Sold primary home with gains, now what to do?

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relentless1
Posts: 136
Joined: Fri Dec 04, 2020 9:46 am

Sold primary home with gains, now what to do?

Post by relentless1 »

I am retired 60, wife is 61. Wife in school studying for masters #3. Current net worth $4.5mm. 2 college age children both living on their own in apartments in college towns. I have 529s fully funded for all 3 “students”. We have helped the kids save and invest well. They both have nice start to life $ in brokerage accts and Roth. Sold our home 1 year ago for substantial gain, renting for now in HCOL area. Rent is painful $5750 mo. No other debt. Asset allocation is 55/45 VTI/cash & ultra short. I keep $ for next home in MM. I am not including this $ in our net worth or AA. ($1.8-2mm set aside if we stay in this area). If we move to MCOL we would have surplus from this $ towards retirement.

Taxable 2.5mm
TIRA 2mm

Considering Roth conversions but need to utilize ACA for now. Deferring SS until 70 for me and 68 for wife. Small pensions and SS will add $68k annually at that point. Expenses about 140k per year. Retirement expenses planning 135-175k. $4.5mm x 3% = 135k so we should be fine and even better when RMD, SS, pensions begins.

We most likely will stay in this area until the kids are older and get started in their careers. 2-5 years. And wife has more school to complete. But wife loves it here so we may always have a home near here. So what to do?? There is no rental inventory in the Bay Area. None, especially in our County. We will not find a cheaper option. So there is no “move to a cheaper rental”. If we stay and don’t buy a home we bleed away all this rental cost. I’m a value investor in all things so would not consider buying a home in this inflated real estate market. And time horizon may be too short to purchase home. If home prices come down it will probably take 2-3 years for them to reset. If they hold we are wasting a lot of capital by renting.

What would you do?
SouthernInvestor
Posts: 113
Joined: Thu Jul 15, 2021 6:13 am

Re: Sold primary home with gains, now what to do?

Post by SouthernInvestor »

Very personal decision.

To me the variable is your time horizon 2 -5 years.

If I thought 2 years, I'd pay the rent and forget it.

If I thought 5 years, I'd look at comfortable commuting distance for your wife's program, try and take an honest assessment on the size and amenities you need, and see what I could get on the condo market.
stan1
Posts: 14246
Joined: Mon Oct 08, 2007 4:35 pm

Re: Sold primary home with gains, now what to do?

Post by stan1 »

With $6.5M you can do whatever you want.

I'm not sure why you sold the former house? Seems almost like you are second guessing that decision. What was the plan at the time, and what has changed to cause you to question the original strategy?
NancyABQ
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Re: Sold primary home with gains, now what to do?

Post by NancyABQ »

I am no expert on CA real estate taxes (I think by "Bay Area" you mean you live in CA), but won't you have a quite large property tax bill on a newly purchased ~$2mill property? My back of the envelope calculation comes up with something like $38K/year, or ~$3k/month. And if you invested the $2mill in index funds, the dividends would probably be another $3k/month. So that $5750 rent doesn't look quite so bad if you compare it to the costs of owning your own home? You should run your own numbers, of course.

Seems like a personal decision, anyway. There are lots of pros and cons. I used to live in the Bay Area (CA) and am familiar with both its good points and its bad points. I ended up relocating to New Mexico in 2006 after living the Bay Area (Palo Alto, Mountain View, Livermore) for 13 years, and have no regrets.

Certainly if you do relocate to a MCOL area after your wife finishes school, then your portfolio is more than sufficient!

edit: typo
Last edited by NancyABQ on Sun Jul 25, 2021 11:15 am, edited 1 time in total.
Topic Author
relentless1
Posts: 136
Joined: Fri Dec 04, 2020 9:46 am

Re: Sold primary home with gains, now what to do?

Post by relentless1 »

With kids off to college we were able to monetize our primary home. Did not want to live there due to traffic and knew we did not want to be there long term. Fire risk was as issue. 1 way in and 1 way out. The new reality we live in. With 2-5 yr horizon we are leaving that $ in cash. NEVER invest in mutual fund or etf's with less than that time horizon.
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Watty
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Re: Sold primary home with gains, now what to do?

Post by Watty »

relentless1 wrote: Sun Jul 25, 2021 10:39 am So there is no “move to a cheaper rental”.
If there is something that you are unhappy with about your current rental then you might consider a more expensive rental since you can likely afford it and it sounds like you will only need it for a few years.

relentless1 wrote: Sun Jul 25, 2021 10:39 am Rent is painful $5750 mo.
...
What would you do?
If the place you are renting is equevelent to a $2 million property you might buy then I would cruch the numbers hard since at least financially that could be a better deal than buying similar property.

Becoming a life long renter could make sense and that works for some people.
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RickBoglehead
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Re: Sold primary home with gains, now what to do?

Post by RickBoglehead »

$6.5 million.

