What to do with cash from home sale?

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ElBarto
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What to do with cash from home sale?

Post by ElBarto »

We are about to sell our house and looking to rent for anywhere between 1-4 years. We will get about $600k for our home after fees. I expect our next home to cost approximately $1 million in a lower property tax state. What should we do with the $600k proceeds? I was thinking to take $75k and pay off our school debt. Take $200k and save it in a high yield savings account (and I say high yield while rolling my eyes.) This is for the future downpayment of our next home. The rest ($325k) invest as per our desired AA. My thinking is that if the markets do well during those 1-4 years then investing the cash is a good idea. When we are ready to buy we can sell off the assets we need and just purchase the house outright. Sure there will be capital gains tax, but that is okay and the tax paid will be on gains we would not have had if kept in a savings account. If the market is not doing so well, we can take out a mortgage for $800k and pay it down once the market recovers.

Is my thinking off, or should we just keep all the money in cash or short term treasuries for those 1-4 years?

The details:
Married 1 kid both of us in our mid 40s
We are both semi-retired because we like what we do and more money isn't a bad thing.
Our income tax is variable as our income fluctuates significantly from year to year being semi-retired.
Our only debt is a $75k school loan at 1.5% ~$6k per year
Investment assets are $3.5 million spread between 401k, HSA, Roth, and taxable.
529 funded well for both kids.
AA is 70/30
Expenses about $125k/yr included in this figure is our portion of health insurance premiums (20% of full cost) as well as $6k per year school debt and child expenses that I expect one day will go away and get their own jobs.
Last edited by ElBarto on Thu Sep 09, 2021 4:39 pm, edited 1 time in total.
tomsense76
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Re: What to do with cash from home sale?

Post by tomsense76 »

Paying off school debt sounds great.

Putting away money for a future downpayment (needed in 1-4yrs) in savings, CDs, I Bonds, Stable Value in 401k, bond fund matching duration, or similar sounds like a good plan. Yes yields are low. There are some ways to improve that a bit (I Bonds or Stable Value), but we are all dealing with this same issue.

Stocks are intended for money that won't be needed for 10yrs or more. Would not use stocks for a downpayment needed in 1-4yrs.
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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ElBarto
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Re: What to do with cash from home sale?

Post by ElBarto »

tomsense76 wrote: Thu Apr 01, 2021 1:17 am Paying off school debt sounds great.

Putting away money for a future downpayment (needed in 1-4yrs) in savings, CDs, I Bonds, Stable Value in 401k, bond fund matching duration, or similar sounds like a good plan. Yes yields are low. There are some ways to improve that a bit (I Bonds or Stable Value), but we are all dealing with this same issue.

Stocks are intended for money that won't be needed for 10yrs or more. Would not use stocks for a downpayment needed in 1-4yrs.
Thank for responding. I think maybe I misrepresented myself. The plan is to take the $600k and pay off the school debt, leaving $525, then take $200k and save it in a high yield savings account, probably at Ally. Lastly, take the remaining $325k and invest at a 70/30 AA.

When we are ready to buy, if the market is down, we take a mortgage for the full $800k and wait till market recovers. If the market is doing well, we will sell assets, pay capital gains and buy the house.
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Re: What to do with cash from home sale?

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ElBarto
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Re: What to do with cash from home sale?

Post by ElBarto »

fourwheelcycle wrote: Thu Apr 01, 2021 10:31 am Deleted
I was so excited I got a response, clicked back and it was deleted. Ohh well.
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goodenyou
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Re: What to do with cash from home sale?

Post by goodenyou »

If you can tolerate the possibility of 50% of 70% (35%) of the $525k declining in a stock market environment (or even a bond market decline), then deploy the money in your 70/30 AA. I am in the same boat. About $600k from sale of home, no student debt and I am looking to build/purchase a home in the next few years. I am very content right now renting a brand new smaller home at a (relatively) low cost and saving the enormous difference in upkeep and maintenance. We may tire of the smaller space and elect to plunge back into a much higher custom home purchase after a few years. I am keeping the cash at Ally and have to find another account because we have exceeded the FDIC limits.
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scot
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Re: What to do with cash from home sale?

Post by scot »

Based on the overall size of your portfolio I don't see sitting on cash anticipating a market down turn. Therefore, I would just say drop it 70, 30 into taxable and hope for the best.

