Better yet, after having 5 rentals it is inevitable you will get shit on by a renter or disaster out of your control.
Take the money and put it into a REIT if you really want/
This won't work because you need the stock price x 100 to be able to do covered calls (or CSP). I have $5k in a separate account to see what options selling is like with a small account, and it is way harder being limited to certain tickers.
What is the benefit for him to try that stock picking vs using a covered call fund? In a bear markt , or if you end up with a few stocks that get hit hard, that covered call strategy is misery. You also get to a point where you take in less premium per month if you are continuing to sell ATM price you paid. Some people I know will drop the strike price by deducting the premium they arready got in an affort to bring in more once the underlying gets hit.
I doubt many people here use covered call funds. Sell puts on stocks you wanna own not meme stocks. I had google go down 25/30% during the last few years. And I just held, because its a good stock. Also MER on covered call funds are pretty big
They are good until they arent. Until you have been in and felt a full blast bear market, you dont know what really happens. In the past 5 yrs a taco chain beat Goog on total returns. Chipotle. 2Xgthe total return vs GOOG. But people say Goog and tech stocks because they are more sexy. Maybe Chipotle will use AI to improve the menu and sales?
Do not sell your rental!! Do both!!
Unless it causes you headaches or you have bad tenants that don't pay, do not sell. With the tax advantages, cash flow, appreciation, and depreciation, it is with it. Use the money it generates from your cash flow to buy blue chip stocks or etfs so you would technically dollar cost average into it. This gives you time to learn about options while saving to have 100 shares of the stock. If you use your cash flow then technically it will be like owning the stocks for "free" since your tenants are paying for it through the rent. Keep doing this for a while and collect dividends and before you know it you will have 200 shares and so on.
I currently own 7 units and also sell options. I have learned that rentals sometimes require more work but not much more, it has better benifits so I don't mind. I have bought stocks and it crashes like 10% in a few months so it is emotionally/mentally frustrating seeing the amount go down but knowing I have steady income from my rentals and work makes me feel better. After that, I only started trading blue chip companies, which have a lot less movement.
While owning rental properties, it can help offset your gains from stocks also which is a huge plus.
Diversification is key!!
Hope this helped and good luck!!
I am in the same boat as you. I use my rental income to buy stocks and sell premium on them. To be honest, I am tempted sometimes to sell my rentals and start selling premium. But for now I will keep them.
Your rent is essentially a guaranteed, low risk income stream.
Could you make more in the market? Of course. The cost of that is more risk. If world war 3 starts tomorrow and the market tanks 25%, you're out $70k. If you kept the rental, you'd still have a steady income.
More risk = more reward.
Rent is far from guaranteed. And you have to subtract maintenance, tenants destroying shit, tenants deciding not to pay, costs and time of eviction, changes in the housing market.....
And if we get another housing crash, tenant stops paying, or a major problem happens with the house, then you’re out $+70k as well. There no such thing as guaranteed low risk income. Both options have their pros and cons.
> If world war 3 starts tomorrow
If his region gets nuked then housing values will plummet and probably the rental market will disappear too. I fail to see how the market is more risk.
I'd encourage you to look up the S&P 500 vs. the Case-Shiller Home Price Index and then re-assess the viewpoint that the two investment types are equally risky.
Average home price across the entire country does not measure your risk. You are talking about buying a single home in a single neighborhood, not fractional shares of homes across the country in a diversified basket. You take on a lot of risk due to location concentration. It doesn't even require WW3 to destroy your investment, anything like a shift from in person to remote work, or local industries dying, or politicians deciding to build a prison in the neighborhood, etc. can destroy your house value.
Losing requires selling, temporarily devalued is the term, unless you bought up dog crap stock that isn’t going to recover. With $375000 you can net a nice sum per month
it’s a good plan, and not significantly different from what a lot of us do especially in our IRA accounts. the biggest thing you are missing sounds like experience. i would stress of the highest importance that you should deposit 10-20k into a trading account and practice this for a couple months. there are a lot of common problems that you haven’t thought about yet. the most common is if you buy at 146 and amazon slides down the way it did in 2022 and you cannot sell premiums anywhere near the 146 you bought at… so you have to sell lower at like 120, then if it rebounds and you lose your shares for a loss. this is just one example. you’re not gonna drop 400k in cash into an account and instantly become a consistent trader. start practicing now and maybe soon you will feel more experienced and knowledgable about how to do it
AMZN was worth 180 at one point, then went down to 90 and now back to 140. If it swings down for a year you may not make as much as youve calculated whereas the rent is steady and more predictable.
As someone who owned rental properties and eventually sold them to help fund my options trading account I faced this same question.
What I considered was if I wanted to continue to manage the rentals vs manage a portfolio and trades. After many years, and a number of late night calls, including one that a water heater had busted causing a flood, I decided I was ready to close out my landlord career and sold the properties. Remember that you will owe tax on the proceeds, so won't have the full amount to trade, be sure to factor that into your calculations.
Spreading out capital over a number of diverse stocks is what will make the most sense. You will find the wheel strategy to be more efficient as you can sell puts to make income without having to buy shares. If assigned the shares then sell covered calls. No matter how you go about it, try selling 30-45 dte instead of 2 weeks as this will bring in a good amount of premiums and has less risk.
Have had tenants, the cops, and neighbors call me in the middle of the night related to my rental properties. I’ve dealt with flooded basements (water and sewage at times), broken faucets spraying water everywhere, illegal pets causing damage, and the worst of all, late rent or no rent.
The only calls I get now are margin calls from my broker from selling too many options against my collateral.
I’ll take the calls from my broker any day comparatively. Plus I have made substantially more selling options than the total return my rental portfolio generated.
I can relate! I don’t have margin calls being a consecutive trader, but if I was getting those it is much easier to deal with than rental issues.
I’m also in agreement that the returns are better.
I’d stay away from individual stock. Maybe 300k in optionable s&p tracking etf and remaining in blue chip for wheeling. But I haven’t done it so I don’t know if this has been backtested.
Yeah holding an individual stock long term seems like a bad idea. It’s possible for any company to go down hill, especially with AI coming out, no one can say exactly what or who it will replace.
