Stocks, rental property, or upgrade house?

[Anonymous]

Anonymous wrote:

Anonymous wrote:TIA. In 2019, our HHI was just over 200k. We max out our 401ks and put 8k/yr into DC's 529. Due to some job changes in the past couple years, we are now making 350K. But we haven't spent more, so this extra money is just sitting there. What's the best way to invest this money for ~10years? Our known options are putting it into an ETF and hoping that we are near the bottom of the bear market, buying a condo/townhouse and renting it out, or selling our house and buying something about ~500k more. For the last option, our house was bought for 700k in 2017 @3% interest and is now worth $1M+. If we upgrade now, our 500k capital tax deduction would reset, so that is a plus.

Any opinions on those three options (or other ones I'm not thinking of?) TIA

The advice I've read is after you've checked all the boxes (retirement, college, etc...) and you have money you don't see needing to spend, then a low cost SP500 type fund is where it goes.

+1 I would not recommend buying a rental property now and I would almost never recommend it for a busy dual income couple with young kids. It takes a lot of time if there’s a problem and management companies take a big chunk of you don’t want to do it yourself. I would add more monthly to the 529 and just open a brokerage account.

[Anonymous]

Eight thousand a year in 529 isn’t very much, depending on how old your kid is. I would up that.

[Anonymous]

Anonymous wrote:Eight thousand a year in 529 isn’t very much, depending on how old your kid is. I would up that.

+1

[Anonymous]

Anonymous wrote:You’re wrong about option 3. The IRS changed that ruling sometime around 2017, the capital gains tax is no liner waived if you buy a new house. You have to pay it.

But it’s 250K per person for a married couple exemption so not really.

[Anonymous]

You have an expensive house already. You should max out college fund and save.

[Anonymous]

Option #1. Put it in the market. You have tax deferred and you will be thankful down the road that you have a sizeable brokerage account. It gives you options. Market is down but could go down further. I would probably DCA the money in over 6 months.

Property management is a PITA.

[Anonymous]

With the addition of IRA rollovers to 529s, increasing contributions there is a no-brainer if you like your kids.

[Anonymous]

The S&P doesn’t call you on weekends with a clogged toilet or leaky shower.

Don’t upgrade your house as a financial move. Tons of hidden costs. If you need/want a new house that’s fine, but don’t pretend it’s a better “investment” than your current home.

[Anonymous]

NP .. I am a tad surprised that a lot of folks are saying that renting is not the way to go. If you have paid off the house .. isn't the rental free cash flow ? What am I missing ?

[Anonymous]

We kept our condo from 15 years ago and rent it out now. I would never do this voluntarily. When we started renting it out 10 years ago, we were barely breaking even. We figured after several years we would turn a nice profit. Nope. Cost for repairs has gone up a lot, and we hired a management company because we're just too busy now to do it ourselves. Still barely breaking even. We'll have to replace the appliances soon, and that will eat into any equity we've built.

If you don't have a job and want to make owning real estate your hobby project, then I think it could be profitable. But juggling it on top of 2 full time jobs + kids, I wish we had sold and bought stock.

[Anonymous]

Anonymous wrote:NP .. I am a tad surprised that a lot of folks are saying that renting is not the way to go. If you have paid off the house .. isn't the rental free cash flow ? What am I missing ?

They didn't pay off the house. They would purchase a rental for the sake of renting it.

I see where you're coming from, OP, but I don't think your HHI is quite into property-mogul range yet. A couple back to back emergencies will wipe out what you have built up. Stick to stocks for now.

[Anonymous]

Anonymous wrote:NP .. I am a tad surprised that a lot of folks are saying that renting is not the way to go. If you have paid off the house .. isn't the rental free cash flow ? What am I missing ?

Just to give you a basic idea of how the numbers work out on a townhouse I have in VA. House is paid off and worth 350k. I net approx 1k/month. I bought the house for 175k, and prior to the mortgage being paid off, I would break even.

Right now I am basically getting a 5% rate of return. So the rate of return isnt the greatest, but it's ok when you consider that it's reliable income.

[Anonymous]

Anonymous wrote:

Anonymous wrote:NP .. I am a tad surprised that a lot of folks are saying that renting is not the way to go. If you have paid off the house .. isn't the rental free cash flow ? What am I missing ?

Just to give you a basic idea of how the numbers work out on a townhouse I have in VA. House is paid off and worth 350k. I net approx 1k/month. I bought the house for 175k, and prior to the mortgage being paid off, I would break even.

Right now I am basically getting a 5% rate of return. So the rate of return isnt the greatest, but it's ok when you consider that it's reliable income.

I am getting 6.5% annual rate of return on $2.7 multi-unit building in DC if rented long term, 9% if rented furnished mid term (this requires more management, I spend one weekend a month and an hour/day on renters' communication). It's not a bad rate of return, and it's not fluctuating (was making the same even during financial stock market downturns in 2008, 2013 and now). My 401K is minus 7% this year.

I also consider the fact that if the building was sold, I would pay capital gain tax and depreciation recapture income taxes, so I would get about $2mm in cash. I don't think $2mm in cash invested into stocks would bring me annually over 200K guaranteed.

But I only invest in multi-unit properties, as a small RE investor. Never invest in a condo or a SFH it's money drain

[Anonymous]

Anonymous wrote:

Anonymous wrote:NP .. I am a tad surprised that a lot of folks are saying that renting is not the way to go. If you have paid off the house .. isn't the rental free cash flow ? What am I missing ?

Just to give you a basic idea of how the numbers work out on a townhouse I have in VA. House is paid off and worth 350k. I net approx 1k/month. I bought the house for 175k, and prior to the mortgage being paid off, I would break even.

Right now I am basically getting a 5% rate of return. So the rate of return isnt the greatest, but it's ok when you consider that it's reliable income.

Consider adding a basement rental unit and rent the main house and basement separately: you will get return close to stock market and guaranteed+will leave an asset to your kids.

[Anonymous]

I’m really surprised most people here do not recommend rental properties.
OP, keep in mind that most people on this board don’t have an entrepreneurial spirit.
I have rental properties. I started with a duplex. It’s not that much work if you know what you are doing.

You have to figure out what your risk tolerance is. If you are risk averse, buy a sp500 index fund and done.
If you want to take more risk and build more wealth, get into real estate investing.