OT: - Best investment/use of real estate profit | The Boneyard

OT: Best investment/use of real estate profit

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Conndog

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Hi, we ended up with a profit from a 2nd home sale (without being specific, it is between 50k and 100k). This was a rental property. Should we use it to pay down the existing mortgage on our regular home? Should we look for another rental property and use it as a down payment? Is it smarter to invest it in the stock market? Is some other investment a better choice? We are still working but hope to retire in 1-2 years, and we could boost our retirement savings too.
Thanks!
 
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If you are 1-2 years from retirement, I'd seriously consider using it to pay down the mortgage on your primary residence. The less debt you have in retirement the better - and with such a short time horizon you may find you save more from paying the mortgage down than you would have made from investing that money.
 
Might be a bit late, but you should research the benefits of a 1031 exchange. If you're investing in real estate, you should never live to see the day that you pay capital gains.
 
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RoderickSpode said:
If you are 1-2 years from retirement, I'd seriously consider using it to pay down the mortgage on your primary residence. The less debt you have in retirement the better - and with such a short time horizon you may find you save more from paying the mortgage down than you would have made from investing that money.
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Having just gone through some extensive retirement planning exercises, the option of paying down an existing mortgage really depends on what your interest rate is. If you're around 3% give or take a half %, I'd be pretty confident you'd do better investing your windfall elsewhere.
 
Watching intently. Selling the home we paid under 14k for 54 years ago. Some will go to clean up medical debts. I've got a lot of those. Rest? We're both in our mid 70s with compromised health. How much do we need to invest for growth. At our age, there ain't no such thing as long term investment, so the short term returns we're looking at are not particularly tempting.
 
Conndog said:
Hi, we ended up with a profit from a 2nd home sale (without being specific, it is between 50k and 100k). This was a rental property. Should we use it to pay down the existing mortgage on our regular home? Should we look for another rental property and use it as a down payment? Is it smarter to invest it in the stock market? Is some other investment a better choice? We are still working but hope to retire in 1-2 years, and we could boost our retirement savings too.
Thanks!
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I’m looking into generating a continuous cash flow by putting a down payment on a rental property, use the bank to buy it, and then have the rent from the tenants pay off the mortgage with extra money into your pockets. Having a continuous cash flow every month
 
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Rumrunner said:
Might be a bit late, but you should research the benefits of a 1031 exchange. If you're investing in real estate, you should never live to see the day that you pay capital gains.
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Depends where you are in terms of age and retirement goals. Always need an emergency fund equal to 6 months of expenses in my opinion. If your mortgage rate is low, it should be the last thing you pay off unless you are close to retirement or in retirement. If I had that cash around, I would throw it into a low-cost index fund with either vanguard or fidelity (I dump my money into VTSAX). Can diversify with other index funds including international markets, small and mid cap, and some in bond index funds. Higher percentages in bonds as you get closer to retirement.
 
Edward Sargent said:
I am retired and decided to take the proceeds from the sale of our home and put it in the market. In the meantime I am holding a 2.6 % mortgage on a condo. If you can’t do better than 2.6% in the market find another broker.
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This could be really bad advice without understanding the circumstances of the OP. For example, if your time horizon is 3 years or less, the stock market is not the place to be. If your time horizon is over 3 years, I would say it is OK to invest in the stock market, but use dollar cost averaging. And, what is your tolerance for and can you take the risk?

This is a difficult time for starting to invest as low bond yields and the government printing money have distorted the value of virtually all assets. Inflation is rising (and we don't know if it is transitory), so bond yields could be in for a material rise. A good rental property in which you can raise rents over time could be a really good inflation hedge.
 
Conndog said:
Hi, we ended up with a profit from a 2nd home sale (without being specific, it is between 50k and 100k). This was a rental property. Should we use it to pay down the existing mortgage on our regular home? Should we look for another rental property and use it as a down payment? Is it smarter to invest it in the stock market? Is some other investment a better choice? We are still working but hope to retire in 1-2 years, and we could boost our retirement savings too.
Thanks!
Expand ...
If another property is even remotely on your radar, 1031 is the answer here. Sounds like it might be too late though.
 
RichZ said:
Watching intently. Selling the home we paid under 14k for 54 years ago. Some will go to clean up medical debts. I've got a lot of those. Rest? We're both in our mid 70s with compromised health. How much do we need to invest for growth. At our age, there ain't no such thing as long term investment, so the short term returns we're looking at are not particularly tempting.
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Up to $500,000 will b tax free as it's your principal residence, the OP sold a second home and had to pay some capital gains. Most investment advisors will tell you to look for a balanced protfolio with stocks and fined incomes. I'd talk with a professional advisor or two.
 
normally
storrsroars said:
Having just gone through some extensive retirement planning exercises, the option of paying down an existing mortgage really depends on what your interest rate is. If you're around 3% give or take a half %, I'd be pretty confident you'd do better investing your windfall elsewhere.
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Normally I’d agree, but as a general rule I would advise anyone who is 1-2 years out from retirement to pay off their primary residence ASAP.

