Selling Rentals Invest in SP500

[steakis4closers]

I have two rental properties I'm planning on selling. I'm anticipating after taxes realtor fees to profit about $250,000 let's just say, but I keep hearing. My concern here is that I keep hearing that the stock market is overpriced and it makes me wonder if investing now is going to be like investing in 1999.

I don't need to touch the money for 25 years. And would want to put more in each year of variable amounts. Might be only $15,000 for a few years per year for that. Maybe it would be more.

What do you guys think I should do

 

[RetiredHappy]

Nobody has the crystal ball. My can hear my former FA from ML saying to me that this is just part of an extended bull run. Diversification is not a bad thing. Do you have plenty in your investment account already? If so, I would keep the rental properties as part of diversification. Otherwise, I like the simplicity of investing in the stock market.

 

[steakis4closers]

Nobody has the crystal ball. My can hear my former FA from ML saying to me that this is just part of an extended bull run. Diversification is not a bad thing. Do you have plenty in your investment account already? If so, I would keep the rental properties as part of diversification. Otherwise, I like the simplicity of investing in the stock market.

I don't. Most of my savings has been in rentals. Yes that's part of the motivation, simplification

 

[steakis4closers]

I don't. Most of my savings has been in rentals. Yes that's part of the motivation, simplification

I am keeping 1 rental property as well

 

[RetiredHappy]

I see that you updated your original post to include a timeline of 25 years. If it were me, I would sell the rentals and put the money into the stock market. I am not a financial advisor and don't even play one on TV. YMMV.

BTW, we have been retired 10 years and we have a portion in fixed income but the other 80% are fully invested into the stock market. Despite dips, they go back up higher and much more. The key for us is patience - the lazy portfolio.

 

[Al18]

I would buy 10 CD with that mature every 6 months, ranging in length from 6 months to 5 years for $25K each. I would invest in a world fund, such as Vanguard VT as each CD matures. This gives you the option of picking how much you want to invest in stocks over time. Maybe you decide in 3 1/2 years that's enough invested in VT and just renew the remaining the CD's for 5 years.

 

[dobig]

If you invested in rentals you probably like seeing that income so you might like a snowball dividend portfolio where dividends are reinvested and your income stream continues to 'snowball' creating a compounding and accelerating income stream.

Just a different option than an index fund approach which is also a sure thing over time. Whatever keeps you motivated to continue investing and stay the course. If you're leery about investing right now you can always dollar cost average into the market over the next 6 months. Just understand no one really knows what the market is going to do and whether we're at the precipice of a correction or the beginning of an Ai supercycle.

 

[pb4uski]

I am very skeptical of the future of the stock market over the next decade so I would advise caution, although I concede that I've felt that way for years and the market just keeps on trucking so I'm probably the last person who should be giving advice.

One outside the box capital preservation idea would be a blend of 90% fixed income and 10% in 3-year at-the-money LEAPS on SPY (a S&P 500 ETF).

At 4%, the 90% fixed income component would grow back to your investment at the end of 3 years so if the market tanks over the next 3 years you would still have 100% of what you started with

At current LEAPS pricing, the LEAPS would give you 55-60% of any price appreciation over the 3-year option term.

If SPY is unchanged or lower at the end of 3 years the LEAPS would expire worthless but the fixed income component would insulate you from losses. If SPY is higher at the end of 3 years then you would get 55-60% of the price appreciation, but you would not benefit from any dividends that SPY pays.

Your mileage may vary and you should do your own due diligence.

 

[steakis4closers]

I am very skeptical of the future of the stock market over the next decade so I would advise caution, although I concede that I've felt that way for years and the market just keeps on trucking so I'm probably the last person who should be giving advice.

One outside the box capital preservation idea would be a blend of 90% fixed income and 10% in 3-year at-the-money LEAPS on SPY (a S&P 500 ETF).

At 4%, the 90% fixed income component would grow back to your investment at the end of 3 years so if the market tanks over the next 3 years you would still have 100% of what you started with

At current LEAPS pricing, the LEAPS would give you 55-60% of any price appreciation over the 3-year option term.

If SPY is unchanged or lower at the end of 3 years the LEAPS would expire worthless but the fixed income component would insulate you from losses. If SPY is higher at the end of 3 years then you would get 55-60% of the price appreciation, but you would not benefit from any dividends that SPY pays.

Your mileage may vary and you should do your own due diligence.

That really is the question. Just how long can a good thing keep going? I'm skeptical as well and I definitely have fomo when it comes to purchasing way more real estate than I did and investing way more than I did.

