Where to invest?

Question

Hi all,

So, I've been investing in real estate for almost 10 years old. In 2 years, I'll have one of my units paid off.  My question: should I use those proceeds to invest in the S&P 500 (my current plan), use those proceeds to pay off my other units or just purchase another property?

Jason Wray · Answer

Dean,

REI pay's off in most cases far better than a typical S&P 500 stock unless you have insider trading secrets like Pelosi!  Alaska would not be my main choice instead I would look to states like Indiana, Ohio, Florida, where real estate is booming and you can either flip it fast for a good return or short term rental 10x income.

One of my investors purchased a property in Indiana 6 months ago for $110K did some renovations around ($30K) and just sold it for $315K.  Indy and Ohio are full of great rental options like this to sell or rent.

Melissa Justice · Answer

With a 1031 exchange, to fully defer capital gains taxes, you generally need to reinvest all the proceeds from the sale into the new property and purchase a property of equal or greater value.If you take out $65K in cash (called “boot”) instead of reinvesting it, that amount becomes taxable gain in the year of the exchange. So if you’re putting down 20% on the new property but also cashing out some proceeds, you’ll likely owe capital gains tax on the portion you don’t reinvest.It’s a great strategy to defer taxes, but to maximize the benefit, most investors try to roll 100% of the equity into the next purchase. Definitely worth chatting with a qualified 1031 exchange specialist or tax advisor to structure it properly based on your goals.@Dave Foster on here is great and we refer him to all our investors looking to do a 1031.

Dean Gustafson · Answer

@Melissa Justice You're the best

Melissa Justice · Answer

@Dean Gustafson,

Hey Dean! Congrats on almost having a unit paid off - that’s a huge milestone.When it comes to what to do with those proceeds, it really depends on your goals. If you want to keep building your real estate portfolio and generate more passive income, purchasing another property, especially a turnkey rental in a landlord friendly state like in the Midwest or Southeast, can be a smart move. Turnkey properties allow you to add cash flow without the heavy rehab work, letting you scale faster and more hands-off.If you want to reduce risk and simplify, paying off existing units can improve cash flow and lower stress. Investing in the S&P 500 is great for diversification but doesn’t provide the direct cash flow and leverage that real estate does.If your goal is steady income and portfolio growth, reinvesting into another turnkey rental often offers a strong balance of appreciation and cash flow, especially if you partner with a solid team.Happy to discuss more about opportunities that are out there :-)

Best of luck!

Dean Gustafson · Answer

@Min Zhang I've thought about investing out of state.  I feel like I would need a very good property management team.  I've thought about putting down 20% on another property, rent it out and pay it off in about 2 years and keep doing that over and over.

Dave Foster · Answer

@Dean Gustafson, You can do what is called a partial exchange.  But any amount of cash you take out.  Or any amount you purchase less than you sell would be taxable.  A better idea that avoids tax all together would be to sell and do a 1031 exchange into a new property.

And then after the exchange is complete do a cash out refinance.  A refinance won't trigger the tax.  But it will give you the money you can use for anything you want - like playing the market or whatever.

Dean Gustafson · Answer

@Melissa Justice Awesome thanks.  Do you know if I can use a 1032 exchange to purchase another property without putting all the proceeds down?  For instance, taking out $65k for a 20% down on another property and S&P the rest?  Not sure how that works in terms of capital gains.  Thank you!

Patrick Drury · Answer

@Dean GustafsonIt depends on what you are personally looking for. If you are looking to grow your portfolio, then buy another one, but if you are struggling to manage the amount you currently have and want more time, maybe paying off debt is a better idea because you can maintin the same amount of rentals but increase the output from them. It just depends on where you are at in life and what you want to get from investing.

Benjamin Louie · Answer

@Dean Gustafson Congrats on almost paying off your unit! It really depends on your goals. Buying another property grows your real estate portfolio, paying off debt boosts cash flow, and investing in the S&P 500 diversifies your investments. Sometimes a mix works best. What feels right for you?

Melissa Haworth · Answer

Hey Dean, sounds like you’ve built a strong foundation already. That’s a great position to be in.

If you're open to staying in real estate, short-term rentals in vacation markets like the Florida Panhandle could be worth a look. I’m partial to that area because I’ve had success there, especially in places like Destin and Panama City Beach. Cash flow is still strong if you buy right, and the appreciation potential doesn’t hurt either.

Personally, I like having a mix of long-term and short-term rentals to diversify income. Stocks have their place too, but a well-performing STR can outpace S&P returns and give you more control along the way.

All depends on your goals, but if cash flow and some lifestyle perks sound appealing, another property might be worth running the numbers on.

Happy to share what I’ve learned if you're curious about the short-term rental side.

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