100k what to do ?

[lkent69]

I have a property that I have lived in for 8 years and recently moved into a new home and I am renting the old one. The loan on the old house is 125k and I can sell it for around 200k - giving me around a 75k profit. I want to hold on to this property until I can clear 100k.

Once, that happens, I was looking at money market account or CD's to put this money into to make me some more money. Here's where I need some validation to my thinking. If I put the 100k into a CD with a 3.45% dividend rate and a 3.51 APY,
if my math is correct that is 100,000 * 3.45% = 3,450 * 12 months = 41,400

Assuming, this is correct , what kind of taxes will I have to pay once this CD matures after 1yr ? And is this a smart thing to do with this kind of money? I have some debt but will continue to have it during this year that the money is inthe CD. I have an IRA and 401k and my retirement future is on track.

[PennyPincher]

Just curious...why are you against holding on to the property? I would imagine that you are making a monthly profit with rent, and that you can set up that money to go into a CD or other type of interest-bearing account. The benefits of having rental property and the depreciation allowed seem huge to me. Since it doesn't sound that you particularly NEED the money (ie: for another house, etc.), I'm surprised you want to sell.

I'm also trying to understand how a dividend works on a CD. (Any input here appreciated.)

Aside from the dividend though, if you put $100,000 into a 1-yr CD that yields 3.51% interest, that equates to $3,510 for the YEAR. That is an average of $292.50 per month. Aren't you currently earning that much per month on your rental, PLUS the tax breaks?

(Looking at your math, you are showing a 41.4% yield! We would all love that ~ but it doesn't work that way. Whatever the interest percentage is, it is on an annual basis, so you only earn 1/12 of that each month.)

[lkent69]

Thanks, for the reply. I'm in no real hurry to sell the property; I've only been a landlord for 6 months.

And truefully, I thought my calcualtions on the CD were too good to be true. I was thinking it was 3.45 % per month but it's probably (not sure) 1/12 of 3.45% each month - which you pointed out would be around $280 per month - which I am making more than that with the property.

I will probably just gonna hold on to the property and leverage it to buy more properties.

[gakline]

If you are still interested in selling, do it after you've rented it for 3 years max. The tax thing works out better if you lived in it for 2 of the last 5 years. If you're selling because you don't want to be a landlord, check into having a management company run it for you (if that'd be profitable of course).

[terry1156]

Originally Posted by lkent69

And truefully, I thought my calcualtions on the CD were too good to be true. I was thinking it was 3.45 % per month but it's probably (not sure) 1/12 of 3.45% each month - which you pointed out would be around $280 per month - which I am making more than that with the property.

I think we all do that from time to time It looks like you have placed yourself in a good position and at least for the time being, renting it out seems your best course of action.

[obi_positive]

If you assume a rate of inflation at 4%, a CD at 3.45% is losing some money in terms of value of the future dividend by .55%. So if inflation makes $100,000 worth only $96,000 in 12 months, and you earn $3,500 in interest from a CD, you've shielded your money somewhat. But it's still worth about $500 less, even though you have $103,500. The rule of thumb I was taught was to seek at least 6% return on investment to beat inflation and make some money.

The other thing is debt. If the interest on the debt is greater than the interest from the CD, you may as well pay off the debt.