Retire debt free or get a boat loan

[daletournier]

Originally Posted by Kenomac

Cheap money = 4% or less on a home mortgage in the US. Borrow against the house to pay for the boat. Then you're only paying $10k per year to use someone elses money plus getting the advantage of a home mortgage interest tax deduction. Use your $250k to invest in something that will return better than 3%, any return better than that and you'll be dollars ahead.

Cheap money now, will it stay that way? One of the reasons the economy is a mess (despite what the fed is trying to tell us) is because people have used home equitys to purchase non income producing liabilities like boats? Have a look at private debt in the states! or else where. No one went broke from having to little debt. I'm not against debt, I have some, but other people pay the interest and it returns me cash every week. But I would not have debt that I have to pay and particularly on a something that depreciates and produces no cash flow. If you hand to pay tax your making money, if you have tax deductions then your losing money.

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[markpierce]

Borrowing money to purchase an asset that will depreciate in value is a fool's errand, especially during retirement when one usually expects little (much beyond inflationary) income gain.

[Kenomac]

Originally Posted by daletournier

Cheap money now, will it stay that way? One of the reasons the economy is a mess (despite what the fed is trying to tell us) is because people have used home equitys to purchase non income producing liabilities like boats? Have a look at private debt in the states! or else where. No one went broke from having to little debt. I'm not against debt, I have some, but other people pay the interest and it returns me cash every week. But I would not have debt that I have to pay and particularly on a something that depreciates and produces no cash flow. If you hand to pay tax your making money, if you have tax deductions then your losing money.

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So, they obtain a 4% fixed interest rate.

Yes, but everyone seems to forget that for only about $8000 per year in actual money usage fees (home mortgage interest), the OP would get to enjoy the use of a $250,000 boat, instead watching his pension be reduced by $1,200-$1,500 per month ($15k-$18k per year).

To me this is a no-brainer for the OP if he or she wants to enjoy a boat during an early retirement. It they take the $250k out of their pension in order to be debt-free, they would be taking a $7,000-$10,000 financial hit every year. They'd be Spending pension income dollars to try and save pennies in interest.

[Kenomac]

Originally Posted by markpierce

Borrowing money to purchase an asset that will depreciate in value is a fool's errand, especially during retirement when one usually expects little (much beyond inflationary) income gain.

Yeah right....

Tell that to all the mega and super yacht owners who document their boats in the British Virgin Islands and have them available for charter use when they're staying at one of their villas.

They take advantage of every possible tax and business scheme.... which is how they got to be rich. Not by trying to save pennies in interst payments.

Think small = Live small.

[markpierce]

Regardless Kenomac, the rich have resources to cover the expenses. And never forget the large expense necessary to maintain a boat, which I suspect is a boat purchaser's overlooked factor.

[daletournier]

Originally Posted by Kenomac

Yeah right....

Tell that to all the mega and super yacht owners who document their boats in the British Virgin Islands and have them available for charter use when they're staying at one of their villas.

They take advantage of every possible tax and business scheme.... which is how they got to be rich. Not by trying to save pennies in interst payments.

Think small = Live small.

They got rich because they understand assets and liabilities and can add up , some became rich due to luck or inheritance amongst other things, there's a number of reasons why people have money. Liabilities are liabilities anyway you look at them regardless of how one tries to justify it. A yacht is a liability that goes down in value. Nothing wrong with interest as mentioned before if the debt is making money greater than intetest payed and will so even if economic times become challenging.
I understand what your trying to say but sometimes sticking to fundamentals particularly in volatilite economic environments is wiser. In regards to thinking small live small, thats kinda over sold, we are in a world that tells us to live beyond our means and draw from the future via debt. By the way I'm not a miser, as mentioned before ive retired young, cruise fulltime, have a very good passive income and deal with pounds rather than pennys but I question our unsound monetary system and how debt is used by government, corporate and private entitys. Things change regarding interest rates, property prices, share prices etc but no debt will always be no debt. I personally believe now is a very good time to be reducing debt regardless of potential tax breaks.

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[daletournier]

Your also assuming the op is going to recieve 5-7% on is pension fund, personally I wouldn't count on that in the world of negative intetest rates. Only time will tell.

