Should I pay Kubota Credit Corp off or make payments?

[bp fick]

You say you bought it for $500,000 & are now selling it for $525,000 ... isn't that a $25,000 profit? What am I missing?

Of course, JT could have bought some stock or something with that investment back then and lost his shirt. So, I guess he's figuring he got his profit and his equity back. Over the last 5 years, that hasn't been true of everything.

 

[Bigfoot62]

I've sold or selling my rental property and will be receiving some cash that I could pay Kubota off at one big payment or should I continue making monthly payments?
. . .
Any other suggestions?

Absolutely! I think you should pay off John Deere Financial and CNH Capital. (my tractor notes)

Seriously, as already said, don't pay off a 0% loan. Just put the money back. Savings or "safe" investment.

 

[JOHNTHOMAS]

If you pay cash for something then that's what it cost you.
If you pay some cash, like $50,000 and borrow $450,000 dollars and what you bought produces monthly income to pay the monthly loan payment and 5 years later you sell it for $525,000.
At that point the loan balance is $350,000 which is paid off from the $525,000 proceeds of the sale. That leaves cash in hand of $175,000 and $50,000 of that was what you started with leaving a profit of $125,000.
That's not being debt free but between the option of being debt free and having $50,000 cash on hand and 5 years later still being debt free and having $50,000 (It could have been put into a Bank that hopefully wouldn't fail and earn 1 to 2% todays interest rate) plus maybe a bit of interest or......Taking your $50,000 and buying an income producing asset that will make the bank payments but now being no longer debt free. Now 5 years later decide to jump on the debt free train with a few other people. You sell the income producing asset and pay off the debt and are now debt free with $175,000 in your pocket.
Now, is being debt free the greatest feeling in the world? Maybe for some who believes their neighbor has more than them because they are lucky or think they inheireted it.
If I decide to close on this transaction I could say I'm debt free with a bundle of cash but that probably won't happen. If I get debt free I'll probably go back into debt or not pay my current debts and find another investment for the money. May just not sell and stay in deep debt and cash out in a couple more years.
Many people have went in to debt and bought land 20/30 years ago, maybe even had a house on it and they actually could have lived in that house. Had that debt hanging over their head all those years. Today because they went into debt they own that house and land free and clear and it's worth maybe what they paid (small down payment) but it's probably worth alot more than that small down payment and they've lived in it and not paid rent.
The individual that stayed debt free and rented is still renting and owes nothing and owns nothing that can cash out for more than they paid. All they have are rent receipts but no debt.

 

[smstonypoint]

You say you bought it for $500,000 & are now selling it for $525,000 ... isn't that a $25,000 profit? What am I missing?

If you pay cash for something then that's what it cost you.
If you pay some cash, like $50,000 and borrow $450,000 dollars and what you bought produces monthly income to pay the monthly loan payment and 5 years later you sell it for $525,000.
At that point the loan balance is $350,000 which is paid off from the $525,000 proceeds of the sale. That leaves cash in hand of $175,000 and $50,000 of that was what you started with leaving a profit of $125,000.

Here's another way of making John's point.

By definition, equity equals assets - liabilities. Using John's example:

Year Assets Liabilities Equity
2007 500,000 450,000 50,000
2112 525,000 350,000 175,000 (before sale)
2112 175,000 0 175,000 (after sale)

In this example, John's equity has increased by $125,000 over the 5 years.

Steve

PS I couldn't get the columns to line up -- sorry.

 

[beppington]

I think I understand what you're both saying. John seems to be extrapolating from this successful, profitable case that 1) his real estate deals will always generally increase in value, 2) his rental properties will always be occupied (sufficient enough anyway) that the rent income will cover the mortgage & expenses, 3) that the rental property will never incur any expenses significantly above what he's already planned for ...

... IOW that real estate can't lose.

Do I have this right?

Isn't this investing on margin/ using leverage? Banks & a lot of mortgage borrowers are having some serious problems right now because of that type of investing :thumbsup: You may just be extra good at it

 

[psdx]

The bottom line is that any investment has risk attached. The point here is that JOHNTHOMAS chose to invest in something that he personally felt had a low enough risk to warrant taking the risk. For others it might be stocks or mutual funds because they feel like those investments fit their personal risk profile.

JOHNTHOMAS has experience investing in real estate so this makes sense for him. Until I read farther down and realized the rental income had been covering the mortgage payments, I wasn't so sure. But seeing the whole picture, it was a great move. Basically his cost was the loss of $50k for five years, plus his time and money for upkeep and maintenance. Assuming those items weren't exorbitant, I say sign me up! Now the $50k is $175k. I would put $50k in again tomorrow if I was him. It's easy to get caught up in the cash, but it's not about the cash, it's about accumulating wealth.