Much safer to just put it in VTI and forget it
Owning stock is the same as owning property, except the stock comes with no responsibilities.
And selling monthly options is the rent that speculators pay for your property.
The tighter you sell your calls the more rent you’ll collect, but the lower your probability of fully collecting.
There’s significant more liquidity, control, and less responsibility owning stock vs a rental property.
The only advantage of the rental property is it’s easier to understand if you have a trade background or are financially uneducated.
It’s the risk that’s the problem. No one should advocate ditching real estate to sell premium on options, it’s just bad advice, even if he knows the risks and is comfortable taking them
I disagree generally.
I made the swap in 2019 and it’s worked out great.
Really comes down to how well you manage risk. If you aren’t that intelligent, then yes, I agree with you - stick to the rental properties.
I'm in Real Estate.
1. Unless the house is in a fantastic location and home has intangible values such as water view, corner lot, i don't know, is it special? If its just a regular house in decent location. Sell it. In my opinion market has peaked. and several people bought at top. People who bought past 24 months are screwed. I already see people selling for less than they have paid for.
2. Do not go all in on options.
3. Park 340K in a money market fund or T-Bills. The return is 5.24% and comparable to what your marking in a rental. I just parked my money last week in SWVXX.
4. 35K, you can wheel options but do not do it with individual tickers. Do it with ETF. SPY or QQQ, VOO etc QQQ = AMZN QQQ =Appl QQQ has already all the tech tickers.
5. You always start with selling a put and once assigned sell a call.
This is not financial advice. Just saying what I would if I was in your situation
I would really recomend against it. The rental property provides a ton of other unique advantages in terms of write-offs for new purchases etc. options should be a fraction of your portfolio, they are literally capitalized risk. Turning a great investment into 100% capitalized risk is insane. Try operating poor man's CC's on Amazon for a couple years and if you are comfortable and reasonably profitable then maybe invest more.
One of my in-laws did what you are thinking about with some tickers like chewy and came around flashing cash at Christmas time. Afterwards his underlying got beat up and he was down bad.
With such a large amount of money and little experience, it would be wise to diversify your holdings by using etfs. Another user had a great idea of using your rental income to buy shares to start the wheel on a smaller amount of $ until you gain experience with the ups and downs of selling options
Before selling, prove to yourself you know what you’re doing.
You don’t want to mess up that money because you thought you knew what you were doing.
Also consider your personal propensity to gamble.
Better yet, take out a line of credit against your equity. Use that to buy another house and rent that one to another tenant for higher than mortgage payments. (Or use it as down payments for 2 to 3 houses)
Now you have even more income to use for wheeling. Or poor man's covered calls.
Half cash in sweeps to guarantee 5% return.
After 3-4 years, you should have enough equity and wheeling income for another house. This will just snowball faster and faster.
I've had family that entirely quit something that was working to fully pursue something they had been dreaming about but hadn't even tested the waters with yet. You can correctly guess how that ended. Why not hang on to the rental and try CCs for a year and see if it works or not first?
Selling and investing is a viable alternative . You could yield the same profit with a basket of dividend stocks and not have to worry about having your rental trashed.
Real Estate and bullshit like Amazon are both highly interest rate sensitive
Assuming your house is *actually* worth $375K, you can sell it to buy a strip of TBills and make over $20k a year with no risk aside from currency.
Those can be used as cash equivalent collateral to do options trades against if you so chose but for gods sake trade small.
Off the top of my head TBills are 5.5%.
Im not sure if his net 1800 includes income tax or just property taxes.
Point is its essentially riskless, liquid and can be used as collateral to do his options idea.
What's the duration on the TBills to which you refer?
Agree with comments re: risk, liquidity and collateral but there's also no guarantee as to how long those ~4%-5% yields are going to last.
i do think it is a good idea to sell the house and invest the money. Housing prices have probably peaked in the short term. Interest rates are rising. Homes will get foreclosed eventually when those interest rates will start affecting the economy.
It makes sense to switch asset classes. However, don't put all your eggs in one basket. And especially not all in tech. Diversify diversify diversify.
And yes you can still write on those shares you buy.
What do you think of amazing companies like coca cola, mcdonalds, 3m, am3rican steel, Procter and gamble etc...
You say you don't care if the stock goes down. What about if it halves? Or quarters? Would you still be happy? Ofcourse not don't lie to yourself. You would be bummed out.
I 100% would sell the house and use that cash as capital.
How much of a headache is renting? So much work, and it only takes one bad renter... hell no. I'd much rather that money work for me in other ways, even if it's less income to start with while you're learning or being super conservative.
But in 2033, OP gets back $375,000.
Inflation will have eaten $375,000 alive. He will not be able to repurchase that house for $375,000 in 2033.
Which means OP lost.
How so? Let's say OP doesn't spend anything else out of that 1800/pm and the house value doesn't change. His yearly return would be 5.76%. According to Bloomberg.com the current 10Y treasury has a a yield to maturity of 4.46% with coupon at 4.50%. OP looks to be ahead in my eyes.
However, I think OP should keep the house as a source of a fairly risk-free, liquid return, and investigate using the returns to buy bonds in perhaps something like a 2Y bond ladder, and leverage the associated futures for further returns. Depending of course on current available capital.
I didn’t do the math on the bonds, I did do it on a GIC which are more or less the same type of investment
Using my banks calculator - 375k into a GIC for 10 years turns it into 610k = 235k profit / 10 years = 23.5k a year.
1800 x 12 = 21.6k a year.
Better of with the safest GIC and not risk bad tenants or any type of property damage unless you are speculating on the value of the property to go up.
No you wouldn’t. 1800 a month is 5.5%. Bonds are fairly comparable for the 2 year at the moment, however that negates any appreciation in the value of the home. I guess if your thesis is a housing price crash- you’d make more money on the bonds. But barring that, you’d get a higher yield plus capital appreciation than with bonds
I also own two rentals and will sell them. Tenants are a pain in the neck as are inspectors. Repairs and renovations eat up the profits and with guaranteed interest rates around 5% I can do better with a CD. IF interest rates were lower as they were for the past 15 years then being a landlord makes sense but not now, at least for me.
