Today I call on the PP for a service

General Discussion on the Permanent Portfolio Strategy

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Matthew19
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Today I call on the PP for a service

Post by Matthew19 » Sat Feb 09, 2019 7:10 am

I own my current home with no mortgage. I'm buying a new one and plan to do the same via a no closing cost mortgage paid off quickly after the current home sales. So buy a new home first then sell the current one to pay the mortgage.

I have two options :

1 - put down 20% on a new home and take the rest out as a mortgage to be paid in full within 6 months
2 - take the cash portion of my PP and put down 70%, cover the rest with a mortgage....

The question:
Is a temporary cashless PP a big risk, enough to justify taking a 4.5% loan on the difference?
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Kriegsspiel
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Re: Today I call on the PP for a service

Post by Kriegsspiel » Sat Feb 09, 2019 8:01 am

Option 1 seems fine to me.
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pmward
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Re: Today I call on the PP for a service

Post by pmward » Sat Feb 09, 2019 8:24 am

Yeah if there is no closing costs I see no reason to drain your cash position to nothing. Cash has actually been a valuable asset over the last year with rising interest rates and all the volatility in the markets. So if you were to drain your cash, I would say that you should rebalance, which would mean not just selling cash but some of everything else as well. Is that worth saving a bit of interest for a few short months? Probably not.

I would just do the 20% minimum and let the leverage do the rest for the short time that you need it. The small amount of interest that you would pay over those 6 months would be worth it, imo.
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ochotona
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Re: Today I call on the PP for a service

Post by ochotona » Sat Feb 09, 2019 9:14 am

Matthew19, here's an out-of-the box idea...

Given the poor behavior of stocks, and the evidence is what virtually all tactical portfolios are doing at this time, see this thread, and the possibility that we are late in the economic / credit cycle...

Option 3. Sell your STOCKS out of the PP, and buy your house, keep gold, cash, and bonds. Or maybe sell down to a 12.5% stock allocation, and take out a smaller mortgage. Life isn't all-or-nothing. If in doubt, divide by two is sometimes a good rule.

I guarantee if we have more stock market puking in 2019-2020 you will thank me. We have had an EPIC bull market since March 2009, it has been a great ride, but at some point you gotta sell... either through rebalancing, or else life causes you to sell, like buying a house. Stocks are fully-priced.

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Kbg
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Re: Today I call on the PP for a service

Post by Kbg » Sat Feb 09, 2019 9:53 am

I assume if you can payoff in 6 mos, you can refill your PP with the equivalent amount. With that assumption, just do the math and go with the most cost effective.

Minus
Interest on loan (tax rate/deduction adjusted)
Capital gains taxes if you have any when you sell

Plus
Interest and dividends on PP if you don’t sell (tax rate adjusted)

None of us have any idea which way market or interest rates are going, the above is a high confidence estimate with a bottom line.

Go with the calculator...it’s the most rational thing to do. Leave the gun, take the cannoli.
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sophie
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Re: Today I call on the PP for a service

Post by sophie » Sat Feb 09, 2019 10:30 am

Option 1. The worst possible time to drain yourself of cash is when you're buying a home.

Talk to your real estate agent about alternatives? There are lots of other ways to manage this situation without having to resort to a mortgage and all the pain that entails. (Btw there is no such thing as "no closing costs" for a mortgage - the bank may advertise no fee and no points, but there are local/state/other costs plus attorney fees plus there's always a hidden "gotcha" somewhere.) One possibility is to arrange to sell your house, pay rent to the buyer to stay put for a few days, then purchase your new home with cash from the sale in the interim. I've also known people who simply arranged with a moving company to put their stuff in storage for a few days, stayed in an Airbnb or went on a short vacation, and then came back and bought their new place.
Matthew19
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Re: Today I call on the PP for a service

Post by Matthew19 » Sat Feb 09, 2019 9:10 pm

sophie wrote:
Sat Feb 09, 2019 10:30 am
Option 1. The worst possible time to drain yourself of cash is when you're buying a home.

Talk to your real estate agent about alternatives? There are lots of other ways to manage this situation without having to resort to a mortgage and all the pain that entails. (Btw there is no such thing as "no closing costs" for a mortgage - the bank may advertise no fee and no points, but there are local/state/other costs plus attorney fees plus there's always a hidden "gotcha" somewhere.) One possibility is to arrange to sell your house, pay rent to the buyer to stay put for a few days, then purchase your new home with cash from the sale in the interim. I've also known people who simply arranged with a moving company to put their stuff in storage for a few days, stayed in an Airbnb or went on a short vacation, and then came back and bought their new place.
You can actually get a no closing cost mortgage and just pay a premium rate. about .05 % higher.
whatchamacallit
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Re: Today I call on the PP for a service

Post by whatchamacallit » Sat Feb 09, 2019 11:48 pm

Whether you take mortgage or pay cash it doesn't change anything on a balance sheet until the house is sold.

The mortgage balance cancels out the cash balance leaving you without cash either way unless it is a no recourse mortgage you can walk away from.

If you can't work out only owning one house at a time like Sophie suggests, pay cash but re-balance your portfolio in the process.

Pay tax if you have to but you can try re-balancing in tax sheltered if possible. How much more in taxes would you pay vs mortgage interest? You also get to reset your cost basis when you do sell house and re balance again.


Another option if you do take the mortgage is to re-balance taking into account cash being canceled out on balance sheet. If it is more of a hassle to withdraw the funds or close accounts this might be best option while keeping portfolio in balance.

I would also be concerned with being overweight real estate but it doesn't sound too crazy with your ratios.
Matthew19
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Re: Today I call on the PP for a service

Post by Matthew19 » Tue Feb 12, 2019 10:03 am

Thanks for the feedback everyone. I think you're right in saying that the PP needs to stay balanced.

I've decided to sell off a balanced chunk of my PP that has some gains and buy the house cash. It will be much easier on my mind in case it takes time to sell the other. 2k/month interest payments on a mortgage could get stressful, but missing out on PP gains I can live with.

We also have a whole bunch of capital loss carryovers from my non-PP days to cancel out the capital gains on the PP sell. 😏

Thanks again!
Matthew19
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Re: Today I call on the PP for a service

Post by Matthew19 » Thu Aug 08, 2019 10:19 am

Just to follow up on this - I sold off about 350k of the PP to help purchase our other house cash. The locked in the 4% interest payment per we would have paid carrying a mortgage until the other house sold, and also saved about 2.5k in closing. The old house quickly though, so the better decision would have been the mortgage.

Unfortunately, the PP has rocketed up around 10% in just a few months. I missed out on a pretty big gain and I'm now in the unfortunate position of deciding when to buy back. I know the best thing to do is buy now and not try to time the market, but boy it's tough trying to take the emotions out. Thats why I love the PP so much, that's baked right in if you don't mess with it.

Anyway, just bad luck on my part. I'm 100% happy with the PP and even happier with what it gives me - the gift of being at peace with my investments. Time to buy back...
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