After a home sale, you will hopefully be flush with cash. However, reinvesting proceeds after a home sale is important if you want to keep up or beat inflation. Therefore, here are some investment ideas to consider after selling your property.
Thanks to inflation, you need at least a $3 million net worth to be considered a real millionaire today! We always need to be investing to try and beat inflation.
To minimize your regret of selling your home and watching it go up further in value, it's a good idea to reinvest the proceeds in other potentially appreciating assets.
In a low interest rate environment, holding too much cash will act as a drag on your overall net worth growth. Further, the housing market is likely to remain strong for years to come.
Be Patient Before Reinvesting Proceeds After A Home Sale
A large financial windfall can either be a joyous occasion or a stressful occasion. It all depends on how well you plan. Because it's generally easier to spend than to save, I always recommend folks sit on their cash for at least a month before making any moves.
Holding a lot of cash is not a bad thing even in a raging bull market. A cash stash is only stressful if you suffer from an overwhelming amount of greed.
Greed can kill your returns because you don't properly think about the risks. All you think about is how much you could be making from a particular investment class without realizing how much you could lose as well.
In this post, I'll focus specifically on what to do with the proceeds after a property sale. This post is applicable to any type of large windfall e.g. inheritance, year-end bonus, gift, etc. But specifically, this post targets those who have sold their homes for big bucks.
Questions To Ask Before Reinvesting Proceeds From Your Home Sale
As we're more than 12 years into a bull market. Selling a property to cash in the gains is becoming more common. The amount of tappable equity is enormous. Why not do a cash-out refinance or sell some of your rental properties and spend it on a better life?
With mortgage rates coming down, massive gains in the stock market, and a desire to live more comfortably at home, demand for real estate will likely continue for a long time. Personally, I believe national housing prices will grow in the high single-digits for the next three years.
Before you sell your home, here are some questions you should first ask yourself.
1) How much will the sold house be worth in 5, 10, 20 years? The goal is to come up with a baseline financial target to shoot for. Either use the asset's historical annual rate of return over a 50 year time period or a risk free rate plus a reasonable premium. Inflation is a powerful force that should be ridden for as long as possible.
2) What does your net worth allocation look like post sale? Once you find out, you can make a better assessment on where to allocate capital. After an extended period of time, your net worth allocation may skew more towards one asset due to outperformance.
3) How do you feel about the current economic environment? You are either bullish, neutral, or bearish. Make a best estimate of where we are in the cycle by studying previous cycles and extrapolating current data into the future.
4) What are your upcoming financial needs over the next 1, 3, 5, 10+ years? There must be a purpose to investing otherwise there's no point. The biggest expenses include another home purchase, college tuition, healthcare costs, and retirement.
5) What is your estimated tax liability? There's no avoiding the tax man. Calculate all the costs involved in selling your house (commissions, taxes, etc), the amount you spent improving your house, and any tax benefits such as the $250K/$500K tax-free profits to figure out your taxable profits. Put that money aside.
6) How much are you will to pay in commissions? The cost of selling a house is still egregiously high. It may be best to hold on and keep on renting it out.
How I Reinvested Proceeds From My House Sale
Once you've answered these questions during your one month+ cooling off period, you'll have a much clearer sense of how to reinvest your proceeds.
In 2017, I went from having $2,740,000 of exposure in one asset in SF with $815,000 in leverage (mortgage) to having ~$1,800,000 in cash after selling. The sale paid off the mortgage.
Here were my initial thoughts after depositing the check.
1) Reduce risk by $815,000 by paying $1,800,000 cash for a different San Francisco single family home. But I've already got exposure in San Francisco through my primary residence, a rental condo, and a vacation property in Lake Tahoe. So I'm thinking this isn't the best idea unless I can find another sweet panoramic ocean view home that has a clear appreciation path to $2,500,000 (39%+) over the next 5 – 10 years.