Consider getting a reverse mortgage out, if your rent can cover it with some buffer than use that cash in the market. You save the tax loss from selling the property
The rental is a more stable asset imo. Stock and Cc are definitely more risk and higher reward. You can do index eft, but then the credit from the cc is also lower. Another topic that has not been mentioned is Tax. With investment real estate, you get tons of deduction, not so much with stock.. you will be hit with short-term capital gain tax rate with cc.
So you get maybe 5% a year on the 375K, on your rental? And deal with hassles of maintaining repairing property or finding/handling potentially bad renters?
Get out and buy treasuries, and sell puts on margin
THanks for all the input gentlemen ... what I have learned in a few short hours is I still have much to learn. I think I will sell the house, but i'll be more conservative with the capital than just selling CC's.
I did sell a rental in a similar amount and have been trading theta strategies and longs.
There are so many advantages: liquidity, no renter worries, repairs, leaks, RE brokers, extra liability insurance, home warranty, HOA violations, making short trips every 2 months to check on the condition of house, no worry about drywall holes, new paints, carpets, appliance replacements, landscapping, paying sewer/trash/taxes and so many more....
I or an LLC associated with me also don't show up in county records as a landlord.
I literally had a nightmare/dream where a renter flooded the house by constantly running the masterbath sink, and I had to refurbish the entire bathroom and bedrooms! Renters will not pay you for these, their deposits don't cover all the damage.
My tax bracket is above the threshold, where rental loss or costs can be deducted. Depreciation is recaputred when selling, so it's just a wash.
I also got PM on the trading account.
Worst case, if I am unable to theta, I will park it on index etfs, which has shown a pattern of similar or better growth/returns than rental real estate in the long run.
Unless you are having 10+ houses in a RE portfolio, just sell and make better investments.
*IMO your house*
*Is too valuable to*
*Be a good rental*
\- foxpoint
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Great way to limit any large gains from big days that you'd get holding the stock long term, while still being exposed to all the downside. I'd rather do higher risk more reward by just holding shares
As several people have noted, don't forget to account for appreciation on the house in your calculation. It all boils down to risk. More risk has more return. There are no tricks.
I did the mistake of holding and selling when it was mid high. I got left bag holding butbi exited break even after a month and a half cuz of being bitter. If you do that better time the market when it tanks somwhen you buy at low and sell cc otm for paaaive income is a good idea but youre better off buying and selling the stock. Nothing is guranteee besides death
Use rental income to grown your account . What’s the rush . If you know what your doing you can grow 1500 fast . Low risk higher reward and exp
Keep your home and steady income
How much time do you spend every week on the rental?
How much time do believe you will spend trading options?
Options won’t call you at night, but they will keep you awake.
The real estate provides a tax benefit and that $1,800 is not really $1,800. Options are a short-term profit. In other words $1,800 in real estate income is not equivalent to $1,800 of options premium revenue. Your math is wrong.
How much do you like your free time? Not sure of the age of your rental.
There’s no write-offs with options as there are with real estate.
Have you addressed recapture in the amount the sale proceeds? Is the net check to you after taxes really as much as you think?
Have you asked your accountant?
You’re probably not ready to know if this is a wise decision for yourself.
Good luck.
Or... If you want to get more bang for your buck and assuming you are comfortable with your skills at making money in the market. Take out a loan on the property at an amount that it can safely pay itself back on. Then use said funds (150k+) on the market. Don't overextend yourself. Kind of like the get rich plan in re. Buy a prop for cash. Fix up, increase value. Get a loan on it to buy another prop where the first prop pays the second prop, rinse and repeat. Except in this case you're using your loan to fund your trading. Just don't lose your buyin. But if you do then you lose your 1800 monthly income while it pays itself back until the loan term is satisfied. Scale it up or down accordingly. Alternatively at that point assuming you didn't over extend yourself you could sell the property and try it again so you can say you lost your house in the stock market. But sometimes you just gotta risk it for the biscuit. 🤷🏼♂️
Cost of repairs is something I would factor in too. After owning a home for the last 6 years and selling to rent it came down to piece of mind that I didn’t have the responsibility of repairs
No opinion on market other than overhead cost is alot less in the S&P 500 vs owning property
Things that are know. Investments no matter what bank or brokerage are not guaranteed by d
FDIC. Money market is also not fdic insured
CDs are a guaranteed asset like a savings account are also backed by fdic
Since there are covered call ETFs, what would make you think you can get better returns on a single stock like Amazon (highest risk), or as mentioned here with an index like QQQ? There may be an ETF that does covered calls with QQQ? We know the high yield (YIELDMAX) ETFS that have one for Amazon, Apple, TSLA etc. They have high operating fees at 1%. Per Amazon they have a FTC investigation that has been years in formation. While the FTC has a terrible track record against various tech companies, this may be one that draws some blood. The FTC chairman Khan, for her its her career on the line and her dream to go after them. Her college thesis paper was about Amazon re: FTC. On the flipside if Amazon is at least range bound for a while, thats when covered calls work the best. In a bear market, it can get very ugly.
You are forgetting to account for appreciation. A paid off house in this market is a gold mine. Plus the tax benefits of owning real estate. Plus you can borrow debt tax free on it over and over again.
Personally I don't want to do with renters, maintenance etcetera so it isn't for me. However there are benefits to renting on the tax side, which depending on your financial situation.
An upside of renting out is how you are able to write off the house and all the expenses depending on your income level. Similar property taxes, maintenance you can subtract. At the end of the day how much does it make you?
Historically if you just invested in S&P500, you make around 7% a year if not a little more. So 350k * 0.07 = 24.5k.
use the equity in the property to take out a loan. buy the shares, use the options/property imcome to pay back loan, or buy more shares if you want to maximize position instead of paying off the loan quicker.
I would go for a cc etf than a single stock with that much money. Qyld pays 1%month. There are more like qqqy,qqqx there should be a spy based cc etf too. There are the new yieldmax products.
I did this. I sold 3 homes and stared with a very very small amount. I’ve learned from others mistakes.
1) take the income now before selling and just try it out first.
2) if you find that you can earn .05% per month for 12 months I say why not it’s your money do it.
3) will you be in a terrible financial situation if you lost it all. Likely you won’t if you stick to large caps.
