Currently my wife and I own a house here, and we have substantial equity. In 5 years I’ll be retiring and we’ll be relocating to a different, as of yet, unknown location.

I fear a correction in the housing market might cause us to loose the equity we have, but there wasn’t much I see as ways to prevent that… can’t control the market.

However, we have an unexpected opportunity to rent a house for even less than our current mortgage, allowing us to sell the house we own and sit on the profit.

I know profit, up to $500,000 for a couple, is not taxable. But we won’t be using this money right away, if we go through with this.

Where do I park the cash? It’ll be 6 figures. Can someone help guide to reading that can help me understand my options and ask good questions when I sit down with a local pro?

My initial thought is along the lines of dropping it in some sort of brokerage account and investing it in a conservative way to make some money in the next 5 years. Maybe even something like the S&P 500? But would doing that turn it into taxable income when we use the funds in 5-6 years?

Are you taking all of your investments out of market for the next 5 years too, or just real estate? Just like stocks, it's impossible to time the market and 5 years is a long time. Stay put, the house will certainly be worth more in 5 years than it is today and you have tax advantages. Renting is throwing money away while funding someone else's retirement.

quote:

Originally posted by TXJIM:
..Just like stocks, it's impossible to time the market and 5 years is a long time. Stay put, the house will certainly be worth more in 5 years than it is today ...

These two statements are contradictory. The house certainly could be worth less, even substantially less, in 5 years. He is correct in that it's impossible to know, so you're taking your best guess.

As far as the taxability issue, if you sell it now and your gain is under 500K, it is not taxable. What you do with the money is not relevant to that equation. If you invest the money and it earns interest, yields capital gains, etc., those gains or losses are taxable or not on their own-nothing to do with the sale of the house.

On a related note, I would not trust the Feds to not lower or eliminate that $500k gain exclusion sometime in the future, or perhaps make it means tested, as in if you aren't dirt poor you have to pay those taxes.

Thank you for alternate views. Also meant to ask for the opinion of those that disagree.

And no, not pulling out any investments. Pouring more and more into my retirement account, actually.

I just can’t help but think my house is not worth what someone would pay now, so it can’t last. We bought in 2009 for 175. We could likely get 450-475 right now. I know we won’t ever go underwater, but a sure profit of 250ish seems like a good opportunity.

There are other benefits to moving too. We would be leaving the city to go live on a quiet dirt lane. There are 6 houses on the mile lane, and everybody gets along and looks out for each other. Additionally, one of those other families is my sister and her family. My kids could see and play with their cousins all the time.

As I usually do, I suggest you consult a tax professional, and an investment advisor instead of relying on your invisible internet friends.

Some of your invisible friends may give you solid answers and good advice, but others may not, and it is hard to tell which is which.

I think the best thing for you and your wife to do is to have a plan. What specifically do you want to do with that money: 1) live off of, 2) use to purchase a new house, 3) bit of both?, 4) some fourth thing not discussed?

With a plan, you can take that plan to your advisor and they can talk you through your options.

Discuss you and your wife's plans for the future and your willingness to take risks and then see a professional.

Investing like this is just betting with your future on the line, so it's good to know what you want from your future. You should know how much risk you want to take because if you are selling your house but end up not being able to buy another in five years because of bad choices today, well brother that would suck. And the whole family should be on board because everyone will have to live with the choices made. Good luck!

quote:

Originally posted by honestlou:
As far as the taxability issue, if you sell it now and your gain is under 500K, it is not taxable. What you do with the money is not relevant to that equation. If you invest the money and it earns interest, yields capital gains, etc., those gains or losses are taxable or not on their own-nothing to do with the sale of the house.

On a related note, I would not trust the Feds to not lower or eliminate that $500k gain exclusion sometime in the future, or perhaps make it means tested, as in if you aren't dirt poor you have to pay those taxes.

So, if I dropped it in some sort of investment account the original “purchase” is not ever taxable, but gains made in the investment would be subject to capital gains tax, correct? (At least under current tax laws)

quote:

Originally posted by jhe888:
As I usually do, I suggest you consult a tax professional, and an investment advisor instead of relying on your invisible internet friends.

Some of your invisible friends may give you solid answers and good advice, but others may not, and it is hard to tell which is which.

That is part of the plan as well, just trying to increase my base understanding before getting to that point.

So you would sell now, lock in the gain and rent for a few years ?

It’s really boring but I’d stick it in an online bank, Ally, Marcus etc. you can get .5% right now and short term rates hopefully are going up soon. Or a CD if you want to try to get a bit more yield. Yes even if your timeline for this cash is 3-5 years. Depends how big a paper loss you can stomach.

