Should I sell my entire stock portfolio to fund a home purchase?

**Broken Arrow** · 04-17-2007, 04:27 AM

Is this house truly necessary, or can it wait?

**disneysteve** · 04-17-2007, 04:28 AM

Originally posted by thisisbrianly View Post

I'd like to purchase a house in the beginning of 2008

Would trading the portfolio for a down payment be a good investment?

I've also been reading about piggyback loans (80/20 and 80/10/10 and so on) which seem very appealing....any thoughts on those?

I think there are a few different questions here.

1. Why are you in such a rush to buy a house? You say that in 9 months, you expect to save about 20K from working. Why not wait another 9 months until you've saved 40K and then go house hunting and leave your stock portfolio alone?

2. I do not think trading your portfolio for a house would be a good investment. In fact, I don't consider the purchase of your primary residence to be an investment at all. You aren't buying it to make money. You are buying it to have a place to live. Most reports expect home prices to appreciate at about 5%/year in the foreseeable future. A well-diversified stock portfolio should be doing a lot better than that.

3. Forget about the "creative" financing deals that let you buy a house with nothing down. Also, stay away from interest-only loans and, most likely, you should avoid ARMs. Fixed rates are at historic lows. Now is the time to lock in a nice low fixed rate.

**poundwise** · 04-17-2007, 04:32 AM

That's a good question...

If it were me, I'd not liquidate my portfolio, but I would stop adding to it. Then, save up 20% before buying. That's ideal.

I don't think its the end of the world if you sold all of your holdings, after all, you're young. When it comes to investing, time is on your side. However, you would lose the great benefit of having started so early and the ability to hold those investments from the time to you started until...

Also, are these investments in a retirement account?

If not, that would make a difference too. I'd be more apt to liquidate in this case, though still not thrilled about the idea.

Still, if you are under 30 and can buy a house (that you can afford) with 20% down and then begin socking-away retirement funds, etc., you'll have a better start than most; including yours truly.

**jIM_Ohio** · 04-17-2007, 05:08 AM

Originally posted by thisisbrianly View Post

Ok,

I've been floating in these forums long enough and thought I'd finally post! I've learned a lot reading everything here!

Anyway, I am a senior up at the U of Minnesota with a job lined up and about to graduate in May. I'd like to purchase a house in the beginning of 2008 and need some help....

My question is whether I should liquidate my entire stock portfolio to pay for a down payment. Would trading the portfolio for a down payment be a good investment? It would be hard to come up with the cash for a 20% down payment without selling off a good chunk of it, and I have about $15,000 in there currently. The portfolio consists of all ETF's that are decently diversified.....should I keep them there or liquidate it and put it in a safer investment (maybe high-yield savings acct.??)

By the time I plan on buying in 9 months, I should have about 18-20k in cash savings from working, in addition to the portfolio.

I've also been reading about piggyback loans (80/20 and 80/10/10 and so on) which seem very appealing....any thoughts on those?

Any advice would help...thanks!

you need to weigh your whole life, whole situation and think about any/all of the following:

1) how likely are you to KEEP the job you just started? Good industry? Have you worked in field before to know you like it? Will job transfer you? Will you be single for next 5-10 years?

Any negative answer suggests you should rent for 2-3 years to settle into working life. A house is an illiquid asset... so it is not the best investment. A spouse/ getting married can change priorities quicky. Be flexible.

2) I have done 80-10-10 and 80-15-5. In both situations my wife's income increased within a year of the purchase which paid off the 2nd quickly (or in second case the raise is helping us pay it down now).

3) I would NOT liquidate current portfolio, but for different reasons than everyone else. You need to take life slowly... you are earning more money than you ever have before, and moderation is more important than consumption.

I'd suggest maybe buying into a condo (as opposed to single family home) if you buy anything. Cheaper, builds equity, and teaches you about home ownership on a smaller scale. At same time it makes sense to fund retirement. If you can save 20k in 9 months, I'd like to see around 10k of this marked for retirement and take a broad financial approach to your new employment.

