Land buying question

[C4Ranch]

Are you planning to pay off early or hold it the full 20 yrs?

I used an Ag credit coop and got a much better rate by taking a 5yr fixed rate over 20 years. Rates will go up after 5yrs most likely but i plan to payoff within 5.

J

 

[ultrarunner]

The only 5 year fixed worked great for me...

Started out at a great rate for 5 years and then dropped every year after until it hit 3%... decided that was the right time to paydown and refi the balance with a 15 year @ 2.75%

 

[wmonroe]

My plan is to pay it off early but we don't have kids yet but hopefully soon, so I'd like to use the 20 year note and pay extra on it but if kids come along and there are months with other priorities we could fall back to a lower payment.

 

[JMER817]

Can you take a loan out on your 401k? You will read that you shouldn't do this. I don't agree with that. You save on the interest that you would pay the bank if you financed and you pay yourself interest on the 401k loan.

 

[two_bit_score]

Can you take a loan out on your 401k? You will read that you shouldn't do this. I don't agree with that. You save on the interest that you would pay the bank if you financed and you pay yourself interest on the 401k loan.

You know in years past I would say you are absolutely right because I would think the market appreciation of the land would be a hedge against inflation and would equal or beat the appreciation of the stocks.

Now, with the probability of property taxes soaring and potential of losing income tax deductibility even for property taxes, maybe lack of appreciation on land, and illiquidity I tend to agree with the idea of leaving money in the market. But that is a pure gamble too with the current regime in power.

The government could confiscate your 401K very easily.

 

[sfloggie]

Dave,

Farm Credit shares their profit so we have averaged a refund check of $3700 each May. Additionally, we receive a call when rates have lowered a lot below a currently held rate with an offer to adjust down. We did so last year and saved several hundred a month.

 

[MossRoad]

Eight reasons to never borrow from your 401K.

8 Reasons To Never Borrow From Your 401(k)

401k loans have to be paid back in 2 months if you quit or lose your job. If you can't repay the loan in 2 months, it will be treated as an early withdrawal that is considered income (you pay income taxes on it) and if you're under 59.5, you'll pay an additional 10% early withdrawal penalty.

https://ttlc.intuit.com/questions/1...u-have-a-401-k-loan-and-quit-or-lose-your-job

 

[wmonroe]

Can you take a loan out on your 401k? You will read that you shouldn't do this. I don't agree with that. You save on the interest that you would pay the bank if you financed and you pay yourself interest on the 401k loan.

Yes, I can borrow from it but i don't want to mess up its future value. Interest rates are still pretty low and the 401 has been doing much better than interest rates.

 

[wmonroe]

Eight reasons to never borrow from your 401K. 8 Reasons To Never Borrow From Your 401(k) 401k loans have to be paid back in 2 months if you quit or lose your job. If you can't repay the loan in 2 months, it will be treated as an early withdrawal that is considered income (you pay income taxes on it) and if you're under 59.5, you'll pay an additional 10% early withdrawal penalty. https://ttlc.intuit.com/questions/1899463-tax-consequences-when-you-have-a-401-k-loan-and-quit-or-lose-your-job

Those are 8 good reasons. I pay taxes before it goes into my 401 so I don't have to pay the taxes later (except interest), that is unless the government changes something and screws us worse.

 

[ultrarunner]

A family member is in the same situation... 65 acres ag with an old homestead.

Was not getting anywhere with lenders.

The seller, after getting to know everyone offered to carry for 5 years with 1/3 down...

Looks like the deal will go through.

 

[MossRoad]

Those are 8 good reasons. I pay taxes before it goes into my 401 so I don't have to pay the taxes later (except interest), that is unless the government changes something and screws us worse.

I'm not that familiar with 401k rules. I have a traditional 401k where I don't pay taxes on it and it grows tax free... UNTIL I start taking it out after retirement, and I'll have to pay income taxes on any amounts I withdraw. My wife's company just converted them from traditional 401k to ROTH 401K. On the ROTH 401k she pays taxes on it before she puts it in, but it will not be taxed on any of it when she withdraws it.

What you are describing sounds like a ROTH 401k. If you're paying taxes on it before it goes in, you shouldn't have to pay taxes on any of it, including interest, when you take it out after 59.5.

 

[deezler]

Borrowing from your 401k is ONLY ok if you A) have a very stable job that you don't plan to leave, B) keep the loan term under 5 years, and C) can afford to continue making your same plan contributions while re-paying the loan you took. If you keep contributing, you end up with almost the same long-term balance as if you hadn't taken out the loan.

