EPS 47 - “The $500 Question: Pay Down Debt, Invest, or Buy a Second Home?”

In this episode of Pink Money, Jerry Williams tackles a deceptively simple financial question: What’s the smartest move for an extra $500 a month? Should you pay off your mortgage early, invest in the market, or buy a second home to generate income?

Jerry breaks down the pros and cons of each path—from the emotional security of being mortgage-free to the risks and rewards of the stock market, to the real-world headaches (and potential profits) of becoming a landlord. Along the way, he shares personal anecdotes about rental experiences, hard-earned lessons about risk tolerance, and a wild true story that underscores why it pays to know who you’re getting into business with.

This candid, conversational episode reminds listeners that money decisions aren’t one-size-fits-all—they depend on your goals, risk comfort, and what “security” really means to you. As Jerry says, “It all depends.”

👉 Visit PinkMoneyPodcast.com
to take the listener survey and share your vote:
A) Pay down the mortgage
B) Buy a second home
C) Invest in the market
or D) Something else entirely?

(Includes Jerry’s closing thoughts on Nancy Pelosi’s legacy and why true leadership leaves a lasting mark.)

💬 Have a question or comment? Contact Jerry here

Transcript

SPEAKER_00: 0:00

The following podcast is for entertainment and educational purposes only. Remember to seek competent tax, legal, and investment advice that is unique to your personal situation. I'm your host, Jerry Williams, and we're here to talk about all things related to money from a gay perspective. And you know, recently I was asked a question, and it's one of those kind of questions that in my mind just doesn't have a really straightforward answer. So the person was telling me that they have an extra$500 a month, and they were saying, I have three different options that I'm exploring, and I kind of want advice on which is the best option for me. So of the three options, they were telling me that the extra$500 could go towards paying their existing mortgage down at I think it was roughly a 3.42% interest rate, something like that. It was pretty low. And then they said their second option was to invest it in the market. Or the third option they were exploring is maybe buying a second home. And that could be a way for them to generate income if they were not not living there and they could use that to rent it out and draw some extra income from that. So they were just kind of exploring, you know, the three different options and wanting to know again, like I said, which option they thought might be in their best interests. So my answer to that really is it depends. Right? It really just depends. It depends on what you're really going after, okay? Because each of those has three different strategies, and each of those has has its pros and cons. So, for example, if you're gonna use it to pay down your existing mortgage, then that's helpful, right? Because it helps you get out of debt quicker. And in this case, they were saying that if they use the extra$500 a month and put that towards the principal on their home, they would be debt-free in their existing home in roughly 10 years, which is very attractive, right? And I mean, that's a lot of people's goal is to live with no mortgage. You know, I remember when there was a time, believe it or not, even before my time, where people would have mortgage burning parties, meaning that they would torch their mortgage note because they were free that free of the mortgage. So that was a hell of a day for everybody. And it's still an attractive goal, right? But on one hand, you're saying that the interest rate is so low, 3.42%. You know, can you do better than that? Because that's a really safe bet, right? I mean, because you're just saying all I'm doing is trying to get out of debt. I don't want to carry this debt anymore. I will live in my house, essentially mortgage-free, and it's just the best of all worlds to me. Nothing wrong with that. If that's what you want, that's what your goal is, then go ahead and do it. On the other hand, if you're saying I can invest that$500 into the market, you know, what could I do? So sure, you can go down that route as well. Now, then when you decide to invest, what do you invest in? Because your your options are are very broad, right? Because you can invest in stocks, bonds, you know, mixture, you can invest in any anything, gold, what have you, right? Everything. But there and again lies the problem here because how much risk do you want to take? And is the market safe? Maybe, maybe not, right? Because investing just by in large in and of itself is risky, and that depends on how much risk you're wanting to take. Let's say on a scale of one to ten, if one's conservative and ten is being aggressive, you know, where do you fit on that scale? You know, five and a half, I'm at a seven, I'm at eight, I'm all the way at the ten, I'm on the opposite, I'm the one or two. So that's up to you. And nor does it have to be just, I'm gonna sit at this stage in my life forever, meaning I'm gonna start off aggressive and then I'll go conservative or you know, to the reverse. That all depends. But