Nowadays, it's more expensive to get repairs completed on my rentals. You know labor has gone up. Materials have gone up and of course it is always work dealing with people. You have to vet them correctly. They don't pay. You know they trash the place all sorts of issues. You have to repair the roof. You have to replace the roof the siding. You know everything has its expiration date.

Thank you

 

[pb4uski]

.... If you're leery about investing right now you can always dollar cost average into the market over the next 6 months ...

While I would suggest a longer term than 6 months, I like the idea and would suggest a tweak... that you value average rather than dollar cost average.

So let's say that you decide that you want to invest in the market over 25 months. Invest $10,000. A month later invest whatever you need to to bring your balance up to $20,000. A month later invest whatever you need to to bring your balance up to $30,000. Repeat until the entire $250,000 is invested.

When prices decline from the previous month you invest more and when prices increase from the previous month you invest less... a subtle tilt of dollar cost averaging to buy low and buy less high.

 

[steakis4closers]

While I would suggest a longer term, I would suggest that you value average rather than dollar cost average.

So let's say that you decide that you want to invest in the market over 25 months. Invest $10,000. A month later invest whatever you need to to bring your balance up to $20,000. A month later invest whatever you need to to bring your balance up to $30,000. Repeat until the entire $250,000 is invested.

When prices decline from the previous month you invest more and when prices increase from the previous month you invest less... a subtle tilt of dollar cost averaging to buy low and buy less high.

I like that I'm going to seriously consider doing that. Of course the market is impossible to predict, but if it moves in a big way that does buffer against that

 

[RetiredHappy]

ML used to sell me something called "step-up notes". BOA packaged those, and they were issued by banks. Basically you can buy a (3-year) 5-year note that get all of the S&P gains, or Dow gains, depending on what they are pegged to, at the end of the 5 years. The issue is the huge capital gains that you have to pay when the note matures. There is a 20 percent downside protection in which you get back all the money if the market goes down by 20%. I think you may find something similar to the BOA/ML "step-up notes" in the open market. You may want to talk to a brokerage firm about it. The step-up note may also include a bump based on "participation" rate. What you are losing is the dividends that the S&P would have paid if you have owned it directly. There is no commission for us to pay because in our case, ML got paid by BOA when they sold the step-up notes.

At the end of 5 years, you can do it all over again. In my case, I bought 3 of such notes at $150K each and upon maturity, they became our spending money before our income streams started to pay our bills in retirement.

 

[disneysteve]

I have two rental properties I'm planning on selling. I'm anticipating after taxes realtor fees to profit about $250,000 let's just say, but I keep hearing. My concern here is that I keep hearing that the stock market is overpriced and it makes me wonder if investing now is going to be like investing in 1999.

I don't need to touch the money for 25 years. And would want to put more in each year of variable amounts. Might be only $15,000 for a few years per year for that. Maybe it would be more.

What do you guys think I should do

If you had invested a lump sum when the market peaked in March 2000 right before the crash and left the money alone, you would have earned an average annual return of 8% in the subsequent 26 years.

The best time to invest in the market when you have a long time line is always right now.

 

[audreyh1]

Well, when I faced retiring in 1999, yes I was quite concerned, so I decided to take two years to average into the markets when one year is usually recommended. I was averaging into a 60/40 retirement portfolio allocation so not 100% equities. My timing was lucky because just as I finished averaging in the long bear market ended. I had actually stretched it out into late 2002. Don’t know if that helps. No one can predict how the current situation will play out.

 

[Quattro73]

ML used to sell me something called "step-up notes". BOA packaged those, and they were issued by banks. Basically you can buy a (3-year) 5-year note that get all of the S&P gains, or Dow gains, depending on what they are pegged to, at the end of the 5 years. The issue is the huge capital gains that you have to pay when the note matures. There is a 20 percent downside protection in which you get back all the money if the market goes down by 20%. I think you may find something similar to the BOA/ML "step-up notes" in the open market. You may want to talk to a brokerage firm about it. The step-up note may also include a bump based on "participation" rate. What you are losing is the dividends that the S&P would have paid if you have owned it directly. There is no commission for us to pay because in our case, ML got paid by BOA when they sold the step-up notes.

At the end of 5 years, you can do it all over again. In my case, I bought 3 of such notes at $150K each and upon maturity, they became our spending money before our income streams started to pay our bills in retirement.

Innovator ETFs

Innovator offers investors a full range of Defined Outcome ETFs on equity markets around the world. Advisors can create a globally-allocated equity portfolio with built-in buffers.

www.innovatoretfs.com

Similar to dual directional ETF’s and buffered ETFs sold by the above.

