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Stocks vs House Investment
Posted on 6/25/23 at 4:09 pm
Posted on 6/25/23 at 4:09 pm
So I’m currently selling two homes. Expect to bring in $300k after taxes on them. I also recently came into about $75k through life insurance. My plan was to invest this into my existing stocks. However, just toured a home that foreclosed and is on the market for $450k. On 2 acres in nice area and over 8000 sq ft. Needs work due to a leak in the center of the home while it sat empty 2 years (owner was elderly and died 2021). I did a complete renovation of my current home bought as a foreclosure so I know what I’m getting into. I think it would take $300,000 to make it mint as 3/4 of house is fine with lots of nice details and 12 foot ceilings. I’m offering $350k to bank all cash. No way anyone could get a mortgage for this home as it’s unlivable currently so it will be a very small group of investors who would potentially make offers. My plan would be to live in this house for a few years and sell for $1.25 million.
Am I crazy to not take my current $375k windfall and just stick with my retirement plan instead of taking on a huge potential headache with a big upside? Just looking for input.
Am I crazy to not take my current $375k windfall and just stick with my retirement plan instead of taking on a huge potential headache with a big upside? Just looking for input.
This post was edited on 6/25/23 at 4:10 pm
12
Posted on 6/25/23 at 4:19 pm to Drizzt
If the $300k in repairs is mostly contractor work you will hire, it's a no brainier to live in the house while it is being repaired. Also the economy might be headed towards a recession or worse so if you dump your money in stocks, etc you might lose a decent amount.
Posted on 6/25/23 at 4:45 pm to Drizzt
You are taking a huge risk.
Posted on 6/25/23 at 4:46 pm to Drizzt
I'd go for the house investment. You have experience and sounds like an opportunity. But my background is flipping or buy/hold.
Any tax implications from the sale of two houses that could be offset with this purchase?
Any why haven't other investors jumped on it?
Any tax implications from the sale of two houses that could be offset with this purchase?
Any why haven't other investors jumped on it?
Posted on 6/25/23 at 4:56 pm to Drizzt
Big risk. Big potential reward.
How confident are you that you could get that number after a few years?
How confident are you that you could get that number after a few years?
Posted on 6/25/23 at 5:15 pm to Drizzt
You don't mention the most important thing. What is your current worth ignoring the windfall?
If you already have money, then this sounds like a good plan. If you don't, sounds a little risky
If you already have money, then this sounds like a good plan. If you don't, sounds a little risky
Posted on 6/25/23 at 6:17 pm to I Love Bama
I’m doing pretty well now. $355,000 in retirement accounts (not counting pension). I’m doing $30,000 a year in retirement savings outside of pension contribution. My primary home is worth $550k and I would sell it if I moved in the other one.
I definitely could swing the purchase and renovation. Just wonder if the smarter play is just to invest the money instead of putting it into a project. I’d say it’s medium risk but high reward potential.
Someone asked why others aren’t jumping on it. I’ve been told the flippers in my area would rather purchase 4-5 homes with $450k than buy one big home. It’s not a huge pool of potential buyers for a million dollar home down the road in my area but there is definitely a group with multiple medical centers and old money. I’d try to 1031 the sale of the two homes to the foreclosure and would probably save me $15-25k in taxes.
I definitely could swing the purchase and renovation. Just wonder if the smarter play is just to invest the money instead of putting it into a project. I’d say it’s medium risk but high reward potential.
Someone asked why others aren’t jumping on it. I’ve been told the flippers in my area would rather purchase 4-5 homes with $450k than buy one big home. It’s not a huge pool of potential buyers for a million dollar home down the road in my area but there is definitely a group with multiple medical centers and old money. I’d try to 1031 the sale of the two homes to the foreclosure and would probably save me $15-25k in taxes.
This post was edited on 6/27/23 at 9:42 am
Posted on 6/25/23 at 8:52 pm to Drizzt
quote:If you legit thought this was reasonable, then it could be a risk worth taking. You need to make that number as conservative as possible (net of all fees and taxes) and see if it still makes sense to you.
My plan would be to live in this house for a few years and sell for $1.25 million.
My lean is that a potential (unlevered) 100% in 3-4 years is probably a better risk/reward than stocks at 20X.
Even better if you can 1031.
This post was edited on 6/25/23 at 8:54 pm
Posted on 6/26/23 at 5:30 am to Drizzt
You will not get a 400% return in the stock market in that time.
Of course, this assumes your projections are spot on for the house and costs.
Of course, this assumes your projections are spot on for the house and costs.