let's just say, for example, if you were investing that extra$500, and let's just say an index fund like the SP 500, you know, that's 500 of the largest U.S. companies. And it's hard to say what you're gonna get year from year, right? You might do well and you could get maybe 10, 15, 20% out of it. It could be just the opposite, right? You could lose money and you could be down 20% and you just kick yourself and just say, I should have never done this, and da-da-da-da-da. I should have put the money in my house and da-da-da-da-da. It's just, again, hard to say. There's just no guarantees. But on the other hand, you know, if you do relatively well in the market, and let's say that, you know, you consistently put in money, you know, the 500 bucks over the course of let's just say 10 years, and you don't do any withdrawals at all, then if you were to get, let's say, more or less uh average of 4% uh return on your money, you'd have roughly 73,000. If you have, let's say, you could get a six percent return, you'd have maybe somewhere closer to the vicinity of maybe eighty-two thousand. If you could average uh an eight percent return, you might have something closer to ninety-one thousand. So, you know, there there is the opportunity there, right, for sure, and it is attractive for sure, but you have to be able to stomach it and you have to be able to accept the risk that comes along with it, because there's certainly no guarantees when you're investing in the market. You know, it what you what you get is what you get, and you can hopefully take advantage of times when the market dips and you could buy more, but you know, there's just no way to really say for any degree of certainty what's going to happen. And I think even I think it was Warren Buffett, he his advice was to invest in the SP 500. And I don't know what else he really said, but I just remember something like that. But you know, again, investing is not for everybody. And if you were probably asking your great grandparents or grandparents, whatever, they may just be 100% a guess against investing in the market and choose the safer route. Put the money in your house, you know, it's gonna be there, it's not gonna blow away, go, go, you know, disappear like you know, your money could do in the market, etc. But you know, anything could happen, anything, anything, anything could happen. And with a house, there's all sorts of issues and problems that come up from repair and maintenance, new roof, and da-da-da-da-da-da-da. You know, it's just another one of those things. But you know, again, we're just strictly talking here about extra$500 a month and getting out of debt. So let's say that the house is the safest bed, you're at the on my one to ten scale, that's maybe the one or the two. Okay, and let's say the investing in the market is the opposite. Let's say that's eight, nine, ten, somewhere along those lines, just for easy, easy kind of comparison. And so let's say then you're looking at a second home and you're saying, well, you know, I found a house, I think I could swing it and I could use that extra money to afford the mortgage. And if I rent it out, then that's beneficial to me as well because that would pay my mortgage. And, you know, I would have two homes, my existing one that I live in. I have this other one, which is my rental, and you can go all the way down that path. Well, in my mind, I I say that is an option, right? But then there's also the caveat of what comes with that, right? You have homeowners insurance, you have property taxes, you have maintenance, and then you have to deal with your renters as well, right? I think I've told the story before, but I don't know if I have or haven't. But I mean, even within my own family, my sister and my mom, they both had rentals and they had lots of issues with their renters. And I know that there's plenty of other people who have had similar issues with the renters. I mean, my mom, my God, she rented to some people who are cooking in the middle of the living room, literally cooking in the middle of the living room and caused$20,000 worth of damage. And it was a whole nightmare scenario. And me myself, I've rented to people as well. I had this house and I had two extra bedrooms that I wasn't using, and I decided this is just way too much house for me. And I rented to two different middle-aged guys who were going through divorces, and they were great. And I don't even think I charge them a whole lot, maybe$4.50 a month or something. I don't remember what it was, but I didn't charge them a whole bunch, and they were fantastic guys, and it turned out really, really well. And I got them off of Craigslist, you know. So what do you say to that? You know, I don't know. Although I did thinking back, I did have one of the guys who did flood my uh upstairs twice because I was out of town and I came back, and I ended up having like myself some$20,000 worth of damage because he took a bath in the middle of the night or whatever and left the bathtub running and it overflowed and caused a lot of damage, which he didn't even tell me about. I had to find it out on my own when I came home and stepped in a puddle of water and tried to figure out where the water was