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Yep, good point to make.  I already have life insurance with them so not a factor for me personally, but definitely something to keep in mind if you don't.

Adding in that insurance premium to your payment makes the effective interest rate 8.3% on the loan, although obviously the insurance is worth more than nothing if that's something you need more of.  Their term 1 is cheaper than SGLI FWIW and can also be had in addition to SGLI.

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1 hour ago, Termy said:

Don't borrow money to invest money. At any interest rate. Ever. The exposure you put yourself in greatly outweighs any gains. 

Why do you say this? Given that I could invest in the 99.9% safe TSP G-fund and come out ahead, it seems like this particular deal makes a lot of sense. On top of that, $4K isn't really a life-threatening chunk of change to risk even if I thought there was much risk. 

Also businesses regularly borrow to invest. Landlords borrow to purchase rental properties, hell, regular homeowners borrow in part to live and for many people in part to also invest in real estate.

BL: Can you expand your thinking beyond the platitude level? Genuinely curious. 

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Businesses generally only pay interest on their loans (sometimes the principal will amortize) and landlords generate monthly income from their properties. Taking out a loan where you are repaying the principal and interest on a monthly basis to invest in the market you won't be able to match the cashflow as well as those other two. That said, if you're in a position where you can make the monthly payments and your cash flow is low risk (both should be true on a $4k loan and military employment) then it really isn't a bad idea. It's the same reason lots of people with high paying jobs and 6 digit investment accounts only make the minimum payments on their student loans. No matter what Dave Ramsey is selling you in his books, a little leverage isn't a bad thing.

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16 hours ago, MilitaryToFinance said:

No matter what Dave Ramsey is selling you in his books, a little leverage isn't a bad thing.

Exactly.  Debt is not bad so long as your downside is covered and the expected upside is higher than the known costs, factoring in your risk tolerance.

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17 hours ago, MilitaryToFinance said:

 No matter what Dave Ramsey is selling you in his books, a little leverage isn't a bad thing.

In fairness to Dave, his target audience doesn't know what leverage is, and certainly doesn't know how to properly use it without getting burned.

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3 hours ago, nsplayr said:

Valid.

I didn't get back to this until other good quotes were in there. I'll start by saying, I'm not against leverage at all. I love leverage. I leverage property as much as I can and the couple businesses I've been in (storage mostly) have of course levered. My point on borrowing money to invest is that under almost all circumstances you'd have to take some risk to have any spread on the yield. You mentioned this loan at 1.5% which is of course very cheap money. But look at cds, and t notes. You'd have to take some near term risk to even yield greater than 1.5%. That was my only point. 

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On January 28, 2017 at 0:34 AM, MilitaryToFinance said:

No matter what Dave Ramsey is selling you in his books, a little leverage isn't a bad thing.

2!  Before, I was paying $1,200/month to live in a single family home.  I bought a duplex with a little leverage, now I generate enough income to pay both of my mortgages and all of my monthly bills.  

18 hours ago, nunya said:

In fairness to Dave, his target audience doesn't know what leverage is, and certainly doesn't know how to properly use it without getting burned.

This!  I listened to his book while driving across the U.S., and his plan is extremely basic for most of the members of this forum.   However, I think his book should be read by more Americans.  It provides a good base for people so springboard off of, to other financial endeavors.  As a country, I think we do a TERRIBLE job of teaching our young financial intelligence and responsibility.  Unless your parents teach you, where do they get educated on this?  This is one of my soapbox items.  

Edited by SocialD
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47 minutes ago, SocialD said:

2!  Before, I was paying $1,200/month to live in a single family home.  I bought a duplex with a little leverage, now I generate enough income to pay both of my mortgages and all of my monthly bills.  

This!  I listened to his book while driving across the U.S., and his plan is extremely basic for most of the members of this forum.   However, I think his book should be read by more Americans.  It provides a good base for people so springboard off of, to other financial endeavors.  As a country, I think we do a TERRIBLE job of teaching our young financial intelligence and responsibility.  Unless your parents teach you, where do they get educated on this?  This is one of my soapbox items.  

