Selling stock to invest in a rental?? Is there a specific way to do it??

Question

I was considering selling some of my stock to purchase another rental property. I just wanted to make sure there weren't any specific ways I could/should do it that would save me money.

I don't want to just sell the stocks then buy a house only to find out later I could have filled out "FormXYZ" or opened an "ABCaccount" and it would have saved me money. TIA

I've owned the stocks for about 3-4 years and they're up if that makes any difference.

Aman S. · Answer

Some brokers like Etrade let you borrow against stocks if you don't want to sell stocks. I have borrowed money from Etrade with my stocks as collateral to invest in my flips . Worked really well for me, interest rate is approximately 7%. However if you can get a cheaper financing for long term rentals that can be a better option.

Jon Klaus · Answer

I don't know of any special technique. You'll likely pay long term capital gains on your stock gains.

Terrill W. · Answer

Hi Chris,
If your stocks are in an IRA or you are able to set one up, it could be a tax efficient way to create your own trust. My only knowledge about this comes from an article that I read last year. Here's the link: http://www.nytimes.com/2012/04/21/your-money/self-directed-iras-in-real-estate-need-investor-effort.html?pagewanted=all

Chris Rosenberg · Answer

Chris, there is no special way to sell stock to purchase a rental property unless it's in a retirement account. If you think you can make more than 7% in the stock market and in real estate annually than you can take Aman's advice and borrow from your online brokerage account. You should also be able to write the interest off. If you owned average stocks for the past 3-4 years than you more than likely have some hefty LTCG to pay, which is a good thing. If you're that good at stock investing maybe you should keep your money there. With that being said, don't try to time the stock market. It ain't gunna happen. David, gold has been taking a beating for a while now. Like almost 2 years. Who knows where it's going next but plenty of people thought it was a great buy a few months ago and instead it's losses accelerated. And all of the gold miners are writing off large chunks of their "hard assets". And you can't compare the Wilshire 5000 to quality handpicked stocks either. Plenty of companies will make money regardless if the Fed prints more money or not. Good dividend paying stocks produce cash flow. Good real estate investments produce cash flow. Gold only offers the possibility of price appreciation.

Steven Hamilton II · Answer

Chris K.,

Yes, you would be subject to Capital gains on your profit only.  Sit down with your accountant and project out the situation so you don't have any problems.

David Beard · Answer

Just pay the 15% in LTCG taxes and get out of the market!  Look at the return pattern of the Wilshire 5000 since 2009, in the teeth of a lousy economy, all driven by irresponsible Fed behavior.  It's time for a shellacking, the Fed is out of ammo.  Hard assets will be the place to be, real estate and gold, and if you can finance RE with a modest amount of low fixed-rate debt (no more than 65% LTV to ensure staying cash flow positive in the coming carnage), then all the better.

1996	   	   21.2%
1997		   31.3%
1998		   23.4%
1999		   23.6%
2000		  -10.9%
2001		  -11.0%
2002		  -20.9%
2003		   31.6%
2004		   12.5%
2005		   6.4%
2006		   15.8%
2007		   5.6%
2008		  -37.2%
2009		   28.3%
2010		   17.2%
2011		    1.0%
2012		   16.1%
6/28/13 YTD	   14.0%

Steve Babiak · Answer

Some smaller community banks will give you a loan on the stocks - see if you can do that and you won't have to sell (unless the loan gets called, there will be terms regarding the loan to value of the stock).

James Vermillion · Answer

I see what happened here!  I believe Chris is looking to sell some stocks he has invested in and use the proceeds of the sale to purchase real estate (as an alternative to investing in the stock market).

Nothing wrong with that Chris, and I agree with Jon, I believe you just need to sell the securities (which will lead to long term capital gains taxes to be paid).

Chris K. · Answer

You're correct. Thanks for clearing that up.

Dawn Anastasi · Answer

Chris K. I think Tom thought you meant you were going to sell stock as in providing the stock yourself to raise capital like a company would do.  I believe you mean you have some money in the stock market and want to sell off some shares to get money back to invest in real estate.

Selling stock to invest in a rental?? Is there a specific way to do it??

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