Sell Stock To Buy Investment Property or Keep As Conventional

[Nic A.]

Curious thoughts on the following scenario.

Current SFR with $51k loan at 8.125%, just purchased with around 10% built-in equity on the property, $250 monthly cashflow (post expenses). Current individual stock portfolio (non-retirement accounts) with holdings that might be volatile in the next few years (big tech & big oil). $51k is about 17% of the portfolio and gains on the stock holdings are already 100-200% (long-term).

I wonder if it's worth it to sell shares pay the 15% capital gains and pay off the mortgage. The cash flow of the paid-off property would be $480 monthly (post expenses) and am thinking of reinvesting that back in the market. A few other things I'm considering;

- I don't need the extra cash flow to live and am just approaching it to remove the high mortgage interest, but also hedge risk that the current stocks might tank in a few years.
- Could take all current cash flow and a few thousand a year to pay off the property in 5-10 years.
- Hold for a bit and 1031 into something else but am fairly confident there is not much appreciation to come on this property.

[Nic A.]

Quote from @Dave Foster:

@Nic A., Investing for "what if" is fraught with risk.  But ya have to make some educated prognostications in life.

Add this to the information your processing - What your talking about doing is eliminating around $4000 or interest expense (which is deductible anyway so really could be a real impact of eliminating $2800 or so) of debt in exchange for paying over $10K in capital gains tax (don't forget possible state gains tax as well).  

the rest of the loan payment right now is coming back to you eventually.  So it looks like you would need around 4-5 years to get to break even by selling those stocks and paying the tax now.  Could stocks drop a lot very shortly - sure. But do you think that 4-5 years is not a window enough of time for them to recover?  That's the question.

I'm not a fan of 8.125 either.  But you mentioned not needing cash right now.  and 5 years is a long window for things to change in ways we don't expect (lower interest rates maybe??).

All great points, thanks Dave!