1) fund retirement (401k and/or Roth)- 10% minimum
2) keep debt low (zero) and maintain postive credit
3) property ownership

**Scanner** · 04-17-2007, 05:49 AM

Liquidate as necessary if you are going to keep the house 7 years or more. Rebuild your portfolio after that.

Don't liquidate if you aren't.

In fact, if you plan on moving in 7 years or less (and be very honest about that - remember you're young and having wanderlust is normal), then I wouldn't buy at all - just rent at your age. The chances that you'll be able to sell for a profit in 7 years or less are slim to none - it appears real estate is going to be flat or depreciate in the near term future as the market unwinds (and it takes years for real estate to unwind - it isn't like stocks or bonds or commodities). Espeically when you take everything into account - real estate taxes and upkeep you'll pay over 7 years - I can't hardly see anyone turning a profit.

So, you would in effect be taking an appreciating asset (your portfolio) and sinking it into a depreciating asset (a house).

Now, if you plan to stay in your house and not turn it over in 7 years, there would be a benefit to putting a healthy downpayment on a house over the long haul.

Of course, we are all speaking in generalizations - real estate is very local and there could be local factors that we don't know about.

Good luck.

**lgslgs** · 04-17-2007, 06:32 AM

If you are considering doing such a thing, you need to be sure you know what part of the proceeds of the stock sale are capital gains. Then, if you do make the sale you will also probably need to calculate and make an estimated tax payment since you will owe taxes on the gain.

Depending on the timing of a stock sale, house purchase, and how much tax you've had withheld on wage earnings you might not actually owe estimated tax - but you better be sure you do the calc and understand the implications.

In my view, whether the stock is in a retirement account or just the way you store your cash, it's all just money and if you want to use it you just do a bunch of calculations to make sure you understand the true cost of liquidating it. Pulling it from retirement funds generally makes it a lot more costly. Pulling it from stocks means brokers fees and capital gains tax. Buying a house means locking up your cash in an asset that is much less liquid and that generates additional costs (tax, insurance, repair, and elective joy of homeowner got-to-haves.)

Lynda

**Saving in So Cal** · 04-17-2007, 11:31 AM

I would not liquidate if the investments are in a retirement account. If they are in a regular account, the question is tougher.

As other posters have said, there is no reason to rush into the housing market right now. You'll be working, so you'll be worried about taxes, but the tax write-off everyone raves about is not that great. Depending on your specific circumstances, you may be able to do just as well tax-wise by putting the maximum amount in your new employer's 401(k) plan.

In addition, as other posters have said, it seems like you have the capacity to save for a downpayment in a reasonable time without resorting to your investment accounts. If that's the case, then waiting seems like a prudent choice. That gives you time to get settled into your career, etc.

All that being said, sometimes you have to go with your gut. My husband and I cashed in his stock options to make part of the downpayment on our house. (We both had stable jobs, no debt, and had save quite a bit. We just needed a bit more to come up with 20% and the housing market was just starting to heat up so we didn't want to wait too long to buy.)

At the time, everyone was getting "paper" rich by holding onto stock options and we were concerned about whether we had made the right long-term decision. As it turned out, shortly after we cashed in the options, the value of the stock plummeted and has never recovered. Had we held onto the options, they would have been worthless. By cashing them in, we have an appreciating asset and a roof over our heads.

As for the tax ramifications of cashing out investments, everytime we've ever cashed out something, flat rate taxes were withheld by the investment management company.

**disneysteve** · 04-17-2007, 11:42 AM

Originally posted by Saving in So Cal View Post

As for the tax ramifications of cashing out investments, everytime we've ever cashed out something, flat rate taxes were withheld by the investment management company.

This can be true with early withdrawals from retirement accounts, but not with regular taxable accounts. If you own stock worth $1,000 and sell it, you should receive $1,000 minus any sales fee. Your broker should not be withholding any taxes.

**thisisbrianly** · 04-17-2007, 11:48 AM

Thanks for the responses everyone! They have been very insightful.

The reason I'd like to buy is because I have lived in the area (Minneapolis) my entire life and basically know where I would want to be.

The "house" that I'd be buying would also most likely be a condo somewhere close to downtown Minneapolis (possibly newly constructed), and it is my understanding that these will only be getting more expensive in the future. But then again, I could be way off!

