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way2roll

Wilmington NC

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Posted: 02/06/19 01:56pm Link  |  Quote  |  Print  |  Notify Moderator

Walaby wrote:

Unfortunately, this year, with the standard deduction being raised to 24K, unless you have enough itemized deductions to exceed 24K, you won't be to claim the interest deduction.

I have two homes, and combined interest etc, along with other deductions, I did not exceed the 24k standard deduction this year.

Mike


That stinks. Combined with higher interest rates this is surely to have an impact on future RV sales.

10forty2

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Posted: 02/06/19 02:17pm Link  |  Quote  |  Print  |  Notify Moderator

We didn't pay NEAR that amount on our rig, but we used a home equity loan and paid the seller cash. Don't know if you have that much equity available, but it might be another option for you.


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daveb1256

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Posted: 02/06/19 03:05pm Link  |  Quote  |  Print  |  Notify Moderator

Thanks for the advice! We own a couple of rental houses and considered mortgaging them as the interest IS deductible on Sched E, however, the mortgage rates were substantially higher and negated any tax savings when deducting the interest. Our RIA has been returning an avg of 8% on investments so why take it out of our retirement fund if we can borrow it at 5%? We are very concerned about depreciation of the MH, it seems like values fall off the cliff when the MH is more than 15 years old.

Mickeyfan0805

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Posted: 02/06/19 03:51pm Link  |  Quote  |  Print  |  Notify Moderator

rk911 wrote:

why? one 4-letter word...risk. risk that the investment won't produce as planned; risk that your main income stream will be interrupted; risk that the RV will be totaled out in a wreck or fire and the insurance payout will not cover the loan balance; risk that an illness or other emergency will re-direct available income.


With the exception of your first line, how is any of this risk mitigated by paying cash?

If my main stream of income is interrupted, I have $100k extra in the bank to live off of until I get back rolling (and may or may not have to sell the rig - depending on the situation). If I bought the rig for cash, I am forced to sell it immediately to get some of that cash to live on and only get what it's worth.

If my rig is totaled and insurance doesn't cover the balance, I take the money out of investments to cover the difference, but at least I'm only taking out that gap in value, and it has been invested in the meantime. How is that somehow worse than taking the entirety of the cost out at the outset?

If an illness or injury re-directs income, like above, I have an extra $100k in savings to use to cover that for the short-term. That money would be unavailable if I had paid cash for the rig.

In my mind, the only legitimate argument one could make is that paying cash, for all intents and purposes, gives you a guaranteed return of 3.5-4% on that money (assuming a 20-30% write-off on income taxes). If you are unsure of the stock market, or invest very conservatively, a guaranteed return of 4% could look pretty good. If you take a balanced or moderately-aggressive approach, however, and expect 5-7% in returns over the next 10 years, you are better growing that money in the market and using it in the case of emergency instead of spending it ahead of time regardless of whether or not that emergency arises.

valhalla360

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Posted: 02/06/19 11:54pm Link  |  Quote  |  Print  |  Notify Moderator

way2roll wrote:



Love this answer. I was taught never to risk your own money. Borrowing with the interest deduction despite still paying some interest will still allow your money to earn more via investments and thus a net in your wallet. Paying cash means you are pulling your own money, putting it at risk and losing the money you would have gained in those investments. it's a lose lose. And I'm risk inhibitive, meaning if the bottom fell out and a worst case scenario happened ( a million things), the bank loses the money on the RV - not you - and you still have your cash but may suffer some temporary credit worthiness loss. Plan for the best but be prepared for the worst.
.


Unless you are planning to go bankrupt and not pay off the loan...you aren't using someone elses money.

If you invest $100k and it loses $50k, you are still out $50k whether you used "your own" money or "someone else's" money. With someone else's money, you still have a $100k loan you have to pay off.

Reality is using leverage allows you to make bigger mistakes.


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way2roll

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Posted: 02/07/19 05:35am Link  |  Quote  |  Print  |  Notify Moderator

valhalla360 wrote:

way2roll wrote:



Love this answer. I was taught never to risk your own money. Borrowing with the interest deduction despite still paying some interest will still allow your money to earn more via investments and thus a net in your wallet. Paying cash means you are pulling your own money, putting it at risk and losing the money you would have gained in those investments. it's a lose lose. And I'm risk inhibitive, meaning if the bottom fell out and a worst case scenario happened ( a million things), the bank loses the money on the RV - not you - and you still have your cash but may suffer some temporary credit worthiness loss. Plan for the best but be prepared for the worst.
.


