Home Buying in Fort Myers>Question Details

Nancy, Home Buyer in Fort Myers, FL

Should we withdraw from stock market $170,00 for second home or get mortgage We will have approx $250,000 in other cash after cash purchase of home?

Asked by Nancy, Fort Myers, FL Mon Nov 14, 2011

This would be a vacation home. Are the federal income tax deductions worth it?

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9
Getting a CFP is overkill for your situation. If anything, a CFP will likely convince you to allocated your money to something more lucrative for a CFP, like stocks or a mutual fund, under the guise of higher long-term returns. Unless you have a 20 year investment horizon, equity investments are risky. While stocks have returned 8% over the very long-term, that's no guarantee they'll continue that rate of appreciation over the next 10 years. For the average investor, the return is much lower, from overhead costs of management, including the cost for a CFP, and transaction fees. While getting a CPA is a prudent way to verify your tax implications, you can get good advice from any licensed investment advisor with a dose of common sense.

As for the outlook on housing, consider that we've just had the steepest housing correction in history and many people still believe the worst is yet to come. This sounds remarkably like the same people who were projecting home prices to shoot to the moon during the heights of the housing boom. No one can foretell the future, no matter what certifications they have. Your gut feelings are as valid as any.
Web Reference: http://www.archershomes.com
1 vote Thank Flag Link Mon Nov 14, 2011
Nancy,

The answer depends on your current level of income and hence your progressive tax bracket. But, from a purely financial returns perspective, you should only consider paying for this vacation home with cash if you have no other superior forms of investment alternatives at an equivalent risk exposure. Considering that mortgages are running at about 3-4%, you'd still have to pay something around 2-3% after receiving your federal income tax deductions. If you can find an investment that gives you a 4-5% return at a similar risk, like a CD or AAA corporate bond, then you should finance your purchase instead. Unfortunately, there aren't many opportunities like that in today's environment.
Web Reference: http://www.archershomes.com
1 vote Thank Flag Link Mon Nov 14, 2011
cash is king. keep your reserves on hand. get a mortgage and take advantage of the currently super-low interest rates.
0 votes Thank Flag Link Tue Dec 13, 2011
Hi Nancy,

Find a "fee only" CFP that DOES not get paid on transaction commissions but only an asset management fee. You would buy "no load" investments that do not offer a commission conflict of interest. Non-CFP advisors may recommend financial products (and idiotic insurance investments that primarily benefit the broker) but hopefully your CFP will not be biased. Dave Ramsey's Endorsed Local Providers generally have a good track record.

A Realtor is not usually equipped to provide you with adequate financial, tax or legal advice. Realtors are basically salespeople and some with very minimal qualification, i.e. a mandatory 2 week training, high school diploma and passing a state exam. Stockbrokers also only need to pass an exam and have a high school diploma. A CPA has significantly more training and a CFP also must show a certain level of expertise above that of a stockbroker.

So it's always a good idea to look for "genuine" advice and Realtor Tina has a good suggestion to make sure the person offering advice doesn't have a conflict, i.e. being paid on a "commission" basis -- like a Realtor does!

All the best,
Alma
http://www.SoldOnTampa.com
0 votes Thank Flag Link Mon Nov 14, 2011
It depends upon your tax situation and how you feel about owing money. Nancy sit down with your accountant and go over the numbers on how it will affect you. Then you can make the correct deecision.
0 votes Thank Flag Link Mon Nov 14, 2011
Get a mortgage.

Put the $170,000 to work for you in the stock market, or elsewhere.

Any tax deduction allowing you to keep more of your money is one worth having.
Web Reference: http://www.golftobeach.com
0 votes Thank Flag Link Mon Nov 14, 2011
Nancy, do NOT pay cash for a second home if you can get a mortgage. If you are paying 4-5% on your mortgage, then get the tax deduction taking it down to 3.5% (est), what you need to do is estimate the long term build in equity of this 170K in other investments. The stock market traditionally has equated to 8% earnings over time, however if you are near retirement you likely have more in bonds and/or money markets earning next to nothing. However, the assets are liquid. I would not pay cash for this home, this home is an investment as well and housing is in a deflationary state.

If you can risk the money of another (the bank) but benefit from all the gains (housing appreciation, joy from the house, etc) by only paying 3.5-4% interest on that borrowed money, why would you risk your capital to do so? If the house collapses in value you will not be on the hook, the bank will. If they are willing to lend you that money at a record low interest rate then by all means take them up on that offer and mortgage the house! Then turn around and invest that money and you get a double whammy---equity appreciation in the house and equity appreciation on your liquid 170K.
0 votes Thank Flag Link Mon Nov 14, 2011
Oh and if you use your $170K to buy an investment property that you will rent out, you may be able to deduct "depreciation" and other expenses but please review all of this with an expert, CFP and/or CPA.
0 votes Thank Flag Link Mon Nov 14, 2011
Hi Nancy,

My best suggestion to you is to contact a Certified Financial Planner to help you evaluate your finances and your best options.

You can find an Endorsed Local Provider recommended by http://www.DaveRamsey.com

Just make sure your adviser is not a mere Stockbroker Salesperson but highly qualified and has earned the CFP designation.

All the best,
Alma Kee
http://www.SoldOnTampa.com
0 votes Thank Flag Link Mon Nov 14, 2011
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