2) Reduce risk by $815,000 by investing all $1,800,000 in a portfolio of different real estate assets e.g. REITs and real estate crowdfunding projects to keep real estate exposure from falling by only 29%. This is the most sensible move since I'm bullish on real estate long term and I get to diversify from a single home to multiple properties around the country.
3) Find a dream home in Honolulu with a 10,000+ sqft flat lot near the beach. Unfortunately, these homes cost ~$3,000,000 – ~$5,000,000 and we're not ready to leave San Francisco until its time for my little one to go to kindergarten in 2022. I've been searching for a couple years and haven't found the ideal property at an affordable price.
Years after my rental home sale in 2017, I feel great because I was able to successfully reinvest my home sale proceeds in real estate crowdfunding, stocks, and municipal bonds. The reinvestments have done well.
Slowly Invest Your House Sale Proceeds
I usually like to reinvest proceeds in the same asset class while I work on building up greater amounts in other asset classes to get to my desired net worth asset allocation. But after much deliberation, I wanted to focus on de-risking.
When you survive a financial crisis with a relatively large amount of assets that got pounded, you really appreciate second chances to take money off the table.
Remember, I took a big risk in 2014 by taking out another $1,000,000 mortgage to buy another property while keeping my previous home as a rental with a $1,000,000 mortgage for three years. Further, I'm unemployed!
Here's how I've reinvested the money so far:
These are the three main categories that accounting for the majority of reinvested proceeds. They've all done well so far.
Municipal Bonds:
$500,000 into various individual California municipal bonds with a 3% – 4% tax free coupon, which is equivalent to a 4.4% – 5.9% gross yield based on a 32% effective tax rate (federal plus state). I've always enjoyed keeping a good amount of low-risk/risk-free investments because it ironically allows me to take maximum risk in my life: moving cities, switching firms, starting a business, retiring early, etc. Target annual return (gross): 5%
Real Estate Crowdfunding:
$250,000 into multiple real estate crowdfunding projects, which brings my total to $500,000 + a $10,000 Conshy, Pennsylvania commercial project. The fund made new investments in Virginia, Dallas, Seattle, and Utah.
This investment is my way of reinvesting a portion of the proceeds in 100% passive real estate that hopefully has more upside than San Francisco real estate, which has started to slow. Target annual return: 8% vs. their 15% target return.
My favorite two real estate crowdfunding platforms are Fundrise (diversified private funds) and CrowdStreet (specific real estate projects in 18-hour cities mostly). Both platforms are free to sign up and explore. I really like how CrowdStreet is also offering speciality funds on occasion as well.
Stocks:
$100,000 into an S&P 500 index ETF IVV and $50,000 into various large cap tech growth stocks. I used the small sell-offs in August and September to allocate capital. I'm not excited about the stock market, so this is more an asset allocation decision. I will be allocating $100,000 into the stock market with every 2% correction, with an assumption the stock market won't correct by more than 10%. Target annual return: 7%.
College Savings
529 Plan: Reinvesting home sale proceeds of $35,000 to my son's 529 plan felt wonderful. I can super fund the plan with $70,000 in one year, but I'm not sure I'll do so because these long-dated target funds are very aggressive. With an 18 year target date, the fund has a 90%+ weighting in stocks, so this 529 plan is really just a stock fund at this moment.
Besides, I have 18 years to reach the limit of $359,000, which should go up in the future. I'm more worried about allocating capital at the top of the market and not being able to legally allocate more if there is a correction.
Paying Down Debt
Debt Pay Down: Reinvesting proceeds of $50,000 to pay down a 4.25%, 30-year fixed mortgage on my Lake Tahoe vacation property also felt good. The goal is to pay this debt off completely by 2022 before leaving California.
I plan to consistently pay down mortgage debt using my FS-DAIR framework. Thanks to refinancing all my mortgages during the pandemic when rates were at record lows, I've stopped paying down extra mortgage debt. I've get negative real mortgage rates.
