Sell non-retirement stocks for RE investment down payment?

[FIREarly]

Hi guys and ladies,

Background (#'s as of writing this post):
THIS IS THE MOST DETAILED POST I'VE WRITTEN SO FAR IN THIS FORUM
-37 years old and DW 36
-Combined W-2 income before taxes: +/-$142,000
-2020 was in 22% taxes and believe it will apply for 2021
In personal accounts (not via employer):
-Non-retirement acct: $38,499.84
(20 stocks long-term [35 on 7/7; 60 on 8/31]; 44 short-term)
-Roth IRA: $39,278.12
-Trad IRA: $23,319.22
-Crypto: $28,198.45 (rollercoaster... risk tolerant with time and not worried about it)

Via employer:
-401k: $11,133.10
(Trad 401k: 6% matched 100% at end of year; Roth 401k: 1%)
-HSA total: $4,531.69
>invested in stocks: $3,737.64
>not invested: $794.05

Major debt:
Primary and only mortgage: $2,188/mo
Car: $736.62/mo (DW will not change it and says she'll keep it for 6 years [5 more])
Other car is mine and 100% paid-off

** Please let me know if there is something missing above that might help your thoughts/decision **

This post is not about what is the right stocks to invest in, it's to request your help/thoughts on what you think is a good method for me to try to save/sell stocks to have my first Real Estate (RE) investment property down payment?

The thought is diversification and that RE is an amazing way to build wealth and legally not pay as much taxes. It is also believed to be a great way for me to start a company with DW to further diversify and increase our income sources.

For your situational awareness (FYSA), I've started two tiny "companies" in the past and they are both closed down. Neither is related to RE.

This is posted in this forum due to the question of whether or not to sell my stocks. Otherwise, "start from scratch", save in bank account, do not invest money, and then use towards down payment... feel like it'll take longer

What are your thoughts on this topic?

 

[bloom2708]

If you own a house and have total market index funds, then you have pretty good exposure to real estate and REIT funds (the market cap weight).

biggerpockets.com might be a place to browse for rental real estate.

Sweat equity can work out. My friend has 20 rental units. He is short $20k in rent from Covid-19 and can't evict over the past year. Easy money? right?

I would work on putting more in your pre-tax 401k and working on that car loan. Ouch that is a nasty monthly payment. They crypto is another topic. Don' forget you will owe taxes on any gains.

Real estate loans typically take 20% down and rates are not the same as your home mortgage. If you are a "go getter" with free time, then maybe try a fixer upper and use sweat equity to improve. That is where the true money is made. If you hire everything out, you won' make much.

I'd go slow and get your personal finances and investments beefed up before doing any rental real estate. Just my thoughts.

Good luck!

 

[FIREarly]

If you own a house and have total market index funds, then you have pretty good exposure to real estate and REIT funds (the market cap weight).

biggerpockets.com might be a place to browse for rental real estate.

Sweat equity can work out. My friend has 20 rental units. He is short $20k in rent from Covid-19 and can't evict over the past year. Easy money? right?

I would work on putting more in your pre-tax 401k and working on that car loan. Ouch that is a nasty monthly payment. They crypto is another topic. Don' forget you will owe taxes on any gains.

Real estate loans typically take 20% down and rates are not the same as your home mortgage. If you are a "go getter" with free time, then maybe try a fixer upper and use sweat equity to improve. That is where the true money is made. If you hire everything out, you won' make much.

I'd go slow and get your personal finances and investments beefed up before doing any rental real estate. Just my thoughts.

Good luck!

Appreciate your feedback and responding while talking to DW on the phone.

I'm a "go getter" (dork) when it comes to studying for certifications, just got my 5th one. As far as DIY home improvement, I change switches and lights to dimmers, spray garage door with it's proper lube, and other BASIC stuff. As a kid, I was great at putting together legos

As far as your friend with 20 rentals, hope they hold their properties and believe it is going to turn around. The news said USA just had it's biggest holiday travel weekend since before the pandemic. I am interested in a short-term rental, possibly in Austin, TX (Giga Texas opens soon!) or Nashville, TN (both no state income tax).

"I'd go slow" is great advice as I am always "running" in my mind.

 

[pjigar]

Disclaimer: I am a landlord.

Are you hands on kind who can do handy man work? Can self manage properties even when they are destroyed by an angry tenant? Can you pay for mortgage even when rent is not coming for few months at a time? If answer to all the questions are yes then there is money to be made in RE but it is not easy money. It is sweat money. If you out source RE management and/or repairs then you won't see a dime in your pocket.

