How Paying Off My House Early Cost Me Over A Million Dollars

For the past decade I have been focused on paying off my house. My home value is roughly $200,000 and I’m on the last $20,000! Things are going great right? I’m at the peak of the Dave Ramsey plan and will be able to put all my money into building wealth and giving soon. I’ve been waiting for this moment for so long, especially since this is my 2nd house. I’ve had a mortgage for 15 years and I can almost taste the finish line. If I’m about to reach my goal, why did it cost me over a million dollars?

Paying Down Debt Vs. Investing:

You’ve all heard the argument that paying off the house is silly because interest rates are so low and you can earn more in an index fund. If you have a 4% mortgage and an index fund returning 8%, you are giving up a 4% return. Here’s the problem, my returns would have been way more, like over 10X more.

In 2006 I insisted on putting down a 20% down payment to buy my first house. To do so I cashed out the majority of my Roth IRA. This included selling $1,700 of Hansen Natural Stock and $3,000 of index funds.

I didn’t pay any extra on this house because I knew we were going to move. When we bought our new house in 2011 I wanted to start paying extra on it and started paying an extra $200 per month in 2014. I started putting large lump sums against the house in 2015, with 5,000 in 2015, 6,000 in 2016, and 7,000 in 2017, 3,000 in 2018, and 8,000 in 2019.

Investing In Tesla

Up until 2016 I was primarily investing in index funds, when I did a ton of research on Tesla. I decided to invest $12,000 in Tesla across 6 months, with an average buy price of around $200 a share. Those 60 shares are now 300 post split with a value of $255,000. If instead of putting the extra towards the house in 2016 – 2019 I invested in Tesla Stock instead I would have:
In 2016 bought $8,400 at $200 a share, in 2017 bought $9,400 at $200 a share, in 2018 $5,400 at $250 a share, and in 2019 $10,400 at $250 a share. This would have bought me 152 shares.

I also would have been comfortable investing all of my other individual stocks in Tesla. Had I not cashed out my Hansen Natural stock, which became Monster Energy in 2006, in 2016 that $1,700 would have been worth $25,800. That would have bought me another 129 shares of Tesla at $200 per share. In total I would have had an additional 281 shares of Tesla or 1,405 shares post split. This would be $1,194,250 today.


Hindsight is 2020:

Although as of January 12th 2021 I would be in a much better financial position had I put everything on Tesla.  (Even more so if I invested my other Approx. $50K in retirement assets in Tesla at the time as well), there was a very real risk involved in buying Tesla.  It was not clear that Tesla would become a major manufacturer.  At the time the Model 3 hadn’t started production yet and Tesla was a cash burning machine that was heavily shorted.  The big money was against Tesla.  Had I invested more I would have been risking a lot more and if Tesla had gone bankrupt my life story would have changed more than had I invested more in Tesla and made an extra $1 million.  That $1 million would speed up my journey to Financial Independence by about 2 years and give me some extra margin.  Had I bet it all on Tesla and they went bankrupt, I would have set myself back at least half a decade.

When doing these types of lookbacks, you still have to analyze the risks at the time.  Hindsight shows that yes, Tesla did survive and become worth over 20X what I paid for my first shares of it inside of 5 years, however not even the largest Tesla Bulls in 2016 thought this would have happened. Elon Musk predicted Tesla may reach a $700 Billion market cap in 2025, and this statement was seen as crazy.  No one predicted Tesla at a 800 Billion market cap in 2021.  It was much more likely that Tesla would go bankrupt.  Losing 100% of the money I invested in Tesla in 2016 was a very real possibility, probably about 33% likelihood. The likelihood of Tesla being worth $800 Billion in under 5 years was probably 5% or less.   It would have been grossly irresponsible of me to invest 100%, 50%, or even 25% of my total net worth in Tesla.

Paying Off My House Early Cost Me Over $1 Million, And That’s OKAY!:

The house we paid $48,000 for is now worth about $100,000.  My mother in law was able to move in there and live there for 4 years after losing her home after the 2008 financial crisis.  I currently have this house as a rental and the equity I built up in it allowed me to buy another rental property as well. I cash flow around $400 a month from this house.

Having paid down our current house substantially allowed us to get a Heloc and we are using that to purchase rental houses.  This also allowed us to lower our house payment from $570 to $75 right before the pandemic started.  The value I’ve received from the extra I’ve paid down on my house certainly isn’t over a million dollars, but it still has substantial value.  I don’t regret paying down my house, nor will I regret having it fully paid off later this year.  Yes I could have had $1 million more in net worth, but that would have came with a very substantial risk and paying extra on my house is the highly conservative balance to owning high flying growth stocks like Tesla.

Did you pay off your house early? Any regrets on putting money into home equity instead of into investments?

John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. John is the author of the book For My Children's Children: A Practical Guide For Building Generational Wealth.

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