I just signed all the paperwork to sell my home today, I'm going to clear $600K give or take after expenses. I'm looking to move into a smaller condo in the city, I was thinking about possibly using the $600K to purchase muni bonds that yield around 5% tax free and use that income to pay a mortgage on a $450K condo, does this idea sound good or bad. I don't know my fiancee is saying we should just pay cash and live debt free, but I like this idea of using munis to pay a mortgage for free
5% is the coupon or yield to maturity? and how long are the maturties?
600 1000FV munis will pay you 30K a year tax free at par...I would probably take this option assuming that are pretty safe munis. are you getting them at discount? if you are, you will be getting less cash from the coupon pmts
int rates will inevitibably rise at some pt in the future...decreasing your yield. so it really depends on the maturities
600 1000FV munis will pay you 30K a year tax free at par...I would probably take this option assuming that are pretty safe munis. are you getting them at discount? if you are, you will be getting less cash from the coupon pmts
int rates will inevitibably rise at some pt in the future...decreasing your yield. so it really depends on the maturities
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No I talked with my CPA about a few muni bond funds that I was considering and they yield 6%+ tax free in monthly payments, look at some like CMU,CXE and I have a few more, they're down from their 5 year highs and seemed like good buys to me. I was thinking of taking the 6.2% on CMU and using that to make the mortgage payments while keeping the $600K available to be used as collateral to take out a loan to open another business. I own convenience stores and I could purchase 2 more at least with a stock as collateral loan.
No I talked with my CPA about a few muni bond funds that I was considering and they yield 6%+ tax free in monthly payments, look at some like CMU,CXE and I have a few more, they're down from their 5 year highs and seemed like good buys to me. I was thinking of taking the 6.2% on CMU and using that to make the mortgage payments while keeping the $600K available to be used as collateral to take out a loan to open another business. I own convenience stores and I could purchase 2 more at least with a stock as collateral loan.
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no i brought the idea up to him, he just said they were tax free. If you look at the symbol the price has gone nowhere in five years, its just a tax free hog thats why i was entertained by the idea. Secondly look at its price its down from its consistent 5 year high again making it an appealing idea, i didn't say I was gonna do it just piqued my interest
no i brought the idea up to him, he just said they were tax free. If you look at the symbol the price has gone nowhere in five years, its just a tax free hog thats why i was entertained by the idea. Secondly look at its price its down from its consistent 5 year high again making it an appealing idea, i didn't say I was gonna do it just piqued my interest
The funds pay a federal tax free yield. If you have a state tax it would be taxable unless you buy one that specializes in your states munis. Most of these would hit you on AMT which stinks.
I mentioned the leverage. The underlying assets that closed end funds use to gain the additional yields are called auction rate preferreds. You can do a google on these to get more details. The long and short of it is this asset class which was supposed to be liquid is not right now and closed end funds are in a pickle because of it. End result of this is the nice yields are going to be cut. That is one of the risks, there are others and looking at a chart isn't the best way to determine if this is a good investment. For example these trade on the open market so they can trade at a discount or premium to the underlying asset value depending on buyers/sellers. Some of these can trade at a discount for a LOOOOOOOOOOOng time.
Don't get me wrong, for certain instances I really like these but for your situation you should really be aware of the downsides. In your size you could build a nice laddered portfolio of muni's of various maturities and remove many of the risks that closed end funds present. Weighting the short end of the ladder a little heavier gives you the opportunity to buy higher yielding munis in a few years thus reducing interest rate risk.
I mentioned the leverage. The underlying assets that closed end funds use to gain the additional yields are called auction rate preferreds. You can do a google on these to get more details. The long and short of it is this asset class which was supposed to be liquid is not right now and closed end funds are in a pickle because of it. End result of this is the nice yields are going to be cut. That is one of the risks, there are others and looking at a chart isn't the best way to determine if this is a good investment. For example these trade on the open market so they can trade at a discount or premium to the underlying asset value depending on buyers/sellers. Some of these can trade at a discount for a LOOOOOOOOOOOng time.
Don't get me wrong, for certain instances I really like these but for your situation you should really be aware of the downsides. In your size you could build a nice laddered portfolio of muni's of various maturities and remove many of the risks that closed end funds present. Weighting the short end of the ladder a little heavier gives you the opportunity to buy higher yielding munis in a few years thus reducing interest rate risk.