Total Invested: $935,000 over three months
Total Cash Remaining: $865,000 from home sale proceeds
Return Goals For Reinvested Home Sale Proceeds
Return Hurdle: 4% (I estimate the house I sold will increase by 4% a year on average for the next 20 years). $1,800,000 of my equity will turn into $3,944,000 in 20 years at a 4% compounded return, if I cancel out the cost of carrying the $815,000 mortgage (2.35% + 1.2% property taxes + maintenance expenses = a wash).
Estimated Return Of Reinvested Proceeds: 6% (blended rate of return for investments excluding cash). $935,000 will turn into $3,000,000 in 20 years at a 6% compounded return.
Activity Difference: Going from semi-passive income to 100% passive income. Hallelujah!
Rating The Reinvestment Risk
It's always good to make sure that what you are reinvesting in matches your risk tolerance and financial goals. Here's my reinvestment risk assessment:
On a scale of 1-10, 10 being super risky and 1 being risk-free, I rate keeping $2,740,000 of exposure in SF real estate with a $815,000 a mortgage an 8. My rental property was valued at ~30X gross annual rent, which was very expensive. I'm already long three other properties in the Bay Area.
If this was my primary residence and I had no other properties, I would assign a risk score of 5 for holding on, despite the surge in prices because I have to live somewhere.
Calculating Upside And Downside Potential
I believe there's a 50% chance the property I sold could decline by 10% ($2,500,000) over the next several years due to an increased supply of luxury condos. There's a small chance mortgage rates could go higher as well.
Heck, I may have sold my property for $2,500,000 this year if the buyer threatened to walk away. But I also believe there's a 70% chance my old SF property will simply appreciate at a rate of 1% – 4% a year forever, just like inflation.
I give my reinvestments a 3 out of 10 in terms of risk. 51% of my reinvestment is in almost risk free investment grade municipal bonds that will pay back their principal plus a coupon over the years.
25% of my reinvestment is in real estate crowdfunding in cheaper markets with higher yields.
20% of my reinvestment is in higher risk equity investments. While the remaining 4% of my reinvestment was used to pay down debt.
Why Still Hold So Much Cash?
Despite not wanting to own any more physical property, I just can't seem to break my addiction. For 20 years, I've been combing the listings and going on open house walks every Sunday. There's still so much upside for cheaper property on the western side of SF.
There are inefficiencies in the real estate market. Some reasons are due to out of town sellers, out of town realtors, bad listing timing, bad marketing, inexperienced sellers/realtors and so forth.
I always believe I can get a deal for 5% – 10% below fair market value. Why? Because that's what I've done with the past two properties. It's smart to buy big city real estate before there is herd immunity and everyone comes rushing back.
I ended up investing the remaining cash proceeds all within nine months of receiving them. I also ended up buying a large single family home a month into the pandemic. Our forever home was a great deal.
For more details, here's how I'd invest $250,000 in cash today with stocks at record highs. I'd rather invest in commercial real estate, where prices have taken a hit due to a rapid increase in mortgage rates.
Visualizing Reinvesting The Remaining Proceeds
With whatever cash you have left, clearly visualize how you plan to reinvest the proceeds in what time frame. You don't have to exactly follow your plan. However, you should write something out in order to have a good idea when opportunities arise. In my case, I've got $815,000 left.
1) Taxes: $100,000 $150,000 set aside for taxes. I've actually been looking to buy a Honolulu dream home to do a 1031 exchange once 2014, but couldn't find the right house. It's hard to leave my network in SF and get on a plane before my son turns three.
2) Physical property in SF: All $815,000 if a bargain can be had at a 10% discount to market. Need to have lots of cash to be competitive, unlike my buyer who had to take out a $2,000,000 loan and a $300,000 bridge loan to get the deal done. Rental properties are looking very attractive given interest rates have plummeted. Further, the value of cash flow has gone way up.
2) Municipal bonds: $100,000 if the 10-year yield gets back up to 2.3% and $300,000 if the 10-year yield gets back to 2.5%. Minimum $10,000 a month no matter what happens to interest rates. This is unlikely to happen as the 10-year bond yield sits just under 1% for 2021.