Some people like Dave Ramsey would say stick most or all in the SP500. That would be lunacy in my opinion. The last conversation you want with your wife in a few years is, well, I’m retired but because of the recession that 500k we plopped int the market back in 2022 is only worth 300k and the house we thought we were buying in (insert free state here) has to be shelved or greatly downscaled. Keep your house money safe. If you decide to buy and hand have a bunch left over after setting up your emergency fund then by all means move the excess into the market.

I do mortgages and I see this with current buyers. They are In contract to buy and close in 3 weeks and they have not liquidated their down payment funds yet. I’m like well the last week must have caused some pucker factor. Including one this earlier year where they dang near had to cancel because his tech company stock was going down faster than he could sell his stock options. Having all that money in one single stock, even if it’s your employer is another discussion

You may take a house scouting visit to yet undetermined free state and fall in live with a property. You will want to act fast. The deal falling apart because the market went away from you is not good.

Now there may be other data we don’t know. In-laws that are filthy rich that can stroke a check for you to buy and you can pay them back on friendly terms when the market recovers in the event of a crash before you buy ?

Just my opinion. It’s worth what you paid for it. I’d defer to the side of caution in this situation

quote:

Stay put, the house will certainly be worth more in 5 years than it is today

That's actually unlikely, not impossible, but it won't be the average property owner's experience.

I'm in the real estate valuation business. NOT the blow smoke up your ass agent side.

There is no guaranteed answer for every market, but your assertions won't be true for a LOT of the country. In MANY residential markets, the reset has already begun.

Normally I would agree with AKSuperDually

Except you live in CA.

That is a market of its own.

I would have this discussion with some local RE estate people.

Three dynamics are going on in CA.

1. The local wackjobs are making it harder and harder to get permits to build so the market is stronger on the seller side.

2. Because of shit like #1 people are fleeing CA to live almost anywhere else.

The state’s population declined by 173,000 between July 1, 2020, and July 1, 2021, bringing the estimated total population to 39.37 million, according to estimates released by the state Department of Finance on Friday. The 0.44% decline is slightly less than the population loss reported for 2020, demographers said.

3. Interest rates are climbing. So fewer people qualify and this tends to push down prices.

Like politics all RE is local, location, location, location.

Talk to some local players in the RE market.
Talk to an accountant and an investment advisor.

Then make your decision.
The players on the East Coast are building like crazy. NO inventory. They are expecting to sell out quickly in the next couple of years.

I know nothing about your local RE market.

quote:

Originally posted by honestlou:

quote:

Originally posted by TXJIM:
..Just like stocks, it's impossible to time the market and 5 years is a long time. Stay put, the house will certainly be worth more in 5 years than it is today ...

These two statements are contradictory. The house certainly could be worth less, even substantially less, in 5 years. He is correct in that it's impossible to know, so you're taking your best guess.

As far as the taxability issue, if you sell it now and your gain is under 500K, it is not taxable. What you do with the money is not relevant to that equation. If you invest the money and it earns interest, yields capital gains, etc., those gains or losses are taxable or not on their own-nothing to do with the sale of the house.

On a related note, I would not trust the Feds to not lower or eliminate that $500k gain exclusion sometime in the future, or perhaps make it means tested, as in if you aren't dirt poor you have to pay those taxes.

My "tax advantages" comment was related to owning a home vs paying comparable rent. Taking deductions for property taxes, mortgage interest etc... And no, my comments were not contradictory. Just like stocks, yes his home "could" be worth less in 5 years but it likely won't be. It makes no more sense in this situation to try to time the real estate market as it does to try to time the stock market.

Just my $.02....

quote:

Originally posted by AKSuperDually:

quote:

Stay put, the house will certainly be worth more in 5 years than it is today

That's actually unlikely, not impossible, but it won't be the average property owner's experience.

I'm in the real estate valuation business. NOT the blow smoke up your ass agent side.

There is no guaranteed answer for every market, but your assertions won't be true for a LOT of the country. In MANY residential markets, the reset has already begun.

With his time horizon of 5 years I doubt any short term correction will have him below his present value in 5 years. I took it in the shorts in the 2008 "correction" and was $200k plus under water. I held on and sold in 2014 for $150k above the pre correction value. Like I said, 5 years is a long time....

