Sell Taxable Stocks to pay off 109k variable HELOC?

**Jluke** · 02-22-2023, 11:26 AM

If you’re going to buy a new home why not get rid of the HELOC in that transaction? You should be able to get a lower rate on a mortgage (??) assuming you are taking a loan.

if you sell taxable, just watch for capital gains and look for tax loss harvesting opportunities. Don’t want to jump to a higher tax bracket if you sell stocks at a large gain.

with three properties I would also want to ensure I have ample cash on hand for emergencies

**disneysteve** · 02-22-2023, 11:36 AM

How much is a 6-month EF including all expenses related to the rental properties?

How much will you need for the down payment on a new home?

**amarowsky** · 02-23-2023, 04:53 AM

Originally posted by Jluke View Post

If you’re going to buy a new home why not get rid of the HELOC in that transaction? You should be able to get a lower rate on a mortgage (??) assuming you are taking a loan.

if you sell taxable, just watch for capital gains and look for tax loss harvesting opportunities. Don’t want to jump to a higher tax bracket if you sell stocks at a large gain.

with three properties I would also want to ensure I have ample cash on hand for emergencies

I was considering this as well.... Just keep paying the high (and possibly growing) interest rate on the 108k, and wait for the right house to appear, then make my move on it (either buy the new place w/ a contingent offer on selling my current residence, or other). Contingent offers typically are much weaker, but there are significantly Less buyers in the price range I'm looking at (350k-500K) compared to those looking to buy my type of residence.

But when I thought about it, I don't know exactly when the new house would show up on the market inventory for me to buy.

At this point, it was kind of weighing, "what is more important"
1) Keep the 108k debt, and 80k invested, and hope the market (primarily SP500 index funds) out performs the cost of me owning that debt (6.75% and growing w/ each fed move).

2) Reduce the amount exposed to the market to pay off a significant portion of the variable debt.

I keep thinking in my head, if I really care about growth more than protection, I can always take the money back out of the heloc, and reinject it into th market to resume risk of growth/reduction.

Both feel like acceptable moves at the current moment. And if I sell my primary residence (if sold today, I could expect between $250-280k - which would all be Tax free, because i've lived in here 2+ years of the past 5 ) .And our next house will likely cost between $350-500k in the current prices today. (thankfully, in my area, about 80% of the homes priced north of $350k are taking significant price cuts - While everything under 350k ish = when priced accordingly, prepared properly,, is selling fairly swiftly. I'd say within 15 days on market).

*Should also note, I have real estate sales license, so I can omit a lot of the cost of selling the property when the time comes.

**amarowsky** · 02-23-2023, 05:13 AM

Originally posted by disneysteve View Post

How much is a 6-month EF including all expenses related to the rental properties?

How much will you need for the down payment on a new home?

6 month EF = Quick health check:
6 Month EF at 20k should be reasonably adequate. It doesn't cover our full expenses for 6 months if everything if we did not make any accommodations following some catastrophe (or series of). But if we complete this reduction in debt, we'll effectively have no payments on any of our houses, other than insurance/taxes/utilities (if they're vacated as part of this catastrophe). I'd say my total tax burden for the (3) properties (i only own 1/3 of one of them, it's a small partnership) would be $7000 + $2700 (Tax + Insurance) /2 = $4850 + utilities (should be moot on utilities, as no one would be living in the 2 homes)

Then call it $800 per month for food (on catastrophe budget) = $4800, Call my utilites+cell $400 per month x 6 - $2400. This includes minimal driving, because in this catastrophe, I have to imagine I am unable to work. So lets just take 1/2 the car insurance $2400 * .50% = $1200.
$4850 (6 month housing)
$4800 (catastrophe level food budget)
$2400 (utilities)
$1200 (vehicles insurance for 6 months)
$13,250 = my back of napkin math for now. Add in $5k for unexpected stuff, $18,250 w/ small cushion.

