mortgage money.

Counterpoint - the house itself is an investment. If he pays it off, he's now growing his asset (or losing) as the value of the house changes. Paying off the house does NOT take it out of the picture as an investment.

So I submit its still better to own the house free and clear, letting the investment of the house gain value over time (and over enough time, real estate always grows in value) and then take the money that would have gone to interest payments and invest that at 6% or better.
 
Because you also pay tax on your "interest earned", presumably at the same marginal tax rate of your tax deductible interest paid, it is easy to do a quick comparison of rates - ignore the tax. If you're paying 4% and can get 5% on an investment, go for it. If you're paying 4% and can get 2.5% pay it off. Of course, these decisions are based on finance only and bear no relation to quality of life.

Would Ed get just as much pleasure sitting in his fully paid off house staring at the walls on weekends, or flying?

If you are uncertain that you will stay out of flying, you need to also consider the "refinance" rate. If you pay off the mortgage now and 6 months down the road reborrow to buy a plane, would your new rate be more or less than your current rate?
 
Thread moved to Hangar Talk - thread not really aviation related at this point...
 
For limited recreational flying you can rent and fly a much nicer plane than you would buy. The only other cost you're looking at is the BFR and medical.
 
Greebo said:
Counterpoint - the house itself is an investment. If he pays it off, he's now growing his asset (or losing) as the value of the house changes. Paying off the house does NOT take it out of the picture as an investment.

So I submit its still better to own the house free and clear, letting the investment of the house gain value over time (and over enough time, real estate always grows in value) and then take the money that would have gone to interest payments and invest that at 6% or better.
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Chuck,

I've spent the larger part of the past few years dabbling in this exact topic. A house is never an investment: a fundementally illiquid asset that is irrationally priced and subject to appreciation controls that stand outside the normal metrics of any true investment.

Yes, houses can and do appreciate over time. Yes, you can buy a house today and have it be worth triple the value in the future. But, that value is based on no rational metric - GDP, inflation, cost of labor, revenue, etcetera.

If you have a nut of money - say, 20% of the value of a $500k home - you are far better investing that money in a semi-liquid investment portfolio balanced to your risk appetite and renting a property at the interest-portion of your proposed purchase.

Example:

$500k house, 20% down, $100k nut of cash, 30 year loan, 5.5% interest, interest payment in the first 10 years of the loan averages (range $1880 to $1516) $1689/month. If I rent a place for less than $1700 a month, plow the $100k into a diversified portfolio, and then plow the excess in each month, and I assume an extremely conservative 6% compounding annual growth rate, at the end of 10 years I have $273k in my portfolio, diversified and (if I'm smart) appropriately hedged against risk.

In the house, I have "earned" $169k in equity before I adjust for the local market. Depending on how and where I bought my house, that may or may not grow. And, worse yet, I paid $202k for the privilige of that money. If I can rent for less in that timeframe, I will always end up ahead, and have assets in my portfolio that are far more risk-diverse and more liquid.

Home ownership is a lifestyle choice. It is not an investment; however it is the primary method of saving that most middle class (less than $300k per annum total compensation) will leverage in their lifetimes. If you are reasonably liquid to begin with (a great deal of cash on hand), real estate makes a fine addition to any portfolio and can help with diversification issues. In fact, a friend just bought a nice penthouse in NYC for a song (a lifestyle choice) that will dovetail nicely into the rest of his investment portfolio. However, as a primary method of investment, it's not very good, and one can always do better with far more liquidity and far less risk. Yes, there are tax benefits to owning a home. But many investment vehicles have their own intrinsic tax and liquidity benefits; but you'll need to speak with a tax attorney and a very, very competent accountant to learn about that.

Cheers,

-Andrew
 
Bad link.





;)


No need to be rude about it - your opening post wasn't clear whether the debate was about flying or about finances.
 
EdFred said:
This isn't a financial decision. If I wanted a lesson in finance, I would go to

www.uselessfinancialinfowhichidontneed.com
Click to expand...

This too shall pass. When I have those feelings I usually clear them up by flying.

Ownership of an airplane and maintaining your flying are two different issues, though interconnected. It may be time to give ownership a break (and maybe instructing), but that doesn't necessarily mean you need to hang up your spurs.
 
Greebo said:
Ahhh, I see - you're saying keep the mortgage at an effective 4%, and invest the money from the sale of the plane at > 4%.
Ok - I misunderstood - I thought we were just talking about what would have been his mortgage money.
.
Click to expand...

'zackly what I said. ;)

Greebo said:
Counterpoint - the house itself is an investment. If he pays it off, he's now growing his asset (or losing) as the value of the house changes. Paying off the house does NOT take it out of the picture as an investment.
So I submit its still better to own the house free and clear, letting the investment of the house gain value over time (and over enough time, real estate always grows in value) and then take the money that would have gone to interest payments and invest that at 6% or better.
Click to expand...

your house will continue to grow in value (or decline in value) with or without a mortgage on it.

I'm on the fence about this idea too, believe me. So far I have kept the mortgage debt though, and my effective "net" rate is under 3.50%.

Mike, my credit union offers a fully liquid money market savings account for over 4.14% currently. I think ING is offering 5.25%. that's an ultra conservative savings account rate and a savvy investor can do better than that.
 
I have heard the phrase "I could never go back to renting... EVER!" used by both homeowners and airplaneowners, you probably have too. It's never a financial statement really, it's usually more about that "feeling" of owning your own. But selling your plane does not mean stopping flying, there is NO reason why it has to mean that. You can pocket the money, use it however you choose, including to rent a plane for 70 hours a year.

--Kath
 
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