Curious the desire to sell and then rent with a plan to buy in 1-4 years?

Paying down the student loan at a guaranteed 1.5% seems extremely wise and you won't beat it at .4% through a high yield savings.
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ElBarto
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Re: What to do with cash from home sale?

Post by ElBarto »

scot wrote: Thu Apr 01, 2021 3:53 pm Based on the overall size of your portfolio I don't see sitting on cash anticipating a market down turn. Therefore, I would just say drop it 70, 30 into taxable and hope for the best.

Curious the desire to sell and then rent with a plan to buy in 1-4 years?

Paying down the student loan at a guaranteed 1.5% seems extremely wise and you won't beat it at .4% through a high yield savings.
Great question. We are looking to change houses. Our current home is a huge money pit with things breaking down regularly and requiring money, and more importantly my free time to manage. We are both sick of it and want out. Between homeowners insurance and property tax we are paying almost $20k/yr. Add in all the repairs that keep on propping up and the other home ownership costs, renting would actually cost the same if not less. We plan going a bit smaller with no pool for our rental. In the meantime, we will be looking for something different, in a different state. When we do finally move to another state, we will rent there as well while we learn the land and decide where to buy a home that we would keep for well over a decade.
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ElBarto
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Re: What to do with cash from home sale?

Post by ElBarto »

goodenyou wrote: Thu Apr 01, 2021 10:50 am If you can tolerate the possibility of 50% of 70% (35%) of the $525k declining in a stock market environment (or even a bond market decline), then deploy the money in your 70/30 AA. I am in the same boat. About $600k from sale of home, no student debt and I am looking to build/purchase a home in the next few years. I am very content right now renting a brand new smaller home at a (relatively) low cost and saving the enormous difference in upkeep and maintenance. We may tire of the smaller space and elect to plunge back into a much higher custom home purchase after a few years. I am keeping the cash at Ally and have to find another account because we have exceeded the FDIC limits.
I have tolerated market turmoil in the past. I don't see why I would flinch the next time around. This would be the most I have at risk as assets keep growing over the years, but still. How long have you been renting in a smaller home? Has it been a big deal? How has the family tolerated it? Did you invest all the proceeds, or have you set aside a down payment in cash like we are planning to do?
johnny
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Re: What to do with cash from home sale?

Post by johnny »

I agree with using a 70-30 AA for your home equity cash. Or 75-25 if that seems safer. In a similar situation I used cash from the house sale to pay off debt and contribute to a DAF to reduce my taxes in a high income year - planning for charitable contributions that I would be making in the future anyway. Make sure you keep the cash portion sufficient to purchase your next house, even with a little larger loan if needed.

At the end of the day money is fungible and the equity you have taken from the sale of your home can now be used to optimize things across all of your assets.
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Re: What to do with cash from home sale?

Post by HMSVictory »

Yes pay off the debt today.

With your level of wealth ($4M) you can definitely take some market risk..... I would keep the entire $600k in cash and I would pay cash for the next house. You can also go with your plan of $200k in cash and the $400k into your AA - you have the liquidity to do either. Market volitity isn't going to prevent you from buying the next house.

Which one will work out best? We won't know until the future......
Stay the course!
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Re: What to do with cash from home sale?

Post by hudson »

ElBarto wrote: Thu Apr 01, 2021 12:59 am We are about to sell our house and looking to rent for anywhere between 1-4 years. We will get about $600k for our home after fees. I expect our next home to cost approximately $1 million in a lower property tax state. What should we do with the $600k proceeds? I was thinking to take $75k and pay off our school debt. Take $200k and save it in a high yield savings account (and I say high yield while rolling my eyes.) This is for the future downpayment of our next home. The rest ($325k) invest as per our desired AA. My thinking is that if the markets do well during those 1-4 years then investing the cash is a good idea. When we are ready to buy we can sell off the assets we need and just purchase the house outright. Sure there will be capital gains tax, but that is okay and the tax paid will be on gains we would not have had if kept in a savings account. If the market is not doing so well, we can take out a mortgage for $800k and pay it down once the market recovers.

Is my thinking off, or should we just keep all the money in cash or short term treasuries for those 1-4 years?