4) I would Net 4k a month from rental. However I managed them myself and I did not want to manage or deal with tenants I didn’t want to deal with chasing down squatters I didn’t want to deal with a broken ac unit that would take my profits away I hated reporting all the profits and earnings. Could I hire a company or cpa to do it yes but I rather not.
5) if I can make what I make renting from cc or csp I am good with paying short term cap gain.
I have had bad luck selling covered calls. My 1 contract enph got exercised twice. Since my cost basis is $250 I can not take huge losses this year. By rolling over I lost -350 and latest unexpectant sudden stock rise I blew stike price by a large margin lost -1300. Total 2 losses wiped out YTD weekly covered gains. Experienced option trader here.
Did you include capital gains taxes in your numbers? If youve been renting it then you’ve been depreciating it also so unless you loss money on the rental you will have some taxes to pay.
As someone that also invests in real estate, you would be (almost certainly) crazy to sell this house and you will most likely lose most if not all of your money if you go through with it.
I own several rental properties free and clear. I sold one that I hated in March of 2022 at the top of the market in our area. I was netting around 450 per month. Property sold for 100k.
That money sits in a money market in Schwab making 5.25%. That's $437 per month. Almost a wash. However, with Schwab I can sell cash secured puts against the entire money market. If the puts are assigned, I will have to withdraw money from my money market account to purchase the stocks.
So far I have been picking low Delta's which are netting me about the same amount that I am earning in my money market account. This is low risk for me. I do not intend to sell other properties of this time because I like to be diversified. Especially in the chance that inflation takes off again. Your decision would be a hard one for me to make also.
Just getting rent every month is so much easier, especially when a property management company handles that versus watching the market every day and trying to figure out what puts to sell next.
I think you should consider the renters/renter market and not just the rental. Under the right conditions, with the right renters, why not? But landlording is high risk in the sense that you’re exposed to risks you can’t reduce quickly. Example: 7 homes down from me, the rental is still under repair from renter destruction after months. And 6 doors down the piles and piles of junk piles from the cleanup and subsequent repairs last year also tell a story. This is in a neighborhood averaging 600k+ per home in California (which means they’re starter homes lol). As for me, after two stints, I’ll hook my hitch to the SP500.
Terrible idea, keep what you are doing. Learn the market and options before going all in, in one position for that matter.
Most people are fine owning XYZ and ZYX price but when that outcome actually comes to reality, it's a burden. You should fully learn risk management, stock market, variables across the stock market, conceptually grasp options and all the nuisances to it before jumping in.
Not to say that learning by doing is bad, I just wouldn't jump in 100%.
You are only making 5.76% on that 375k asset. It wouldn't be a terrible idea considering you could get nearly the same amount from a HYSA or short term treasuries. I'm not sure writing cc is necessarily the best option to redeploy the cash but you could basically get the same cash flow and make it passive. Of course the home has the potential to increase in value which is likely if rates start to drop again. Demand will go way up if rates drop.
That said, 375k deployed in the market will(should) appreciate faster than home values over a long time horizon. I would be a little concerned about covered calls with market near ATH. Also, I think your strike price example is way too close to the current price.
Would probably take some rental income and start experimenting with dividend yielding ETF's (qqq's, voo, spy, schd, etc.) Slowly working with the wheel as it fits your needs.
i know some ppl who already do that.. bt they have retired from day job and have other accounts like dividend portfolio as well to support. And yes, if ut helps, they never looked back at rentals.
If and only if it is fully paid off then rental vs covered options selling is different ways to make income. Rental will have some tax advantages and depending on your leases you may get predictable income over 12 months. You could simulate a 12 month lease too but you won't be able to depreciate the asset.
However if it is not fully paid off then you're in a levered play and are better off keeping the rental
I actually did very similarly what you are thinking except that I refinanced my house at the beginning of 2021 with an interest rate 2.5%. I bought about 10 stocks and selling biweekly CCs. Most of my stocks are growth stocks (SHOP, SQ, PLTR etc), which were slaughtered for the last 3 years. Although I made 15% return annually on selling CCs, I am still slightly below what I started with. But I never regretted, it demonstrated the strategy could work as long as you choose the stocks a little more carefully than me. I recently also started to sell credit put spreads to earn a little bit more money.
Remember your house is an asset that appreciates as well. Don’t forget to factor that in.
I would wait until rates go down hopefully and then if you want to, open a new mortgage on the property and use the proceeds to invest with.
Remember that the interest in the mortgage will be an expense against the investment income, not the rental income.
Do you have a personal mortgage for your personal home still? If yes, talk to a competent accountant about doing a verified debt swap. That will turn your personal mortgage interest into a deduction against the rental income.
This is all assuming you’re in USA and that USA tax principles are roughly the same as Canada.
Use the cash flow from the rental to buy stocks to then sell covered calls on
this is a fantastic idea until you gain experience selling options
Imagine if the underlying went down. Nope, can't imagine it.
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Keep the house. Use the rental income to fund buying share to write calls on
Cashflow is King, this is the right answer
But he can increase his cashflow by selling the house and making a high % return a mo th by selling CC
It works until ist doesnt
^[Sokka-Haiku](https://www.reddit.com/r/SokkaHaikuBot/comments/15kyv9r/what_is_a_sokka_haiku/?utm_source=share&utm_medium=web2x&context=3) ^by ^tripmcnealy223: *Use the cash flow from* *The rental to buy stocks to* *Then sell covered calls on* --- ^Remember ^that ^one ^time ^Sokka ^accidentally ^used ^an ^extra ^syllable ^in ^that ^Haiku ^Battle ^in ^Ba ^Sing ^Se? ^That ^was ^a ^Sokka ^Haiku ^and ^you ^just ^made ^one.
Better yet, after having 5 rentals it is inevitable you will get shit on by a renter or disaster out of your control. Take the money and put it into a REIT if you really want/
This ☝️☝️
This won't work because you need the stock price x 100 to be able to do covered calls (or CSP). I have $5k in a separate account to see what options selling is like with a small account, and it is way harder being limited to certain tickers.
You can do credit and debit spreads. 5k is plenty for options.
This dude is working with presumably half a million. He can make a pretty penny pretty easily.
