Temp. Sell Bonds to Fund Home Purchase?

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mrspock
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Temp. Sell Bonds to Fund Home Purchase?

Post by mrspock »

Quick question. I'm potentially buying a new property, and am essentially "swapping" one home for another (very similar valuations, just new location). I know ideally you want to sell first, and buy 2nd, but given the hot housing market, inflation situation and the fact I'm super picky -- it could be a year or more before I ended up pulling the trigger, I didn't want to do this (risk getting priced out). So I'm faced with a few options to fund this purchase, to "bridge" the time between selling the old place and buying the new:

1. Loan contingency - Get a new mortgage, pay off when old property sold.
Pros: Maintain my AA, have liquidity for rebalancing should market become volatile.
Cons: Paperwork, seems silly to have a mortgage 6 months or so. Risk losing the deal with a loan contingency.

2. Sell Bonds Temporarily - Sell my bonds (basically no capital gains due), buy property in cash, buy back bonds with proceeds of sale of home. I figure I'll have my investing "AA pants" down around my ankles for maybe 2-4 months, depending how quick the house sells.
Pros: Quick close, clean offer, easy.
Cons: I'd be near 100% stock for a few months, behavioral risks associated with this should the market correct, can't rebalance. House might sell for less than expected screwing up my AA until I can accumulate more, or rebalance by selling equities to "right it" (trigging capital gains potentially).

... there's probably option 3 here too which is to sell a proportionate amount of bond and equities to fund the purchase, but there's tax consequences to that choice (I have huge capital gains built up).

Age: Early 40s, accumulation stage but deep into FI territory.

What have folks done in this situation? Thoughts? Recommendations? Thank-you!
livesoft
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by livesoft »

I would have no problem selling bond funds in taxable to do this. Of course, I don't have bond funds in taxable. I have sold equity funds in taxble to buy our first home.
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climber2020
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by climber2020 »

For this situation I'd be inclined to lean toward using your bonds and being temporarily overloaded on stocks, assuming you're certain that your current house will sell without too much difficulty.

If the stock market drops in the interim, you can use the cash you get from your house to buy some stocks on sale and put the remainder toward replenishing your bonds. If stocks keep going up, then even better.
Paradise
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by Paradise »

Agreed on bonds. I can’t imagine the difference between bonds and cash over that short period of time makes much difference. The headache of mortgage paperwork (and I believe there are associated costs) makes this easy decision. Also are you sure it will take that long to sell your property? Nowadays they’re going in days... mine did.
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mrspock
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by mrspock »

House is in the SF Bay area and is in mint condition, so I think it should go pretty quick. I'm just dreading the PITA that is "moving" and purging a bunch of things I don't need. And to clarify, all my (muni) bonds are in taxable, that's just how things are for me as I have the "problem" of not having enough space in my tax sheltered account.

Sounds like my thinking is reasonably sound then. Going to pull the trigger then and see what happens... happy to be adding to this clown show that is the current housing market.
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by Paradise »

I’m going through a successful cross country move right now. Send me a DM if you want to see some of my planning. I am renting at destination, though, to learn the city before purchasing (and maybe waiting out the housing shortage/prices).

I don’t think you’ll have any trouble in SF market. That’s a permanently hot market and now basically an inferno.
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SR7
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by SR7 »

mrspock wrote: Sun May 16, 2021 4:51 pm ... . I'm potentially buying a new property, and am essentially "swapping" one home for another ........ I'm just dreading the PITA that is "moving" and purging a bunch of things I don't need.

... happy to be adding to this clown show that is the current housing market.
I feel your pain. We just did much the same, moved to another house in the same area, as the new house was a better fit for our family. We got the money sorted much quicker than the cleaning/packing/filtering/purging which was slower and much more annoying as I was still working at the same time and the kids were still at school.

FWIW it’s a clown show over here too.
I studied Physics not Finance, so best to ignore anything I say about money.
59Gibson
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by 59Gibson »

mrspock wrote: Sun May 16, 2021 4:51 pm House is in the SF Bay area and is in mint condition, so I think it should go pretty quick. I'm just dreading the PITA that is "moving" and purging a bunch of things I don't need. And to clarify, all my (muni) bonds are in taxable, that's just how things are for me as I have the "problem" of not having enough space in my tax sheltered account.

Sounds like my thinking is reasonably sound then. Going to pull the trigger then and see what happens... happy to be adding to this clown show that is the current housing market.
Yes go w/bonds..I'm in somewhat of a similar situation, I just decided to revisit the AA in a few months after dust clears and settled. Like you I thought a quick, clean successful deal without jumping thru a bunch of hoops is more important for the very short term plus there's some unanswered questions as to how much $ may be needed for post settlement spending on a few improvements, so yea add another one here to this clown show..Wishing you Good luck!
Kookaburra
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by Kookaburra »

So you’re proposing to sell an amount of muni funds in taxable to purchase a new house in cash, and this new house is comparable in price to your existing house in SF? As a 40-something, you have that much in muni bonds in addition to your tax-sheltered bonds??
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by mrspock »

Kookaburra wrote: Sun May 16, 2021 8:02 pm So you’re proposing to sell an amount of muni funds in taxable to purchase a new house in cash, and this new house is comparable in price to your existing house in SF? As a 40-something, you have that much in muni bonds in addition to your tax-sheltered bonds??
I do, to be fair I don't have any bonds in my tax sheltered as there's not enough room there to make it worth it, especially at current yields.
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by Dude2 »

Did you consider keeping overall AA same by selling munis in taxable and exchanging into bonds in tax-deferred? Then when you are able to repay yourself with existing home's sale, do a reverse operation.