So back to the original question about what do? If I was JOHNTHOMAS, I would not pay Kubota off if i was comfortable as-is. I would pull out the $175k that grew from the $50k and step it up a notch. In 2007 the money was leveraged 10:1. So take the $175k out and leverage it 10:1 again. This time the deal is worth $1.75m instead of $500k. Being the wise real estate investor he is, assuming the same performance in the next five years (covering the mortgage payments with income from the investment and not buying over a toxic waste dump), the $175k becomes $612.5k. An alternate method on this same theme would be to keep the property that he's already comfortable with, and refinance it to pull out the new equity. Essentially finance at 90% again, leave the $50k in there and take the $125k and go find another 10:1 leverage opportunity for that money.

I have a friend that bought his first rental in high school. He has continually refinanced to pull equity back out to fund the down payment on the next purchase. After 30 years the only actual out of pocket cash he put in was the original down payment on the first property in high school. Yes he has a ton of debt today, but he also has a ton of equity. He owns nearly 500 rental units, has plenty of equity for 2-3 people to retire very comfortably and generates enough cash flow to pay full time employees for property management.

 

[JOHNTHOMAS]

I think I understand what you're both saying. John seems to be extrapolating from this successful, profitable case that 1) his real estate deals will always generally increase in value, 2) his rental properties will always be occupied (sufficient enough anyway) that the rent income will cover the mortgage & expenses, 3) that the rental property will never incur any expenses significantly above what he's already planned for ...

... IOW that real estate can't lose.

Do I have this right?

Isn't this investing on margin/ using leverage? Banks & a lot of mortgage borrowers are having some serious problems right now because of that type of investing :thumbsup: You may just be extra good at it

This is my latest Real Estate Venture. I've been buying and selling RE for 37 years. First as personal investments.
In my opinion the first investment should always be a home to live in.
My second investment (after home) was a two story House Down town converted to an Office down stairs and an apartment upstairs for I think under $100 about 34 years ago by assuming another mans loan who was going under. Bank was glad for me to take it over. (Usually can't do the assuming loans any more) I rented it for about 5 years ($500 a month) and paid the payments (a little over $200) to the Bank, covered all expenses and very little maintenance expense. Later moved my Real Estate Office into the building when it became vacant, had my Brokers License and ready to leave the Company I was working with. A few years (3 or 4) later I sold the building when I "sort of retired". Sold it on a contract and the bank payment was a couple of hundred dollars and I rec'd $900 a month for a few years then got the full payoff for about $50,000 which I had to give the bank about $20,000 for balance of loan. Hard to figure without a calculator the profit on the $100 I gave up for a couple of months then started receiving monthly income above payment and then selling for a profit. Guess it was all profit since got my $100 back but this was all accomplished by being in debt.
I've done different RE buys and sales. Found out to stay away from Subdivision Building lots. Some times acreage buys are profitable. I look long and pray hard before buying. I've bought some lots adjoining my home before and eventually got my money back but I buy those for personal value and not investment or monetary return.
There is usually some risk in any investment with an expected increase in value or profitable return. My current investment has not cost me any money beyond my initial investment of $50,000. Actually all bank payments, repairs, labor expenses, taxes and utilities are paid out of the rents and there has usually been a thousand or two dollars above expenses coming in each month so I've probably gotten my initial $50,000 back a few times. I did work some at getting this property up to running smoothly for the first two years. Sort of coasting now and paying more people to od what work needs to be done which cuts into the extra return monthly but not much repair expense in 21 units.
Yes, it's leveraging and I don't recommend it for the faint at heart or the lazy or the dreamer. Yes, I have been good at it for several years in Real Estate but the saying of Pride goeth before the fall can happen to anyone but I don't take big risks unless I've done a lot of research concerning something I've been actively involved in for years. I've done Real Estate and would never do cows, pigs, corn, electronics, cell phones, saddles, knifes, guns, pork bellies, clothes, shoes, etc. Things that I buy, maybe know a little about, like but don't know enough to invest in them but others on here have their own areas of expertise and I'm sure make money in their investing in these other things.

 

[JOHNTHOMAS]

The bottom line is that any investment has risk attached. The point here is that JOHNTHOMAS chose to invest in something that he personally felt had a low enough risk to warrant taking the risk. For others it might be stocks or mutual funds because they feel like those investments fit their personal risk profile.