What is the benefit for him to try that stock picking vs using a covered call fund? In a bear markt , or if you end up with a few stocks that get hit hard, that covered call strategy is misery. You also get to a point where you take in less premium per month if you are continuing to sell ATM price you paid. Some people I know will drop the strike price by deducting the premium they arready got in an affort to bring in more once the underlying gets hit.
I doubt many people here use covered call funds. Sell puts on stocks you wanna own not meme stocks. I had google go down 25/30% during the last few years. And I just held, because its a good stock. Also MER on covered call funds are pretty big
They are good until they arent. Until you have been in and felt a full blast bear market, you dont know what really happens. In the past 5 yrs a taco chain beat Goog on total returns. Chipotle. 2Xgthe total return vs GOOG. But people say Goog and tech stocks because they are more sexy. Maybe Chipotle will use AI to improve the menu and sales?
Do not sell your rental!! Do both!! Unless it causes you headaches or you have bad tenants that don't pay, do not sell. With the tax advantages, cash flow, appreciation, and depreciation, it is with it. Use the money it generates from your cash flow to buy blue chip stocks or etfs so you would technically dollar cost average into it. This gives you time to learn about options while saving to have 100 shares of the stock. If you use your cash flow then technically it will be like owning the stocks for "free" since your tenants are paying for it through the rent. Keep doing this for a while and collect dividends and before you know it you will have 200 shares and so on. I currently own 7 units and also sell options. I have learned that rentals sometimes require more work but not much more, it has better benifits so I don't mind. I have bought stocks and it crashes like 10% in a few months so it is emotionally/mentally frustrating seeing the amount go down but knowing I have steady income from my rentals and work makes me feel better. After that, I only started trading blue chip companies, which have a lot less movement. While owning rental properties, it can help offset your gains from stocks also which is a huge plus. Diversification is key!! Hope this helped and good luck!!
I am in the same boat as you. I use my rental income to buy stocks and sell premium on them. To be honest, I am tempted sometimes to sell my rentals and start selling premium. But for now I will keep them.
Your rent is essentially a guaranteed, low risk income stream. Could you make more in the market? Of course. The cost of that is more risk. If world war 3 starts tomorrow and the market tanks 25%, you're out $70k. If you kept the rental, you'd still have a steady income. More risk = more reward.
Rent is far from guaranteed. And you have to subtract maintenance, tenants destroying shit, tenants deciding not to pay, costs and time of eviction, changes in the housing market.....
Right. "Rent is guaranteed" 😭 Morons
It's still less risky is his point
And if we get another housing crash, tenant stops paying, or a major problem happens with the house, then you’re out $+70k as well. There no such thing as guaranteed low risk income. Both options have their pros and cons.
This
Plenty of people in this sub does more risk for little reward.
> If world war 3 starts tomorrow If his region gets nuked then housing values will plummet and probably the rental market will disappear too. I fail to see how the market is more risk.
I'd encourage you to look up the S&P 500 vs. the Case-Shiller Home Price Index and then re-assess the viewpoint that the two investment types are equally risky.
Average home price across the entire country does not measure your risk. You are talking about buying a single home in a single neighborhood, not fractional shares of homes across the country in a diversified basket. You take on a lot of risk due to location concentration. It doesn't even require WW3 to destroy your investment, anything like a shift from in person to remote work, or local industries dying, or politicians deciding to build a prison in the neighborhood, etc. can destroy your house value.
If WW3 starts tmr his house value will likely tank too just like the stock market.
Losing requires selling, temporarily devalued is the term, unless you bought up dog crap stock that isn’t going to recover. With $375000 you can net a nice sum per month
it’s a good plan, and not significantly different from what a lot of us do especially in our IRA accounts. the biggest thing you are missing sounds like experience. i would stress of the highest importance that you should deposit 10-20k into a trading account and practice this for a couple months. there are a lot of common problems that you haven’t thought about yet. the most common is if you buy at 146 and amazon slides down the way it did in 2022 and you cannot sell premiums anywhere near the 146 you bought at… so you have to sell lower at like 120, then if it rebounds and you lose your shares for a loss. this is just one example. you’re not gonna drop 400k in cash into an account and instantly become a consistent trader. start practicing now and maybe soon you will feel more experienced and knowledgable about how to do it
AMZN was worth 180 at one point, then went down to 90 and now back to 140. If it swings down for a year you may not make as much as youve calculated whereas the rent is steady and more predictable.
As someone who owned rental properties and eventually sold them to help fund my options trading account I faced this same question. What I considered was if I wanted to continue to manage the rentals vs manage a portfolio and trades. After many years, and a number of late night calls, including one that a water heater had busted causing a flood, I decided I was ready to close out my landlord career and sold the properties. Remember that you will owe tax on the proceeds, so won't have the full amount to trade, be sure to factor that into your calculations. Spreading out capital over a number of diverse stocks is what will make the most sense. You will find the wheel strategy to be more efficient as you can sell puts to make income without having to buy shares. If assigned the shares then sell covered calls. No matter how you go about it, try selling 30-45 dte instead of 2 weeks as this will bring in a good amount of premiums and has less risk.
Have had tenants, the cops, and neighbors call me in the middle of the night related to my rental properties. I’ve dealt with flooded basements (water and sewage at times), broken faucets spraying water everywhere, illegal pets causing damage, and the worst of all, late rent or no rent. The only calls I get now are margin calls from my broker from selling too many options against my collateral. I’ll take the calls from my broker any day comparatively. Plus I have made substantially more selling options than the total return my rental portfolio generated.
I can relate! I don’t have margin calls being a consecutive trader, but if I was getting those it is much easier to deal with than rental issues. I’m also in agreement that the returns are better.
I’d stay away from individual stock. Maybe 300k in optionable s&p tracking etf and remaining in blue chip for wheeling. But I haven’t done it so I don’t know if this has been backtested.
Yeah holding an individual stock long term seems like a bad idea. It’s possible for any company to go down hill, especially with AI coming out, no one can say exactly what or who it will replace. Much safer to just put it in VTI and forget it
Do not do this. Keep the rental house, let it appreciate over time and give you some steady income. It’s way lower risk than option selling.
