Stock/down payment advice desired

I need financial advice.

It has to be a simple question but I can't seem to wrap my brain around it.

I'm buying a land lot/house/and construction and selling stocks to get the down payment, that part isn't negotiable. So do I sell as many stocks as I can to get the highest down payment and the lowest monthly payment or sell just enough stocks to get approved for the loan?

The stocks are averaging around +$500 a day, Friday was a +$2,300 day. The initial loan is a construction loan at 6% with a 7% cap. At tax time it costs 10% of whatever I've sold throughout the year. Once construction is done I can refinance with an actual mortgage loan at a better interest rate.

The stocks were earned through a work program that I didn't even know existed in the company I worked for. I found out decades later I had $90K in stocks. It has more than doubled since then, less than a decade later. During the same time my neighbor bought his house at $220K, it's in escrow right now at $468K.

With the inherent risks of stocks, all of the different associated percentages, fees, taxes, and rates, the So Cal housing market, I can't seem to figure out the best thing to do.

 

I wish I had almost 100k in stocks I didn’t know about.

 

Interesting question. I personally go with "buy low, sell high". Except that no-one knows what low and high really is, but you know relative low and high. Your stocks seem relatively high. I would get rid of them, provided that's not your retirement fund. Get lowest possible interest rates, especially in an area where land is appreciating, and houses are expensive.

 

Well I definitely got the "buy low" department set.

The whole trade war thing with China right now makes me nervous because the company my stocks are in sells a lot of Chinese stuff. But I typically don't decide things on what ifs, but technically I didn't even decide to buy these stocks either. Lol

 

Every dog has his day. It was a complete surprise.

 

"stocks" What company or companies are we talking about? Who is holding the stock? Take possession and sell at a low cost brokerage. Fidelity, Schwab, etc.

 

If you arent depending on the stocks for retirement savings, Id sell as many as possible for the higher down payment, unless you can somehow guarantee that the annual return on the stocks is higher than whatever interest rate youd pay on the loan.

Land is also inherently lower risk than the stock market, as you pointed out. The market could bubble again, but even if it does, you can be ahead of that wave and not worry about it.

In addition, youll thank yourself when its time to transition to the traditional mortgage when you dont even have to worry about PMI cause youve already put a big chunk down so your ltv should be lower and youll be able to hopefully get into a 15y fixed for stomachable payments.

Idk, thats how id do it.

By the way, this is all assuming youve made some mistake saying your stocks are turning $500 a day. Thats 186k a year not counting reinvestments, and if youre really making that youre doing something way better than I am with investments so dont listen to any of my advice lol

 

ROST, Ross Dress For Less Inc.. I own the stock and it's in a Etrade account. It has done really well.

 

Don't forget your income tax liability on the gain on those stocks. Not due until you sell. Then you get to bend over and grab your ankles the following April.

 

Sheer luck and no talent at the market whatsoever. It made $2,300 just on Friday alone. It is my retirement however it's also the only thing that will keep my family together and in our home state. California is just far too expensive for a disabled person's income. Keeping the family together is more important than retirement, IMO.

 

Yes it all adds up to close to 10% of the total of the stock sales for the year.

 

I would be a seller of ROST.

Indeed taxes will sting.

Sounds like you need to sell all of it for a place to build and live. Sounds viable to me but I am not a tax expert nor do we know what tax bracket you are in. For example does it make sense to hold off until next year because less income sort of thing. I say contact a tax person. Not a high cost thing and may save a lot.

 

I'm pre-qualified for a $250K loan with my additional $100K down, but the down could go up to $188K assuming I save the additional 10% for tax time, but that 10% would be taxed 10% as well so I guess it'd be $185K and not $188K. It gets confusing for me quick. At $100K down my monthly payment is around $1,600, $400 less than my rising rent.

But which scenario makes the most financial sense is out of my understanding for some reason. Percentages, rates, and risks.

 

If the stock is in a 401K or IRA it will be taxed as ordinary income. Off the top of my head 100K will be 22-25% federal taxes. Then add state and local. If the stock is in a taxable investment account Long Term Cap Gains is 15% for under ~$450K income.

There is something called a NUA (Net Unrealized Amortization, off the top of my head again). It allows the basis of stock in a SOP to be taxed as ordinary income and the capital gains to be taxed as a long term cap gain. Example assume your 100k had a initial value of 10K, you pay 22-25% on that. The remainder 90K as a LT capital gain is taxed at 15%.

Edit: Withdraws from a 401K/IRA have a 10% penalty if you are under 59 1/2 years old. There are exclusions for buying a home. See ***

*** Caveat Emptor, the IRS has rules which need to be followed. Talk to a fiduciary, that is a professional fee paid tax advisor who is not trying to sell you anything. YMMV

 

I will talk with a fiduciary, I think that's great advice.

As far as the taxes go, I've sold some of these stocks before and at the end of the year it all added up to 9.897% which is why I've been calling it 10%. The largest quantity I've sold got me $12K and I haven't heard any information yet that the tax is increased as the amount is increased so I don't understand why $100K would be taxed any different than $12K.

But please don't assume I'm writing that you're wrong because I'm not, I barely know about what I'm writing about.

 

Having just bought a house and being a finance guy, I'd advise going above the amount required to dodge PMI, and decide how much extra you want from there. Keep in mind that buying the house is just the beginning (something that I realized too late). Need lawn equipment, some fixing up funds, etc that you need to account for. So maybe down +10% and call it a day. The rest you can put in the bank, add to a retirement account, etc.

 

The more money you earn (e.g., from salary) or take in stock sales (assuming cap gains), has the potential to push you up into another higher tax bracket. These tax brackets differ for single, married, head of household etc.

 

All good points.

 

Oh crap, that doesn't sound good at all. Married, living off of my disability SSI and my wife's full time jobs income. We're close to $50K a year, but if a stock sale can put me into a bigger tax bracket, which I didn't know, that could have a huge impact on my decision and my wallet.

I think I just got more confused on what to do hahahaha!

 

Keep in mind that tax brackets aren't all or nothing. You get taxed at a certain rate only on the money in that "bucket". So as a married man, assuming you file jointly, your first to 19,399th dollar is taxed at 10%, your 19,400th to 78,949th dollar at 12% etc.