Need advice for lump sum of money

Concrete Helmet

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You guys are giving me a ton of good info and also opened my eyes to a couple things I really had not considered until I started doing a little financial "inventory" over the last couple of days.....appreciate all the post keep them coming.
 

Egor's Assistant

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Let it ride on the Gators to beat Miami +7.5. Easy money. Then follow all the rest of the guy's advice.
 

Detroitgator

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Okay, here is my advice. It is a different than what others have already said. I guess you could say I'm looking at this through a different lens. I don't know the number of properties you own but we can go with made up #'s as it really doesn't matter in the grand scheme of this post. Let's assume you have 10 properties.

Effectively, you currently own 5 properties free & clear (50% debt to equity on the assumed number of 10 properties total) if you just rejigger your financing a little bit, which is what I would do. This is important IMO because let's say hypothetically you ran into cash flow problems (maybe the rental market craps the bed, a Lehman Brothers 2.0 event happens, etc.). You only have 5 properties at risk of being taken back by the lender if you can't swing the payments, rather than having all 10 properties at risk. It would really suck to have so much equity in a property wiped out because of unexpected, short term cash flow problems. So, the first things I would do is start to refinance the properties so that you only have mortgages on half of your properties and you own the other half free & clear. At the same time, I would consult with a lawyer that deals with asset protection and have him structure the ownership of the 5 you own free & clear in asset protected vehicles (maybe individual LLCs or something along those lines...how this is done may vary depending on where you live). If you can also put the other 5 that will have mortgages on them in a separate LLC for each one individually, by all means consider it. You will probably need to use your inheritance (or a chunk of it at least) to do this unless you have a lender that will give you 100% financing on the 5 properties you will keep mortgaged (remember, you have 50% equity in all the properties so if you own half free & clear the other half will be 100% LTV unless you use your windfall...you probably won't be able to get 100% LTV financing is my guess). I would do this because worst case scenario you have something happen financially (bankruptcy due to unforeseen events, you get sued and slapped with a big judgement, etc.), you are most likely protecting quite a few of your rental properties from creditors and you leave yourself with a nice nest egg even in the worst case scenario, while giving yourself the flexibility to walk away from those that are financed at 80/90%. I would consider putting the remaining properties that will still have mortgages on a 30 year fixed rate. This way you still benefit from the using OPM in this low rate environment we find ourselves in. The properties you now own free & clear effectively are your annuity as they spit out monthly income for you to live off of. You'll probably be cash flow positive on the properties that are still mortgaged as you've stretched the duration out to 30 years. Use some of your positive cash flow to invest in the market if you so choose realizing that you will be dollar cost averaging in over many years while giving yourself the ability to stop monthly contributions as needed if a need ever arises. Use the income from your job to fund your Roth or individual IRA (you won't need as much discretionary income from your job as your rental income will be available for you to spend). Then treat yourself to a nice steak dinner at the best restaurant in town and go have some fun!
This is basically me, but with a couple of companies that generate the revenue to buy more properties thrown in.

I learned one big lesson from my failed business which had several HNW investors (over $300M each)... they all either made their money, or ended up putting it in... real estate
 

Theologator

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Without knowing how large a lump sum, it's a bit murky. But ...

Max out your salary deferrals at work, both you and you wife.

Make max Roth contributions for you and her provided your MAGI (AGI minus IRA and HSA contributions) is less than 203k.

Put the balance in a low-cost deferred annuity or withhold enough to fund your 2020 Roth contributions.

Edit: I answered too quickly. You’ve gotten great and thorough advice above.

I agree that you shouldn’t eliminate your debt on the rentals. You can very likely keep that money working for you and earn a better return than 3.75%. Mitigating your exposure in the event of a severe downturn in the economy is wise.
 
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Bushmaster

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I have yet a different take. If you are in the rental.business as well, use that money as down payments on more rental properties or put it in the stock market.

I stopped maxing out mine recently when I realized I was going g to have an estate issue with tax deferred investments. When that gets inherited by my kids, they will pay tax on that money. With my rentals, they inherit at fair market value and pay no tax. Same with stocks and money held outside a tax deferred vehicle.

Unlike many, I think I have over funded my retirement account.
 

FireFoley

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I have yet a different take. If you are in the rental.business as well, use that money as down payments on more rental properties or put it in the stock market.

I stopped maxing out mine recently when I realized I was going g to have an estate issue with tax deferred investments. When that gets inherited by my kids, they will pay tax on that money. With my rentals, they inherit at fair market value and pay no tax. Same with stocks and money held outside a tax deferred vehicle.

Unlike many, I think I have over funded my retirement account
.

Congratulations. It is refreshing to see that someone is take responsibility and accountability for themselves. Considering the entire world knows almost nothing about money management and debt, you are one of the exceptions.

If only the U.S. Gov't had overfunded something other than their own pockets, perhaps they would not be universally loathed.
 

Concrete Helmet

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I have yet a different take. If you are in the rental.business as well, use that money as down payments on more rental properties or put it in the stock market.

I stopped maxing out mine recently when I realized I was going g to have an estate issue with tax deferred investments. When that gets inherited by my kids, they will pay tax on that money. With my rentals, they inherit at fair market value and pay no tax. Same with stocks and money held outside a tax deferred vehicle.

Unlike many, I think I have over funded my retirement account.
Great post. Here's what I'm thinking though. I believe our local market in this area is almost overpriced or certainly near the top of it's value. I also believe in about 4 or 5 years it will take a decline and this time around banks won't be so slow to issue deed in lieu or foreclose on properties. We get(company) first crack at these from our largest client(lender) and actually do the final examination and lien search.

If I move(buy) now by leveraging or using the sum(it's barely 6 figures) I would be buying at the top of the market and lose during the decline. Now let me say I don't believe it will be as drastic as 2008-2012 but IMO it's coming.