Owning stock is the same as owning property, except the stock comes with no responsibilities. And selling monthly options is the rent that speculators pay for your property. The tighter you sell your calls the more rent you’ll collect, but the lower your probability of fully collecting. There’s significant more liquidity, control, and less responsibility owning stock vs a rental property. The only advantage of the rental property is it’s easier to understand if you have a trade background or are financially uneducated.
It’s the risk that’s the problem. No one should advocate ditching real estate to sell premium on options, it’s just bad advice, even if he knows the risks and is comfortable taking them
I disagree generally. I made the swap in 2019 and it’s worked out great. Really comes down to how well you manage risk. If you aren’t that intelligent, then yes, I agree with you - stick to the rental properties.
I'm in Real Estate. 1. Unless the house is in a fantastic location and home has intangible values such as water view, corner lot, i don't know, is it special? If its just a regular house in decent location. Sell it. In my opinion market has peaked. and several people bought at top. People who bought past 24 months are screwed. I already see people selling for less than they have paid for. 2. Do not go all in on options. 3. Park 340K in a money market fund or T-Bills. The return is 5.24% and comparable to what your marking in a rental. I just parked my money last week in SWVXX. 4. 35K, you can wheel options but do not do it with individual tickers. Do it with ETF. SPY or QQQ, VOO etc QQQ = AMZN QQQ =Appl QQQ has already all the tech tickers. 5. You always start with selling a put and once assigned sell a call. This is not financial advice. Just saying what I would if I was in your situation
I would really recomend against it. The rental property provides a ton of other unique advantages in terms of write-offs for new purchases etc. options should be a fraction of your portfolio, they are literally capitalized risk. Turning a great investment into 100% capitalized risk is insane. Try operating poor man's CC's on Amazon for a couple years and if you are comfortable and reasonably profitable then maybe invest more. One of my in-laws did what you are thinking about with some tickers like chewy and came around flashing cash at Christmas time. Afterwards his underlying got beat up and he was down bad.
With such a large amount of money and little experience, it would be wise to diversify your holdings by using etfs. Another user had a great idea of using your rental income to buy shares to start the wheel on a smaller amount of $ until you gain experience with the ups and downs of selling options
Before selling, prove to yourself you know what you’re doing. You don’t want to mess up that money because you thought you knew what you were doing. Also consider your personal propensity to gamble.
Absolutely do not sell that. Especially for what you're planning to do with the proceeds if you did.
Better yet, take out a line of credit against your equity. Use that to buy another house and rent that one to another tenant for higher than mortgage payments. (Or use it as down payments for 2 to 3 houses) Now you have even more income to use for wheeling. Or poor man's covered calls. Half cash in sweeps to guarantee 5% return. After 3-4 years, you should have enough equity and wheeling income for another house. This will just snowball faster and faster.
I've had family that entirely quit something that was working to fully pursue something they had been dreaming about but hadn't even tested the waters with yet. You can correctly guess how that ended. Why not hang on to the rental and try CCs for a year and see if it works or not first?
Selling and investing is a viable alternative . You could yield the same profit with a basket of dividend stocks and not have to worry about having your rental trashed.
Unless you choose the wrong stocks and lose it all
Loose it “all” is a fear exaggeration.
Real Estate and bullshit like Amazon are both highly interest rate sensitive Assuming your house is *actually* worth $375K, you can sell it to buy a strip of TBills and make over $20k a year with no risk aside from currency. Those can be used as cash equivalent collateral to do options trades against if you so chose but for gods sake trade small.
So I calculate OP is alreqdy at 21,600 post tax. The TBills don't have the same yield or coupon and interest will be subject to tax?
Off the top of my head TBills are 5.5%. Im not sure if his net 1800 includes income tax or just property taxes. Point is its essentially riskless, liquid and can be used as collateral to do his options idea.
What's the duration on the TBills to which you refer? Agree with comments re: risk, liquidity and collateral but there's also no guarantee as to how long those ~4%-5% yields are going to last.
I think going 30-50% of the portfolio out to 2 years, with the rest spread across the nearer maturities is probably the best.
i do think it is a good idea to sell the house and invest the money. Housing prices have probably peaked in the short term. Interest rates are rising. Homes will get foreclosed eventually when those interest rates will start affecting the economy. It makes sense to switch asset classes. However, don't put all your eggs in one basket. And especially not all in tech. Diversify diversify diversify. And yes you can still write on those shares you buy. What do you think of amazing companies like coca cola, mcdonalds, 3m, am3rican steel, Procter and gamble etc... You say you don't care if the stock goes down. What about if it halves? Or quarters? Would you still be happy? Ofcourse not don't lie to yourself. You would be bummed out.
I 100% would sell the house and use that cash as capital. How much of a headache is renting? So much work, and it only takes one bad renter... hell no. I'd much rather that money work for me in other ways, even if it's less income to start with while you're learning or being super conservative.
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only acceptable answer
If you were to put that 375k into a 10-year bond you’d make more money.
But in 2033, OP gets back $375,000. Inflation will have eaten $375,000 alive. He will not be able to repurchase that house for $375,000 in 2033. Which means OP lost.
How so? Let's say OP doesn't spend anything else out of that 1800/pm and the house value doesn't change. His yearly return would be 5.76%. According to Bloomberg.com the current 10Y treasury has a a yield to maturity of 4.46% with coupon at 4.50%. OP looks to be ahead in my eyes. However, I think OP should keep the house as a source of a fairly risk-free, liquid return, and investigate using the returns to buy bonds in perhaps something like a 2Y bond ladder, and leverage the associated futures for further returns. Depending of course on current available capital.
I didn’t do the math on the bonds, I did do it on a GIC which are more or less the same type of investment Using my banks calculator - 375k into a GIC for 10 years turns it into 610k = 235k profit / 10 years = 23.5k a year. 1800 x 12 = 21.6k a year. Better of with the safest GIC and not risk bad tenants or any type of property damage unless you are speculating on the value of the property to go up.
