What to do with $$ if I cash out

Question

I have a single rental, considering selling due to appreciation and just not too interested in the landlord job anymore. My question is what I should do with the funds if I sell, should be roughly $70-80k after all fees. I have no outstanding debts outside of my current mortgage which is $156k Just refinanced with a 30 year. I have a 457 plan through work, I currently contribute $12k a year (max is 19.5 but I can't afford that now). I have no other investments.

One plan was to just hold the 80k in savings and draw from it as needed so I could bump my 457 deposits up to the max for the next 6 or 7 years. I'm 36 and hoping to retire in my early 50s. Maybe pick up a part time job for health insurance then. I can receive my pension at age 50.

Another option would be to invest the 80k immediately, but I'd need to get help as I'm no stock expert.  Any thoughts what you would do if you got out of real estate?

Thanks, Bill

Bryan Cress · Answer

1. 6 month emergency fund

2. Roth IRA if under income limit

3. HSA if available

4. Traditional IRA

5. Brokerage account

This question can have multiple answers based on your goals. The ability to draw from you pension at age 50 makes me question if you have a career which would allow you to draw early from your retirement accounts as well (such as a police officer, firefighter, etc.). Do you qualify for that? I believe it's age 51 for IRA/401k without penalty if you fall into this category.

I would want that money invested NOW, not sitting around for the almost 10 years it will take to be able to invest that much into your 457 ($19,500 - $12,000 = $7,500/year---$75,000 profit / $7,500 = 10 years). My natural progression for investment vehicles (excluding real estate) is: Match/Roth/Tax deferred/ Taxable. If you have a Roth 401k, that's a fantastic option and I'd max that out. If you have a HSA, I'd max that as well.

Lastly, while you said you don't want to be a landlord, that doesn't necessarily mean you couldn't hire management. You could also look into syndications, hard money lending, flipping, etc. Lots of niches that are encompassed by 'Real Estate Investing' that don't require managing tenants.

Best of Luck!

***not tax, investment, or legal advise. This is my personal opinion and what I would do if I were in your shoes.***

Neil Rose · Answer

I would suggest being a private lender for real estate investors.1st deed only with no seconds allowed. 60% mad LTV. Borrower must have cash for final 40%.

Bill Ward · Answer

Thank @Jody Sperling I'll look into that.

Scott Wolf · Answer

@Bill Ward, what a good problem to have!

You can try to 1031(to avoid capital gains) into a DST (no hassle) or buying a bite size NNN property which has no landlord management(but the potential for vacancy and releasing).

I like the private money route, especially if you keep the LTV low, although I'm not sure many would go for 60% at a private lender rate, but worth a shot!  @Danny Jenkins, if you know of anyone looking for that setup, feel free to give them my info!

Steve Vaughan · Answer

My tune about it not being a headache with hassles may change if it's facing a bunch of repairs.  Material costs are high, labor supply is low.  Unless someone enjoys it or can do it themselves I have found I can sell  vacant for less of a discount than it would cost me to retail it up in this market. I dont sell occupied.

Yes, definitely be aware of the 2 out of 5 year rule going forward.  However I'm often amazed at the smaller than expected tax hit with single sales.

If you do sell, buying index funds is super easy like I mentioned but I get your redeployment hesitancy.  Also have to factor in sales costs.

Bill Ward · Answer

Thanks @Steve Vaughan, I am back and forth all the time. I just missed the capital gains benefits (2/5 years). The house could use new siding on two sides and eventually will need carpet replaced, so I may hold on to it to recover those costs. I see now my rent rate can easily increase after the lease. That will help on the cash flow. Part of me says that when it's paid off I will have a 180k house, making 18k before expenses per year. I should be able to find a way to make more money with that 180k, but I don't have the knowledge or skills to do so. The rental seems the easiest way.

Steve Vaughan · Answer

I have sold several rentals because they were headaches.  I am ok with break-even or a little less if the rental otherwise does not hassle me.

Especially if you don't need the cash from the rental to eat, I'd reconsider selling.  My 15s started paying off a few years ago and it was worth it.

If you do sell, the most passive alternative out there is buying index funds (although I'm not thrilled to buy at these levels honestly).  Maybe check out The Simple Path to Wealth by JL Collins.

Bill Ward · Answer

@Bryan Cress Yes, I've been in law enforcement for 14 years, after 20 I get a bonus $1,100 ish a month from age 50 (if I've retired from the job) until social security kicks in. I am able to withdraw from my 457 after I leave my employer with no penalty for age. I am able to draw the pension retirement at age 50. I'll have my 20 years in and be age 42. So much liability in this job nowadays has me looking for an alternate after my 20 years is up. There is no match by employer here for 457 plans. Max contribution is 19.5k per year, current balance is 138k.

The reason for not being a landlord is basically that my rental doesn't really cash flow. It breaks even or I may even pay a little out (while also upgrading the house a little) throughout the year. And that's because it's on the 15 year mortgage. Refinancing to 30 would give me an extra 300 per month now to solve that, but then wouldn't ever get the house paid off to increase that amount. I really like the thought of it being paid off and collecting $1500 a month.

Jody Sperling · Answer

If there's no convincing you to remain a landlord and shift your sights to a turnkey provider like REI Nation, the next best thing is to invest in an index fund like VTSAX. It spins off dividends and mirrors the whole market so there is considerable safety as more than just a hedge against inflation.

Many FIRE enthusiasts put every extra dollar they can into VTSAX and are able to retire much earlier than the average person. Best of luck!

What to do with $$ if I cash out

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