Should I Pay Cash, Sell Stocks or Pass on this Real Estate Deal?

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Should I Pay Cash, Sell Stocks or Pass on this Real Estate Deal?

Sherrie P.
Florence, AL · Member since 2013 · 21 posts · 2 votes

I am considering buying a beach condo. Our family will probably enjoy it a couple weeks out of the year. (when we don't have paying customers).

Most of our money is tied up in Mutal Funds. If we buy the property, we will have to sell stocks and pay cash. (held long enough to pay Cap. Gain tax) .. Financing is not an option because we are retired so we don't have the income to support a loan. I cannot figure out how you decide which is a better return on your investment. On one hand, the stock market is doing well the past several months but no crystal ball for the future. Here are the numbers on the condo unit.

Cost of condo 260,000.00 (fully furnished)

Average annual rental income 20,000.00 (past two years)

Annual carrying costs 13,000.00 (untilites, insurance, cable etc. everyone except a mortgage if you have one)

If we use a local management company, that is an additional 25% commission.

I guess I don't know how to figure ROI on investment property. I could really use any advice. Thank you in advance.

Sherrie

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Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y
Originally posted by Frank Romine:
Who knows the stock market might collapse.

So might the real estate market.

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  • Xing Zhu
    Durham, NC · Member since 2012 · 498 posts · 48 votes
    12y

    Long term projections of stocks are very unreliable. This is why in the past decade, long term stock investment has been doing poorly in both return and risk aspects. The best performers are ultra short term strategies, such as statistical arbitrage (that what I do). These strategies, if properly tested, can produce very good projections with, in practice, very low risk and high return (e.g. more than 10,000% pre-tax return with max drawdown less than 10% for the last ten years). To obtain such strategies may require sophisticated computation, which are not familiar with general public or financial adviors. Some of the sophisticated code can run forever even with massive parallel computation. These strategies are not for investment, but rather comparable to flippings in RE. Their success depends not so much on market movements as on market efficiency, liquidity, momentum and so forth. In a normal development, the stock market is becoming more and more efficient and therefore the return of the next 10 years will be most likely lower than the last 10 years. The efficiency can temporarily go down due to a large mount of information input such as the last housing crash. RE market, when becoming normalized, will have higher efficiency too and consequently filliping return will decline in long run.

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