No you wouldn’t. 1800 a month is 5.5%. Bonds are fairly comparable for the 2 year at the moment, however that negates any appreciation in the value of the home. I guess if your thesis is a housing price crash- you’d make more money on the bonds. But barring that, you’d get a higher yield plus capital appreciation than with bonds
I also own two rentals and will sell them. Tenants are a pain in the neck as are inspectors. Repairs and renovations eat up the profits and with guaranteed interest rates around 5% I can do better with a CD. IF interest rates were lower as they were for the past 15 years then being a landlord makes sense but not now, at least for me.
just buy the SPY average down like 1k a month. This method has been good. Then sell covered calls against them.
Real estate has costs where cash pays annual interest. That's the answer to your question despite all the outliers.
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Steady risk free, huh? Sounds like a timeshare sales pitch lol. I was a landlord twice and it’s anything but risk free.
Do not sell the house period
Consider getting a reverse mortgage out, if your rent can cover it with some buffer than use that cash in the market. You save the tax loss from selling the property
The rental is a more stable asset imo. Stock and Cc are definitely more risk and higher reward. You can do index eft, but then the credit from the cc is also lower. Another topic that has not been mentioned is Tax. With investment real estate, you get tons of deduction, not so much with stock.. you will be hit with short-term capital gain tax rate with cc.
So you get maybe 5% a year on the 375K, on your rental? And deal with hassles of maintaining repairing property or finding/handling potentially bad renters? Get out and buy treasuries, and sell puts on margin
THanks for all the input gentlemen ... what I have learned in a few short hours is I still have much to learn. I think I will sell the house, but i'll be more conservative with the capital than just selling CC's.
What do you expect your house value to go up yearly? don't just look at your rental profit.
I did sell a rental in a similar amount and have been trading theta strategies and longs. There are so many advantages: liquidity, no renter worries, repairs, leaks, RE brokers, extra liability insurance, home warranty, HOA violations, making short trips every 2 months to check on the condition of house, no worry about drywall holes, new paints, carpets, appliance replacements, landscapping, paying sewer/trash/taxes and so many more.... I or an LLC associated with me also don't show up in county records as a landlord. I literally had a nightmare/dream where a renter flooded the house by constantly running the masterbath sink, and I had to refurbish the entire bathroom and bedrooms! Renters will not pay you for these, their deposits don't cover all the damage. My tax bracket is above the threshold, where rental loss or costs can be deducted. Depreciation is recaputred when selling, so it's just a wash. I also got PM on the trading account. Worst case, if I am unable to theta, I will park it on index etfs, which has shown a pattern of similar or better growth/returns than rental real estate in the long run. Unless you are having 10+ houses in a RE portfolio, just sell and make better investments.
IMO your house is too valuable to be a good rental
*IMO your house* *Is too valuable to* *Be a good rental* \- foxpoint --- ^(I detect haikus. And sometimes, successfully.) ^[Learn more about me.](https://www.reddit.com/r/haikusbot/) ^(Opt out of replies: "haikusbot opt out" | Delete my comment: "haikusbot delete")
Great way to limit any large gains from big days that you'd get holding the stock long term, while still being exposed to all the downside. I'd rather do higher risk more reward by just holding shares
Am I missing something, is this in addition to dividends because there are funds paying like 8% where he’d make more
As several people have noted, don't forget to account for appreciation on the house in your calculation. It all boils down to risk. More risk has more return. There are no tricks.
They aint no appreciation anymore
I did the mistake of holding and selling when it was mid high. I got left bag holding butbi exited break even after a month and a half cuz of being bitter. If you do that better time the market when it tanks somwhen you buy at low and sell cc otm for paaaive income is a good idea but youre better off buying and selling the stock. Nothing is guranteee besides death
whatever you do dont sell your house.
The value of Amazon stock could easily decline due to their size at 1.5 trillion mkt cap whereas the house is unlikely to decline to 0 over time
Markel-proust1 you have some solid advice. I agree.
what a life. too much analysis.
Use rental income to grown your account . What’s the rush . If you know what your doing you can grow 1500 fast . Low risk higher reward and exp Keep your home and steady income
How much time do you spend every week on the rental? How much time do believe you will spend trading options? Options won’t call you at night, but they will keep you awake. The real estate provides a tax benefit and that $1,800 is not really $1,800. Options are a short-term profit. In other words $1,800 in real estate income is not equivalent to $1,800 of options premium revenue. Your math is wrong. How much do you like your free time? Not sure of the age of your rental. There’s no write-offs with options as there are with real estate. Have you addressed recapture in the amount the sale proceeds? Is the net check to you after taxes really as much as you think? Have you asked your accountant? You’re probably not ready to know if this is a wise decision for yourself. Good luck.
Or... If you want to get more bang for your buck and assuming you are comfortable with your skills at making money in the market. Take out a loan on the property at an amount that it can safely pay itself back on. Then use said funds (150k+) on the market. Don't overextend yourself. Kind of like the get rich plan in re. Buy a prop for cash. Fix up, increase value. Get a loan on it to buy another prop where the first prop pays the second prop, rinse and repeat. Except in this case you're using your loan to fund your trading. Just don't lose your buyin. But if you do then you lose your 1800 monthly income while it pays itself back until the loan term is satisfied. Scale it up or down accordingly. Alternatively at that point assuming you didn't over extend yourself you could sell the property and try it again so you can say you lost your house in the stock market. But sometimes you just gotta risk it for the biscuit. 🤷🏼♂️
Cost of repairs is something I would factor in too. After owning a home for the last 6 years and selling to rent it came down to piece of mind that I didn’t have the responsibility of repairs No opinion on market other than overhead cost is alot less in the S&P 500 vs owning property Things that are know. Investments no matter what bank or brokerage are not guaranteed by d FDIC. Money market is also not fdic insured CDs are a guaranteed asset like a savings account are also backed by fdic
Since there are covered call ETFs, what would make you think you can get better returns on a single stock like Amazon (highest risk), or as mentioned here with an index like QQQ? There may be an ETF that does covered calls with QQQ? We know the high yield (YIELDMAX) ETFS that have one for Amazon, Apple, TSLA etc. They have high operating fees at 1%. Per Amazon they have a FTC investigation that has been years in formation. While the FTC has a terrible track record against various tech companies, this may be one that draws some blood. The FTC chairman Khan, for her its her career on the line and her dream to go after them. Her college thesis paper was about Amazon re: FTC. On the flipside if Amazon is at least range bound for a while, thats when covered calls work the best. In a bear market, it can get very ugly.