Like you, I've read Dave's book on a long haul trip. I also listen to his show occasionally, just for the enjoyment of knowing that compared to the average American, I have my shit together.

That being said, I'm sure there's some monetary skills/talents that I don't know about, that are keeping my money from working more effectively for me. I've read "Millionaire Next Door" (Good book)... are there any texts you guys would recommend for someone to read that isn't as basic as a Ramsey book?

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4 hours ago, SocialD said:

2!  Before, I was paying $1,200/month to live in a single family home.  I bought a duplex with a little leverage, now I generate enough income to pay both of my mortgages and all of my monthly bills.  

This!  I listened to his book while driving across the U.S., and his plan is extremely basic for most of the members of this forum.   However, I think his book should be read by more Americans.  It provides a good base for people so springboard off of, to other financial endeavors.  As a country, I think we do a TERRIBLE job of teaching our young financial intelligence and responsibility.  Unless your parents teach you, where do they get educated on this?  This is one of my soapbox items.  

There is a Dave Ramsey course for High School kids. Our kids did it through home schooling.  My 23 yr old already has 10K in a ROTH. 

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2 hours ago, nsplayr said:

IMHO this covers about 69% of what most people would ever need to know:

index-67f786d0f1fbbf302d422c5bf30dd1624f

I also enjoyed Predictably Irrational by Professor Dan Ariely. I'm a big fan of behavioral economics vs rational economics...the former seems to explain the real world much better.

Good tips. Sadly, I learned a lot of these lessons the hard way. 

I've never heard of behavior vs rational. From a quick google search it sounds like it parallels the Keynes vs. Hayek debate somewhat. I'll have to pick up a copy of Predictably Irrational, thanks for the recommendation. 

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The field of behavioral economics was kind of born out of the observation that a lot of decisions were being made in the real world that don't match up with the rational-actor model that "standard" or rational economics theory would predict.  The goal is to find out some of the psychological and other factors that cause people to essentially act irrationally.  Lots of cross-over applications in public policy, politics, marketing, etc., any field that deals with humans making choices essentially.

I've found it really interesting and applaud programs by companies or governments that try to leverage the lessons learned from behavioral economics to help nudge people into making better decisions.

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IMHO this covers about 69% of what most people would ever need to know:
index-67f786d0f1fbbf302d422c5bf30dd1624f991dac-s800-c85.jpg
I also enjoyed Predictably Irrational by Professor Dan Ariely. I'm a big fan of behavioral economics vs rational economics...the former seems to explain the real world much better.

100% tracking until the last one...

Wasn't Social Security supposed to be the "Social Insurance" plan? Instead it turned into a piggy bank and a government run retirement plan (Ponzi scheme)

As Reagan said... "The more the plans fail, the more the planners plan."

Everything else was very sound advice.

I've noticed the SNCO's push the TSP on our younger airmen now. However, when I ask them what they invested it in they have no idea. I think un-allocated funds go into the G-fund until you tell them where to go... one step at a time.


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32 minutes ago, HAWDINGL said:


100% tracking until the last one...

Wasn't Social Security supposed to be the "Social Insurance" plan? Instead it turned into a piggy bank and a government run retirement plan (Ponzi scheme)

As Reagan said... "The more the plans fail, the more the planners plan."

Everything else was very sound advice.

I've noticed the SNCO's push the TSP on our younger airmen now. However, when I ask them what they invested it in they have no idea. I think un-allocated funds go into the G-fund until you tell them where to go... one step at a time.


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"Social Security"... Slowly turning into just another paycheck deduction that you'll never see benefit anyone outside of politics.

As far as TSP goes, everyone I talked to told me I need to put aside the max the government will match (5%)... As for the investment, for me it's 50% C, 30% S, 20% I

Someone I trust, who has made a lot of money by evaluating the market, told me to keep it that way until further directed. I took the advice.

