barrytrot wrote:Nickelmeister wrote:So, if you have a house worth $200K with a mortgage of $100K and a stash of PMs worth $100K - do you consider that "debt free"?
My argument is that I would rather be in the above situation (which I am, with different numbers) than sell the PMs and pay off the house to be "debt free"?
I agree, for most scenarios "house debt" or "property debt" is better than "less liquid assets".
That said it's definitely in my top 10 priorities even though my wife would claim that my massive buying sprees disagree
Let's take 6 scenarios:
1. Hyper inflation. House debt worth effectively zilch and now you can pay it off easily.
bullion better than debt free.
2. You decide to buy another property. You can re-mortgage your property which I found out takes 90 days based on my doing exactly this
Meanwhile you could sell some bullion in 5 minutes.
bullion better than debt free.
3. Average cost of mortgage interest portion (which is generally tax deductible) is less than most investments over time.
bullion better than debt free.
4. Most people (not me) say that diversification in investing is good. Therefore to have SO MANY eggs in the "house basket" is less diverse unless, of course, your net worth is such that a $XXk house is only a small portion of your overall portfolio. Which is unusual for most people. And, in that case why are you worrying about debt free vs. bullion, do both
bullion better than debt free.
5. Your risk level is practically zero with no debt.
debt free better than bullion.
6. I've been told that being debt free is quite a pleasant feeling. Of course the nice "heft" of a silver bar is quite pleasant also, but I'll say the overall impact of no debt burden would win out.
debt free better than bullion.
So debt free is more pleasant but only better on 2 out of 6 items above.
Agree with Barry/Nickelmeister on this, however in my situation I only have about $10k in debt, I took all my extra working capital to pay down my HELOC, so its still working capital when I need it though...
Try not to have so many sacred cows in your life, risk is part of life, The only sacred cows should be the protection of you and your loved ones. Otherwise keep positioned in the best way possible to benefit from the upcoming storm, and have an exit strategy if it doesn't coalesce. Keep in mind one night eating out a week with the wife/kids is at least the value of an oz of silver... Worst case you ate healthier, best case you double/triple/if you belive some of the pundits 10x your weekly investment.
Take 1 year of this:
52 oz silver.
Silver plummets to $0, you lost $1500 worth of eating out. Your arteries thank you anyway.
Silver stagnates forever @ $30, You still have $1500 worth of silver that you would have wasted eating out.
Silver doubles in a year, You now have the $1500 you would have wasted eating out, plus a $1500 profit to pay down your mortgage.
Silver goes up more... See above and multiply by whatever you think could happen.
Of course income producing land would be a good alternative. If you can afford a 20 acre field, preferably with some mineral royalties, you can pay off the taxes with the royalties, use the income from leasing the field to a farmer to pay expenses (say if you lose your job), or use that income to purchase more appreciating assets.
Frankly I think we all (including myself) can find better expenses to cut for paying off ones debts in this situation. Also 20 acres is a good amount for producing food for an extended family, kick the farmer off in TSHTF scenario where we are actually farming our own food, probably a temporary situation at best, 1 year, maybe 3 in the worst case scenario I can think of short of Mad Max world, in which case there will be so few people there will be sufficient food stored at abandoned grocery stores/housing complexes and additionally you will have no trouble finding a new house if the bank even wants to take yours...
I do disagree with Barry on #5, debt free is not necessarily risk free... Keep in mind there is an opportunity cost to having a paid off house... its whatever you could have done with that money had you had it available to you. Also A paid off house has no value if the black swan event happens in your neck of the woods, if the nuke goes off 2 counties away, you can grab your gold and run, leave the house for the bank, but if you don't still have the gold you are still going to have to run, but you won't have resources to cover your escape. If your state happens to implement some draconian tax or regulatory scheme, and property values plummet, you are now upside down, leave it for the bank or your house is targeted for Eminent Domain, a paid off house you will take what govt gives you, a leveraged house the govt has to give you at least what you owe on it, or again, leave it for the bank. Its a lot easier to walk away from a encumbered house than one that is fully paid off, especially if it represents a large portion of your net worth.
Debt free is nice, however having an open LOC ready to draw when it makes sense and being debt free is nicer imho... It has taken me 5.5 years since purchasing my home to be in this situation, I'm pretty happy. I would not take out my LOC to speculate in gold/silver, too much of my life is already centered around gold/silver, and if it went up substantially I would definitely benefit more than 95% of bullion investors on a percentage basis already, the added risk of remortgaging my house is not worth it. However if I didn't already have a significant amount of gold/silver investments I might take a different line of reasoning. And in the meantime I have a nice LOC cushion to cover operating expenses or buy into the next investment that comes my way.
