All Forum Posts by: Scott C.

Not all 401k plans are created equal. Some have low fees, while others have high fees. It's good to check out your plan before deciding not to invest because of the fees.

Also, if you leave a company in the year you turn 55 or after, you can access the 401k with that company without the 10% penalty.

@Eamonn McElroy Thanks for the follow-up response.  The information is very helpful.  I figured it must be fairly common for a parent to buy college housing with both the parent and the child on the deed and the loan and with the intent to rent out a room to someone else.  I clearly saw what I wanted to see when I did my initial research and didn't dig deep enough.

@Ashish Acharya thanks for the reply.

My daughter and I plan to buy the SFH together as her income as a graduate student will be nice, but not enough to qualify for the house. The plan is to rent out 2 of the extra bedrooms. The baths, kitchen, and living areas will be shared.

The information you provided is very helpful.  I am a CPA, but I deal with GAAP and treasury work rather than individual taxes.  You are right in that this is more complicated than my original research revealed.

@Eamonn McElroy thanks for the reply.  I do see that if a parent co-signs on a student loan, the child has to be a dependent of the parent in order for the parent to  be able to deduct the interest.  

You are correct in that my daughter will not qualify as a dependent.  But I have found numerous sources that say that if a person has a legal obligation to pay a mortgage loan, that person is able to deduct any mortgage interest that the person actually pays.  If that person is also on the title, he/she is also able to deduct any property taxes paid.  Both of these assume that the person meets the other requirements for deducting mortgage interest and property taxes.  Am I missing something?  Thanks again for the reply.

My daughter is starting a 5 year graduate school program for which she will be paid a decent amount as a graduate research assistant.  I am considering helping her buy a house (we will both be on the loan and title) in which she will live and also rent out 1 or 2 rooms.

From what I've been able to find, I understand that if I make a portion of the mortgage payment, I am entitled to a proportional portion of any personal deductions (e.g. the mortgage interest deduction).

I also understand that if a part of a home is used as a personal residence and a part is used as a rental, that the costs are split proportionally in order to determine how much cost is considered personal and how much is considered a cost of the rental.

What I haven't been able to figure out is how to treat the costs and income if we share ownership of the house and we both contribute to the payments while she uses a portion as her personal residence while we also rent out 1 or 2 rooms.

Can anyone help me understand how to allocate the costs and income?  Or where to find information on this?  Thanks.

I heard Brandon Turner on a podcast. I think it was Afford Anything.

I would think the stock broker would be able to help you. You can also call the company's investor relations department.

Originally posted by @Thomas S.:

11% average returns over the past 10 years.

Diversified income funds, mutual funds, moderate risk.

The S&P 500 has yielded an average return of a little over 10% for the past 10 years, and most of the major stock indexes have had similar results.  What's important to note is that 2008 saw a return of -37% on the S&P 500, and we have had a near record bull market in the 9 years since.  Multi year averages are a fine measure as long as you don't need to pull a large amount of money out in a specific year.  If someone would have needed to pull a large amount of money out of their income funds in 2008 when the stock market tanked to cover an issue with real estate, this would have destroyed the 10 year average for their own stock returns.

Sounds like you have done well with your strategy when measured over the past 10 years, but your strategy isn't the right answer for everyone.  There is nothing wrong with someone choosing to leave some equity in a property to have some security and get lower average returns with significantly less volatility.

@Thomas S.

I am on average 88% leveraged on my houses, and 90% in stocks in my other investments.  I am ok doing this because I have enough resources to get through a downturn in rents or housing prices and I understand the use of leveraging money with lower interest rates to go after potentially higher returns.  It doesn't make sense for everyone to be as highly leveraged because not everyone has the financial resources to survive a downturn.

If I pay down a loan that has a 5.5% interest rate vs invest that cash in an alternative investment that I think will return an average of 10%, then I placing a value a value of 4.5% on the higher risk of the 10% investment.  There are times when it makes sense to take the guaranteed return of 5.5% rather than take the risk of 10%.  I use 10% as you have mentioned multiple times that you can invest your money somewhere else and get consistent returns.  Can you share where you can get 10% returns every year with no loss in principal value?

@Jeff Kelly Thanks for the explanation and pointing me back to your link. The article says "The interest doesn’t compound. The principal payments do. A $1,000 principal payment saves interest on that $1,000 and causes higher principal payments the next year, and higher the following year, and so on." This isn't the same as compound interest, which would be interest charged on the interest. This is saying an extra principal payment reduces the interest due in all subsequent months. Since the payment is contractually fixed for the loan term (excluding ARMs), the fixed payment less the lower interest due means a higher amount of principal paid each month than what is in the original amortization schedule. Because more principal is paid each month, the principal balance the next month decreases at a compounding rate. Just like with a HELOC, make an extra payment to principal and keep the rest of the payments fixed and you will pay the loan off faster and with less total interest paid.