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From: johnl@ima.UUCP
Newsgroups: net.invest
Subject: Re: Mortgage Down Payments and Good Inve
Message-ID: <109000014@ima.UUCP>
Date: Mon, 18-Nov-85 15:58:00 EST
Article-I.D.: ima.109000014
Posted: Mon Nov 18 15:58:00 1985
Date-Received: Thu, 21-Nov-85 20:47:09 EST
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Nf-From: ima!johnl    Nov 18 15:58:00 1985


/* Written  4:18 pm  Nov 14, 1985 by marks@decwrl in ima:net.invest */
> Many people have been telling me, however, that it is unwise to put
> most of my money into a new house ...

Sounds like you've been talking to mutual fund salesmen.  It it hard to
imagine an investment better than putting your money into your house.
First, as has been pointed out, since mortgage rates are currently about
12%, your return on money not borrowed is equivalent to a 12% investment.
Investments that reliably pay 12% are fairly hard to come by these days,
so the house is a good bet.  One possible exception is that if you're in a
high enough tax bracket, you can win by putting your money into a tax-exempt
fund that pays about 8%, paying and deducting the 12% mortgage interest, and
gaining about 2% on the tax arbitrage.

Second, there is the issue of cash flow.  If you take the larger mortgage, you
have to come up with the larger payment each month, and if anything goes
wierd with your other investment you may have problems.  If you minimize the
mortgage payment, you gain flexibility.

Finally, if you don't roll over all of your money from the old house to the
new one, there might be capital gains tax, though I believe that if you buy
a new house within 18 months of selling the old one, the presumption is that
you rolled over the whole thing even though you're doing funny things with the
money.  Except that if you buy tax-exempt investments to finance taxable ones,
in theory you lose the deduction for the exempt ones, so you might be put in
the unfortunate situation of having to owing both capital gains tax on the
amount not rolled over and also income tax on the income therefrom.

John Levine, ima!johnl

PS:  What you really should do is to consult somebody who really knows about
tax law.