 

[RetiredHappy]

Innovator ETFs

Innovator offers investors a full range of Defined Outcome ETFs on equity markets around the world. Advisors can create a globally-allocated equity portfolio with built-in buffers.

www.innovatoretfs.com

Similar to dual directional ETF’s and buffered ETFs sold by the above.

But with the BOA ones, there were not cap on the gains.

 

[VanWinkle]

Keep it simple, total market US, total market ex-US, and short term treasuries to reach the asset allocation you need and can tolerate. Start with 20% in equites and increase to reach your target over a year. Fancy funds with buffers are likely temporary products for you as you will see the reduced returns and opt out.

 

[SteveTX]

I like that I'm going to seriously consider doing that. Of course the market is impossible to predict, but if it moves in a big way that does buffer against that

I like pb4uski's plan as well as some of the simple index plans mentioned above.

Also, keep in mind that if this money will be in a taxable account, then you wouldn't want to use a strategy that you don't think you could stick with long term. Changing strategies off and on can put a big dent in your portfolio's growth over time due to taxes and/or poor market timing attempts.

 

[TheWizard]

Yes, it would seem that the bulk of the OP's money will be in a taxable account.
So it's important to learn how Tax Loss Harvesting works and determine your TLH partners in advance.
In the Vanguard family, I use VOO, VTI, and VV...

 

[Slim11]

As for the market, I look at is as most pension plans are gone, and most retirement plans are now in 401ks. These people usally invest the money no matter how small every two weeks across the usa. Can it go down sure. But I dont think it will stay down for a long period.

 

[RetiredHappy]

The stock market always goes up in the long run. Here is the chart of S&P 500 from 2000 (at the peak before the dot com crash). Obviously we had a huge run up in the recent few years but we also had huge dips. The main thing is not to panic and try to sell low and not get back into the market.

 

[Diogenes]

That really is the question. Just how long can a good thing keep going? I'm skeptical as well and I definitely have fomo when it comes to purchasing way more real estate than I did and investing way more than I did.

A prospective "lost decade" is a notable possibility for the stock market, especially for US large-caps. But a lost quarter-century is exceedingly unlikely. How we invest depends on our time horizon.

As for FOMO, believe me, us stock-gorging renters are very envious of folks who bought houses before 2020. Not only did they pay less, but they've locked-in lower property taxes (at least here in California). No matter how much the stock market has risen over the past 6 years, psychologically it's tough to overcome a 100% increase in housing prices, for a prospective buyer.

I say this for two reasons. First, FOMO cuts both ways. If the OP does sell his rentals and rotates into stocks, give yourself the grace to observe, that your FOMO, however caustic or debilitating, has a symmetric brother. Second, given that so many of us are flustered by housing prices and perhaps a tad skeptical of long-term house price prospects, we're still going to be renters. We are your customers, if you're a landlord! Thus maybe you'll sell only a portion of your rentals, keeping the rest, realizing that this is the investment that you know best, and that its prospects are solid.

 

[RetiredHappy]

@Diogenes But OP is in MN, and the house market is probably quite different from SoCal's.

 

[nwsteve]

We sold our real estate portfolio (2 duplexes and a triplex) last year for a couple reasons. We are 78 and recently had a cancer diagnosis which has since been positively resolved. It became clear shortly after diagnosis the spouse had no interest in dealing with the rentals even though they have been managed for some time with a trusted management company. We converted all proceeds to 1031 exchange DST which not only dodged all the cap gains and depreciation recovery, provided a highly reliable income stream to the DW.
All the DSTs will be eligible for step up and greatly simplify our portfolio. DSTs now represent approx 15% of our portfolio with a sizeable portion of income offset by depreciation.

@Diogenes But OP is in MN, and the house market is probably quite different from SoCal's.

.

 

[TheWizard]

We sold our real estate portfolio (2 duplexes and a triplex) last year for a couple reasons. We are 78 and recently had a cancer diagnosis which has since been positively resolved. It became clear shortly after diagnosis the spouse had no interest in dealing with the rentals even though they have been managed for some time with a trusted management company. We converted all proceeds to 1031 exchange DST which not only dodged all the cap gains and depreciation recovery, provided a highly reliable income stream to the DW.
All the DSTs will be eligible for step up and greatly simplify our portfolio. DSTs now represent approx 15% of our portfolio with a sizeable portion of income offset by depreciation..

What is a DST?