Hi folks,
I've just sold a rental property and I am trying to finalize what to do with the proceeds of $230k. It doesn't qualify for 1030.
Summary of my financial picture:
Primary residence: FMV $880K, mortgage $485k, 2.65%. Monthly mortgage including taxes and insurance is $2650.
Rental property 1: FMV $880k, mortgage $280K, 3% investment mortgage. Monthly rent $3300. Current cash flow $1300.
Rental property 2: Just sold and netted $230k
Retirement and taxable securities: $2.6M in index funds, some individual stocks. About 10% of this is bonds.
Option 1: Payoff Rental Property 1 $280k mortgage. Since it's not enough, I would sell $50k index funds. I would own that property wholly, and the $3300 rent would cover my primary residence mortgage and the rest put aside as repair reserve. No housing cost going forward. The money that this frees up will go to buying more index funds every month.
Option 2: Pay down rental property and refinance $50k. Monthly mortgage payment would be something like $500 - 600, and the rental cash flow would cover most of my primary residence mortgage.
Option 3: Buy $230k in index funds. Keep mortgage situation as-is.
Between cash flow and return, I think I'd prefer return. But I am drawn to option 1 for psychological comfort of having no housing cost. Since I have a good chunk in stocks already, putting in $230k to produce $3300 (increase current rental cash flow by $2000) seems like a good diversification move (akin to bonds).
Is there another way to think about this?
Thank you in advance. This community has always been very helpful.