3) Stocks: $100,000 for every 2% correction in the market, and up to $500,000 if there is a 10% correction. Minimum $10,000 a month no matter what happens in the market.
4) Debt pay down: $10,000 a month without fail, and $100,000 in 12 months if the 10-year yield doesn't get to 2.5% and stocks do not correct by 10%.
5) Real estate alternatives: An additional $100,000 – $500,000 in private real estate investments if existing investments do well.
Real Estate Alternatives Look Attractive
Given all the fund's investments are equity and not debt, it can take years to see any type of returns. This is exactly what I want because of my current high tax rate, especially since I just sold a house. I plan to have dinner with a member of the investment committee before committing more capital.
Below is a snapshot of my account so far. I've received $330,283.73 in distributions as of 2021 after investing $810,000 in capital. I still have 13 real estate crowdfunding investments that will be paying out over the next two or three years.
Earning real estate income 100% passively is a blessing now that I have two young children to take care of. As a result, I'm very happy investing in real estate crowdfunding, real estate ETFs, and public REITs. Just know that REITs and real estate ETFs are more volatile, as we saw during the March 2020 correction.
It's Worth Being Patient With Cash
You don't have to reinvest proceeds after a home sale immediately. You also won't get all your investments and timing right. If you are unsure about an investment, go halfsies.
For example, locking up $310,000 in a 4.1%, 7-year CD from 2007 – 2014 was a suboptimal financial move since the S&P 500 outperformed. At least I earned a steady, guaranteed return.
However, using $246,000 of the $400,000 in proceeds from the CD to buy a fixer upper for $1,230,000 in 2014 was great. The property has now appreciated to ~$2,200,000 (78%), has ben a good financial decision so far. Although, I did spend $100,000 remodeling the property. The $426,000 in equity for the downpayment and remodeling costs has grown to ~$1,600,000 in equity (+276%).
There will always be great opportunities in the future if you have the cash and the courage to take advantage. Not everybody could have bought my house in 2014 because not everybody had a $250,000 downpayment or the desire to look west. When you have cash, you have options.
Besides providing optionality, cash also provides security. You don't have to worry as much about losing your job, paying for an unexpected medical bill, or seeing your business go down the drain. With less worry, comes more happiness. And happiness is what having money is all about!
Real Estate Is My Favorite Investment
With stocks at record highs, I think real estate is the most attractive investment going forward. We are past the bottom of the real estate cycle with the Fed beginning to cut rates. I expect real estate prices to move up as mortgage rates come down.
People will convert some of their stock gains into hard assets like real estate. Mortgage rates will continue to stay low. Further, everyone is spending a lot more time at home due to the work from home trend.
Reinvesting proceeds after a home sale into diversified real estate makes sense. If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate crowdsourcing allows you to be more flexible in your real estate investments. You can invest beyond just where you live for the best returns possible. Reinvesting proceeds into real estate crowdfunding after a home sale is good for diversification. Further, you can back a lot of your time.
Sign up and take a look at all the private real estate funds Fundrise has to offer. Fundrise predominantly invests in the heartland where valuations are lower and yields are higher.
Real Estate For Accredited Investors
If you are an accredited investor who wants to invest in individual real estate crowdfunding deals in 18-hour cities, check out CrowdStreet. I've met a dozen of their people before in Palo Alto and I really like what they are doing.
CrowdStreet's deals are in 18-hour cities where valuations are cheaper and net rental yields are higher. Thanks to positive demographic trends and work from home, 18-hour cities are doing well. Reinvesting proceeds from a house sale in individual commercial real estate projects in faster growing areas can be a wise move.
CrowdStreet is also free to sign up an explore as well.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Fundrise venture capital product, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 65% of the product is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what Fundrise is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Investment Ideas After Selling Your House is a Financial Samurai original post. I've been helping readers achieve financial freedom sooner since 2009.
How do you invest in municipal bonds? What vehicle do you use?
You can use any online brokerage account to buy muni bonds. Just go to their fixed income section.