"If we stay and don’t buy a home we bleed away all this rental cost". $69,000 a year is "bleeding"? You have 26 years of rent, assuming your $1.8 million didn't grow at all. Putting it in the market, you'd easily cover rent and taxes on the earnings.
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babystep
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Re: Sold primary home with gains, now what to do?

Post by babystep »

If you invest the 2M according to AA then to match 69k rent you would need about 3.4% return which is not unreasonable for a long time horizon.

You also have the cash to buy the home.

It sounds like that you are very likely to stay in this area but not certain. Perhaps wait for couple of years and continue to rent then decide whether you want to buy home? Maybe discuss with the spouse?

I would think that you would want to buy a home at some point of time instead of being a renter for the rest of the life?

I would probably invest half of that 2M.
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ray.james
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Re: Sold primary home with gains, now what to do?

Post by ray.james »

NancyABQ wrote: Sun Jul 25, 2021 11:01 am I am no expert on CA real estate taxes (I think by "Bay Area" you mean you live in CA), but won't you have a quite large property tax bill on a newly purchased ~$2mill property? My back of the envelope calculation comes up with something like $38K/year, or ~$3k/month. And if you invested the $2mill in index funds, the dividends would probably be another $3k/month. So that $5750 rent doesn't look quite so bad if you compare it to the costs of owning your own home? You should run your own numbers, of course.

Seems like a personal decision, anyway. There are lots of pros and cons. I used to live in the Bay Area (CA) and am familiar with both its good points and its bad points. I ended up relocating to New Mexico in 2006 after living the Bay Area (Palo Alto, Mountain View, Livermore) for 13 years, and have no regrets.

Certainly if you do relocate to a MCOL area after your wife finishes school, then your portfolio is more than sufficient!

edit: typo
OP might be eligible under new propositions 60/90/19 to transfer tax base if bought with in 2 years. I am not sure about all the ins and outs. Probably something OP should keep in mind

edit: Also if new value is considered, CA property tax rate is 1.1-1.2% in most cities.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
investuntilimrich
Posts: 237
Joined: Thu Jan 21, 2021 1:33 pm

Re: Sold primary home with gains, now what to do?

Post by investuntilimrich »

A lot of decisions cannot be made because it seems other people will object (wife, kids). I am afraid you have limited options unless you're willing to rock the boat. I can't tell you what you should do and given your circumstances, I really have no idea what I would do either. My preference would be to not pay for the wife to get a masters degree nor buy a house in the bay area at all.
adamthesmythe
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Re: Sold primary home with gains, now what to do?

Post by adamthesmythe »

> Sold our home 1 year ago for substantial gain, renting for now in HCOL area

> There is no rental inventory in the Bay Area

> We most likely will stay in this area until the kids are older and get started in their careers. 2-5 years

Ya done boxed yer'self in.
Marshall-Dillon
Posts: 54
Joined: Sat Dec 12, 2020 11:35 am

Re: Sold primary home with gains, now what to do?

Post by Marshall-Dillon »

If you stay in the bay area you are stuck with your current situation. There are many amazing areas of California, within driving distance that would allow you to live way below your means and retain a higher standard of living. However I understand your ties to the bay area.

Many people in your shoes have left California all together.
SuzBanyan
Posts: 2015
Joined: Thu Jun 02, 2016 11:20 am

Re: Sold primary home with gains, now what to do?

Post by SuzBanyan »

ray.james wrote: Mon Jul 26, 2021 1:37 am
NancyABQ wrote: Sun Jul 25, 2021 11:01 am I am no expert on CA real estate taxes (I think by "Bay Area" you mean you live in CA), but won't you have a quite large property tax bill on a newly purchased ~$2mill property? My back of the envelope calculation comes up with something like $38K/year, or ~$3k/month. And if you invested the $2mill in index funds, the dividends would probably be another $3k/month. So that $5750 rent doesn't look quite so bad if you compare it to the costs of owning your own home? You should run your own numbers, of course.

Seems like a personal decision, anyway. There are lots of pros and cons. I used to live in the Bay Area (CA) and am familiar with both its good points and its bad points. I ended up relocating to New Mexico in 2006 after living the Bay Area (Palo Alto, Mountain View, Livermore) for 13 years, and have no regrets.

Certainly if you do relocate to a MCOL area after your wife finishes school, then your portfolio is more than sufficient!

edit: typo
OP might be eligible under new propositions 60/90/19 to transfer tax base if bought with in 2 years. I am not sure about all the ins and outs. Probably something OP should keep in mind

edit: Also if new value is considered, CA property tax rate is 1.1-1.2% in most cities.
If you can still buy a new home within 2 years of the sale, you may be able to transfer your tax base under Prop 90. More info here: https://www.boe.ca.gov/proptaxes/pdf/lta21019.pdf
The lower property taxes may not be enough to mitigate the possible transaction costs if you don’t end up leaving the area in the next few years.
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