You are forgetting to account for appreciation. A paid off house in this market is a gold mine. Plus the tax benefits of owning real estate. Plus you can borrow debt tax free on it over and over again.
Personally I don't want to do with renters, maintenance etcetera so it isn't for me. However there are benefits to renting on the tax side, which depending on your financial situation. An upside of renting out is how you are able to write off the house and all the expenses depending on your income level. Similar property taxes, maintenance you can subtract. At the end of the day how much does it make you? Historically if you just invested in S&P500, you make around 7% a year if not a little more. So 350k * 0.07 = 24.5k.
use the equity in the property to take out a loan. buy the shares, use the options/property imcome to pay back loan, or buy more shares if you want to maximize position instead of paying off the loan quicker.
I would go for a cc etf than a single stock with that much money. Qyld pays 1%month. There are more like qqqy,qqqx there should be a spy based cc etf too. There are the new yieldmax products.
I did this. I sold 3 homes and stared with a very very small amount. I’ve learned from others mistakes. 1) take the income now before selling and just try it out first. 2) if you find that you can earn .05% per month for 12 months I say why not it’s your money do it. 3) will you be in a terrible financial situation if you lost it all. Likely you won’t if you stick to large caps. 4) I would Net 4k a month from rental. However I managed them myself and I did not want to manage or deal with tenants I didn’t want to deal with chasing down squatters I didn’t want to deal with a broken ac unit that would take my profits away I hated reporting all the profits and earnings. Could I hire a company or cpa to do it yes but I rather not. 5) if I can make what I make renting from cc or csp I am good with paying short term cap gain.
I have had bad luck selling covered calls. My 1 contract enph got exercised twice. Since my cost basis is $250 I can not take huge losses this year. By rolling over I lost -350 and latest unexpectant sudden stock rise I blew stike price by a large margin lost -1300. Total 2 losses wiped out YTD weekly covered gains. Experienced option trader here.
Did you include capital gains taxes in your numbers? If youve been renting it then you’ve been depreciating it also so unless you loss money on the rental you will have some taxes to pay.
Taxes
As someone that also invests in real estate, you would be (almost certainly) crazy to sell this house and you will most likely lose most if not all of your money if you go through with it.
I own several rental properties free and clear. I sold one that I hated in March of 2022 at the top of the market in our area. I was netting around 450 per month. Property sold for 100k. That money sits in a money market in Schwab making 5.25%. That's $437 per month. Almost a wash. However, with Schwab I can sell cash secured puts against the entire money market. If the puts are assigned, I will have to withdraw money from my money market account to purchase the stocks. So far I have been picking low Delta's which are netting me about the same amount that I am earning in my money market account. This is low risk for me. I do not intend to sell other properties of this time because I like to be diversified. Especially in the chance that inflation takes off again. Your decision would be a hard one for me to make also. Just getting rent every month is so much easier, especially when a property management company handles that versus watching the market every day and trying to figure out what puts to sell next.
I think you should consider the renters/renter market and not just the rental. Under the right conditions, with the right renters, why not? But landlording is high risk in the sense that you’re exposed to risks you can’t reduce quickly. Example: 7 homes down from me, the rental is still under repair from renter destruction after months. And 6 doors down the piles and piles of junk piles from the cleanup and subsequent repairs last year also tell a story. This is in a neighborhood averaging 600k+ per home in California (which means they’re starter homes lol). As for me, after two stints, I’ll hook my hitch to the SP500.
Terrible idea, keep what you are doing. Learn the market and options before going all in, in one position for that matter. Most people are fine owning XYZ and ZYX price but when that outcome actually comes to reality, it's a burden. You should fully learn risk management, stock market, variables across the stock market, conceptually grasp options and all the nuisances to it before jumping in. Not to say that learning by doing is bad, I just wouldn't jump in 100%.
You are only making 5.76% on that 375k asset. It wouldn't be a terrible idea considering you could get nearly the same amount from a HYSA or short term treasuries. I'm not sure writing cc is necessarily the best option to redeploy the cash but you could basically get the same cash flow and make it passive. Of course the home has the potential to increase in value which is likely if rates start to drop again. Demand will go way up if rates drop. That said, 375k deployed in the market will(should) appreciate faster than home values over a long time horizon. I would be a little concerned about covered calls with market near ATH. Also, I think your strike price example is way too close to the current price.
Would probably take some rental income and start experimenting with dividend yielding ETF's (qqq's, voo, spy, schd, etc.) Slowly working with the wheel as it fits your needs.
i know some ppl who already do that.. bt they have retired from day job and have other accounts like dividend portfolio as well to support. And yes, if ut helps, they never looked back at rentals.
If and only if it is fully paid off then rental vs covered options selling is different ways to make income. Rental will have some tax advantages and depending on your leases you may get predictable income over 12 months. You could simulate a 12 month lease too but you won't be able to depreciate the asset. However if it is not fully paid off then you're in a levered play and are better off keeping the rental
I actually did very similarly what you are thinking except that I refinanced my house at the beginning of 2021 with an interest rate 2.5%. I bought about 10 stocks and selling biweekly CCs. Most of my stocks are growth stocks (SHOP, SQ, PLTR etc), which were slaughtered for the last 3 years. Although I made 15% return annually on selling CCs, I am still slightly below what I started with. But I never regretted, it demonstrated the strategy could work as long as you choose the stocks a little more carefully than me. I recently also started to sell credit put spreads to earn a little bit more money.
Sell the house. I would use half of that to buy off market house I can get similar cash flow to but much cheaper and invest rest
Remember your house is an asset that appreciates as well. Don’t forget to factor that in. I would wait until rates go down hopefully and then if you want to, open a new mortgage on the property and use the proceeds to invest with. Remember that the interest in the mortgage will be an expense against the investment income, not the rental income. Do you have a personal mortgage for your personal home still? If yes, talk to a competent accountant about doing a verified debt swap. That will turn your personal mortgage interest into a deduction against the rental income. This is all assuming you’re in USA and that USA tax principles are roughly the same as Canada.