What to do with $110,000 in equity

Question

Hi Everyone,

My name is Daniel and I am from Anaheim, CA. I am 26 years old and I’ve owned a condominium for almost 2 years. The condo currently has $110,000 in equity. I need some help from a financial advisor or an investor on what my next step should be. Should I sell the home and reinvest it in something else? My main goals is to see the money grow more as fast as possible. Should I get into stocks? Any advice is much appreciated. I am just a young inexperienced individual.

Daniel

Joe Homs · Answer

@Daniel Rivera Welcome to BP.  Most investors come onto this forum to get their questions answered so I will do my best.  Since you live in California this will be my 40 years of experience as an investor that I will tell you the following:

1.  It really matters if you are the principal owner of the home or if this is an investment.

a.  If you are the principal owner living in the home then you can sell the home and NOT have to pay Uncle Sam anything in Capital Gains.  Since there is an exclusion up to $250,000 for you and if you are married for your wife, another $250,000.  You can take this money and do whatever you wish with it.

b.  If you are renting out the home then you WILL need to pay capital gains on the $110,000, unless you do a 1031 tax deferred exchange.  Which means that you would move the "profit" over to something else that you liked.

2.  You are obviously in California and we have wild ups and downs in the market about every 10 years.  The last one was about 10 years ago.  I am currently seeing a top in the market and maybe even a slight downturn right now, but that is you next big decision.  You are very young, I was 24 when I purchased my first investment property, which I still own today.  Let's take my example.  Purchased for $50K went up to $125K when bubble burst back down to $50K.  Then it went up to $175K when the bubble burst and came down to $100k (doing better.)  This last bubble took me up to $450K and then the bubble burst back down to $100K again.  Now we are back up to $400k again.  However I am in my 60's now.  What should I do?

Answers?

If you are good at the stock market then consider that.  I am most people in the world are terrible at it.  During the last few bubbles I lost $0 in the stock market, because I was NOT in.  Maybe a great decision for me when everyone was crying about their losses in the Dot.com bubble and this last 401K bubble, but if you knew to short the money you are sitting on a beach somewhere.

My daughter purchased a condo 10 years ago for $150K.  Sold it 2 years later and purchased a town-home for $350K.  Sold it 2 years later and purchased her current home for $500K.  She has that home on the market for $815K and plans on renting until the bubble bursts (which she thinks is right around the corner) and renting until she can buy a million dollar home for $500K.  This is her answer to you.

There are really so many more questions that I would ask you before making a decision.  Are you single?  Marriage and children tend to change our lives dramatically.  Where can you make $110,000 in two years?  However this is paper money and NOT realized until that paper is IN your bank account.  So if you want to lock those gains in now then sell.

If you sell then where are you going to live?  How much money do you make a year?  Do you need the tax write off to keep Uncle Sam at bay?  Lots of questions...

Good Investing...

Thomas S. · Answer

Get educated first on finances, real estate and investing before you take any advice from strangers on the interweb.

Find a good local financial advisor you can sit down with a develop a long term plan and relationship with.

Michael Pearse · Answer

@Daniel Rivera Before doing anything with the equity I would get educated in a specific area of investments that interests you. I would recommend understanding the market you plan to invest in (if you choose RE), and connect with the local market to get feedback on what people find are good areas with whatever niche you decide on (Flips, BRRRR, turnkey, ect).

Best of luck!