"Douglas Johnson" <johnson[at]classtech.NOTPARTOFADDRESS.com> wrote in message
news:4g6qb210vnjfnrmg3n4rrtg65c1bo0rqnh[at]4ax.com...
- quote -

I certainly appreciate both your and John's response. My gut feeling is
don't pay the HELOC down. But I have these two contrary thoughts:

#1) Put your money where you get the best return. Since I'm paying out 8%
for the HELOC and a money market will likely get far less than 8%, use the
funds to pay down the HELOC. (This was John's advice.)

#2) Go back to the HELOC's "well" if reserve funds dry up. Let's say we pay
the HELOC down but the real estate market remains slow and drains our
reserves. Having made a pay down, the "cap" on our HELOC's available funds
was reduced by $70k so we can take it out again if needed. This gives us
liquidity.

I think #1 is pretty tough to refute, but I feel uneasy about #2's reasoning
and I'm not 100% sure why. If there's a clear-cut refutation to #2, I would
really like to hear it.

Thanks again.
Sjays

"FE" <never_say_spam[at]nospam.com> wrote:

- quote -

I would not pay down the HELOC. I think you should stay as liquid as possible.
Six months is very optimistic for the market to return to normal. Recovery from
bubbles takes a long time. It might be 10 years or more.

-- Doug

In article <8_Tug.887$_M.552[at]fed1read04> ,
"FE" <never_say_spam[at]nospam.com> wrote:

- quote -

This is an easy question to answer if you frame it the right way.

Would you today take out a Home Equity loan, likely at about 9%,
and use it to invest in the stock market? The answer is probably
no. If that is the case, then sell the funds and pay off the house.
If you answer yes, then keep things where they are at, or find a
better fund to invest in.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

Hi,
I have a question about what to do with some money we have that is tied to
stock market funds: keep it where it is or use it to pay down our HELOC?

I am hoping that this is not too too detailed or too obvious to
everyone but me.

BACKGROUND
My spouse and I are residential real estate agents in Metro Phoenix, AZ.
Our income is 100% commissioned based. You may have heard that our area
experienced an unbelievable seller's market around 2004 - 2005 and therefore
had significant appreciation. The market has since completely backed off and
is SLOW (meaning, sales are down SIGNIFICANTLY from what they have been).

During those good years we did very well but presently our income is only
trickling in. We are, to a large degree, living on past savings as we wait
for the market to become more normal. (We've heard estimates of 6 months.)
This is probably a fairly normal cycle for many real estate agents -- or any
self-employed person -- except that when the market here was good it was
EXCEPTIONALLY good and now it is NOT good.

In combination with our savings from the good years and our present trickle
of income, we're confident that we can weather our area's downturn in real
estate and not have to dip into other funds to sustain ourselves. (We have
retirement funds that we add to yearly.) We can't do it indefinitely,
however. The market needs to eventually improve and our sales to pick up.

HELOC
We have a HELOC on our personal residence. We drew from this HELOC to buy
land in Northern Arizona several months ago. We are developing the land and
have high hopes for a good return. I hope the project will be done and
profits reaped in about 1 year, but I can't say for sure. I also can't say
with certainty what this project area's market will be like in one year.

To date we are making interest-only payments on about $318k drawn from this
HELOC. The present interest rate is 7.99%. This is a variable rate and it
is tied to .26 below prime. Our present monthly payment is $2,118.70.

FUNDS
We have about $70,000 in stock market funds by AIM and by another fund or
two. The past few months the AIM fund has gotten killed. If I'm not
mistaken, it lost about $1k per month over 3 months. We could leave our
money in this fund and hope for things to improve, but we wonder if the
present "tensions" in the Middle East could further hurt returns. We have
thought about converting the funds to some kind of money market or
withdrawing the $70k and using it to pay down the HELOC. Note: These $70k
funds are separate and independent of the retirement savings I mentioned
earlier.

If we withdrew the $70k from these funds to pay down the HELOC, our monthly
payment would be around $1,630. My understanding is that since we've been
paying taxes along the way on these $70k funds, tax consequences are not a
factor if we cash out.

QUESTIONS
We are not finance people, but it seems reasonable for us to take money
earning less than the HELOC's 7.99% interest rate and use it to pay down our
HELOC. But I wonder if there are important factors that can't be measured
purely by dollars and cents:

- Our income depends entirely on commissioned sales. Again, we should be
able to weather the present downturn by living off our liquid savings and
present trickle of sales, but we can't do this indefinitely.
- Except for our retirement savings and the $70k in question, our
investments are all in the land mentioned earlier.
- It's not a huge deal, but it would take a little time and administration
to cash out the $70k funds and pay down the HELOC.

Thank you for your time.
Sjays