Developer · Columbia, MD · Member since 2020 · 9 posts · 0 votes
Hello. I was wondering if anyone here uses capital gains from stocks to invest in buying rental properties? Here is the process I am thinking:
Invest in stocks —> use the capital gains to buy the property —> Rehab —> Rent —> Refinance —> Repeat
Technically repeat would start again at investing in stocks so stocks investment is an additional step at the beginning of the process. I am thinking this process can generate more cash for the next purchase.
Has anyone thought about or have used this strategy?
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
6y
@Prabesh Giri it isn't really part of the strategy but it isn't a terrible idea to have money in stocks, but capital gains aren't guaranteed when you find a property you want to buy.
Developer · Columbia, MD · Member since 2020 · 9 posts · 0 votes
6y
@Aaron K. Thanks for the feedback. I can also see the tax lability might be higher if I were to use this strategy and swing trade in stocks for short term capital gain that I add to the next purchase. But yeah you are right. I won’t be able to buy a property right away if an opportunity comes up since the money could be tied up in the stock market.
@Prabesh Giri I also invest in the market, and plan to use some of those funds for my first BRRRR deal. My thoughts are if you are constantly and consistently working on your investment accounts, depending on your strategy, you will build up a "slush fund" available to use when you see a potential BRRRR deal.
"Experts" say that you can't time the market. I'm not trading the market, just specific stocks. I can time when i buy and sell specific stocks within the market. I use momentum trading, so I'm usually in a stock anywhere from a day to a few months. I think this strategy would work for my REI, because i am not sitting in a stock for decades.
As far as "timing", I do not plan to sell when I find a potential BRRRR, because the stocks "in my garden" at that moment may not be "ripe". Instead, I'm building profits in the account each time i sell at a profit, and those profits are what I plan to use when I find a BRRRR. That also keeps my nest egg available for buying more stocks.
This is not "advice", just commentary on what i do personally. Talk to your CPA, Realtor, broker, doctor, priest, shaman, dietitian, or other professional for guidance on your specific situation... In other words, "don't sue me, bro", to quote Meet Kevin. ☺️
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Prabesh Giri that is one way to use gains to invest. However, if you are BRRRRing, ideally you are only really doing 1 large withdrawal from the market as you are recycling those funds as many times as possible across deals. You can certainly take the cash earned from rents and put that into the market. I've chosen not to do that as I would be timing the market.
Developer · Columbia, MD · Member since 2020 · 9 posts · 0 votes
6y
@Andrew Thomas hey thanks for the details. It looks good. And dont worry I have no plans on suing anyone for sharing their strategy 😂. I have also been thinking about similar to yours but get the cash out of the stocks when it hits my profit margin. That way I can have the cash on hand and immediately start looking for a property.
Developer · Columbia, MD · Member since 2020 · 9 posts · 0 votes
6y
@Whitney Hutten Thanks for the feedback. Yes I definitely agree that timing the market is not a good way to invest, specially in times like this. I was planning on investing on particular stocks and get out when they hit my profit margin. That way I make sure I reduce the chances of losing money and also not be greedy to hold on. But the only issue with this is if the market doesnt move as fast as I would like, my money will be just stuck.
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
6y
Just use interactive brokers and you can borrow off your stocks without selling them (margin) at 1.5-2.5% currently. Don't borrow more then 25% or it's risky as markets volatile.
Developer · Columbia, MD · Member since 2020 · 9 posts · 0 votes
6y
@Henry Lazerow interesting thought. I havent done any trading yet but was just wondering what would happen if investing in stocks was in fact added as a strategy for someone who wants to do a mix of stocks and real estate investment.