The details:
Married 2 kids both of us in our mid 40s
We are both semi-retired because we like what we do and more money isn't a bad thing.
Our income tax is variable as our income fluctuates significantly from year to year being semi-retired.
Our only debt is a $75k school loan at 1.5% ~$6k per year
Investment assets are $3.5 million spread between 401k, HSA, Roth, and taxable.
529 funded well for both kids.
AA is 70/30
Expenses about $125k/yr included in this figure is our portion of health insurance premiums (20% of full cost) as well as $6k per year school debt and child expenses that I expect one day will go away and get their own jobs.
What to do with the $600K?
You'll be fine whatever you do.
I would put it all in high yield savings accounts...within FDIC limits. I'd use Ally, Amex Savings, and Live Oak Bank...or the equivalent.
I would move slowly and surely towards no debt.
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goodenyou
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Re: What to do with cash from home sale?

Post by goodenyou »

ElBarto wrote: Thu Apr 01, 2021 11:45 pm
goodenyou wrote: Thu Apr 01, 2021 10:50 am If you can tolerate the possibility of 50% of 70% (35%) of the $525k declining in a stock market environment (or even a bond market decline), then deploy the money in your 70/30 AA. I am in the same boat. About $600k from sale of home, no student debt and I am looking to build/purchase a home in the next few years. I am very content right now renting a brand new smaller home at a (relatively) low cost and saving the enormous difference in upkeep and maintenance. We may tire of the smaller space and elect to plunge back into a much higher custom home purchase after a few years. I am keeping the cash at Ally and have to find another account because we have exceeded the FDIC limits.
I have tolerated market turmoil in the past. I don't see why I would flinch the next time around. This would be the most I have at risk as assets keep growing over the years, but still. How long have you been renting in a smaller home? Has it been a big deal? How has the family tolerated it? Did you invest all the proceeds, or have you set aside a down payment in cash like we are planning to do?
My last child is off to college in August. The last of three. We don’t need a 5000+ square foot house on a landscaped acre with a pool anymore. It’s just the two of us (with short visits from the kids) in a brand new one story 2200 square foot rental home with a small backyard and no high maintenance landscaping. The rent is equivalent to the monthly costs of taxes, insurance and HOA of the house. We haven’t had a mortgage in years and we have enough for a cash purchase of a new custom-built home. We bought land 3 years ago. We have a very very large cash position right now. The cash from the home proceeds with make it even bigger. We want to design a one story home with much lower maintenance that meets our needs and allows us to age in place. The home build/purchase, if and when it happens, will be less than 15% of our net worth. We are enjoying the ease of renting and low cost of living right now. It is allowing us to accumulate more savings more rapidly than ever.
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Sgal8713
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Re: What to do with cash from home sale?

Post by Sgal8713 »

For the future mortgage idea- you can get much better rates with 40% down and waive several fees (appraisal and such), plus it would likely get you out of jumbo mortgage range. You could peruse the refi mega thread for some idea.

Obviously with total assets after a few years,, you may could just forgo the mortgage altogether tho.
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ElBarto
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Re: What to do with cash from home sale?

Post by ElBarto »

HMSVictory wrote: Fri Apr 02, 2021 6:31 am Yes pay off the debt today.

With your level of wealth ($4M) you can definitely take some market risk..... I would keep the entire $600k in cash and I would pay cash for the next house. You can also go with your plan of $200k in cash and the $400k into your AA - you have the liquidity to do either. Market volitity isn't going to prevent you from buying the next house.

Which one will work out best? We won't know until the future......
Depending on what the market is doing I would prefer to just pay cash for the new house. We may get a mortgage and pay it off quickly depending on taxes and the situation. We are still working some so we do have options, but not sure if we are still going to be employed when we purchase the new house. If this bubble we are in does burst, I would like to be in the position to buy a house when others are fearful which is why the down payment needs to be available. We have over $1 million in bonds which we can always liquidate a portion of to help make sure we can buy a house if the banks are being stingy with loans at the time. About $225k of those bonds are in taxable as tax exempt intermediate term bonds. In addition we have about $1.2 million in taxable equities throwing off about 2% in dividends. Plus, if the bubble does burst, I suspect my emotions would not allow me to retire completely until after the recovery.
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ElBarto
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Re: What to do with cash from home sale?

Post by ElBarto »

Sgal8713 wrote: Fri Apr 02, 2021 9:38 am For the future mortgage idea- you can get much better rates with 40% down and waive several fees (appraisal and such), plus it would likely get you out of jumbo mortgage range. You could peruse the refi mega thread for some idea.