coming from. Anyhow, that was kind of an expensive thing because uh even in that instance, even though I had them each take out renters' insurance, the renters' insurance didn't cover squat, nothing, because none of their property got damaged, so their renters didn't cover any of it. I had to claim it on my own homeowner's insurance, and the deductible, I think, was 2% of the value of the house, something like that. Anyway, it was like two grand, which I made him pay and he paid. But still, I'm just saying there's pros and cons to everything, right? And you may or may not even want to deal with renters. A lot of people don't, right? They even just get management companies who handle all of it. And I think even my sister tried that, but it was still more than they wanted to deal with, and they just bailed out of that. So let's say we put the the second home in the middle of these two options as let's say the five, somewhere around there. So we got paying off your own home as the conservative option, we got investing in the SP 500, let's say, or just investing in the market, as let's say the second option as the eight, nine, ten, and then we have the buy a second home option right in the middle. So it isn't easy just to say this is your best option, because again, it really comes down to what's really important to you. And you just have to figure that out for yourself because again, if you're really looking for safety and security, then maybe paying off your um existing mortgage is the best bet. Especially if you start thinking about your existing world and you're a little worried about the economy, you're worried about your job, and on and on and on. So maybe that is a better option. But I would say you really need to make sure you have access to your money as well. So if all your money is tied up in your house, then that can be kind of tricky to get your money out of the house, right? You either have to do like a home equity, you know, or line of credit or whatever on your home, or you'd have to sell the thing, right? Because you just can't turn the spigot on and off and go and grab your money. Now, on the market, of course you can, as long as it's there, right? And there, and again, if you've got some money in the market and you sell, then you also have typically your capital gains, right? Especially if it's been in there over a year and a day, then you have to pay long-term capital gains, at least as it is today. You know, you buy at one price and sell at a higher price, then the difference between the two is your gain, your capital gain that only becomes realized when you actually sell your stock and so, or your shares or whatever you end up buying. But so there is a caveat with that as well. So it is liquid in the sense that you can pretty much get your money relatively quickly, let's say in less than you know, a week, you can get your money and put it in your bank account and use it as you need to. But again, as long as it's there and the market doesn't rob you of all your money. And you know, if the market is super low and you sell, then you know, are you taking a loss and that's harmful to you as well? So, you know, again, yeah, you just I don't know, you know, hopefully it's a good you know opportunity, but you just don't really know. And then the whole second home issue, right? So it it just again goes back to what do you want? What do you really want to have happen? And you can split the difference and you can go one way or the other, go, you know, pay some to the mortgage, pay some, put some in the market. You could do that, you know. If you do find a second home, maybe if it's you know a really good deal on the house and it's really undervalued, then that may be a good opportunity, but you got to find a good realtor, or maybe you are really astute in terms of being able to evaluate real estate, and you can go in there and you can find these uh undervalued properties, uh a HUM or a foreclosure or whatever, you know. You can you can do all that, right? And there's lots and lots of different, you know, uh schools or you know, uh classes or people who are willing to teach you all about that kind of business. I'll just tell you a real quick story of something I just thought about because I know I watched this um video recently and it was about this woman and man who'd been together. I want to say they've been together like 15 years, and you know, lo and behold, the husband ends up dying. I think he had a heart attack. And then next thing you know, the woman ends up, I think like six months, maybe less than a year anyway. She was up and remarried to this guy who was significantly younger than her, and all of a sudden she decides to change careers because she was a corrections officer who actually had an affair on her husband with some inmate. I don't even know how that happens, but anyway, then she uh starts in an real estate career, and she's doing just what I said. She's buying these homes that she finds and renting them out, and she's doing extremely well for basically a novice person who's just starting up on this uh real estate path. Lo and behold, she tries to get her husband, her her deceased husband's best friend, because he was he was in construction