My 401k (t rowe price) has a calculator tool that shows you all this. If you keep contributing at a normal rate, you don't lose much on the long term balance.

Basically should be considered a last resort, though.

 

[two_bit_score]

A family member is in the same situation... 65 acres ag with an old homestead.

Was not getting anywhere with lenders.

The seller, after getting to know everyone offered to carry for 5 years with 1/3 down...

Looks like the deal will go through.

Back in the 1980's when interest rates were very high it was very common for sellers to offer owner financing. People just couldn't pay 14-15% to a bank with all the fee's but they could pay 10% and no fee's to a seller/owner.

 

[ultrarunner]

Back in the 1980's when interest rates were very high it was very common for sellers to offer owner financing. People just couldn't pay 14-15% to a bank with all the fee's but they could pay 10% and no fee's to a seller/owner.

I bought one home with 40% down and the seller carried the balance at 5% for 15 years... I was going to pay it off and they asked if I would keep paying them if they lowered it to 4%... and I did and we are both pleased... they use the money to make up their retirement home monthly costs.

Each month on or before the first I drop by and deliver the check... they took quite a lot of heat by accepting payments from me... by the way... they lost most of the downpayment money being invested in the stock market back in 2007.

Now, all of their friends in the retirement home have said they wished they would have done the same because these 80 and 90 year olds are getting a little over 1% in the bank.

 

[RickB]

.. they lost most of the downpayment money being invested in the stock market back in 2007.

Must have joined the panic and sold low for no reason other than to get out. I just quit looking at the statements back then and held fast.

 

[ultrarunner]

They did... they were 87 and 88 back in 2007 and decided they just could risk loosing all... they were down 55% when the got out.

 

[RickB]

I'm not that familiar with 401k rules. I have a traditional 401k where I don't pay taxes on it and it grows tax free... UNTIL I start taking it out after retirement, and I'll have to pay income taxes on any amounts I withdraw. My wife's company just converted them from traditional 401k to ROTH 401K. On the ROTH 401k she pays taxes on it before she puts it in, but it will not be taxed on any of it when she withdraws it.

What you are describing sounds like a ROTH 401k. If you're paying taxes on it before it goes in, you shouldn't have to pay taxes on any of it, including interest, when you take it out after 59.5.

I agree. Never heard of any type of account where principal had one tax status and the gain a different one.

 

[wmonroe]

I'm not that familiar with 401k rules. I have a traditional 401k where I don't pay taxes on it and it grows tax free... UNTIL I start taking it out after retirement, and I'll have to pay income taxes on any amounts I withdraw. My wife's company just converted them from traditional 401k to ROTH 401K. On the ROTH 401k she pays taxes on it before she puts it in, but it will not be taxed on any of it when she withdraws it. What you are describing sounds like a ROTH 401k. If you're paying taxes on it before it goes in, you shouldn't have to pay taxes on any of it, including interest, when you take it out after 59.5.

It is a Roth 401k so I'm probably wrong on paying taxes on the interest, just assumed the government would make me. The contributions are taken directly out of my paycheck so I really don't even see the money or consider it part of my income.

I didn't make any progress on the land this week, work was very busy and I just didn't have time. I still need to talk the neighbor and see if he is really interested in buying the piece that adjoins his property, it is tough lining up our two schedules.

 

[NoTrespassing]

As anyone bought farmland that does not have a residence on it? There is some farmland that adjoins my property that I am thinking about buying but I am finding out it is very difficult to obtain a mortgage for land. I have very good credit, very little debt, and a decent income but banks don't even ask for any of that, as soon as I tell them what I am looking at they tell me they can't help me. The only option I have found is a farm credit union that is offering 6.5% for 20 years. Anyone else been through this and found a better option?

I'm paying 6.5% on 10 acres for 10 years. I asked a few years ago if their rates had dropped any on land loans and the answer was no. The only option they offered me was depositing the outstanding balance into an account to drop the interest rate.

Edit;

This was the only bank in the area that offered to loan me the money for the land. They keep all their loans in-house.

Kevin

 

[MacLawn]

Wmonroe, I hope ye can get ye land. I've always wanted to buy about 50-100 acres, but a bit short of lucres. So, I was only able to get 4 acres. But, I sure like being on more than a suburban lot! Keeps me busy too clearing brush, firewood, and my favorite thing - just piddling.