Sell equities now and invest in new home construction

8 Replies

hello BP community

I own a lake front rental property in the red hot upstate NY market that I'm using for STR. I'm cash flowing between 8k-10k a month. The house sits on a double lot so there is potential for development. I have a healthy equities portfolio of 1.3 M that I would use to pay for the building of a second home on the adjacent property--estimated budget of 250-300k. Equities have done very well the last 10+ years so I feel pretty confident this deal is a better vehicle for growing a portion of that money. Is this a total no brainer or what?

If your making that type of return and see that trend continuing its a no brainer especially if you plan to leverage it with a mortgage. Figure it as diversification with the potential for losses to offset your capital gains selling the equities. 

@Matthew Lenning Its an idea or just plunk down the cash to the builder and do a cash out refi after and it may appraise for more. Construction loans from what I hear, I've never done one, is alot of red tape the bank requires. Or you could just leave it mortgage free if its throwing off that much money and you have no plans to do anything with the remainder of the cash. Really it depends what you want to do. Either way the building and accelerated depreciation should help you with the gains from equities. Talk to your accountant they can clarify it and go over the rules and tax planning. 

Don’t have all the info so adjust as needed. 

1.  Keep investments and cash around you.   Use leverage as much as possible especially with interest rates so low

2.  Manage your risk.   This is a personal decision.  Either shoot for aggressive in both the stock market and the rental or just one.   I would pull the cash selectively out of the underperforming equities.   

3.  If your existing rental has both enough equity and cash flow then use it as collateral for the new add.  Don’t use cash or stock

4.  Either way recommend you separate the legal properties.  it is a lot easier to do now, than ask a bank later to split.  Banks hate giving up collateral and you may choose to use one of the properties as collateral in the future with a different bank

5.  If you don’t have enough equity in your current rental   But you don’t want to sell your stock then open a separate broker account.   Move as much stocks into it as needed and assign to the bank as collateral.  Check with the broker and the bank the degree to which you can trade these equities  

You've had a good run with your equities. I'd cash some of that in and spend 300k or whatever to build another house. Sounds like your STR is killing it. Well done! Take some money off the table with your equities and expand your real estate portfolio.

I did this 6 years ago to buy my first RE property. I cashed in some stocks that did well over the years and jumped into RE. I’m so glad I did and it felt good to cash in some stocks that did well. I’ve got 1.3 million in equity with my RE now so I’m glad I decided to diversify. Good luck with whatever you do!

@Dan M. I’m considering leveraging the equity on the current home to finance this project but i see the value in what you are suggesting. I will be talking w tax pro to see how this scenario would play out. Thank you!

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