Really the biggest risk in my personal life is somehow the mid 80's and early 90's happening again... I don't think Romney can make that happen and I know Obama can't... Even if Romney does I expect ample warning and time to adjust...
Another point, lets take our $200k house example, If you have a LOC for $160k credit limit, $100k balance, $100k in bullion. Lets say something cataclysmic happened, but not something where you had to move, first you have a $60k cushion (not less than 1 year total expenses for most families, I could probably stretch it into 3 but I'm a single guy), yes you can borrow the 60k, and use it to pay down the debt over time, yes you are putting yourself in neg amortization, but a wise spender can make this work, if they have an exit strategy. once you borrow the $60k and you realize you are unable to make it work out, keeping in mind you have already bought yourself a year... you have options.
1. sell some/all the bullion to buy more time
2. Let the house go, (it is just a house after all, and by this point you probably need to consider downsizing) the mortgage is probably upside down, $100k in bullion can buy you how many years of rent???
3. Any of the myriad of solutions an enterprising adult like you can dream up over this 2 to 3 year span. You have capital to invest, you have time on your hands (its assumed you lost your job), and you are a resourceful adult who can plan wisely. Nothing is out of your control unless you let others put you out of control.
4. you could take you $60k, and after this collapse of the system that probably routs housing prices buy a similar house for $60k, you can probably buy 2 more with your bullion and rent them out to replace your lost job income.
5. I could sit here all night thinking of possible uses for $100k in bullion and $60k in working capital after whatever problem occurs to you, keep in mind it will probably be occurring to a lot of other people, and he with the liquid assets (IE NOT TIED UP IN A STUPID HOUSE) will have the ability to take advantage of the situation.
So IMHO Financially agile > Debt free + bullion , one can only achieve this by tolerating a moderate and manageable amount of open ended debt, keeping frivolous spending to a minimum and maintaining a manageable and comfortable amount of risk in all your endeavors. Note Risk is also defined as: tying up 60+% of your net worth in a single residence in a single locality which may not be where you need to be in 2 months or 20 years depending on what an increasingly uncertain future brings. Financially agile means you aren't tied down to your job, Lets take that $100k, and see if we can invest it in something that generates passive income, perhaps a business, a duplex? Now you can still tell the boss to shove it, you still have $60k in bullion as your backup plan, you now have 2 pieces of property (one of which is unencumbered, you can encumber this at a later date to procure another investment, this is Fractional reserve banking for the masses... 1 paid off $200k house can be leveraged into $790k in property, 20% ($158k) equity, plus a $40k LOC on the last piece of $50k property for working capital, instead of one $200k house to live in which produces no income but does generate expenses [taxes and utilities], you have $200k in equity spread among 7 properties, any of which could be your bug out location if it became necessary, which situation would you rather be in?).
A paid off house will not generate financial freedom to whit you can just quit your job on a moments notice, you still need food, utilities, health care, etc. while a well balanced portfolio that replaces your job income will.(and for the love of god this is not limited to stocks and non income producing bullion, consider farmland, natural resource leases, small business opportunities, rental property [careful here at this time], stocks, bonds, gold, sub-prime mortgage backed securities, all are options too) Of course not paying off your house and using that money to build this portfolio will likely lead to a better chance of reaching that goal...Disclaimer:
this plan won't work if:
a) you are lazy/don't want to work (I assume you aren't or you wouldn't have made enough to afford the house let alone the bullion)
b) You can't budget properly or make reasonably astute financial/investment decisions(again I doubt you would have the bullion/house payoff situation you are in if you couldn't)
c) You believe your bullion/investments will go down in price (why do you still have the bullion pay off the damn house)
d) your interest rate is unreasonably high for the current market (this is your own fault and you probably didn't follow a and b if you are in this situation...)
I still expect to see sub $30, prob sub $28 volatility before we breakout to the upside on silver though... Gold I don't expect so much volatility.
So the moral of the story is: the $200k paid off house sounds significantly more risky to me than the myriad of other options available to you. I'll take Financially Agile any day of the week. Don't even get me started on going back to renting, you would have tons more options there... The National association of Realtors has done a bang up job of promoting home ownership as the be all end all of the American dream, and I was formerly a realtor for a short stint, I've heard and even spouted off all that propaganda, then I did my own research.
Of course as JFF says DYODD. And come up with your own comfort levels.