***also, I have acess to 100k from a heloc on one of the properties (untapped heloc, separate from the 108k one). So in a True emergency, I can summon an extra 100-120k from what's left in helocs as of now.

I think my EF is adequate, given how lean we are able to operate, given all the debts i'm trying to keep at bay.

New Home Down payment:
We would be targeting conventional for this mortgage. So that leaves 3-20% for typical down payment, plus add on 3% of total house price for closing costs/fees/prorations of services/taxes. So I'll put it at 6-23% we'll need down.

We're targeting, in current prices, $350-500k for the next home. So on the cheap we'll need $21k (6% of 350k) - $115k(23% of 500k).

Right now we have 20k EF + 31k in cash. So somewhere to the left of median, for what we'll need for a down payment, NOT including the sale of my tax-free primary residence (it'll sell for under 500k, so all profit will be tax free).

Plan would be, to reduce the HELOC debt, while trying to keep adding to the 31k stock pile. So we would have the option to buy the home 1st, then sell our primary residence afterwards (replenishing everything in savings + extra, while our fixed debt column is also increased).

It seems like I'm being pretty safe here. I'm not too worried about the taxable stock sales, looks like I'll be selling at about 15k profits. So I figure if I stash 3k of that for taxes, I should be safe. (I also am a contractor/business owner. So there are routes I can choose to increase my tax expenses during the 2023 year)

**kork13** · 02-23-2023, 05:40 AM

Call me simpleminded .... You don't seem to have a strong desire to stay debt free (would take out the HELOC again if/when conditions change) .... So I wouldn't bother removing your assets from the market to make a move of that size that may only be temporary.

I made a similar move years back (sold ~$80k of investments to payoff our rental's mortgage) .... But that was to keep it out of debt regardless of what happened in the future. Seems to me that stepping out of the market for opportunism is just another name for market timing.

**amarowsky** · 02-23-2023, 05:52 AM

Originally posted by kork13 View Post

Call me simpleminded .... You don't seem to have a strong desire to stay debt free (would take out the HELOC again if/when conditions change) .... So I wouldn't bother removing your assets from the market to make a move of that size that may only be temporary.

I made a similar move years back (sold ~$80k of investments to payoff our rental's mortgage) .... But that was to keep it out of debt regardless of what happened in the future. Seems to me that stepping out of the market for opportunism is just another name for market timing.

Well it's worth mentioning, this HELOC debt was taken on to buy an investment property, not equities. I merely had these equities slowly build up in my taxable account, when my EF savings were too full, and swept them into growth positions. The HELOC was taken out exclusively to help pay for the rental home + renovations (completed a few years ago).

So the debt is debt, try to not concern yourself on where my assets are held. I was mostly considering..... what would be more advantageous to sell to reduce my debt. And as it stands, I think the real property has a much higher floor, and a relatively similar ceiling.

I do not generally feel comfortable, Loaning money to invest into the stock market (margin trading). But in this odd circumstance, where I have (2) investment assets making money (one is more fixed w/ the lease, and the other is variable to SP500 conditions), I seemed more wise to sell the 80k, as the 108k debt is guaranteed to earn me -7% return, vs keep the 80k afloat in the market, where it MAY earn me 7+%, but just as easily could earn me less, or stay stagnant.

I don't see a clear path where my lease contract for $1750 per month, all of a sudden changes the terms earning me lower rent. (still 1+ year on this lease contract).

One line of reasoning = at the current rate, my equities should be able to pay off my housing debt (heloc). Conversely, if the housing market goes down a ton, and I loose that equity, it will not matter. As the home I buy, will ALSO feel the same/worse decease in value.

Kinda putting the floor of one sector (real estate) against another (equities) . It's just wayyyy easier to get back into equities, if I hear about a corporate bailout in 2023. Where real estate is way less liquid, and I won't have/need/want to move it, until ALL houses come down in price (in which I'll get equal benefit on the lows AND highs, as I already have a few different properties to liquidate if/when that situation arises).

