Should You Sell Investments To Buy a Home? Ramit Sethi Weighs In
Buying a home used to be a cornerstone of the American dream, but with salaries down and inflation on the rise, it’s starting to feel more and more out of reach. However, if you have a sizable nest egg built up in your investments, is it worth it to sell some of those off and use the proceeds to buy a home?
Learn More: Here’s When To Buy a New House, According To Kevin O’Leary
Check Out: 4 Genius Things All Wealthy People Do With Their Money
Ramit Sethi, a personal finance guru and author of the bestselling book “I Will Teach You To Be Rich,” recently addressed this exact question in his newsletter. A couple in their mid-30s, with a substantial investment portfolio and savings, asked Sethi’s advice on whether they should sell $100,000 to $200,000 of their investments to buy a home in their high-cost-of-living area. Here’s what he said — and what advice the rest of us can take from it.
An Unusual Case With Significant Assets
Despite their relatively young ages, this couple had an impressive net worth of a whopping $1,497,000 — including $1,400,000 in investments and $88,000 in cash savings. They attributed this large amount to their frugal lifestyle, generational wealth and consistent retirement contributions during their 20s when their living expenses were low.
However, their current fixed costs are high, accounting for 88% of their take-home pay, mainly because of child care costs. However, Sethi doesn’t seem too concerned about that because that expense won’t last forever. Plus, because of their investments, they’re on track to have over $10.6 million by the time they reach retirement age, even if they stop contributing entirely.
Be Aware: 5 Types of Homes That Will Plummet in Value in 2024
Unlocking Homeownership without Compromising Financial Security
After reviewing the couple’s financial details, Sethi shared that he thinks the couple should sell a portion of their investments and buy a home. Because their investment portfolio is so substantial, the reduction in future returns would be negligible, and a home has the opportunity to provide long-term financial stability and appreciation.
He also thinks the couple should do a thorough analysis of their finances — and even get help from an accountant — to determine the optimal down payment and other aspects of the purchase. That way they’ll be primed to make the smartest investment possible.
Principles To Consider for the Rest of Us
While this couple’s situation was pretty unique, here is some advice on universal principles the rest of us should weigh when wondering if we should sell investments to buy a home:
1. The Emergency Buffer: This bit of advice is evergreen, and that’s because it’s important. If you’re considering a home purchase, make sure your emergency fund is intact and don’t touch it as part of the purchase.
2. Investment Portfolio Diversification: If you’re selling off investments to fund a home, make sure that you keep your portfolio balanced in the process.
3. Tax Implications: Selling investments could trigger capital gains taxes, depending on the type of account (taxable or tax-advantaged) and the length of holding. Because of this, you might consider consulting an accountant or tax professional to make sure everything is above board and you’re making the right moves.
4. Long-Term Investment Goals: Before you sell your investments to buy a house, look at your other long-term financial goals, like retirement and education. These things are important and need to be funded — so make sure you cover all your bases.
5. Alternative Options: If you can, explore alternative financing like traditional mortgages, down payment assistance programs or borrowing from retirement accounts (if permitted), and weigh the pros and cons of each approach.
Sethi’s deep dive into the couple’s unique financial situation is interesting — but everyone is different. Before you make a decision this big, look honestly at your savings, investments and long-term goals — and maybe even talk with a financial professional — before making any big decisions.
More From GOBankingRates
6 Reasons the Poor Stay Poor and Middle Class Doesn't Become Wealthy
This is The Single Most Overlooked Tool for Becoming Debt-Free
This article originally appeared on GOBankingRates.com: Should You Sell Investments To Buy a Home? Ramit Sethi Weighs In
