Pull from taxable savings or refi rental ?

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Pull from taxable savings or refi rental ?

Post by Lafder » Fri Feb 08, 2019 1:26 am

I think I need more cash than I can flow from my income in the next 6 -12 months.

I am irrational about all of it since I hate increasing debt or paying interest or tax. But I have to pay something somewhere to get access to more $$ in the next year. (I can not just work harder......)

I have two options that I am considering:

1) Refinance rental property and pull out cash.
New interest rate would be 5.5% on 200k with a 30 year payback. Interest is deductible as a rental property expense. Payments would be the same as the current HELOC due to the longer payoff period. So my rental home monthly expenses stays the same.

This would allow paying off the current loan on the rental of 65k at 5.75 (adjustible, At the current rate will be paid off in 5 years). It would also allow paying off 17k left on car loan at 0%, freeing up that 700$/month payment. It also gives cash to max my 2018 solo401k now, as well as our 2019 Roths now. Leaving a bigger emergency fund for my emotional security over the next year or so. Part of getting this cash is to fix up the rental to sell when the tenants move out over the summer. When the rental sells, we can pay off whatever loans we have taken. There is a chance the tenant will continue month to month, and a chance the home will take longer to sell or the price will drop more than expected to get it sold. So this new 200k loan could exist much longer than expected.

2) Pull cash from our taxable investments. They are long time holdings we would need to pay long term capital gains tax on of I believe 15%. The cost basis is low as they have been held over years (cost basis 92k on 271k in holdings). If we pull out just what we need for the upcoming expenses, we would not need to pull the full 200k as we would leave the existing HELOC and car loan, and just use the $ for the other expenses. I am estimating we would need less than 100k to max retirement accounts and fix the rental to sell it/cover costs while vacant.

I dislike the idea of paying the 15% capital gains, and selling our long held savings. But I also dislike mortgage financing costs and 5.5% interest every year we hold the loan.

I tend to be financially conservative and I may be underestimating how much income I will have to cover expenses. There is a possibility I can cover the costs from income and not need to sell taxable or use a loan. Taxable investments can be quickly sold. A loan could take 4-6 weeks to close.

If you had to get $$ would you refi and leave your taxable investments alone? Or would you pull from taxable and pay the capital gains tax on the as needed smaller amounts?

I will not "blow" the extra money if I get the whole rental home loan. If there is extra, it will help max my 2019 solo401k and be a bigger emergency fund.

What would you do if you had the patience to read this far?...................


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Re: Pull from taxable savings or refi rental ?

Post by bluquark » Fri Feb 08, 2019 2:34 am

I would sell the appreciated stock. The silver lining on it is that these are taxes that because you pay now, you won't have to pay later in life. So you're not actually paying 15% but rather the time-value of that 15% continuing to appreciate until you retire.

Assume stocks will return 8%, then 15% of that return is 1.2%. That's a way better deal than the 5.5% on the debt.
Last edited by bluquark on Fri Feb 08, 2019 2:40 am, edited 1 time in total.

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Re: Pull from taxable savings or refi rental ?

Post by longleaf » Fri Feb 08, 2019 2:39 am

Sell taxable gains to buff up emergency fund.

I have done the aforesaid.
Frugality, indexing, time.

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Re: Pull from taxable savings or refi rental ?

Post by ResearchMed » Fri Feb 08, 2019 7:10 am

Agree with longleaf and bluequark.

The cap gains tax is something you'll need to pay eventually (unless, of course, your income goes so low that you wouldn't pay anything, but is that likely?).

And a couple of your other ideas have you borrowing money, to use in part to pay off a zero-interest loan (the car), which makes no sense given that you have other ways to use the money (and also no *need* to pay off that car loan) or to fund investments, also not a great idea just now.
(IF your property sells within the year, you'll have some money for that retirement fund anyway.)

Try to step back a moment, and think if you were advising one of us, someone asking the same questions you are asking, facing the same circumstances you are facing.

One question: What is the rate (and approx amount) on your current HELOC? Is more available on that line on short notice *IF* ever needed? Mostly I'm asking b/c you are suggesting a refi in part to payoff the HELOC. Take care with the rate comparison.

Good luck!

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Re: Pull from taxable savings or refi rental ?

Post by glennherwig » Fri Feb 08, 2019 11:29 am

There is a way to avoid paying capital gains tax while still accessing the cash from taxable. You could use a Schwab Pleded Asset line. I’ve never used it but it seems like a good product. You get to borrow up to 75% of your account on balances over 100k. There’s risk involved but could be lower rate than heloc and no capital gains tax. It is a 5 year loan term however.

Best of luck,


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Re: Pull from taxable savings or refi rental ?

Post by Lafder » Fri Feb 08, 2019 10:04 pm

Thank you all for the comments. It helps.

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