What should I do with the money I’m about to receive?

Question

In the beginning of 2025 I will have about $100k (hopefully more) in fully vested stocks for the company I work for. I’m considering using that money to start investing in real estate. I work in restaurants operations management and would eventually like to get out of the industry. I am unsure what the tax implications are for cashing out this amount of money from the stock market.

My 2 main interests in real estate are flipping and short term vacation rentals. I’m wondering if anyone has advice on how to get started or if I should wait and keep the money in the stock market and diversify to other investments to build up more cash. Ideally I just want to start with one flip to gain experience and confidence. I could use advice on creative financing or hard money lending. I’m fairly confident in the actual renovation process due to my experience with facility management and vendor relations in the restaurant industry.

Would love to connect with a mentor in the Denver, CO area as well. Thank you!

Ko Kashiwagi · Answer

Hi Meredith,

100k should be a good amount to fund a flip or STR on the lower ends of Denver CO, so I'd recommend figuring out which strategy you want to go with first. Both are active style of investing so note that there's a big learning curve either way. Depending on your strategy, you may be able to do a deal with a lot less than 100k. For instance, hard money financing typically requires a lot less down compared to rental financing.

Jaron Walling · Answer

@Meredith Ogden That's a lot money so take your time and understand the "challenges" you face when jumping into REI.

First, you could be punished for pulling the money (Uncle Same hurts people). Depending on account holding the money you could pay early withdraw penalties, taxes, who knows. Speak with a tax professional.

Secondly, "My 2 main interests in real estate are flipping and short term vacation rentals" - these strategies are full time jobs. If you have the ability, flexibly, and time go for it! Otherwise understand the difficulties when flipping RE and managing STR.

Third, don't put all your eggs in one basket. What other funds can you leverage outside of the vested stocks? Pulling all that $$$ at once is crazy risky. Even before 2020 I'd never leverage my retirement just to do REI. When I started I scaled back my lifestyle, sold stuff, and got debt free to fund my first rehab. You should to be investing in other things (more baskets) at the same time which you are. Don't rob Peter to pay Paul.

Bob Stevens · Answer

A year away ????? you can buy two rental for about 100k each with abotu 1200- 1400 im rent, Refi cash out, do again,

Jaron Walling · Answer

The concrete advice you're seeking can be found in these forums. Everyday experienced investors are giving out free knowledge. Take advantage of the search bar and go down some rabbit holes. Read, read, and find discussions from years ago. See how the strategies played out until today. You'll see what works in 2024 and what doesn't.

PS: You should probably flip a property or buy a few LTR (SF or multi). Without a few base hits you won't catch the investing bug and win long term. If you're new to REI buying and managing a STR is not a great idea. It's a quick way to burn out.

Jacopo Iasiello · Answer

Hi Maredith, It's great that you're considering leveraging your vested stocks to start investing in real estate! Here are some considerations regarding the tax implications and getting started in real estate investing:

• Tax Implications: Cashing out stocks may trigger capital gains taxes, depending on factors such as your income tax bracket and how long you've held the stocks. Short-term capital gains (stocks held for less than a year) are typically taxed at higher rates than long-term capital gains. It's essential to consult with a tax advisor to understand the specific tax implications and explore strategies to minimize taxes, such as timing the sale or offsetting gains with losses.
• Real Estate Investing: Flipping and short-term vacation rentals can be lucrative real estate investment strategies, but they also come with their own set of risks and considerations. Flipping involves purchasing properties below market value, renovating them, and selling them for a profit. Short-term vacation rentals involve renting out properties to travelers for short stays, typically through platforms like Airbnb or VRBO.
• Getting Started: If you're interested in flipping, start by researching local real estate markets, analyzing potential deals, and networking with real estate professionals, contractors, and lenders. Consider attending real estate investment seminars or workshops to learn more about the flipping process and financing options.
• Creative Financing and Hard Money Lending: Creative financing techniques such as seller financing, private lending, or using a self-directed IRA can help you acquire properties with minimal cash outlay. Hard money lenders specialize in providing short-term loans for real estate investments, typically with higher interest rates and shorter repayment terms than traditional mortgages. Explore different financing options and determine which ones align best with your investment goals and risk tolerance.
• Finding a Mentor: Connecting with a mentor can be invaluable in gaining insights, guidance, and support as you navigate the world of real estate investing. Look for local real estate investor groups, networking events, or online forums where you can connect with experienced investors who may be willing to mentor you.Hope it helps :)

Bruce Woodruff · Answer

You have already received great advice. My thoughts echo @Jaron Walling: Both of the RE ventures you mention are not the 'passive' type like a LTR would be... Are you going to quit your job soon? IF not, then you will have to pay people to do everything for you and that will suck all of the profit out of the game.

Flips and STRs are two of the most hands-on things you could take on, so maybe start with a couple of LTRs like @Bob Stevens said.

Ben Rhodin · Answer

Hey @Meredith Ogden!

That will be a great lump sum to get you started on your journey, but I am going to agree with everyone above... Don't put all that capital into your first deal. We do TONS of fix and flips here in Denver, and I help numerous STR clients as well. Both are great strategies but you do need to be able to navigate them correctly otherwise, you could loose that 100k real quick. I wouldn't wait until you receive the money to get in. I would find other avenues to start getting your feet wet in the industry and make sure you enjoy these strategies. Flipping, if you are willing to do the work, you could find a deal and partner with someone who has the expertise and the funds, and work together on it. As for an STR, you may start somewhere smaller. Not sure what your current living situation is, but you may have an opportunity to get into a new home with a Mother in Law suite, or an ADU that you can STR, just to see if that rental strategy works for you. This would be a house hack, and you'd be able to get in with 3-5% down. I will also disagree with everyone above, you could make both of these strategies hands off, with the right moves.

These baby steps during the next year will gain you the confidence and the knowledge, to best utilize that 100k, if that is the best case at that point. and you may be able to stretch that 100k into a few deals, or limitless deals if you have the right pieces to play

Happy to chat more and give my guidance!

Meredith Ogden · Answer

Thank you!

What should I do with the money I’m about to receive?

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