I will answer your main question head on: If the deal is too good to pass up then you should sell crypto to raise the capital. Too good to pass up in my book is about 7-8% cap rate or 10-15% leveraged cash-on-cash return. If it is less than that then not worth touching RE. There are great risks associated with RE: liquidity, sweat, RE prices, up keep, etc. You want to be adequately compensated for the risks. If you can't find a deal then just stick with the stocks.

Now speaking of stocks, you remind me of my younger self. I had invested in individual stocks back then (for a few years). I *knew* I can generate better returns with the individual stocks. Buy on the dips, right? In the end, I didn't even keep up with the market. I gave that up and invested in some broad market low cost funds and rest if the history. My Networth has snowballed beyond my wildest imaginations. Sooner you accept the reality, the more time you have for compounding. Sorry about the unsolicited advise but I just couldn't stop myself.

 

[pjigar]

I just noticed your handle name, FIRE Early. If that's what you really want then you would have to save more starting from axing that car payment . FWIW we always buy 4 years used cars and we still don't expect to FIRE until I am 50.

 

[FIREarly]

Disclaimer: I am a landlord.

Are you hands on kind who can do handy man work? Can self manage properties even when they are destroyed by an angry tenant? Can you pay for mortgage even when rent is not coming for few months at a time? If answer to all the questions are yes then there is money to be made in RE but it is not easy money. It is sweat money. If you out source RE management and/or repairs then you won't see a dime in your pocket.

I will answer your main question head on: If the deal is too good to pass up then you should sell crypto to raise the capital. Too good to pass up in my book is about 7-8% cap rate or 10-15% leveraged cash-on-cash return. If it is less than that then not worth touching RE. There are great risks associated with RE: liquidity, sweat, RE prices, up keep, etc. You want to be adequately compensated for the risks. If you can't find a deal then just stick with the stocks.

Now speaking of stocks, you remind me of my younger self. I had invested in individual stocks back then (for a few years). I *knew* I can generate better returns with the individual stocks. Buy on the dips, right? In the end, I didn't even keep up with the market. I gave that up and invested in some broad market low cost funds and rest if the history. My Networth has snowballed beyond my wildest imaginations. Sooner you accept the reality, the more time you have for compounding. Sorry about the unsolicited advise but I just couldn't stop myself.

I just noticed your handle name, FIRE Early. If that's what you really want then you would have to save more starting from axing that car payment . FWIW we always buy 4 years used cars and we still don't expect to FIRE until I am 50.

Yes, paying the taxes will be pricy if I need to sell the stocks/crypto.

Yes, I will most likely get some kind of property mgmt company. I've followed YouTube vlogger Short Term Rental University (STRU) and Graham Stephen (RE investor) for a few years.

As far as retiring early, it'll be earlier than either of my parents and hope for it to be sooner than my Aunt who retired between 60-65 years old. Yes, axing the car payment will be very helpful. My thought is that the return is higher on the market than the 3.75% on the car payment. Not having that loan will help.

Going to pickup puppy and will be back later!

 

[pjigar]

Good luck but getting a profitable RE for hands off work in today's market is next to impossible. Also be mindful of restrictions on short-term rentals lot of cities are talking about imposing. Austin would be very high risk from that perspective. Tread carefully. Trick of making money is to find boring investments.

 

[rodi]

Good luck but getting a profitable RE for hands off work in today's market is next to impossible. Also be mindful of restrictions on short-term rentals lot of cities are talking about imposing. Austin would be very high risk from that perspective. Tread carefully. Trick of making money is to find boring investments.

Agree with this. Many markets are putting up big restrictions on short term rentals. They are trying to do it where I live. And the owners of the rentals are panicking. There is no refund to investors who count on that money to make it pencil out.... So... any rental investment should pencil out as a LONG term rental at going rates... because laws can change restricting short term rentals.

I am also a bit troubled by the size of the car payment and the size of the retirement funds you have on hand. I, personally, wouldn't invest in real estate rentals until I had more of a nest egg towards retirement.

We have a rental - and it's a great income stream... but we also have savings for when we are between tenants (and are willing to put in sweat equity between tenants.) And are fortunate to not have a mortgage associated with the rental.... Making a mortgage payment when there's no rent coming in is a problematic situation.

 

[FIREarly]

I am also a bit troubled by the size of the car payment and the size of the retirement funds you have on hand. I, personally, wouldn't invest in real estate rentals until I had more of a nest egg towards retirement.

We have a rental - and it's a great income stream... but we also have savings for when we are between tenants (and are willing to put in sweat equity between tenants.) And are fortunate to not have a mortgage associated with the rental.... Making a mortgage payment when there's no rent coming in is a problematic situation.