As for the portfolio in question, it is not a retirement account but rather a brokerage account. I have been maxing out my Roth for the past 2 years and will surely max out my 401k as well when I start my job, but the portfolio could be easily cashed in w/o any penalties.

Anyway, any more advice would be appreciated!

**Scanner** · 04-17-2007, 01:34 PM

Brian,

Of course for the long haul real estate goes up but I'll give you an example of my market in my old neighborhood.

1989 Starter houses constructed - people buy for $130,000 (3BDR, 2.5 BA, 1/4 acre)
1990 $98,000
1991 $99,000
1992 $103,000
1993 $108,000
1994 $110,000
1995 $120,000
1996 $125,000
1997 $130,000

We buy in 1997, it hangs around there for 4 years and then in 2001 it shoots up to $175,000 - we probably could have gotten more when we sold

You can see how it took somebody who built about 7 years to recoup costs?

Now, this was my local situation but I think it reflected a lot of markets across the US - I think the same thing could happen again.

See how you could buy a depreciating asset if your term isn't long enough? Many people who had to sell in 1992 actually lost money.

It really doesn't matter if it's a condo or a home. In fact, they say condos more often reflect the market because unlike a home, you can't really upgrade it, add on rooms, and influence the value. A condo generally is what it is.

I'm not trying to influence you one way or another, just giving you risks - you know the rewards.

**disneysteve** · 04-17-2007, 01:52 PM

Originally posted by thisisbrianly View Post

it is my understanding that these will only be getting more expensive in the future.

It is very unlikely that the property would appreciate so fast that you would lose out by waiting the few extra months it would take you to save up the downpayment. You say you expect to save 18-20K in 9 months, or about 2k/month or more, so another 7 months and you could save the 15k you'd be taking out of your account.

I see no advantage to liquidating your stocks to make this purchase.

**DebbieL** · 04-17-2007, 03:34 PM

Scanner has it nailed. The housing market will be tanking for years before this mess is sorted (thanks to the ridiculous lending practices of recent years). Be patient and that condo will probably be less in a couple of years. NEVER believe the "real estate only goes up" and "they're not making any more land" brainwashing - just ask someone in Japan if that's true. It is cyclical, and is just coming off a huge run up (bubble in many areas).

**jIM_Ohio** · 04-18-2007, 05:18 AM

People need to look at this from a step back. I bought in the middle of the run up ( a 2 BR townhouse in 2000).

There are several different ways to measure home ownership.

1) if you look at a house as an investment, you'll have some rate of return. If house costs 100k, you'll pay around 200k for an asset worth 100k. it is an investment (the 100k can appreciate). I didn't say it was a good investment (or a bad one), but some can look at a house as an investment. Most posts thus far are using this logic (IMO).

2) A house is a place to live. If you have no place to live you are homeless. Outside of upkeep expenses and property taxes, a paid for home beats paying rent.

3) A house/mortgage increases a person's net worth. Owning a house "builds equity" even if market is overpriced, as when mortgage payment is being made, a portion of that payment is actually increasing net worth.

4) There are tax implications to owning a house. I know people which had a high tax bill and MOVED to a place which would give them more deductions- higher mortgage, higher prop taxes. This woman was a CPA/ executive, so I assume she knew what she was doing.

My point is that because #1 right now looks bad (house as an investment), my comments would still be consider a moderate priced place for reason #3 in particular.

If a person needs "freedom" to move quickly, then renting makes sense. Outside of the "time" constraint, I would not discourage a young person from looking to own a house.

**disneysteve** · 04-18-2007, 06:17 AM

Originally posted by jIM_Ohio View Post

I know people which had a high tax bill and MOVED to a place which would give them more deductions- higher mortgage, higher prop taxes. This woman was a CPA/ executive, so I assume she knew what she was doing.

I can tell you this is one CPA who I wouldn't ever let handle any of my affairs. Enough said.

Outside of the "time" constraint, I would not discourage a young person from looking to own a house.

I agree. In no way was I trying to discourage the OP from buying a home. I just think waiting a few months to save up the downpayment is a much better idea than liquidating investments.

Should I sell my entire stock portfolio to fund a home purchase?