Related: https://www.financialsamurai.com/a-bond-yield-table-makes-it-clear-which-duration-you-must-choose/
Could you let me know why you choose to invest in cali muni bonds directly vs through a vanguard cali intermediate or long term etf?
Wondering what option makes the most sense
thanks!
Would you suggest buy cali muni bonds directly or purchase through an ETF such as the vanguard cali intermediate or cali vanguard long term muni bond etf?
If you buy direct, how do you pick which cusips to invest in, and think about short term vs long term?
Currently in process of reading all of your posts, and stalking you for advice. First off, you are a wizard. ?’s :
• Can you 1031 c exchange into Realty Shares or REITs and which do you prefer?
• What is a good technique to foresee condo / apartment growth softening rents in metropolitan area like SF or Austin?
• What signs do you look for to foresee real estate downturn?
• How are your Realty Shares Investments doing, and how much have you bought in as of now?
• I am considering Hawaii 1031 exchange currently for the same reason as you, are you not concerned as it is a blue state?
TY <:)
How are you not laddering a series of step and trigger notes (derivatives) against the major indexes? Between the insurance and the leveraged earning you miss out by doing things like iShares/etfs unless you’re literally caring so much about liquidity you’re willing to give up on the upside and forgo insurance.
How are you not just working with an advisor and someone that can walk you into far more lucrative private equity deals? (targeting 15% return or better) Crowdfunding – seriously – sigh.
Has citi wealth management (I think I read you were with them) even approached you with some alternative strategies? How are they not part of this conversation with you? I mean – my banker (ubs) walks through 5 scenarios, faces a grilling from me, works through the changes or questions based on my conversation and represents and we go forward with one in the second meeting. We talk on the phone weekly – he, his team, and I communicate more than once a week in email. That’s what private bankers and wealth management should be like.
Hey Bruce, how’s the bat cave?
I’ve set up some collars and butterfly spreads of mine own to protect some of my wealth.
Are you making more than a 15% IRR consistently? If so, what are the strategies? Don’t think even the great Warren Buffet has done that well. Please share!
The idea of talking to a wealth manager weekly is NOT attractive to me. I want to be left alone.
When you live in America, you are golden. Period. What we achieve here, is completely up to us. End of story.
Hey Sam,
Question about your crowdfunding investments. I’m assuming you’re making mostly debt investments? If so, are you doing so in your personal name or under the protection of an LLC?
I do private lending deals (in my local area to people I know, like, and trust). But I’m doing them straight out of my personal bank account. I’ve done 3 deals so far and I’d like to start doing more but want to incorporate so I can 1) not be the name on the lien and 2) write some business expenses off against the interest income. Would love to know how you’re set up, if at all.
Best,
Sun
I’ve done all equity. I don’t want the income now b/c of my current high tax rate.
I have a thought. Why don’t we fly to North Korea and discuss their thoughts on investment diversity.
Hi Sam,
Thank you for sharing your re-investing thoughts. It helps me a lot. I have two questions on Realtyshare investing:
1. Why you only invest in Equity not Debt? Realtyshares says Debt is most secure, safer than Equity investment.
2. Which Equity fund will close by November? There are so many of them.
Thank you.
Jen
Sam, very thought provoking post as per usual…..I may have missed it, but are you totally out of P2P (Lending Club, Prosper, etc) and only into Realty Shares and CA Munis…..??
MoneybagsPat
Hi Sam,
Have a couple questions regarding the RealtyShares DME Fund:
1. What in particular draws you to this investment versus a more traditional private equity real estate fund?
2. Also agree with your idea to de-risk by selling your home (pretty conservative myself) but curious why you would invest ~ $1mm into a fund that only has 10 – 20 holdings when you could potentially get access to other funds with even greater diversification/split that investment up between the fund, individual investments etc to get closer to 40 – 80 holdings.
Thank you!
1) I liked their investment objectives, holding period, target returns, and I’ve met Management multiple times in SF. CEO is a fellow Cal MBA grad as well. At the end of the day, all the investments take risk, which is why I’ve started at $250,000 and waited five months until investing another $250,000. I have another $1 million cash to invest, so I’m taking my time.
