I’m 40, single, renting on Long Island. Would be first time home buyer. My commute is 45 min now, but I’m looking at condos that would cut it to 25 min and be in a nicer area. Apartments nearby cost about 2500 and not as nice. I'm paying 2k currently.
My finances:
Take-home: just over 2k post everything every other week.
Retirement (all post-tax Roth): 140k.
Current retirement contribution: $500 every check post tax (I could do pre and net maybe 150-200 more a month).
Personal investments (mostly SPY/QQQ ETFs): 130k.
High-yield savings: $80k.
No debt, pensioned job (could retire in 17 years, prob won't happen though).
Condos I’m considering:
Price: $300–350k.
HOA + mortgage: $2,500/month.
Down payment: $60k 20%.
My thinking,
2500 a month would be too much for me so I was thinking maybe take 20k from hysa and sell 80k of spy/qqq and put 100k into down payment, make the monthly payment 2k and I would feel much more comfortable with that.
Is selling a big chunk of stocks for a down payment dumb?
Is selling a big chunk of stocks for a down payment dumb?
byu/Smc55 inpersonalfinance
Posted by Smc55
33 Comments
Why did you buy the stocks in the first place if not to fund your life at some point?
Why are you not doing something like $50k from HYSA and $50k from brokerage?
Will taking money out of your brokerage still leave you on track for whatever your retirement goals are?
Just plan on the tax liability of 15% for long term gains so if you need 100k cash sell115k and keep 15k ready for tax season next april.
Not dumb at all. I would think having investments was for the purpose of eventually buying a home.
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Given your stable financial situation and the relative amounts of stocks held outside your Roth and HYSA balance, I would opt for tax efficiency and sell more HYSA and less ETF. Perhaps even take all the down payment from the HYSA. You could consider some of the $130k ETFs as your emergency savings while you rebuild your HYSA.
Converting some of your paper gains into a tangible asset seems not only reasonable but a good strategy.
Not dumb, but I’d probably take a good amount from HYSA so I didn’t incur the 15% long term capital gains tax in the sale of the stocks.
But ultimately the top comment is correct. We could nitpick which bucket you pull from, but investing money and getting bigger numbers is to use it and spend it
You’re paying $2k/month in rent right now with zero equity. A $2k mortgage payment on a condo that cuts your commute and puts you in a better area is the same cash outflow with an asset attached to it.
If I’m reading your post correctly, it looks like you have $130k in high yield savings. I don’t think you need to even sell stocks for a down payment. You could theoretically put $100k down from your hysa and you would be around what you want to do.
Just make sure you are calculating holding costs (taxes will increase if you buy, insurance, repairs, etc.)
I sold 200k of stock to put into my residence to be comfortable. Do what makes you sleep better at night
Seems like a good move. Look at pulling from savings rather than brokerage though.
Is your monthly payment going up?? I’d be concerned you’re throwing away all your future stock gains to just sit in an asset that moves slow, illiquid and expensive to maintain? People make big bucks on real estate through leverage. You’re paying your monthly rate down and reducing leverage. This is fine but if it’s the same cost, you’d be 10274840x better just renting the same condo and keep investing until the market is more favorable to buyers
Have you considered using a securities based line of credit instead?
Would avoid the capital gains from the sale, allow you to pay that back when you like (ie. Loss harvest over time to pay the line back). I’ve seen that work pretty well.
I would not sell a big chunk of stock. Find another way and sell stock in small quantities to fund your payments.
I made a similar decision when buying a vacation home. I sold a big chunk of stock, paid a big chunk of taxes (is lost money) and used it for the down payment. I should have used my HELOC and paid that off from small stock sales while the stock (and what I lost in taxes) continued to work in the market. Cost me a lot of money.
Yes and no.
You buy stocks to provide money to fund your life. So, yes, use the stocks.
Here are two personal anecdotes showing both the negatives and positives of selling.
I had a friend who was president of a company that was bought by another corporation. He was going to move to the new corporate headquarters and sold his house in preparation for the move. At the last moment, his step-son’s father filed a motion with the court to prevent them from moving (his son would have gone from living 5 miles away to 500 miles).
My friend, now unable to move, had already bought a house in the new city which needed to be sold, and had to buy a new house. Most of his wealth was tied up in long term investments, so he had to sell all of his company stock to buy the new house. He sold it for $87/share.
The company stock dropped to $2.50/share three months later.
He was very happy to have sold.
On the other side of the equation, I had a co-worker promise his daughter that he would fund her college education 100%. She chose to go to a very expensive private college in Boston instead of a state university. He sold all of his company stock to pay for her four years of college.
She then took a job as an engineer with a company in her home town. She would have been better prepared if she had earned her engineering degree at the nearest state university because its program for that type of engineering was higher ranked and regarded.
Our company stock then went up 4000%. His daughter’s college education went from costing him hundreds of thousands of dollars to millions.
Following this thread! I’m looking to the same but on a rental property. Just wanted to diversify a bit.
No, we did the same thing.
Stocks are a fungible asset. You only have them to pay for other things later, ideally.
If you do end up selling, look up the options to select which stock purchases you want to sell to minimize your tax burden. Many brokers default to first in first out, so your first few transactions may yield the biggest profit which means larger tax to pay later. Look for those purchases more than 1 year ago but at a higher cost basis
I think buying a home is one instance where taking money out of investment accounts can make sense. Homes generally appreciate and are often a households most valuable asset. I’m 15 years older than you but originally bought my home in my late 30’s. I financed with a 15 year mortgage and paid it off two years ago. It is now worth somewhere in the mid 500’s. Pretty good wealth building asset in my opinion.
It seems like you might want to be more conservative, but I borrowed against my stock portfolio rather than sell for downpayment. Effectively have a mortgage covering 90% of the purchase price but didn’t have want to deal with paying capital gains.
Only if you view long term wealth optimization as your only priority. Does quality of day to day life have any value to you? To me it does. And I bet to you also. You invest to make money so your life can be better (I assume) not so you can have the biggest pile of money (I assume)
This is how we funded the down payment on our house over a decade ago. If you can do it without severely impacting your retirement plans, I’d say go for it.
Make sure you pay the gains. Or you get a big tax bill
No necessarily
Right now might not be the best time to sell though
Capital gains tax would tax the profit only not the full withdrawal unless cost basis is zero, right?
40k from HYSA and 20k from stocks for the down payment.
No it’s not dumb especially if your money made money. Just plan for the taxes.
With 6.7% interest rate… I sold ALL my stocks for a down payment.
I sold off my Tesla stock to pay off my house. Anything stock sale that helps you avoid debt is valid in my book.
2500 is 62.5% of your current take home.
You want a mortgage that is 40ish% of your gross (usually it’s 33%…but you are in a VHCOL area..and that can be up to 50%)
This is a good plan. Only but in a place where you might find a partner… if you don’t want to be single anymore. Cutting that commute alone is a good plan and so you get a huge quality of life bump there. Owning allows you to build equity. Just don’t buy a dump. Buy a place you actually want to live in.
Do your best not to have any short term gains, as doing so would essentially make the U.S. treasury your partner based on the % you’d have to unwillingly surrender to them. Good luck 🍀
Just be aware that the big risk with buying a place is that your expenses may continue to go up. You say you’re comfortable at $2k, but not at $2.5k. Insurance generally increases, HOA fees and taxes increase, and there are any expenses you will have for home maintenance and upgrades. I’m not saying don’t do it, but consider what might happen if your other home related expenses increase.