Sell gold/silver to purchase next property??

Question

My first rental is up and running smooth.  I bought it outright, financed the costs to fix it up but need to wait 6 months from the purchase date to get a mortgage on it to cover the fix-up financing (5% with mortgage vs. 12-19% consumer credit).  In the meantime I am refinancing my primary residence from 6.25 to 4.25 (roughly saving me $280/mo).  That takes place 16 December.  Shortly thereafter (within a month), the 6 month date will be met and I can pull equity from rental to cover fix-up financing. I work part time and go to school full time, so my income isn't too great.  I used most of my cash to buy the first property.  I was considering if it's worth it to sell some gold coins to purchase the next property and then wait the 6 months (over winter) and then pull equity out to fix it up in the spring.  Any thoughts/ideas?  The properties I am looking at would be in the 30-40k range and take around 20-30k to fix up.  Thanks!

Chris Weiler · Answer

You will get a number of different opinion on gold. No matter your position on gold there is no arguing its price is high in recent history. So if your choice is between gold that many believe is in a bubble and distressed property, I believe the answer is clear. Of course without knowing the numbers on the real estate you are purchasing it's hard to determine if you are getting a better value. But in general terms, yes, I would chose distressed rental properties over gold.

Account Closed · Answer

Yep. If it's bullion sold "on the grid" we are taxed 28% on the profit. And the 28% taxable event would apply if you sold me a house and I paid you directly with bullion.

I am not sure how your state got out of that. They must have dug deep into the constitution :)  Congrats!

I certainly hope by the time I start selling more states - including mine - adopt that idea.

Account Closed · Answer

I am pondering something similer in the next year or two. I do believe gold has a ways to go on this uptrend. It appears to have consolidated nicely between 1700-1800. That does not sound ready to crash to me, based on historical patterns for the yellow metal. However, there are valid points on both sides.

In either case, one challenge with a bullion sale is the 28% 'taxable event'. Except for those living and selling in Utah where gold is much closer to functioning as money instead of a commodity.

I don't think I will time it perfectly. Chances are you won't either. But with due diligence on the swap you will be fine.

Good luck!

Bob Hines · Answer

Gold/Silver-and investment.  It will sit on the shelf/safe/bank vault and go up or down in value.

Rental properties-a business that needs running.  You're talking about rehabing these properties so I assume you're going to manage the properties also?  That is a business not an investment that sits around doing and needing nothing.  You're going to have to find renters, rehab, fix toilets etc.

So besides where you think future market values are going-do you want to turn your investment in gold into a real estate business is the first question you need to answer for yourself.  Your question is two completely different worlds to me.

Andy M. · Answer

28% tax on precious metals gains? I live in Utah so this is foreign to me. Can't you just sell in small in portions to individuals off the grid? I don't think I would go sell 10k + in precious metals to a dealer, just me.

Sam - I really like your thinking. I'm 30 as well and I try to have balance to my portfolio. You just can't beat the consistent returns you can get with real estate and hard money loans.

Sam A. · Answer

Thanks for all the ideas :)
Brian-Thanks...I forgot that insurance has a problem with vacant properties and thier respective coverages.  I also think that the winter should provide better deals.  Maybe I'll offer huge price discounts soon and if someone bites I'll be good and if not I can wait until the deep of Minnesota winter.
Chris-Thanks. I bought gold around $950, and I believe it still has legs with QE ad infinitum always around the corner.  
Peter-Thanks. Even though I am only working part-time, my debts are minimal and I have no need for dollars at the moment--which is why they are stored in the form of yellow metal :)
Matty-I haven't considered the 28% tax...might have to manuever a bit to maximize profit...thanks!
Andy-Thanks.  I just turned 30, so I am looking for more risk vs. security.  As far as asset allocation, I am 10% cash and 90% silver and gold, so I can allow flexibility in that ratio. Having 1/3 cash, 1/3 metal, and 1/3 RE is my constant goal, but it seems whenever I make a purchase, it throws that plan way off track and I'm back to trying to equalize.

Thanks for all the great advice guys!  If there is any more to give, I have three ears, so drop another message :)

Andy M. · Answer

I agree with Matty, gold still has a way to go. That said, you still need to have balance. Gold doesn't cash flow or give you a tax break but it is important to preserve wealth. If you are at the stage in your life when you are looking for asset preservation then I would be heavy in precious metals. If you are starting out or early in your career then you need to be more leveraged. I do think it is prudent to have at least 5-10% of your savings in precious metals though.

Peter T. · Answer

Agree with Brian and Chris comments that gold is at quite high level and I would invest in destressed assets over overhyped ones any day.

But taking a step back, you mentioned you used up most of your cash and only work parttime If I was in this situation I would sell the gold and put the cash in bank account because I want to have some reserves in case something happens.

Just my 2c

James H. · Answer

I think your biggest concern is do you want to sit on a vacant unit for 6 months. You will need to pay for insurance (and I would want the utilities on)during that time. Insurance usually will only insure cash value if the unit is vacant for more than a couple months. So you would need to factor those costs plus there is a greater chance for vandalism.

I don't think these things would be deal killer for me. You might find better prices during the winter season because you won't be competing with spring investors and home buyers.

Gold is really high right now and you can only speculate where it will be in 6 months. Chances are it will be about the same to a little lower in price. I think over the longer term it will go back down quite a bit - if history is an indicator of future behavior.

Sell gold/silver to purchase next property??

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