2) Diversification and concentration on particular types of investments. I have other investments in real estate fund and public REITs as well FYI.
How about you? What are you investing in, why do you invest, and how much exposure do you have to real estate and other investments?
Thank you for the response!
The majority of my assets are in low-fee index funds but I’ve recently begun diversifying into real estate and am considering several other alternative investments including an investment in a couple Search Funds. Open to doing direct real estate/alternatives with about 10 – 25% of my portfolio but probably wouldn’t go beyond that amount as I think there is some degree of safety in investing with the herd (traditional stocks and bonds).
In terms of real estate investments, I’m currently invested in a hard-money loan fund, and in the near future would like to invest in some syndicated real estate/real estate crowd funding deals and/or the DME fund.
I am going to speak with RealtyShares to learn more about the fund but wanted to get your take on it first!
Makes sense about diversification for you – I don’t have as much capital to apply so I’m a bit more reserved and concerned that RECF in general may be more risky than some alternatives (am33 reflected those concerns well) but it is still an intriguing space to me due to the potential of investing in multiple properties at a relatively low amount /per property, with one K-1…
am33 comment: “Also, Realtyshares is fairly high risk, no? I don’t know anything about them, but based upon first glance it appears that they catering to a higher-risk pool. After all, there is no shortage of conventional (and cheaper) real estate financing for legitimate developers and projects.”
No problem, how much investment exposure do you have and do you own physical real estate? A lot of variables to consider before investing in anything.
Yes, completely agree there are a lot of variables to consider. Which is why it can be so overwhelming! Currently no physical real estate because I don’t want to be tied down to one area but if I ever settle anywhere, would love to go that route at some point in time.
Not sure if I can post outside links but I found this website and some of the corresponding investing material very helpful:
therealestatecrowdfundingreview.com/how-many-properties-do-i-need-to-diversi
That’s one of the reasons I was curious you went with such concentrated picks when you clearly have enough capital to truly diversify. At the same time concentrated picks seems to have worked well for you in the past with some great physical home acquisitions whereas my family lost 20% on a home here in Chicago and that makes me absolutely see the downside to real estate and has increased my desire to diversify!
I’ve made most of my wealth on concentrated investments.
Currently, I’m working on building my wealth by focusing on my online business. https://www.financialsamurai.com/how-to-create-next-level-wealth/
When you believe strongly in something, and it’s working, then you should press. For investments were you don’t need to outperform, then you can just buy an index fund.
You know who is rich? The guy who has one more dollar than I have. To a billionaire, the guy with two billion is rich. If I was the only person on the planet, would I be rich or poor?
Great post. Curious, why do you prefer muni-bonds over a blue-chip dividend stock? Dividend tax rate is only 15% (or 20% if you’re in the top income bracket), and you have the benefit of stock appreciation, plus more liquidity.
Also, Realtyshares is fairly high risk, no? I don’t know anything about them, but based upon first glance it appears that they catering to a higher-risk pool. After all, there is no shortage of conventional (and cheaper) real estate financing for legitimate developers and projects.
Diversification. You forgot about adding another 12% for California State tax, and another 2.8% for The net investment income tax introduced by the Obama administration.
Great post (and site)!
As you’ve mentioned the bonds as “diversification”, I need to ask: Have you read the book “The long and the short of it”?
The author has some interesting remarks about risk and diversification, and criticises bonds to a certain degree. I read and tend to agree with him. I know nothing about CA bonds, but I wonder if you are not simply investing in the state of California debt, which is probably somewhat dependent on the general US economy and property market as well.
S&P 500 also highly linked to general US economy and the REIT, well, property + economy.
I also love property investment and like to invest on S&P 500, and other tracker funds. So my interrogation mark is certainly raised against the bonds, even more with such low return (unless they track inflation, of course…)
I would guess that for true diversification you could be looking at ETFs tracking other economies (EU, Japan, etc), or certain commodities, etc
Great article anyway. :)
Roberto
I would not consider capital gains on an investment as “windfall”. They are just normal earnings if you are in the business of investing money (even if it is only your own). They do not occur regulary, but they aren’t an anomaly.