**riverwed070707** · 02-23-2023, 07:08 AM

Whats the interest savings from paying off the HELOC now (realize that's a little challenging to estimate with a variable rate) and just throwing your extra cash flow from the rental toward the loan? If you'll still qualify for your new mortgage with the debt, I'd probably keep it and keep an eye out for a refi opportunity.

**amarowsky** · 02-23-2023, 07:16 AM

Originally posted by riverwed070707 View Post

Whats the interest savings from paying off the HELOC now (realize that's a little challenging to estimate with a variable rate) and just throwing your extra cash flow from the rental toward the loan? If you'll still qualify for your new mortgage with the debt, I'd probably keep it and keep an eye out for a refi opportunity.

if I paid it off in full, it would be about $600 ish per month. 108000 * (.0675/12) = $607 , if the rates don't climb further.

It just seems greedy, to keep 80k in the market, trying to get a good return, amidst this volatility. While I have a guaranteed 6.75 %+ return on the money. And if i really felt foolish, could undo it all by putting money back into the market on the margin.

Kork's gotten the wrong impression of me. I don't typically do any margin trading. Just saying, if everyone thought I was such a fool to not be exposed to the SP500 values , after paying off the loan. I could just take the money back out once interest rates make it low risk enough to burrow money.

conversely, I can also refinance my house mortgage, if/when I buy it.

**LivingAlmostLarge** · 02-24-2023, 01:11 PM

I'd probably not waste time or energy selling equities and instead just pay off the heloc when you buy your new place.

**amarowsky** · 02-26-2023, 05:42 AM

Originally posted by LivingAlmostLarge View Post

I'd probably not waste time or energy selling equities and instead just pay off the heloc when you buy your new place.

I did an "in-between" move instead. I sold about $50k of the 80k, will probably change the plan to hold onto like minimum of 70k as cash, and pay off a healthy chunk of the HELOC at 6.75%.

I started to think about it.... And I was completely happy paying to burrow the money when it was 2.75-4% range. If it's at 6.75%, I think I'm "ok" with keeping a good chunk as cash in the savings account I'm getting 3.4% in (it kinda washes out the 6.75 - 3.4 = 3.35% )

This limits my bleed on the 108k @ 6.75% and keeps a healthy chunk of cash liquid, to protect against either of the following risks I'm exposed to:
1) stock market takes a big dump, which would kill my ability to repay the loan other than typical income
2) interest rates continue along the rumor-path of (2) more 75 basis point increases.

Believe me, I wanted to just leave everything where it was before. But it did not seem wise, with the HELOC being Variable line of credit + this violent rise of interest rates + the exceptional volatility, made me more concerned with preserving what I have, rather than trying to optimize growth.

**bjl584** · 02-26-2023, 04:27 PM

Is locking the HELOC loan into a fixed rate an option via refinance?

**LivingAlmostLarge** · 02-26-2023, 10:13 PM

0% CC balance transfer?

**amarowsky** · 02-27-2023, 05:51 AM

Originally posted by bjl584 View Post

Is locking the HELOC loan into a fixed rate an option via refinance?

I will call about this and check into to.

My expectations for reduction of the rate w/ removing the credit line --> Locking it into fixed loan, are not too high (possibly a quarter point drop to at best half a point I think), but I'd be lying if I spoke to them about rates to lock in since the interest rates were crazy low....

**amarowsky** · 02-27-2023, 05:52 AM

Originally posted by LivingAlmostLarge View Post

0% CC balance transfer?

this would be a possibility.... My credit should be able to afford the ding(s) by opening new cards to avoid paying *some interest. Maybe not worth the calories for me, given I want to keep the option open to buy a new house within the next 2 years.

But thank you for suggesting this. I ALMOST bit on part of it, I was @ a bank and they were pushing a card, Hard, that had $0 balance transfer

Sell Taxable Stocks to pay off 109k variable HELOC?