Unless you are planning to go bankrupt and not pay off the loan...you aren't using someone elses money.

If you invest $100k and it loses $50k, you are still out $50k whether you used "your own" money or "someone else's" money. With someone else's money, you still have a $100k loan you have to pay off.

Reality is using leverage allows you to make bigger mistakes.


So you would rather lose the $50k up front out of your own cash than amortize it and continue to let your money work for you to offset the loss?

Oh dear, you don't need to go bankrupt to not pay off a loan. In the event of severe financial hardship, like a severe illness, a major disruption in your normal cash flow etc, not having money to fall back on - that you would have had if you hadn't blown it on an RV - would leave you in a dire situation. Sure now you have an RV but you also don't have any cash. Mind you the RV depreciates at the same rate whether you pay cash or not. So as stated before, now you are cash poor with a depreciating asset that you would have to liquidate at a loss in an attempt not file bankruptcy. If you invest 100k and lose 50k sounds almost like paying for an RV in cash and suffering depreciation over 10 years. Aside from that you need to fire your financial advisor. And you'd still be left with 50k instead of no cash and a depreciating RV.

Obviously there are different approaches to this and to each his own. But I know I would much rather have cash on hand as a windfall and invested to produce income, than no cash just to buy a luxury item like an RV that depreciates far worse than any investment would. When a bank lends money it's theirs until paid off securitized by the item lent for, They own the risk. Sure the onus is on you to pay if off and I would never abdicate defaulting a loan. But in times of severe hardship I know I would much rather have my cash to fall back on and a loan I could choose not to pay than no windfall (never mind the fact that you could use your windfall money to pay the loan to avoid default). And I have totally omitted that the net of loan interest to what the average portfolio earns - even conservatively- is in your favor.

To each his own.

* This post was last edited 02/07/19 06:01am by way2roll *   View edit history

1968mooney

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Posted: 02/07/19 06:13am Link  |  Quote  |  Print  |  Notify Moderator

If each of the posters would read what they post and use little common sense, they would never invest in a RV. Why would you invest your hard earned money in a venture that will lose 50% of it's value in less than 5 yrs? Each of you brag about your shrewd investment stratagies yet you go out and throw your money away purchasing the worst investment available. [emoticon]

valhalla360

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Posted: 02/07/19 11:06am Link  |  Quote  |  Print  |  Notify Moderator

way2roll wrote:



So you would rather lose the $50k up front out of your own cash than amortize it and continue to let your money work for you to offset the loss?


If you lost the money...you lost the money...pretending it's better to pay 5% to realize the loss later doesn't help.

Mickeyfan0805

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Posted: 02/07/19 11:27am Link  |  Quote  |  Print  |  Notify Moderator

valhalla360 wrote:

way2roll wrote:



So you would rather lose the $50k up front out of your own cash than amortize it and continue to let your money work for you to offset the loss?


If you lost the money...you lost the money...pretending it's better to pay 5% to realize the loss later doesn't help.


This is where the argument goes off the rails. Yes, you are paying 5% in interest (which is likely 4 or less if you are itemizing). But, you can't pretend that there is no cost to the money you took out to pay cash. If you expect that the investments will grow at 7% a year over the next 10-15 years, for example, the 'cash' you paid you are actually borrowing from yourself at a rate of 7%.

As I said earlier, one can make the argument that paying cash is a more certain investment over the market, but you can't treat cash purchases as free when comparing them to borrowing money. They come at an opportunity cost that can be quite significant.

time2roll

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Posted: 02/07/19 01:18pm Link  |  Quote  |  Print  |  Notify Moderator

daveb1256 wrote:

As newbies to the RV lifestyle dream we are researching and preparing to buy our first RV. We know we want a large Class A built with high quality which with our budget means older high quality versus newer high production/lower quality. With the current state of the investments markets, we are reluctant to withdraw all of the funds to pay cash. While investigating the credit markets for RV financing we were offered a loan in excess of 100K at a rate of 5% provided our down payment was 20%. Early prepayment penalty of $200 if repaid before 36 months, none thereafter. Can any of you offer any potential pitfalls we should be aware of? Or any experience with Boatloan.com? Thank you for your advice and relative experience!
I think you are on the right track.

Although consider renting something for a week before you buy. For some that is new it might be difficult to know what you really want. Best to have a little prospective on how things operate and to be aware of RV limitations. Otherwise you might be looking to trade within a couple years.


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