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Should I Use My Company Stock to Buy A Home?

Do you work for a company whose stock is stratospheric nowadays? Or are you sitting on a bunch of stock from a company that had a successful IPO?  Is this your ticket to homeownership?

It is a beautiful financial transmogrification: turning company stock into a home. It just seems poetic to me. There’s something so gratifying about turning that evanescent, intangible stock into something tangible. You can touch it! Decorate it! Cook dinner in it! Raise your kids in it!

I have ushered several clients through this process, and it’s been a great experience. There’s no denying that “new homeowner” glow. But it’s not a choice that everyone should make.

So let’s go through a few questions, first, about your own financial and life situation before you get too excited. Too late for that? Ah well, let’s do it anyway.

Do You Really Want to Own a Home?

I want to make sure that this isn’t a matter of “But houses are getting so expensive! I should get in now!” Which would be understandable.

Or maybe “All my friends are buying houses! I gots me some FOMO!”

Or even, “But I’ve got all this company stock. I know I’m supposed to do something with it. But a diversified portfolio of low-cost funds is so uninteresting. Hey, a house sounds much better!”

Which, again…the mind works in, well, totally predictable but unhelpful ways, sometimes.

Renting your home can be a glorious thing. It gives you such tremendous flexibility (think you might move for a job? For family?), and sometimes the rent is soooo much cheaper than owning the home would be. I didn’t buy a home until I was 39, had 2 small children, and had finally found a town where I wanted to stay for the next 20 years. I’ve made financial mistakes in my time, but this is one choice I got right.

Owning a home brings with it extra costs and hassles. Did you know that you are now responsible for fixing the roof after a windstorm? For calling the … someone when a sinkhole appears in the backyard?

What Percentage of Your Investment Portfolio Does Your Company Stock Represent?

How big is your investment portfolio? How much company stock do you own? Divide the first into the second…and what percentage do you arrive at?

As a financial planner, I get nervous when any one stock (especially the stock of the company you work for!) gets above 10% of your investment portfolio. I get Real Nervous when it approaches 20%. In fact, I’d usually prefer it to be closer to 5%.

Regardless of the exact number, I think most of us realize, at least in a cold-eyed intellectual way that has nothing to do with our actual  behavior, that “diversifying” out of company stock is smart and prudent.

But here a very relevant question remains: Do you diversify into a house, or into a “traditional” investment portfolio? You know, the utterly-not-fun-to-talk-about-at-parties mix of stock and bond funds.

It Can Be Really Hard to Sell Company Stock.

Not logistically difficult—You can simply place a “sell” order with your custodian (Vanguard, eTrade, etc.) or tell your advisor or broker to do it. But it’s emotionally difficult.

Maybe you’ve been with this company “since the beginning, man,” and you love it and you don’t want to relinquish any part of your ownership of it. Maybe you’ve seen the stock gaining value hand over fist, and you can’t bear the thought of selling some of it now, for fear of missing out on more amazing growth.

I mean, GOOG is up 32% this year. AMZN is up 54%! And the Vanguard fund that tracks the S&P 500 index is up “only” 18%. I get it!

One good thing about using company stock to buy a home is that, in my experience, it’s the easiest way to persuade yourself to sell a bunch of their company stock. You probably care about owning a home at least as much as you are attached to your company stock.

Without that literally tangible inducement to sell the stock—this stock which has grown So Much since you acquired it—it’s really hard to convince yourself to sell the stock. And selling (a lot, if not all of) the stock is usually what you need to do.

Can You Afford the House?

Even if your company stock can give you a good-to-great downpayment, that doesn’t mean it’s a financially wise move. Muse on these questions:

  • How much of your Net Worth would your house now represent? Especially in expensive areas like the Bay Area and Seattle, if you want to own a home, it’s simply going to take a large chunk of your Net Worth to purchase in the first place. My hope is that you would then immediately begin rebuilding your savings and investments outside of your house.

    The bottom line is: The more of your Net Worth made up by your house, the less flexible you are.
  • What would the monthly payments be? And what percentage of your monthly take-home income would that represent? This includes yoursmortgage payment (principal and interest), property tax, homeowners insurance, and HOA dues.I wouldn’t want it much over 30%. In expensive areas, you might push that a little, but only a little folks. Math is math, after all, and doesn’t care where you live. In other words, your stock might be able to get you into a house, but it doesn’t mean it can keep you in the house.

What Else Could You Do with the Money?

Money has this delightful quality that you can use it to buy all sorts of things! A home is certainly one such thing. But so is an earlier retirement. A college education for you child. A graduate degree for yourself. Time off so you can care for a loved one or travel the world. And so on.

So, while “a new home!” might be the most obvious use for all the money tied up in your company stock right now, it’s certainly not the only one. And perhaps isn’t even the best one…for you.

If you decide to use your company stock to buy a new home, what are you deciding against? Are you saying that you value owning your own home more than you value retiring several years earlier? Are you saying you value owning your own home more than the ability to send your child to school debt-free?

No judgment…just choices. And, importantly, choices you need to be aware of making, not just as a subconscious side effect of your home-buying decision.

How Much Tax Will You Owe If You Sell the Stock?

If your stock has gone up a lot since you acquired it, it’s gonna cost you to sell it. The Tax Man always gets his bite. It’s the price you to pay to have company stock worth so much money. And you want to think through how much you’ll owe and how you might minimize the tax hit. 

Cherry pick cost basis. If you don’t plan to sell all the company stock, then you can cherry pick which shares you sell, in order to minimize taxes. This basically boils down to choosing the shares with the highest “cost basis.”

Cost basis is basically the price you paid to acquire it. The higher the cost basis, the smaller the “gain,” and therefore the tax on the gain will be lower. If don’t know how to pick specific shares in this way, please do consult an accountant or financial planner.

Do you qualify for more-arcane beneficial tax rules? Maybe you’re lucky enough to qualify for one of the more arcane “Your taxes won’t be that high after all!” rules, like if your stock qualifies as Qualified Small Business Stock. (And seriously, if your stock qualifies as QSBS, go do a little happy dance ‘cause you one lucky gal.)

Or you originally acquired the stock by early exercising stock options. I really really encourage you to seek out an accountant, to figure out if either of these things apply or, hell, if some other beneficial rule applies that I don’t even know about yet!

Consider when you sell the stock. Maybe it’s beneficial to spread it out over 2 tax years (for example, you could sell some now, in 2017, and then more in just another few weeks, in 2018), or delay entirely for another few weeks (until 2018) because your income situation will be much different next year.

What’s that I hear? Oh, yes, the siren call of an accountant, again. An accountant can run projections for you that include not only the tax hit from the sale, but also how that interacts with how you can deduct the interest and points you pay for your mortgage. That sort of analysis simply needs professional software.

If you have company stock that’s worth a lot of money, I am happy for you. Although it might seem like everyone else does, too, I assure you: you are a lucky, rare person. In these hot real estate markets, sometimes it’s the only way that you can get into a home.

Do you want help figuring out how to buy a home? Reach out to me at  or schedule a free consultation.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.

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