I strictly separate spending money and investment money. Whatever cash I’ve moved to the investment bucket stays there. So any unexpected gains in this area will wait for opportunities to reinvest them at a good expected (real) yield.
I have a somewhat unusual view on a lot of these issues. I tend to extremely separate this stuff. In addition to my emergency and depreciation account I would consider investment cash as an emergency credit line and charge myself interest of 10% or so for borrowing from it (I’ve never used it so far). Probably sounds very weird but it is the way I think about it. But I am still in the accumulation of capital phase, not the retirement phase. I have some ideas about how I am going to manage the process then. I am very aware that my approach is very much on the conservative side (especially from your US-perspective). But I want to sleep well at night.
Sam: instead of moving to HI, why not consider San Diego? Might be a good compromise. San Fran is a nice town but the HCOL would scare me off.
4) Rent a office in SF. Hire staff and get to it
;)
Sounds like you dispersed your cash really well! Wow, I’m amazed the 529 plan (which sounds similar to the RESP in Canada) can go up to $300K! In Canada, our max RESP contribution amount is $50,000. We just funded ours but with only $16,500 since the Canadian government matches $500 for every $2500 each year. We will definitely have non-registered investments for him too because he might want to go to the US for school in which case <$100K is not going to be enough.
Hi
Haven’t been reading your blog for long, but I do enjoy it.
What strikes me about your use of proceeds is your shift from a leveraged investment to what are now almost all un-leveraged investment options
I’m not pro or against the use of debt for real estate. It has its place. I’m more interested in your thought process on it, and why it’s not on your list for possible new investments.
And perhaps you have some leveraged exposure I can’t see in the RealtyShare’s Domestic Equity fund.
Thanks again for sharing.
I don’t invest in any investment that doesn’t generate consistent double digit returns (10% or higher). There really is no reason to, especially when you have accredited investor status. I have found so many private placements just from googling and conducted my own due diligence by meeting with the investor relations people, reading the PPM, reading investor reviews, reviewing historical returns, etc. My favorite are real estate debt and equity private funds. I’m in 3 debt funds right now that pay monthly based on an annual 11-13% consistent net return to investors – all first lien position loans. Its also easy to find rental properties in the “bread and butter” markets that generate double digit returns through turn key providers or you can invest in a private real estate equity fund that owns a portfolio of high yielding real estate across the country. Don’t waste your time with munis…….those returns are for the birds!
Thoughts on the RS domestic equity fund?
Sam what do you think about Roofstock- different business model than realtyshares with a bit more risk but you own a tangible asset. However owning a turnkey property could be a logistical nightmare. Just curious to know your thoughts?
Heard of it, but haven’t done any research. Have only spent time meeting, speaking, and researching RealtyShares and Fundrise based in Washington DC.
Hi Sam! Looking for your insight:
Married with 2 young children own
A 1 family rental with 20 years left on mortgage (330k) nets about 10k/year
With 500k equity
Primary home (480k debt 25 years left)
About 700k equity
Vacation home (290k debt 28 years left)
350k equity.
Have some funds in the bank earning a little over 1%.
What would you do?
Congrats again on the sale and thanks for the insightful article. I am having a challenging time finding options to earmark cash in this environment. I have also tried to look at investing into the RS domestic equity fund. I just struggle w/ being their first fund, the small size of the fund, and the lack of track record. It does not appear to be a pure play on the heartland as states like NY, IL, CA, FL, and VA make up 5 out of the 10 possible states. Also, not sure about the approach of having a yield play in some areas, while pursuing appreciation in others …imagine that could be difficult with such a small offering. I do not know much about this space at all, but I was just curious if you had similar concerns at all. Thanks!
I always have concerns before investing in anything, hence I spend months doing my due diligence before I put money to work. I start small ($10K), and work my way up ($250K) then another $250K.