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14 hours ago, tk1313 said:

"Social Security"... Slowly turning into just another paycheck deduction that you'll never see benefit anyone outside of politics.

As far as TSP goes, everyone I talked to told me I need to put aside the max the government will match (5%)... As for the investment, for me it's 50% C, 30% S, 20% I

Someone I trust, who has made a lot of money by evaluating the market, told me to keep it that way until further directed. I took the advice.

Well my in-laws are making ends meet because of social security, so that's directly benefiting them as well as me. Were it not for that check, based on my father in law's 30+ year career at a steel mill that went bankrupt and severely reduced his pension, they'd probably be living with us. So thank you to FDR and Uncle Sam for that.

Re: TSP advice, you receive no match as a mil member unless you opt in to the new retirement plan. If that is the case, then absolutely save, at MINIMUM, the amount that will afford you the max employer match. Like the card says, 20% (or higher) of total pre-tax pay is an even better goal, and one I live by. 

Re: safety net - yep, I strongly support smartly run government programs that provide a safety net for citizens who fall on hard times. This is a widely popular position to have. Saying it's every man for himself sounds pretty noble until life kicks you or someone you love square in the dick.

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7 hours ago, nsplayr said:

Well my in-laws are making ends meet because of social security, so that's directly benefiting them as well as me. Were it not for that check, based on my father in law's 30+ year career at a steel mill that went bankrupt and severely reduced his pension, they'd probably be living with us. So thank you to FDR and Uncle Sam for that.

Re: TSP advice, you receive no match as a mil member unless you opt in to the new retirement plan. If that is the case, then absolutely save, at MINIMUM, the amount that will afford you the max employer match. Like the card says, 20% (or higher) of total pre-tax pay is an even better goal, and one I live by. 

Re: safety net - yep, I strongly support smartly run government programs that provide a safety net for citizens who fall on hard times. This is a widely popular position to have. Saying it's every man for himself sounds pretty noble until life kicks you or someone you love square in the dick.

I completely agree with the concept of social security... I just think (my opinion only) we'll see it slowly transition from a program used to prop-up good Americans who have worked hard for most or all of their life to just another welfare program for individuals who gamed the system by avoiding work their entire lives -- ran by a group of politicians that use it as just another source of income cut from workers paychecks. The problem isn't social security itself, but the new ideals it seems we're taking on. It's NEVER an individuals fault for not having a job. Everything is blamed on the "system"... You've got generational welfare where it's basically squatters rights, and people who actually need low-income housing are put on a waiting list. Some people who are already living in the housing think it's their right to have government funded housing while they spend most of their lives applying for, then subsequently intentionally tanking, job interviews in order to keep the money coming in without actually having to put in any additional effort. Now saying that this type of person is the majority (or even close) would be a massive stretch, but nevertheless "one bad apple spoils the bunch" applies. Make it much more appealing/beneficial to actually work a minimum wage job than it is to live off welfare (as an able-bodied person), and we'll be taking a step in the right direction as far as the future of Social Security is concerned.

In summary (to avoid my ramblings): Social Security = GOOD; Where Social Security funds are trending = BAD. I actually have a similar case with my father-in-law... He has worked (and still works) 50+ years installing commercial aircraft radar and other miscellaneous avionics. He's most likely going to need to pull from Social Security due to the buyouts/bankruptcies, etc. (honestly don't know the particulars, but he has become less wealthy with the passing of time). He was even injured a couple times, and told me horror stories about the unemployment office... But that's a whole other topic...

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  • 2 weeks later...

Question for the forum:

I have a rental house and the good renters I have in their now, 18 months renting so far with no complaints, have expressed some interest in buying to my agent/prop. manager.  

I am considering offering them a rent to own agreement, has anyone done this before?