Here's the solution I'm coming to after thinking about this. Over the last few years I've keeping an emergency rental repair fund(rental checks)when this account doubles my preset minimum I take the top half and put it in CD's. Well doing the math and CD rates being what they are in the 2% area I can take these float them into principal payments and with my regular schedule monthly payments I can be free and clear in about 5 years....

This will allow me to soak the lump sum somewhere(I'm ultra conservative) for 5 years since I won't need to touch it anyway. If I'm right about the market in 4 or 5 years I'll have the paid off properties to leverage or for income and still have the lump to buy RE at lower or bottom of the market prices. My wife has already established quite a fund in the investment companies name to do the same when things go south.

We are also looking at ways to maximize more of my payroll since I don't have any expenses.
 

BMF

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GOver the last few years I've keeping an emergency rental repair fund(rental checks)when this account doubles my preset minimum I take the top half and put it in CD's. Well doing the math and CD rates being what they are in the 2% area I can take these float them into principal payments and with my regular schedule monthly payments I can be free and clear in about 5 years.....

Look into a company called "streetshares", they offer a very safe 5% return. I've got about $80k stashed there right now.....
 

g8r.tom

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I have yet a different take. If you are in the rental.business as well, use that money as down payments on more rental properties or put it in the stock market.

I stopped maxing out mine recently when I realized I was going g to have an estate issue with tax deferred investments. When that gets inherited by my kids, they will pay tax on that money. With my rentals, they inherit at fair market value and pay no tax. Same with stocks and money held outside a tax deferred vehicle.

Unlike many, I think I have over funded my retirement account.

Isn’t the inheritance exemption about 11 million a person?

Couldn’t you put the rentals in an LLC or Trust to let them pass to your kids when you pass away?
 

78

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Isn’t the inheritance exemption about 11 million a person?

Couldn’t you put the rentals in an LLC or Trust to let them pass to your kids when you pass away?
He's talking about income tax on deferred investments like 401(k), IRA, NQ annuities. Not federal estate tax.

Anyone with income property is well advised to title it to a revocable trust to avoid probate.

Bush is right about the IP tax loophole at death. Stepup in basis to the FMV. All that depreciation write-off becomes free. Feels like legal thievery.
 

Bushmaster

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He's talking about income tax on deferred investments like 401(k), IRA, NQ annuities. Not federal estate tax.

Anyone with income property is well advised to title it to a revocable trust to avoid probate.

Bush is right about the IP tax loophole at death. Stepup in basis to the FMV. All that depreciation write-off becomes free. Feels like legal thievery.

It feels awesome, except you are ded nd your heirs are throwing topless boat parties in the Kes while you are worm.food.

But you are exactly right. Retirement accounts are income in respect of decedent and are taxable to the heirs as if the owner received it.
 

Politigator

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Without knowing how large a lump sum, it's a bit murky. But ...

Max out your salary deferrals at work, both you and you wife.

Make max Roth contributions for you and her provided your MAGI (AGI minus IRA and HSA contributions) is less than 203k.

Put the balance in a low-cost deferred annuity or withhold enough to fund your 2020 Roth contributions.

Agree with everything here, except the deferred annuity. I'd pay down a mortgage, or invest in a low fee index fund in a taxable account before locking into an annuity.
 

Concrete Helmet

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Any thoughts on putting about 3/4's of this sum into Mutual Funds? I'm thinking 25% in large cap growth, 50% in a 50/50 or 60-40 income/equity, and a 25% Bond fund(mostly tax exempt)? I hear horror stories about the expense involved though?

I'm not sure an annuity would be the best for me because of the rental R.E. would actually hand me about $2,500 a month after taxes in income when they're paid off while being a tax shelter over the next 8-10 years until the mortgages are paid. I could also cash out somewhere around 500-600K depending on the real estate market at that time conservatively. In a Trust this would almost act as a life insurance policy for my heirs(probably just my Son) too since they/he could sell it.

The profit sharing plan is doing pretty well and the IRA is also looking good according to this month's statement and puts me at 23K tax deferred per year at this point. Again we don't have matching contributions but I should have around another 20-25K left to invest after payroll role taxes and health insurance deductions, and beer and car modifications:lol: .
What I don't have is a lot of time....I turn 55 tomorrow and plan to work until I'm 65 at least, God willing. Any other ideas?
 

URGatorBait

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Any thoughts on putting about 3/4's of this sum into Mutual Funds? I'm thinking 25% in large cap growth, 50% in a 50/50 or 60-40 income/equity, and a 25% Bond fund(mostly tax exempt)? I hear horror stories about the expense involved though?

I'm not sure an annuity would be the best for me because of the rental R.E. would actually hand me about $2,500 a month after taxes in income when they're paid off while being a tax shelter over the next 8-10 years until the mortgages are paid. I could also cash out somewhere around 500-600K depending on the real estate market at that time conservatively. In a Trust this would almost act as a life insurance policy for my heirs(probably just my Son) too since they/he could sell it.

The profit sharing plan is doing pretty well and the IRA is also looking good according to this month's statement and puts me at 23K tax deferred per year at this point. Again we don't have matching contributions but I should have around another 20-25K left to invest after payroll role taxes and health insurance deductions, and beer and car modifications:lol: .
What I don't have is a lot of time....I turn 55 tomorrow and plan to work until I'm 65 at least, God willing. Any other ideas?
Fck it, buy you and me a couple of those C8 Vettes :thumbup:
 

URGatorBait

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Trust me there's a reason I have to get the cash somewhere I can't touch it for a while.....between cars, boats, and titty dancer's it's a wonder I have a pot to piss in at this point....:headslap:
meh your wife will provide that pot for you.

DO IT :lol2:
 

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