The size of the car payment is for a brand new SUV that was not my initial decision. I do not "agree" with it but signed bc DW was so gun-ho on it. Her and I have had multiple convos about the car and I've lost every one of them. The whole idea of "income creep" applies to our situation where I went from extremely low paying job to almost 100k within +/-3 years. Now that our roles have flipped so have some shopping habits.

Increasing retirement/investments before RE might be a better option and I'm putting the "cart in-front of the horse." Still "running" in my mind.

Appreciate your thoughts and knowledge.

 

[Dash man]

Personally, I think you need to build an emergency fund and pay off your debt. Real estate tends to have some expensive surprises and if you don’t have the financial cushion to handle them, they can bankrupt you. How long would you survive financially if you lost your job? If a tenant didn’t pay or trashed the place? After you buy the place you find some expensive surprise that needs fixing?
Sorry to be negative, but you need to be aware of the risk.

 

[pb4uski]

.....The thought is diversification and that RE is an amazing way to build wealth and legally not pay as much taxes. ....

Can you explain how you think that last part works? I have two returns that I do with Schedule E's and they both make money, even after depreciation... so they both have profits and pay taxes.

Another thing that you need to keep in mind is a thing called depreciation recapture, where when you sell the any long-term capital gains up to the amount taken in depreciation are taxed at a higher rate... up to 25% rather than 15%.

If it were me I would look at commercial rentals... I wouldn't get near residential rentrals in today's environment.

 

[FIREarly]

Sorry to be negative, but you need to be aware of the risk.

Only see what you said as an actual possibility of being a landlord, not negative. Another person said, "if it can break, they'll find a way to break it. I don't know how they do it but it'll probably happen." (not exact quote)

 

[jollystomper]

I am one of those "terrified of real estate" types (I really believe one must be born with a special "gene" to have the stomach for it ), so my input may not be what you are looking for. But this is the internet, after all

For something that high risk, I do not think you have enough of a "safety net" even before you begin thinking of a down payment. With a salary of $142K you have have 3-6 months expenses (approx $42K-$70K) not in the market for emergencies. Unless I missed some numbers in your post I do not see it.

I missed if you mentioned how much you are able to save from your salaries. That car payment is not helping.

You mention "Major debt" - what about "minor debt", for example do you carry CC balances.

My thought would be, real estate is so risky in my view that I would not consider it before I have lots of emergency savings *and* eliminated all non-mortgage debt. I would use some of that crypto gains to pay off the car loan. You will have enough "surprise" expenses as a landlord that you want to have a lot put away. Be careful of just looking at the "a great way to make money side" alone.

 

[NgineER]

I’m a landlord and as you say, it is a great way to build additional wealth. But I would suggest first that you start firming up other investment vehicles and Paula down other non real estate debt. Unless it is owner occupied rental property you’ll usually pay 25% down and get a worse rate to boot. Using a management company is somewhat like using an investment advisor. They take the 7-10% gross and selects people that would fill a vacancy and not necessarily get you the best tenant nor the highest rent. I would suggest that if you plan to go through with this you need to manage the property first to understand how a your property functions and how tenant selection works before letting someone else do this for you. Similarly for repairs and maintenance. You need to understand how often this happens and what repairs might be needed before letting someone else start billing you for repairs and maintenance.

I have only invested in properties that are less than a five minute car ride away so that I can drive by the properties and keep an eye on them.

 

[pb4uski]

... I have only invested in properties that are less than a five minute car ride away so that I can drive by the properties and keep an eye on them.

.... I am interested in a short-term rental, possibly in Austin, TX (Giga Texas opens soon!) or Nashville, TN (both no state income tax). ...

While I haven't managed a residential rental, not to mention a short-term residential rental, it seems that the OP's plan is to buy a short-term residential rental 1500 miles or 700 miles from where he is. I don't see that working well.

Any short-term rentals that I have done the landlord lived nearby and was available to handle issues that arose.

 

[Dash man]

While I haven't managed a residential rental, not to mention and short-term residential rental, it seems that the OP's plan is to buy a short-term residential rental 1500 miles or 700 miles from where he is. I don't see that working well.

Any short-term rentals that I have done the landlord lived nearby and was available to handle issues that arose.

We have a short term rental at the Jersey Shore about two hours away. I can handle most things, but problems that arise while occupied by tenants always occur at an inconvenient time for me to drive there and I have to rely on someone else to do the work. We only rent 3-6 weeks in the summer, so problems don’t happen often, but enough that each year we consider not renting. We only rent long enough to pay the taxes and insurance.

