I’m trying to change my ways and am rereading Rule #1 while at the same time reading Buffettology. If you liked Rule #1, Buffettology is worth a read as well. It provides more information in some areas and is really rounding out my learning from my first read of Rule #1.

I’m going to switch things up on the investment side. Hopefully before the summer.

“As for the short term bridge loan, I do intend to tackle that one in short order … This loan will be paid in full no later than May 2009 at which point I’ll be back to only having debt that is associated with real estate.”

… it sounds to me like all of your loans already ARE associated with real-estate. So the question that I would ask you is: what/when do you intend to invest next?

If nothing is on the radar, then I would compare the after tax benefit of: (a) cash in the bank, (b) pre-paying one of the mortgages, or (c) paying down the ‘pink slip’ loan … my guess is that (c) will give you the best ‘bang for buck’.

However, if you do intend to invest – or start a business, etc. – in the foreseeable future (say, anytime in the next 3 years) then you have to:

i) Think how you are going to finance it when the time comes … it may be best to keep these loans in place, unless you think you can replace one/all with cheaper funds at that time?

ii) Think about where you will keep your cash in the meantime … it has to be somewhere that you can get access to again.

For example, let’s say that you intend to buy a 3rd foreclosure sometime in the next 3 years; you decide that an 8% loan at that point in time will be around ‘market’ … in that case, paying down this loan early (if your loan agreement even allows this) may not be the smartest idea, because then you may not be able to get access to that cash again.

In that case, you may be better off with cash in the bank OR paying down the property with the most equity … one that you are pretty sure that you can refi (or HELOC) when the time comes.

On the other hand, if you feel that the 8% loan will still be expensive in 3 years, then by all means pay it down and hope that you can refi one of the others to buy #3 when the time comes.

Thoughts?

When the opportunity ship comes cruising in near your boat, even when we ‘think’ we are not ready, sometimes we have to simply jump a little farther out to land in that ship and that’s what you did.

You have a fantastic income and an aggressive saving nature, so making a decision like that is a no brainer for someone like you, who will simply pre-pay that loan off in a couple of months vs. someone who hasn’t mastered there skills with money and would keep living a life of debting.

Congrats on finding a sweet deal, taking action and reaping the rewards!

That’s kinda like saying you’ve got the best turd of the bunch.

The home wasn’t not turn key, but rather was move in acceptable. I have some issues to deal with over time…the carpets should be replaced, and the wood floors will need to be refinished. I’ll also be painting A LOT. But nothing that isn’t cosmetic or easy to handle over time.

I’ve never bought a foreclosure before, but I’m having a tough time believing I over paid on this one.

I paid only $30K more than what the home sold for when it was “new” in 2000.

One of the neighbors told me they tried to buy my home as a short sale about 10 months ago. Their offer was $140K MORE than my purchase price. In the end they bought a smaller home in the neighborhood for only $105K more than I paid for my home.

Whether 25% or 75% is a rule of thumb, I don’t know. Either way, I think I’m in a good position on this one.

@ Adrian – It’s not flexible and not like a HELOC. It’s a secured collateral loan which means its basically a car loan at a higher rate.

The only difference between this loan and one you’d get on a new (or used car) is that I already owned the car free and clear and had to pay a higher interest rate to get the loan.

I just walked into my credit union with the pink slip and said “How much will you loan me on this vehicle?” They told me $14K, after which I politely asked for $18K and they said, “Sure.”

This wasn’t my preferred method of quick funding, but it was fast and cheaper than using my credit card for a cash advance.

I’m sure there are some of our readers that think I’m nuts. I mean, who buys a house by taking the title of their car to “Pink Slips R Us?”

This was not a decision made lightly. I don’t normally fund my purchases with loans on my vehicles.

However, when I ran the numbers on the loan it was only going to cost me $600 to make use of the bank’s $18K. Remember, this money was used to help make the house deal go through.

As a quick recap, the home is (was) a foreclosure that I bought for close to $200K less than its value.

Over to you? Would you pay an extra $600 to have an opportunity for $200K?

That seemed like a “no brainer” to me, but maybe I’m foolish.

Oh, and the reason I chose the van was because I couldn’t get as much money from the bank for the boat.

… to which I’ll add:

How flexible is the loan (i.e. can you put money in/out like a HELOC)? Can you pay it off early, Jeff?