Whats higher, NSX payment or Rent?

[Gaymond Lee]

Gaymond Lee wrote:

"Deductible equity debt is limited to $100k while acquisition debt for a home purchase has a $1 mill limit"

That's true, but right now, with Housing valuations so high, and rates so low, you can overcome that $100k limitation as well by doing a Cash-out re-fi on a home. Here in California, I took $100K out in cash on a Refinancing of my 1st Mortgage. THAT cash is not considered part of the Home Equity Loan limit. It's just considered part of the primary mortgage on my principal residence. I went from a $140K balance on a home I bought for $215K, to a $240K balance on the same home which now appraises at $370K

check out Pub 936 on www.irs.gov pg8

"Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt is not home acquisition debt, but may qualify as home equity debt."

The only way to overcome the $100k equity debt limit is to use any amt above the $100k for home improvements

 

[dougjgreen]

well, fortunately, I'm still well under the $100K limit, since I actually did use $10K of that extra $100K Re-Fi for home improvements. Of the other $90K, only $40K went into my NSX

 

[nicholas421]

...which brings up another good reason for having equity in a home, and doing it before getting the car; it allows you to borrow money against that equity on a tax-deductible basis, which you can then use to buy the car. Thus the after-tax cost to you of the interest on the loan is almost certainly less than it would be on an auto loan. Smart!

there are no smarter ways of buying an exotic sports car... just less stupid ways.

 

[Daveg27]

Boy, reading this thread has made me feel much better about my financial decisions. We've only had our house for 3 years so we don't have squat for equity but I guess you've got to start somewhere. I did kinda blow it by buying the S2000 last year but oh well, I'm planning to pay that off early anyway. Just looking at that mountain sized (to me anyway) principle on the house kinda gets me down sometimes but I guess buying the house when we did was the right decision.

Thanks guys!

 

[ak]

there are no smarter ways of buying an exotic sports car... just less stupid ways.

Very well put!!

As for purchasing a house, the prices are just ridiculous in places like DC metro, California etc. I just don't see the price fit the value of these houses that are on sale. Around where I work, a 3bedroom townhouse goes for 600k... what the heck! I'm sort of afraid that real estate market will get hit like how the stock market got hit several years ago. Though these are two different type of markets, I see similar trends of price vs value. I know this is somewhat baseless and more gut feeling... can anyone elaborate on this similarity and tell me how the real estate market will hold up unlike the stock market?(in baby terms)

 

[dougjgreen]

People said the same thing about housing prices in California when I bought mine 6 years ago for $215K. Nonetheless, I DID buy it, with a 7.25% mortgage for $170K. Even then, the mortgage payment, once the tax incentives were figured in, was barely any more than I'd have had to pay in rent for a good sized 2 BR apt. in a nice area.

And now, the house is worth $370K, and when I re-financed, I bumped up the loan from a $140K balance to $240K, took an extra $100K out, knocked the rate down to 4.75% fixed, with the payments practically the same. It's like someone handed me $100K of free money. And in fact they did. That $100K was just me cashing out 2/3 of the appreciation of my Home Equity.
And the nice thing is, I still have over $100K left in home equity, as a result of the $45K I put in 6 years ago. The fact is, this was the best investment I could possibly have made on that initial $45K. Even if my house were to suddenly DROP in value from $370K to $280K, I already made out, as I cashed $100K from my initial $45K investment

Now, in fact, I agree that right now is NOT the best time to invest in the Housing Market, as prices HAVE possibly gotten ahead of themselves in some areas. But if one invests in real estate for a primary residence at good times, it's an incredible investment.