JOHNTHOMAS has experience investing in real estate so this makes sense for him. Until I read farther down and realized the rental income had been covering the mortgage payments, I wasn't so sure. But seeing the whole picture, it was a great move. Basically his cost was the loss of $50k for five years, plus his time and money for upkeep and maintenance. Assuming those items weren't exorbitant, I say sign me up! Now the $50k is $175k. I would put $50k in again tomorrow if I was him. It's easy to get caught up in the cash, but it's not about the cash, it's about accumulating wealth.

So back to the original question about what do? If I was JOHNTHOMAS, I would not pay Kubota off if i was comfortable as-is. I would pull out the $175k that grew from the $50k and step it up a notch. In 2007 the money was leveraged 10:1. So take the $175k out and leverage it 10:1 again. This time the deal is worth $1.75m instead of $500k. Being the wise real estate investor he is, assuming the same performance in the next five years (covering the mortgage payments with income from the investment and not buying over a toxic waste dump), the $175k becomes $612.5k. An alternate method on this same theme would be to keep the property that he's already comfortable with, and refinance it to pull out the new equity. Essentially finance at 90% again, leave the $50k in there and take the $125k and go find another 10:1 leverage opportunity for that money.

I have a friend that bought his first rental in high school. He has continually refinanced to pull equity back out to fund the down payment on the next purchase. After 30 years the only actual out of pocket cash he put in was the original down payment on the first property in high school. Yes he has a ton of debt today, but he also has a ton of equity. He owns nearly 500 rental units, has plenty of equity for 2-3 people to retire very comfortably and generates enough cash flow to pay full time employees for property management.

NO!!!!!!!!!!!!!!!:laughing: My investment was of a size that I felt I could handle the management aspects and handle the lose if there was one. Nothing bigger for me. We all have our limits and half million was mine. I'll never be a Henry Ford because I'll never take on that much debt.
Now no debt to me is far removed from my level of comfort but I went my limit, course the limit was as much the number of rental units I could deal with in the number of hours I was willing to give it in these summer years of my life as it was the money. I could see the return, the amount of investment of time and money and felt I knew the possible need for rentals in a certain price range which will determine vacancy rates. I've ocassionally had a 20% vacancy rate but usually 10% to 15% has been my average. I can pay all normal payments with 30% vacancy rate and only had that maybe one time in 5 years. Have 3 vacant today out of 21 and two appointments to show tomorrow. I've also found I'd rather have vacancys than non payers and trouble makers. If one gets to concerned with vacancys then they don't need to ever get involved in the rental business.
When I was teaching Real Estate at the College the books say the rent is to low if everything is full and the rent is to high if you have over 10% to 20% vacancy.
But again, NO..................will not buy any more than I have and would rather I had about 2 or 3 less units. Million dollar debt is more than my mind can handle, I'm a small thinker or small minded or whatever.

 

[Deere Dude]

I think I understand what you're both saying. John seems to be extrapolating from this successful, profitable case that 1) his real estate deals will always generally increase in value, 2) his rental properties will always be occupied (sufficient enough anyway) that the rent income will cover the mortgage & expenses, 3) that the rental property will never incur any expenses significantly above what he's already planned for ...

... IOW that real estate can't lose.

Do I have this right?

Isn't this investing on margin/ using leverage? Banks & a lot of mortgage borrowers are having some serious problems right now because of that type of investing :thumbsup: You may just be extra good at it

X2 If I could borrow and sell and every-time I make a profit, it would be an easy decision. I can remember a few years ago in Florida I talked to an investor who was buying inflated homes because everybody just knew the price on a $200,000 house would be worth $250,000 in 3 months. But the bubble popped. He surely wasn't the only one that happened to either.

Same with tech stock, and land and almost everything. If a man gets such a deal in land or a camper that he can't go wrong if it drops in value by 50%, great. Then borrowing for an investment probably would be a no-brainer.

As for a $30,000 tractor loan 0%, if I had as much money as some of these folks, I would pay it off so I wouldn't have to deal with subtracting it from the bank book, but to maximize your equity, I would probably hang on to it.
But then again, I just paid off $5,000 on my JD 0% after reading some of these posts:laughing:

 

[rjwerth]

It of course all just boils down to priorities, money smarts, and what people value. Some feel so bogged down in monthly payments that it has great value to get out from under that. It does not make any sense FINANCIALLY to pay off a 0% loan before paying off a loan that has interest (even if it is your mortgage), but it still may have value to an individual to have one less monthly payment in the present.

As for me, I like my money to make me money. I LOVE it when I can borrow money from someone else and make even more.