If I have large amounts of capital in taxable stocks, what is the best way to put that to work for me?
I am 33 years old, in the military and will be purchasing my first house around May. This will be the house my family will live in so I will use a VA loan with as little down as I can.
I then want to begin buying investment properties and put what I have learned from BP into action.
I have enough cash to put 20% down via a conventional loan on house #2, but will need some more cash for house #3+.
Question: What is the best way to cash out stocks for real estate investing? I started investing in 2008-2009, so these stocks have increased in value 100%+. My capital gains will be HUGE. How do I play this? Maybe I can write off expenses to even out the income gain?
I also have a ROTH IRA and ROTH TSP.
Might consider looking into self-directed 401k or self-directed IRA accounts. I believe you can roll existing 401ks into either of these and invest in real estate out of the accounts.
Another creative option I have heard people have success with is actually taking a loan from yourself with your retirement accounts acting as a lender.
Obviously, I would seek assistance of a financial planner or CPA with REI experience that may be able to help with your specific situation.
As active military, do you have access to military-specific financial planning services that may be able to assist you?
Since your stocks are in a non-qualified (taxable) account, and you don't want to sell them, you may want to think about a margin loan on your brokerage account.
A margin loan is a loan from the brokerage company which is secured by the value of investments in your portfolio, and the maximum you can borrow is usually 50% (although it may be lower at other brokerages). The margin loan has no repayment schedule, and the rate charged is variable (usually LIBOR+x.xx%). Right now my custodian is charging in the neighborhood of 6-7%.
Margin loans are risk in that, if the market moves against you, you have to transfer money to your brokerage account or sell investments if your loan exceeds the maximum percentage of the account you can borrow. This forces you to come up with liquid cash or sell into a bad market. When margin loans go bad, they really stink the place up.
From what little you've posted about your financial situation, I suspect you're about to massively over-leverage yourself, so it would be really imprudent for you to go and get one of these. I'm mainly sharing this for your information, and for anyone else who might be reading.
If you're interested in the use of margin as part of a wealth-building plan, I recommend reading "The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth" by Thomas J. Anderson for a more complete discussion.
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