Obviously with total assets after a few years,, you may could just forgo the mortgage altogether tho.
I did not think about better rates, lower fees, and jumbo loans. Thanks for putting those thoughts into my brain for future consideration. Ideally I would prefer to just sell equities and bonds and just buy the house outright. It really all depends what the markets are doing, taxes, employment, and whatever we have not thought of yet.
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Re: What to do with cash from home sale?

Post by babystep »

ElBarto wrote: Thu Apr 01, 2021 12:59 am We are about to sell our house and looking to rent for anywhere between 1-4 years. We will get about $600k for our home after fees. I expect our next home to cost approximately $1 million in a lower property tax state. What should we do with the $600k proceeds? I was thinking to take $75k and pay off our school debt. Take $200k and save it in a high yield savings account (and I say high yield while rolling my eyes.) This is for the future downpayment of our next home. The rest ($325k) invest as per our desired AA. My thinking is that if the markets do well during those 1-4 years then investing the cash is a good idea. When we are ready to buy we can sell off the assets we need and just purchase the house outright. Sure there will be capital gains tax, but that is okay and the tax paid will be on gains we would not have had if kept in a savings account. If the market is not doing so well, we can take out a mortgage for $800k and pay it down once the market recovers.

Is my thinking off, or should we just keep all the money in cash or short term treasuries for those 1-4 years?

The details:
Married 2 kids both of us in our mid 40s
We are both semi-retired because we like what we do and more money isn't a bad thing.
Our income tax is variable as our income fluctuates significantly from year to year being semi-retired.
Our only debt is a $75k school loan at 1.5% ~$6k per year
Investment assets are $3.5 million spread between 401k, HSA, Roth, and taxable.
529 funded well for both kids.
AA is 70/30
Expenses about $125k/yr included in this figure is our portion of health insurance premiums (20% of full cost) as well as $6k per year school debt and child expenses that I expect one day will go away and get their own jobs.
Sounds like a great plan. I would likely invest the 325k in Total Stock market. 75k+200k is already fixed income so rest in my view should just go to stocks.
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ElBarto
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Re: What to do with cash from home sale?

Post by ElBarto »

babystep wrote: Fri Apr 02, 2021 2:02 pm
ElBarto wrote: Thu Apr 01, 2021 12:59 am We are about to sell our house and looking to rent for anywhere between 1-4 years. We will get about $600k for our home after fees. I expect our next home to cost approximately $1 million in a lower property tax state. What should we do with the $600k proceeds? I was thinking to take $75k and pay off our school debt. Take $200k and save it in a high yield savings account (and I say high yield while rolling my eyes.) This is for the future downpayment of our next home. The rest ($325k) invest as per our desired AA. My thinking is that if the markets do well during those 1-4 years then investing the cash is a good idea. When we are ready to buy we can sell off the assets we need and just purchase the house outright. Sure there will be capital gains tax, but that is okay and the tax paid will be on gains we would not have had if kept in a savings account. If the market is not doing so well, we can take out a mortgage for $800k and pay it down once the market recovers.

Is my thinking off, or should we just keep all the money in cash or short term treasuries for those 1-4 years?

The details:
Married 2 kids both of us in our mid 40s
We are both semi-retired because we like what we do and more money isn't a bad thing.
Our income tax is variable as our income fluctuates significantly from year to year being semi-retired.
Our only debt is a $75k school loan at 1.5% ~$6k per year
Investment assets are $3.5 million spread between 401k, HSA, Roth, and taxable.
529 funded well for both kids.
AA is 70/30
Expenses about $125k/yr included in this figure is our portion of health insurance premiums (20% of full cost) as well as $6k per year school debt and child expenses that I expect one day will go away and get their own jobs.
Sounds like a great plan. I would likely invest the 325k in Total Stock market. 75k+200k is already fixed income so rest in my view should just go to stocks.
It is nice to get some reassurance that I'm not crazy. Normally, I would recommend any money that needs to be used in the next few years to stay in cash or cash equivalents. But to me, our situation is a bit different so I figured I ask the collective boglehead minds if I'm being a bit out of line. I figure since we are keeping the downpayment in cash, we are actually following that line of thinking. It would be nice to be debt free with our next home, but I don't mind a mortgage that we pay down aggressively just the same.
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