 

[FIREarly]

I’m a landlord... I would suggest that if you plan to go through with this you need to manage the property first to understand how a your property functions and how tenant selection works before letting someone else do this for you. Similarly for repairs and maintenance. You need to understand how often this happens and what repairs might be needed before letting someone else start billing you for repairs and maintenance.

I have only invested in properties that are less than a five minute car ride away so that I can drive by the properties and keep an eye on them.

While I haven't managed a residential rental, not to mention and short-term residential rental, it seems that the OP's plan is to buy a short-term residential rental 1500 miles or 700 miles from where he is. I don't see that working well.

There is a lot to unpack of quality info since my last post. My apologies if something is missed.

The reason for those 2 locations is that they are great STR locations. I live in a VERY expensive part of the USA and do not see much here that is financially attainable to buy as an investment property (DW says I have a poor money mindset and something about spending money brings more money... sounds like something near The Secret; not trying to sidetrack convo with this). There is one location that is +/-1 hour away that allows 120 days of STR per year (way less than half the year) and the homes are a little older for someone (me) that hopes for less repairs initially while learning the RE game. Maybe, if buying RE there, it is near a popular college football stadium and make sure it's available for those games.

Thinking "out loud"... typing... and the STRU had a school with a scholarship and the teacher that won the scholarship bought her first STR RE in Nashville and is doing VERY WELL with it. Maybe, I should reach out to the STRU founder (met him one time) and will probably have to pay for it.

Think there was a comment about credit card bill... they are not low. It includes tuition reimbursement (TR) charges and the new puppy is taking up large portions of it. Last 3 bills were between $3-5,000. There was one TR on there for $2,450 and some smaller ones... $199 from memory.

Do understand that I need to increase my investments and emergency fund.

Going to eat lunch, go to Mom's house to walk her dogs, work, and go to puppy training class. I'll be back later to read more of your thoughts.

Genuinely appreciate your comments!

 

[jr6035]

Hi guys and ladies,

Background (#'s as of writing this post):
THIS IS THE MOST DETAILED POST I'VE WRITTEN SO FAR IN THIS FORUM
-37 years old and DW 36
-Combined W-2 income before taxes: +/-$142,000
-2020 was in 22% taxes and believe it will apply for 2021
In personal accounts (not via employer):
-Non-retirement acct: $38,499.84
(20 stocks long-term [35 on 7/7; 60 on 8/31]; 44 short-term)
-Roth IRA: $39,278.12
-Trad IRA: $23,319.22
-Crypto: $28,198.45 (rollercoaster... risk tolerant with time and not worried about it)

Via employer:
-401k: $11,133.10
(Trad 401k: 6% matched 100% at end of year; Roth 401k: 1%)
-HSA total: $4,531.69
>invested in stocks: $3,737.64
>not invested: $794.05

Major debt:
Primary and only mortgage: $2,188/mo
Car: $736.62/mo (DW will not change it and says she'll keep it for 6 years [5 more])
Other car is mine and 100% paid-off

** Please let me know if there is something missing above that might help your thoughts/decision **

This post is not about what is the right stocks to invest in, it's to request your help/thoughts on what you think is a good method for me to try to save/sell stocks to have my first Real Estate (RE) investment property down payment?

The thought is diversification and that RE is an amazing way to build wealth and legally not pay as much taxes. It is also believed to be a great way for me to start a company with DW to further diversify and increase our income sources.

For your situational awareness (FYSA), I've started two tiny "companies" in the past and they are both closed down. Neither is related to RE.

This is posted in this forum due to the question of whether or not to sell my stocks. Otherwise, "start from scratch", save in bank account, do not invest money, and then use towards down payment... feel like it'll take longer

What are your thoughts on this topic?

I don't know what a DW is, but if they have a $736 car note, bye.

 

[Montecfo]

First congratulations on all you have done so far. You have taken the initiative to put yourself in position to FIRE. Good start!

I think the best folks to listen to on STR are those that have done or are doing it. My sense is it is much more hands-on than long-term leasing, so I think being far away is a hindrance. Others may know better.

This is a pretty good time for REIT type investments it seems. I agree with some others that suggest you gain exposure there. Lots of options and much easier to research than residential real estate.

Don't sweat the car payment. Water under the bridge.

Good luck!

 

[FIREarly]

First congratulations on all you have done so far. You have taken the initiative to put yourself in position to FIRE. Good start!

Don't sweat the car payment. Water under the bridge.

Thank you

The car payment is not exciting but Delightful Wife (DW) "needs" it and it genuinely makes her happy. Also, my Roth, 401k, designated, and HSA accounts are all earning over 3.9% (auto loan), therefore net positive by far!