Depends on what your current financial situation and risk tolerance is JP. What are your goals? Will being down 10% on a $250K hurt you? Do you need the money within 5 years, etc?
$250K of the $1.8M in proceeds went into the fund. That’s 13.9%. I’m considering investing another $250K before November, but I plan to have dinner with one or two members of the investment committee to share my thoughts and listen to their thoughts.
Related: The Risks Of Real Estate Crowdfunding
Appreciate the quick response Sam. All of my NW is currently in equities/cash. I would ideally want to find another option outside of my existing equity portfolio. I would want an investment that isn’t totally correlated to equities and doesn’t have all the fees associated w/ alternatives. I just turned 30 and my total liquid NW is basically the same figure that you just raised from the sale of your home. I am saving a large % of my after tax income and I wouldn’t need any of these funds/liquidity for quite some time. I just don’t know this space well and have general concerns w/ the lack of visibility etc.
If we get another real estate crash you will be ready to jump back in )
Sam, good timing on this article. I’ve had about a dozen clients sell their homes this summer and being in San Jose, CA those gains are often over the $250K/$500K exemption.
My advice is to seek a knowledgeable CPA before selling your house (or stocks or business). If you work with a CPA before you sell a large asset, your CPA can come up with strategies to minimize your taxes and potentially save you hundreds of thousands of dollars. Once, you’ve made the sale, you have a taxable transaction and there are some strategies to minimize your taxes, but it’s not as effective.
Here are some strategies to reduce your taxes:
1031 exchange, monetized installment sale, land conservation easement, defined benefit plans for business owners.
-Brian CPA, CFP
premiertaxadvisors.com
I’m sitting on the sidelines with a bunch of cash, but SO aren’t many others. Hard to find good real estate deals now. I’ve got 9 units I’m renting out. Does it make sense to deploy some of this extra cash into a deal, knowing you’ve gotta put down 30-40% to make the numbers work rather than the typical 20-25 %. I’m at the point at 38 where another couple deals that cashflow well and I can retire, BUT it’s getting hard to find anything.
Having mainly read posts about windfalls in relation to inheritance, I had never heard as sort a time-frame as one-month to consider what to do with the profits. It makes sense now that I’ve seen it. Happy windfalls don’t have the same type of emotional resonance. And it is not like the windfall is from something as traumatic as the lottery. You made good choices in the past and can reap the benefits now.
For me, with debt, the choices are easy. If I had a windfall, I would pay off the smaller of my student loan obligations to change my DTI into manageable territory. I would then pay off any CC debt and beef up the EF. Any leftover would be split between a 20% down payment for a small condo, and buying index funds. All boring and vanilla, but that is what someone at the beginning of their journey needs.
Sam have you considered being silent minority owner in a small business ex. Microbeer cafe, fast food franchise?
Can you explain the 250k/500k tax benefit? I am about to sell a rental i have not lived in 2/5 years. I thought I’m on the hook for taxes on the gains.
FS,
Thanks for sharing your ideas. I don’t think I’ve seen any of your post concerning corporate bonds. I briefly looked thru Fidelity Corporate Bond offerings and noticed they also offer
High yield short term, i.e. 3, 6 & 9 months etc. Do you dabble in this at all? Would like to
hear your thoughts on this type of investment/gamble?
I haven’t been focused on individual corporate bonds, even though bonds paid by Giants with massive balance sheets like apple are probably going to do just fine.
My issue is that I don’t need more income because I’m already pushing the max I want. Everything is being taxed at the highest marginal tax rate now. With a huge windfall selling my house this year, the goal is to make zero income. I wish I made zero income the first six months of the year. Something all homesellers should think about.
Dividend income and corporate bond income are great if you are in a relatively agreeable tax bracket.
Awesome timing for this article for me, Sam. Thanks for sharing your experience.
I just made some money selling my house and am debating whether to pay off debts (all sub 5% interest) or invest or some of both? I’ve read your FS-DAIR many times but I’m not sure what to do in the case of a windfall. Have any advice?