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[ranger58sb]

Originally Posted by belizesailor

And (assuming USA tax venue), unless he can claim the boat as his primary residence, he can't claim the mortgage interest.

Mortgage interest on second homes, vacation homes, and certain RVs and boats can be deducted in many cases.

Mortgage interest on "mobile" assets (RVs and boats) only gets backed out of the equation during subsequent AMT calculations, if those criteria apply.

-Chris

[belizesailor]

Originally Posted by Stu Jackson

I agree, but, but, but...

Forget for a moment the depreciating asset, the boat. For this FINANCIAL analysis it could just as well be a turnip!

If it costs him $X to "rent" the money, BUT it costs him more in taxes because the tax hit on his BIG withdrawal is more, then that is the only choice he has to analyze. (And throw in the tax savings for the interest on the loan which would be part of the analysis.)

Isn't it?

But, but...

I would not make the retirement withdrawal and take the BIG tax hit.

I think he would be better off to refi the house, rent it out, use the cash to buy the boat (a used boat so depreciation is less), and let tenant pay the mortage and then some. This of course assumes its suitable as a rental property.

And, as we dissect his financial options....where did the OP go?

[belizesailor]

Originally Posted by Kenomac

Yeah right....

Tell that to all the mega and super yacht owners who document their boats in the British Virgin Islands and have them available for charter use when they're staying at one of their villas.

They take advantage of every possible tax and business scheme.... which is how they got to be rich. Not by trying to save pennies in interst payments.

Think small = Live small.

Key difference: those yachts are in charter service and thus treated as a business asset (not just a private recreational vessel). So, they can be depreciated for tax purposes. Annual depreciation on a mega yacht is a BIG number, which is used to offset owner's BIG income. Still a losing game, but owner at least gets some financial benefit from his status symbol.

Big debt for personal possessions = broke (like most Americans).

[belizesailor]

Originally Posted by ranger42c

Mortgage interest on second homes, vacation homes, and certain RVs and boats can be deducted in many cases.

Mortgage interest on "mobile" assets (RVs and boats) only gets backed out of the equation during subsequent AMT calculations, if those criteria apply.

-Chris

Good to know, but even if deductable its still a net cash flow loss.

[belizesailor]

Originally Posted by daletournier

Cheap money now, will it stay that way? One of the reasons the economy is a mess (despite what the fed is trying to tell us) is because people have used home equitys to purchase non income producing liabilities like boats? Have a look at private debt in the states! or else where. No one went broke from having to little debt. I'm not against debt, I have some, but other people pay the interest and it returns me cash every week. But I would not have debt that I have to pay and particularly on a something that depreciates and produces no cash flow. If you hand to pay tax your making money, if you have tax deductions then your losing money.

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Yes, most are buried in consumer debt for non income producing depreciating assets. Debt on income producing, potentially appreciating assets is a much better decision. Personally, Im uncomfortable with even a little consumer debt.

However, you can have deductions and still be making money. For example, for tax purposes for almost a decade I showed a negative taxable income, but was in fact making money.

[AD28]

I don't think it's been mentioned, but there is something to be said for risking someone else's money on a purchase that is as, shall we say, friable, as a boat.

Land is forever, but even houses can burn down. Boats... well, they can sink, they can burn up, bad weather gets 'em, etc etc

Risking the loss of your personal savings on something like a boat... maybe not such a good idea. It's worth considering, in any event, to risk the bank's money rather than your own in this particular case.

The depreciation issue: well, that's why it's not a bad idea to purchase a used boat that's close to the bottom of its depreciation, that is to say if you plan on keeping it permanently or for a long time. I view automobiles in the same way. I'd never buy new in either case.

[witzgall]

I shared an office with a guy that had just gone to a financial seminar, where he learned that he should take a mortgage out on his paid off house, and invest it in the stock market. He did. The year? 1999. Can you guess the outcome??

Chris

[Tetra]

Originally Posted by witzgall

he learned that he should take a mortgage out on his paid off house, and invest it in the stock market.

Yeah, there's lots of clever men out there that dispense brilliant financial advice. I guess we're just not smart enough to understand the value of accruing debt and leveraging others' money. We do it the way that our grandparents did it. We've spent a lifetime living frugally, working, saving and paying cash. Remarkably, it's worked out very well.