WSJ's Take On the Week Podcast: Former Fed Official Kaplan on the Rate-Cut Dilemma
Rob Kaplan, vice chairman of Goldman Sachs and former president of the Dallas Fed, joins us to discuss the central bank's tough task ahead to lower inflation, plus the Fed independence debate.
📹 You can watch the video version of this episode above of WSJ's Take On the Week, or by visiting our WSJ Podcasts YouTube channel.
🎧 Or listen to the podcast here.
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With a home worth $400,000, and assuming closing costs are around 4% (the average is 2% to 5%), this homeowner would still end up with about $384,000 after paying for the transaction fees from the sale of the home. Now, since the home isn't his primary home, it's possible he could owe capital gains taxes if his profits exceeded $250,000 as a single person or $500,000 as a married joint filer. However, since Gavin is married and the home isn't netting in excess of $500,000, he'd likely be spared this tax. He may also need to pay additional sales taxes to the government of his host country. If he doesn't, he could pay off the $120,000 still remaining on the mortgage he owes, as well as his $50,000 in credit card debt and still walk away with around $214,000. That would be a good start to make a down payment on a home in the US for his family (in which he can retire), or to start investing for his future. He could save for his two kids to go to college, start an emergency fund and best of all, free up a lot of income by eliminating his credit card debt and the interest he would be paying on that into the future. In fact, if he uses the money wisely, he could not only set himself up for financial stability, but he could also choose to save to buy another retirement home down the road, when it makes more financial sense. Are there downsides to selling? While Gavin's circumstances make a strong case for selling the home, it's worth looking at whether there are any downsides to doing so, beyond losing the $700 in rental income. Since the home he owns doesn't have a great mortgage, isn't generating a big profit and there's no reason to believe it is a one-of-a-kind home, there's very little downside in cashing out now and using the proceeds to create some more financial stability. The only real risk would be that real estate values skyrocket in his chosen Caribbean retirement destination. This would either price him out of buying his dream retirement home later on or prevent him from earning more on the possible future sale of his vacation home. However, it's unlikely the ROI on Caribbean real estate would exceed the returns he'd get by investing in the stock market in the states or that the increase in the value would be worth paying the interest on the credit card debt and the mortgage combined. There are likely wiser ways to make that money work. So, if he's investing wisely over time, he should likely be able to buy a comparable home as a retiree if he wants to. He could also end up changing his retirement plans if he decides he'd rather stay in the US and be close to his potential grandchildren — and if that happens, it would have been a poor investment to pay for a house that's costly to keep only to end up not retiring there anyway. Selling now with the chance to rebuy later seems like a much better bet. 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