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Selling taxable stocks to get cash flow? 

outdoorsman_jph
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10/18/2016
outdoorsman_jph
Posts: 6
So what ended up happening was I saved the cash over a year and a half and had my brother pay half the closing costs. I over saved for the house and ended up with enough cash left over to pay off the car. Now I've got about six hundred in cash flow getting freed up in the near term.
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chaddz3
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3/18/2016
chaddz3
Posts: 2
If I found myself in your situation, this is what I'd do personally... I'd sell the car, just to be out from under the payment. 9.5k owed on a car is a LOT of money to owe on a car. Then buy a good used car for 4 or 5k that you own outright (no payments, cheaper insurance because you can reduce or eliminate the full coverage part to boost cash flow).. Cut the investments in half for now (since its going to be short term) don't sell any of the investments, but just reduce how much your putting in to them while building up a pile of cash for the house purchase. Remember those with cash win because you reduce your risk exposure. Now a year from now, when you have the house, and most of the surprises the house might have will have most likely already happened by then... then move the investment contributions back up to where you had them or add more if you can... over the long term, this will work out better and has alot less risk to it.. remember think big picture... Experience has taught me a few painful lessons when it comes to leveraging with debt. Yea it may sound good to have a 2.5% car loan when your investments are earning double digits.. but at least with my luck, if i did that, the markets would throw a fit and crash.. then i'm sitting there with a mess... learned that one the hard way)... Granted as long as nothing changes in the stock market. keeping the loans sounds good, but when it comes to the markets, theres only one guarantee.. it always does really good until you really NEED it to do good, then it underperforms just to mess with you. Its like it knows that you're at it's mercy.
edited by chaddz3 on 3/18/2016
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M543
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12/4/2015
M543
Posts: 61
Outdoorsman,

I agree with njhowie's advice, but the reason is a little different. Money you have for a down payment should be invested in cash equivalents between now and next year, so you won't be earning more than 2.5% on it. However, if this is the first time you've ever owned a house, then you probably don't have experience yet with the costs of homeownership above the basic mortgage/property taxes/insurance. It's not the same as renting. You'll need to have reserves to pay for things that fail and they will fail. Potentially big things.

In our first house, we had a large tree in the back yard that overhung the roof. We considered cutting it down since it really was rangy, but decided against incurring that cost. So then a storm came through, broke a huge branch off damaging our roof. So we then got to incur not just the cost of removing the tree, but also repairing the roof.

I'd keep any low interest debt as it is and focus on building up a cash holding. Much of what you described is really money that should be invested long-term and so wouldn't be considered reserves for the purpose of homeownership.

You need more than just the down payment saved up. And consider getting a home warranty for the first year. It'll cover the appliances and major systems against failure. If you can get the seller to pay the premium, it's a good thing to ask for in your offer.

Good luck. I hope it works out for you.
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outdoorsman_jph
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12/2/2015
outdoorsman_jph
Posts: 6
Thanks for the response. Without paying off the car, I should be able to save around 13-15k in the next year. This will be my first time buying a house, so I am a bit nervous making a big financial decision, though it should be easy since I am going in with my brother who lives with me, so we'll be buying a house at a fraction of the cost we can afford combined.
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njhowie
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12/2/2015
njhowie
Posts: 77
Freeing up the cash flow for the sake of doing it isn't necessarily the best idea. With a 2.5% interest rate on the car loan, hopefully you're earning more than that on the investments. That is also going to be lower than the rate on the mortgage you get for the house, even after interest deduction.

So, what I'm basically saying, is that 2.5% is a really great interest rate, and it would make the most sense to pay that out for as long as you can.
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outdoorsman_jph
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11/30/2015
outdoorsman_jph
Posts: 6
I am looking at saving up to buy a house with my brother in circa a year and want to free up cash flow to save up around 15k in that time for a down payment. I have 15k in my Scottrade account, 19k in a Roth IRA, 46k in TSP, 1.1k in bonds, and about 2k in loose cash. I was considering selling around 9.5k of stock to pay off my car loan, even though it is at a 2.5% interest rate to free up the payment amounts each month to save towards the house. The amounts put into the accounts per check are $200 on the Scottrade, $100 on the Roth, $25 in bonds, $200 cash, and $400 on the TSP. Given this information, does it make more sense to save a lower amount and leave everything as is, or free up cash flow ($400/mo) by paying off the balance of the car loan ? Please advise.
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