If you decide to take the windfall profits, there are no-penalty CDs that pay a bit more than the 0.5% online savings accounts already mentioned. With interest rates rising, being able to get out of the CD with no interest penalty after 6 days (the typical limitation) so you can switch to a higher interest CD during your 3 to 5 year time horizon will likely be useful. Won’t pay as much as bonds or stocks could, but it’s a much less risky investment.

At the very least, you can throw $10k into an I-bond for each SS# in your household. That's risk free and pays a pretty good interest rate. Assuming it's just you and the wife, that's $20k per year. In five yrs that'd be $100k before any interest, but the first two you bought would have already racked up five yrs of interest, the next two four yrs and so on.

quote:

Originally posted by Rick Lee:
At the very least, you can throw $10k into an I-bond for each SS# in your household. That's risk free and pays a pretty good interest rate. Assuming it's just you and the wife, that's $20k per year. In five yrs that'd be $100k before any interest, but the first two you bought would have already racked up five yrs of interest, the next two four yrs and so on.

That’s interesting. It’s my wife and I but also 3 children. So we could do 50k a year? And those are going to be paying out 9% starting next month??

quote:

Originally posted by sig2392:
Normally I would agree with AKSuperDually

Except you live in CA.

That is a market of its own.

I would have this discussion with some local RE estate people.

I absolutely recommend consulting with LOCAL, Competent, Licensed professionals.

If discussing market value and trends, if they letters "SRA" or "MAI" (preferably both) aren't behind their name, then they probably don't fit the bill.

Interesting timing that this story just hit my email a few minutes ago:

https://www.attomdata.com/news...osure-market-report/

California is leading the country in Q1 2022 residential foreclosure starts, a shift from Illinois and New Jersey who were leading and still have the highest number of foreclosures.

Bank reposessions have risen 41% from last quarter, and yet again, California is amongst the highest in those statistics.

The OP is likely making a good decision, and smart to talk to local expert CPA's and Lawyers that specialize in his specific situation.

Conservative, stocks, and 5 year time frame do not belong in the same sentence together.

I’ll echo those who have suggested seeking competent, professional advice. There’s just too many variables to hash it out over the internet.

With the $10,000 cap on the deductibility of state and local taxes, a $25,100 standard deduction, and assuming you have no other deductions other than mortgage interest, your mortgage interest would have to be more than $15,100 to realize any tax benefit from owning vs. renting as far as the annual costs of ownership go. The exclusion of capital gains from the sale of you main home is a huge tax benefit though.

My gut reaction without knowing any real numbers is your idea takes on more risk than it is worth compared to just staying put.

quote:

Originally posted by AKSuperDually:
I absolutely recommend consulting with LOCAL, Competent, Licensed professionals.

If discussing market value and trends, if they letters "SRA" or "MAI" (preferably both) aren't behind their name, then they probably don't fit the bill.

Clues on what SRA and MAI mean?

quote:

Originally posted by trapper189:
Conservative, stocks, and 5 year time frame do not belong in the same sentence together.

I’ll echo those who have suggested seeking competent, professional advice. There’s just too many variables to hash it out over the internet.

With the $10,000 cap on the deductibility of state and local taxes, a $25,100 standard deduction, and assuming you have no other deductions other than mortgage interest, your mortgage interest would have to be more than $15,100 to realize any tax benefit from owning vs. renting as far as the annual costs of ownership go. The exclusion of capital gains from the sale of you main home is a huge tax benefit though.

My gut reaction without knowing any real numbers is your idea takes on more risk than it is worth compared to just staying put.

I’m very open to sitting down with someone local and appropriate, just need to know who that is.

And that goes for both issues: whether or not the concept itself is a good idea, and if so, what to do with the money in the mean time.

Open to ideas on which sort of professional I should be looking for.

And as for the income tax question, we haven’t itemized for several years. The standard deduction has been a better option for us.

quote:

Originally posted by thumperfbc:
Clues on what SRA and MAI mean?

https://www.appraisalinstitute.org/our-designations/

Designations of competency and demonstrated superior knowledge in real estate appraisal by the Appraisal Institute (foremost professional organization of real estate appraisers, who also creates and teaches most accepted curriculum in real estate appraisal training).

The MAI has demonstrated through extensive formal education beyond the basic state certification requirements, peer-reviewed work history, and demonstrated mastery of written appraisals as well as a 2-day, 4-part comprehensive examination. The MAI is globally recognized as an expert in the appraisal of all real estate types.

The SRA is similar, but only demonstrates those skills and steps above for residential properties. It is a common add-on for MAI appraisers after they've achieved other designations.

Requirements for a minimally certified appraiser are significantly less than designated appraisers. Many national lenders won't accept high-value appraisals without a designation.