I would say that equity in a home is bond-like so you could feel that going from munis into home equity is a don't care (especially for the short term). However, we all know there are bubbles and corrections in real estate markets that you don't find in bond markets.

The other point I'd bring up is that going through a closing is roughly the same whether you fund with cash or fund with a mortgage. I'm not seeing the hassle or paperwork savings you are alluding to. I'll take your word for it that having a contingency on the deal is a factor in your market, but typically it's a very normal thing, i.e. what percentage of deals do you believe occur without contingencies at normal times versus in today's market?
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by chipperd »

OP: If the market is that hot where you are, and I believe it is from what I've read, I doubt you'll be waiting 2-4 months to sell and turn your home equity into cash. Our market on the east coast is hot, not as much so as yours, and houses are selling in 1-3 days with bidding wars and all cash offers. Anecdotal: two friends sold their homes same day the houses went on the market for above asking, all cash. Neither was in perfect condition and both needed some work or updates. It's like brokers have qualified buyers lined up. I've gotten a couple cold calls asking if we considered selling.
I think you are wise to go in with a cash offer in this current market.
Your money is there to buy options and improve your life. It's why you worked and saved so hard, so I say take advantage of the opportunity you have given yourself. You put yourself in this position, which is nice to have and not use, but even better to have and take advantage of. I think the regret of not doing so may sit with you for some time if you were to miss out on this potential home.
I say sell the bonds and go in all cash on the offer. My two cents.
Let us know how it turns out.
Best of luck!
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tibbitts
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by tibbitts »

I'd sell the bonds.
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by mrspock »

Dude2 wrote: Mon May 17, 2021 4:26 am Did you consider keeping overall AA same by selling munis in taxable and exchanging into bonds in tax-deferred? Then when you are able to repay yourself with existing home's sale, do a reverse operation.
Considered this, but I'd forever be doing the math on how much money I lost if the market went up. Secondly the tax sheltered space isn't large enough to cover off anything close to my taxable bond position, but I guess it would be better than nothing.
Dude2 wrote: Mon May 17, 2021 4:26 am The other point I'd bring up is that going through a closing is roughly the same whether you fund with cash or fund with a mortgage. I'm not seeing the hassle or paperwork savings you are alluding to. I'll take your word for it that having a contingency on the deal is a factor in your market, but typically it's a very normal thing, i.e. what percentage of deals do you believe occur without contingencies at normal times versus in today's market?
Fair point, in fact I was surprised when my agent said this would take 4 weeks with cash, I was wanting more like 2 weeks. What exactly is there to do? Update the title? An inspection or two? This said, I think sellers still greatly prefer cash offers as they can be sure the deal will close vs. loan contingencies, so this weighs heavily in the decision.
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by Dude2 »

mrspock wrote: Mon May 17, 2021 4:12 pm
Dude2 wrote: Mon May 17, 2021 4:26 am Did you consider keeping overall AA same by selling munis in taxable and exchanging into bonds in tax-deferred? Then when you are able to repay yourself with existing home's sale, do a reverse operation.
Considered this, but I'd forever be doing the math on how much money I lost if the market went up. Secondly the tax sheltered space isn't large enough to cover off anything close to my taxable bond position, but I guess it would be better than nothing.
Dude2 wrote: Mon May 17, 2021 4:26 am The other point I'd bring up is that going through a closing is roughly the same whether you fund with cash or fund with a mortgage. I'm not seeing the hassle or paperwork savings you are alluding to. I'll take your word for it that having a contingency on the deal is a factor in your market, but typically it's a very normal thing, i.e. what percentage of deals do you believe occur without contingencies at normal times versus in today's market?
Fair point, in fact I was surprised when my agent said this would take 4 weeks with cash, I was wanting more like 2 weeks. What exactly is there to do? Update the title? An inspection or two? This said, I think sellers still greatly prefer cash offers as they can be sure the deal will close vs. loan contingencies, so this weighs heavily in the decision.
Yes, there are still anachronisms in real estate deals that make no sense today, just like T + 3 becomes T + 2 for settling trades and everybody can't understand why it isn't simply T + 0. Some of these closing laws go back to England or, in the case of people from Louisiana, to Napoleonic Code. In Mississippi you might still find deeds with lot dimensions measured in chains. From a Silicon Valley tech perspective, it's nonsense, especially with GPS coordinates just begging for somebody to invite them to the party. Title insurance is in my opinion nonsense. Allegedly you are paying insurance just in case the parcel of land turns out to have been misrepresented, and we have to do a "search" to conclude it is ok for somebody to give you a policy. Nevermind that the same parcel of land has been bought and sold multiple times with many such searches done to it and that at no point anyone nor anyone's descendants have made a claim against it. Now multiply this nonsense, this jumping through hoops for no good reason by millions of such parcels in the country. Basically, all of this why it takes so long for a real estate deal to go through is to ensure you own the land free and clear and what exactly defines the borders. I don't think it will change in my lifetime. It would be nice if cash made a difference. I agree it greases some of the wheels.
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Paradise
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Re: Temp. Sell Bonds to Fund Home Purchase?

Post by Paradise »

Extra paperwork with the underwriter. They’re going to need documentation of everything financial. If anything changes, you need to write a letter.

There are also fees associated with a mortgage. You don’t just get the mortgage service for free.

In his case I can’t see why he would ever not use his bonds with no tax impact to close this house.
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