I would prefer a simple sale but the market is slow, my house is towards the upper end of the market in the neighborhood and the good renters I want to turn into buyers took a loss on their previous home and are hesitant on buying again.  

This seems to be a viable Plan B for all involved, has anyone done this and what was your experience and/or advice? 

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Think of it more as a mortgage with you as the bank rather than "rent to own."  It's a seller financed loan. That will help keep your head in the right place. 

 

Are they hesistant to buy because of "feelings" or did they their credit get destroyed on the last house?  Why are you willing to sacrifice an appreciating asset?  If they're dropping hints to your agents, they aren't hesitant to buy...they may just be unable to buy the "regular" way. Why is that...and are YOU willing to shoulder a risk that a bank may not be willing to bear?

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On 1/31/2017 at 7:37 AM, tk1313 said:

As far as TSP goes, everyone I talked to told me I need to put aside the max the government will match (5%)... As for the investment, for me it's 50% C, 30% S, 20% I

Someone I trust, who has made a lot of money by evaluating the market, told me to keep it that way until further directed. I took the advice.

I would tweak the statement "put aside the max the government will match" to say put aside the "max allowable."  Most view these vehicles and contribution rates as a function of trying to get the most "free" money you can from a match, when in fact they are also a tremendous way to reduce your current year tax burden. 

My current company has a 4% 401K match but I contribute 25% of my paycheck which of course lowers my tax basis in the short-term and puts a much larger chunk of coin in play for investment growth.  I will worry about the withdraw taxes in a few years when I am in Thailand chasing hookers and withdrawing from my 401K.

I am lucky to have a retirement that supplements my income and not everyone is in the same position, but if you have the discipline to maximize your contribution from your first paycheck you will likely never miss it and your future self will send a thank you note.

 

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12 hours ago, HossHarris said:

Think of it more as a mortgage with you as the bank rather than "rent to own."  It's a seller financed loan. That will help keep your head in the right place. 

Are they hesistant to buy because of "feelings" or did they their credit get destroyed on the last house?  Why are you willing to sacrifice an appreciating asset?  If they're dropping hints to your agents, they aren't hesitant to buy...they may just be unable to buy the "regular" way. Why is that...and are YOU willing to shoulder a risk that a bank may not be willing to bear?

Their credit is fine (at least the report I saw a year and half ago) but I think the loss on their last house just left them a hole to fill in.  

They didn't sell their toys, they have a Harley in the carport so I think it drained their available cash from non tax advantaged accounts.  

My guess is that they are hesitant based on emotion, not faulting them for that.  Not sure how much they lost but it stung I'm sure so once bitten twice shy.

With their track record of payment and no drama, a modest down payment (3%) and a 15 year agreement the risk seems manageable.

I'm interested in selling as I can't tell which way the neighborhood/city is going, it's stable for now but the city is like a lot of cities nowadays, it is getting bled dry of its tax base by the little town(s) right outside the city limits and the services have suffered as a result.  The roads are ok but could be better, the schools are ok but the county schools are better, etc...  

Edited by Clark Griswold
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17 hours ago, ClearedHot said:

I would tweak the statement "put aside the max the government will match" to say put aside the "max allowable."  Most view these vehicles and contribution rates as a function of trying to get the most "free" money you can from a match, when in fact they are also a tremendous way to reduce your current year tax burden. 

My current company has a 4% 401K match but I contribute 25% of my paycheck which of course lowers my tax basis in the short-term and puts a much larger chunk of coin in play for investment growth.  I will worry about the withdraw taxes in a few years when I am in Thailand chasing hookers and withdrawing from my 401K.

I am lucky to have a retirement that supplements my income and not everyone is in the same position, but if you have the discipline to maximize your contribution from your first paycheck you will likely never miss it and your future self will send a thank you note.

 

You forgot one thing, I'm a millennial. I'm all about right now. Future me can go fvck himself.

In all seriousness though, great advice. I'll change it so that I'm contributing the max amount I can financially sustain.

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