Posted on 6/26/23 at 6:00 am to Drizzt
Based on what you have told us I would not do it. However I am pretty conservative in my investments. What concerns me is you are sinking 675k into an asset that you hope to sell in a few years for 1.25MM. If you count the retirement money and the 300k profit on the other homes, you are sinking roughly your whole net worth into your investment. I may be off on your net worth calculation because you didn't give us the whole picture.
With that said, if you can cash flow the repairs and are comfortable tying up so much in one house, swing for the fences an go for it.
With that said, if you can cash flow the repairs and are comfortable tying up so much in one house, swing for the fences an go for it.
Posted on 6/26/23 at 7:49 am to Drizzt
quote:
I’ve been told the flippers in my area would rather purchase 4-5 homes with $450k than buy one big home. It’s not a huge pool of potential buyers for a million dollar home down the road in my area Mobile but there is definitely a group with Austal and Airbus here as well as multiple medical centers and old money.
In my area, rich people are still buying/building.
Posted on 6/26/23 at 7:53 am to Drizzt
quote:Go with what you know. It sounds like you have a good understanding of the real estate market. Also obviously have to consider the enjoyment of the place you'd be living in.
Stocks vs House Investment
From a purely financial standpoint though, if you think you'll make more money in the real estate transaction, trust your instincts. If you think it's a toss up, I'd go with stocks d/t fungibility.
Posted on 6/26/23 at 7:54 am to kengel2
Always the story isn’t it.
Posted on 6/26/23 at 9:41 am to Drizzt
Just doing rough #s here. Assume you can get 8% on that $350K purchase price in the market, and your $300K construction loan is also at 8%. In 3 years, you’d have to sell it for about $800K to break even.
Again those are extreme rough #s, but even if you sold for $1MM instead of $1.25, you’d still do pretty well. Still a lot of risk though.
Again those are extreme rough #s, but even if you sold for $1MM instead of $1.25, you’d still do pretty well. Still a lot of risk though.
Posted on 6/26/23 at 12:15 pm to Drizzt
quote:Also, how old are you? It matters how early in your career/life you are. If you are relatively young, then this could make even more sense. Presumably, you're not trying to just tread water - you're trying to make some actual money. And the open secret is that you don't get rich from just earning and saving and passive investment - you get rich from direct ownership of private business and/or real estate - and this is sort of a good combo of the two.
Drizzt
Posted on 6/26/23 at 12:54 pm to Drizzt
If this is it I would pass. A million dollar buyer wants million dollar fit, finish, and fixtures. New roof, complete paint interior and exterior, flooring, gut the kitchen and baths, 3 new HVAC units.... No pool and needs some landscaping. A $300,000 reno ain't turning that thing into a million dollars.
Zillow
Zillow
This post was edited on 6/26/23 at 1:01 pm
Posted on 6/26/23 at 5:08 pm to weadjust
You’d be surprised what you can do for $300,000 if you know the right contractors and suppliers. Land is worth $200k and building cost at $150 sq foot would be $1.25 million. We just heard there are multiple offers and they asked for best and final. I’m sticking at $350k. I’ve bid on properties before where people bid more and the house was never finished. I’m okay losing on a deal if the numbers don’t make sense to me. If I lose out, I’ll just be able to accelerate my retirement plan adding to my current investments.
To answer Big Scrub, I’m on the wrong side of 40 but I consider myself relatively young. Plan is to retire at 55 (or at least cut back significantly on work schedule).
I appreciate all the input and thoughtful answers. Definitely helped me think about a few things.
To answer Big Scrub, I’m on the wrong side of 40 but I consider myself relatively young. Plan is to retire at 55 (or at least cut back significantly on work schedule).
I appreciate all the input and thoughtful answers. Definitely helped me think about a few things.
This post was edited on 6/26/23 at 5:12 pm
Posted on 6/26/23 at 5:41 pm to Drizzt
We just heard there are multiple offers and they asked for best and final. I’m sticking at $350k.
--
Good luck!
--
Good luck!
Posted on 6/26/23 at 8:03 pm to Drizzt
quote:
I’m okay losing on a deal if the numbers don’t make sense to me.
However it turns out, your philosophy is a good one, in that you should never chase a deal just to make the deal… stocks, real estate or anything else.
Good luck with it.
Posted on 6/27/23 at 4:19 am to Drizzt
Will you be able to stay in the house for a few more years if the housing market were to get soft and you needed to wait it out?
I'd also consider how the taxes/insurance/maintenance on such a big/expensive home would affect the numbers during any such extra years.
I'd also consider how the taxes/insurance/maintenance on such a big/expensive home would affect the numbers during any such extra years.
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