or something like that, and his best friend was also in construction, so she ropes him into doing upgrades or you know repairs on these various properties and whatnot, and he starts finding out through I don't I can't remember how exactly how he found it. It doesn't matter, but he found out that she was involved in some scams, she was actually renting properties that she didn't even own, and he was changing the locks in these properties that it belonged to other people. I think that's what happened. He was there to change a lock for one of the houses that she told him to change the locks on, and the people came home and said, Who are you? What are you doing here? Why are you changing the locks on her house? And it happened three different times, and of course, she tried to you know make excuses and it was a mistake and all this other stuff. But lo and behold, he reported her to the authorities, and then she put a hit on him. She she actually hired some dude to try to kill this guy because she said he knew too much about her world, and then she put a second hit out on her new husband because she wanted to cash in on his insurance policies, which she probably did to the first husband, who you know they never did an autopsy on him and they just cremated him. So who knows what really happened to him. But anyway, this black widow, here she is, you know, trying to kill people left and right and trying to conceal her activities. And nevertheless, long story short, she got convicted, and I think she was thrown in prison for, you know, I don't know how long, probably her life for all I know. But anyway, completely besides the point. But my whole point in terms of what we're talking about here is the options of ABC, right? Paying off your home, buying a second home, or investing in the market. Just depends on what you're after, depends on what your financial goals are and how much risk you're willing to assume. So nobody else can answer those questions for you. Your financial advisor or use ChatGPT or you know, run the numbers yourself, what have you. And you can decide, you know, if I do this, I can do this, I can do this. You can do all those things, right? Or you can choose to do none of them, put your money in the bank account, and then just hang on to it as long as it's safe and it's FDIC insured, and you don't have to worry about anything, hopefully. And I guess that's really all I have to say about that because it was an interesting scenario, and I just thought that as always, it just depends because there's no easy answers to a lot of this stuff. But if it's falls in line with what you're trying to achieve, then go for it. If you're really unsure, seek out competent advice, lean on others. If you're in an investment club or team, you know, maybe you can go into this, let's say, buying a second home or you know, pulling your money together, and you guys can do something if this person has a level of expertise and you trust them. As always, you really want to protect yourself if you're going into partnership with anybody. Get in and writing, seek legal help to create the right contract so you don't leave yourself exposed and really get to know whomever you're deciding to go in business with, because who knows? You might go into go into business with this black widow, you know. Next thing you know, someone's trying to murder you, but you don't want that. Anyhow, I think that's it. I've really belabored this point probably too far, but I think you got the gist of it. And I think I'm gonna put a survey up on the website. There's another plug for my website, www.pinkmoney.com, and I'm gonna ask you to select which option you think might be the best option for somebody who's in this circumstance with an extra$500 a month. What may be the best option for them? So is it A paying off their existing mortgage for security? B buying this second home and generating some additional income, or C putting the money into the market and taking a little bit of risk to see how it plays out. Or is there a fourth option I haven't thought about or they didn't think about? Who knows? I don't know. Maybe there is. Those are the ones that I think I'm gonna put out there. And other than that, oh, I know one thing I was gonna say. I just really came across this today that I see that Nancy Pelosi is retiring. And I just want to say that I think she's just an amazing woman. She always has been, and she did such amazing work being the speaker of the house, and she is one of those people that always holds her ground, tries to make, like all of us, try to make the best decisions possible. And she's not a shrinking violin and never has been. And even when her husband was attacked, and um she was under a lot of heavy criticism by Trump and all of his, you know, GOP fiends, that she didn't shy away, and that's impressive. And I think that the whole country is better for her being involved in politics and a little bit poorer because she's not gonna be in Congress any longer. But I still think as long as she's alive, that she's still gonna be an important force to be reckoned with, and I think that's fantastic. So, anyway, that's just my opinion, and other than that, I will talk to you next time.