Charlie in Cali has enough money saved to pay cash for a house, but she and her husband decided to finance their home, instead. They’d rather invest the money and arbitrage the spread.
But one problem: how can they keep themselves from touching this investment?
Jay is choosing between Fidelity and M1 Finance and has questions about tax loss harvesting.
Nicole and her siblings will be inheriting some properties that they eventually plan to sell. How should they set up or organize these properties among so many owners? Should one person take the lead? Do they need a shared business account? Also, how should they evaluate a property and make sure they get a good deal when they sell?
Ed owns three homes, two of which he plans to sell in the next few years. He plans to live in them long enough to establish residence and take the capital gains exemption when they sell. Is his plan for handling the taxes solid?
We answer these four questions in today’s episode.
Do you have a question on business, money, trade-offs, financial independence strategies, travel, or investing? Leave it here and we’ll answer them in a future episode.
Charlie asks (at 02:43 minutes): My husband and I bought our first house this year. We had enough money in our taxable investment accounts to buy with cash but decided that we’d prefer to keep our money invested and put 20% down instead and got a mortgage at 3% for the remaining balance.
By keeping the money invested, we believe that we’ll outperform our mortgage over the long term, and we are comfortable with the risk of market fluctuations. We feel happy and at peace with that decision.
However, this budgeting plan has brought up a new budgeting challenge that we haven’t faced.
We have some large, discretionary purchases that we’d like to make over the next several years. For example, my husband wants to buy a camper van. This would likely cost around $100,000 and cannot come from normal cash flow.
I’m worried that we may fall into the trap of raiding the mortgage money in the taxable brokerage account over the years, especially as we see it grow. To beat the 3% mortgage rate, we need to keep all the money and returns invested. My husband – and probably rightfully so – is worried that I’ll never let him spend any money.
Do you have any ideas how we can put “guard rails” around that invested mortgage money, yet continue to invest other money that we’d use over the next few decades to make large, discretionary, non-investment purchases?
Jay asks (at 24:31 minutes): I am in the 32-35% tax bracket and expect to be in the future. We can offset about $3,000 of ordinary income with tax losses on investments per year, which would translate to $960 or $1,050 tax benefit for the year.
It takes about 30 minutes per month to transfer the funds to Fidelity, place orders, and make sure all has gone through correctly. Automating this through M1 finance would save that time, which translates to $1,350 per year based on my hourly rate.
Based on this math, it looks like automating is the better way to do it. In addition, I’m going to be dollar cost averaging anyway, so I don’t know how much benefit I’ll get from monthly tax loss harvesting.
I’ve heard that someone with high income should tax loss harvest, but I don’t know that this would benefit me as much as automation. Am I missing something or are there more benefits to tax loss harvesting that I’m not seeing?
Anonymous asks (at 38:32 minutes): My siblings and I are due to inherit properties. Our long-term goal is to sell them. I’m not sure how we should organize things. Should we set up a company? Should we set up a business account in everyone’s name? Should one person take the lead? Should we have a contract?
My second question has to do with selling the properties. Your podcast focuses a lot on getting good value as a buyer, but how do you get good value as a seller? Are there any rules of thumb for sellers, like the 1% rule for buyers?
The income generated plays a large role in valuing the properties, but what else should be taken into consideration? I’m also keen to know how age and condition impacts the valuation of the properties – one of the properties is larger, older, and will need work even though it currently generates good income.
Ed asks (at 49:33 minutes): I own three properties: one in Wisconsin and two in Florida. The house in Wisconsin is my current residence and the two in Florida are rentals at this moment.
The house in Wisconsin has appreciated by about $100,000 in the last six or seven years. House 2 has appreciated by $100,000 and House 3 has appreciated by $150,000.
I plan on retiring in three years, at which point the house will probably have appreciated a little more.
We plan to retire in 2025 and sell the house in Wisconsin, take the capital gains exemption, move to House 2, which has already been significantly depreciated. We want to live there for two years, then sell it and take the capital gains exemption again and move to House 3.
The plan is to live off the money from the houses until I get to 70 and collect Social Security, while also execute Roth rollovers, but I’m most interested in the tax treatment on those houses. Can I do that?
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