And I don’t know when OP bought their current home but there’s a good chance their rate is much higher anyhow.
 
Rumrunner said:
Might be a bit late, but you should research the benefits of a 1031 exchange. If you're investing in real estate, you should never live to see the day that you pay capital gains.
Expand ...
Unfortunately it likely is already too late (unless they won't mind potentially overpaying for the replacement property) as the 45 day window opened when they sold their investment property. They will need to find a qualified intermediary (which may not be possible if they've already received funds from the initial sale as if the intermediary did not have control of the funds for the entirety of the window the IRS may not qualify it) and they will need to close the purchase of the replacement property within the 45 day window (try to find income property, agree to purchase/sale terms and close on the transaction within 45 days, I'm not sure that this is possible in the real world).

Normally there is considerable planning prior to the initial sale of property and a target reinvestment tentatively agreed upon prior to the sale.
 
Are you retiring early or in your 60s?

What are your retirement cash flow sources?
 
FfldCntyFan said:
Unfortunately it likely is already too late (unless they won't mind potentially overpaying for the replacement property) as the 45 day window opened when they sold their investment property. They will need to find a qualified intermediary (which may not be possible if they've already received funds from the initial sale as if the intermediary did not have control of the funds for the entirety of the window the IRS may not qualify it) and they will need to close the purchase of the replacement property within the 45 day window (try to find income property, agree to purchase/sale terms and close on the transaction within 45 days, I'm not sure that this is possible in the real world).

Normally there is considerable planning prior to the initial sale of property and a target reinvestment tentatively agreed upon prior to the sale.
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You don’t have to close on the 45 day window, just identify up to 3 properties. You have to close in 180. And if you don’t find something, you pay the taxes and move on. It is a $1,000 hedge to the intermediary in that case.
 
RoderickSpode said:
normally

Normally I’d agree, but as a general rule I would advise anyone who is 1-2 years out from retirement to pay off their primary residence ASAP.

And I don’t know when OP bought their current home but there’s a good chance their rate is much higher anyhow.
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If this is actually your professional business and not just Holiday Inn Express talking, I'd love to hear the rationale.

As to a "much higher" interest rate, if the OP hasn't refinanced into something in the 3% range over the past few years, then indeed they do need professional assistance.
 
WestHartHusk said:
You don’t have to close on the 45 day window, just identify up to 3 properties. You have to close in 180. And if you don’t find something, you pay the taxes and move on. It is a $1,000 hedge to the intermediary in that case.
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Fair enough. I've worked on quite a few of these over the years but entirely as a member of the finance staff of a real estate investment firm and in each case we had the reinvestment agreed upon prior to closing the initial sale, to avoid any tie-ups or delays that could derail the 1031 exchange.

What about the qualified intermediary? Aren't they required to be custodian of the funds from initial sale to reinvestment?
 
storrsroars said:
If this is actually your professional business and not just Holiday Inn Express talking, I'd love to hear the rationale.

As to a "much higher" interest rate, if the OP hasn't refinanced into something in the 3% range over the past few years, then indeed they do need professional assistance.
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You should have as few debt obligations as possible when you leave the workforce. It’s much easier to weather economic downturns in retirement (even if just from an emotional standpoint) if you don’t have a mortgage payment.

If OP is 1-2 years from retirement they should be looking to reduce risk, not trying to maximize growth. Why subject that money to short term market fluctuations instead of just getting the guaranteed return and peace of mind of a paid off home?

On a side note, what difference does it make if I’m a professional? A disturbing number of professionals get by selling unnecessarily risky investments to retirees- that doesn’t give their opinion any more validity.
 
Consider asking experts you trust who are not on the Boneyard. So much goes into this, including your tax bracket and other details you really don’t want to share here.

As for the advice above, minimize capital gains however you can. That is more important than any return you may get. For stocks vs paying off mortgage, there is no way for us to know what’s best for you. Are you staying in that house? If not, don’t pay it off.

I will say the old adage that you move assets away from equities as you near retirement is now awful advice. Expect to be retired 20-30+ years. In our perpetually low interest environment you have to stay in the market longer, just in less risky equities, to avoid running out of cash.
 
FfldCntyFan said:
Fair enough. I've worked on quite a few of these over the years but entirely as a member of the finance staff of a real estate investment firm and in each case we had the reinvestment agreed upon prior to closing the initial sale, to avoid any tie-ups or delays that could derail the 1031 exchange.

What about the qualified intermediary? Aren't they required to be custodian of the funds from initial sale to reinvestment?
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Yes, most definitely. If he touched the money, jigs up.
 
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