Long story short, later this year my wife and I stand to inherit something like $1m from a family member's estate. It might be a bit more, might be a bit less, but it will definitely be enough to buy my parents' house for cash, even though they live in suburban Boston which is expensive.
Should we just do that? It's likely that it would take pretty much all of the inheritance – or if there is a good amount left over, we would probably put it into improving the property to make it more livable and/or increase its prospects for profitably renting. We'd be living in apartment 1 of the house we purchased, and it's a two-family.
We do know that there will be no tax on the gifted money since it is way under the lifetime exemption. But is buying a house not the best way to use this money? OR, if we DO buy the house, should we do something other than pay cash for it, like put a big down payment but then put the rest in some sort of investment? Maybe another rental property?
Lump sum inheritance. Buy house for cash?
byu/butialreadytriedthat inpersonalfinance
Posted by butialreadytriedthat
23 Comments
What if you got a mortgage so that your mortgage payment (including property taxes) was about your current rent?
That would allow you to buy a house, but also to keep some cash for emergencies or other kinds of more liquid investments.
Edited to add: your age, and whether you have children (and their ages) could have some impact on your choices as well.
You might also consider a 15 year or 10 year mortgage instead of a 30 year one.
> wife and I stand to inherit
>We do know that there will be no tax on the gifted money
From a taxation standpoint, an inherited asset is not a gift. And a gift is not an inheritance.
Each has separate rules.
> But is buying a house not the best way to use this money?
What would you alternatively do with the money?
> OR, if we DO buy the house, should we do something other than pay cash for it, like put a big down payment but then put the rest in some sort of investment? Maybe another rental property?
Then you need to provide the numbers involved with this investment/rental property.
How old are you both, and how much do you have in retirement?
I am always a fan of zero mortgage. I understand there are tax savings etc. but only paying property tax is what I look forward to.
Life changer- so get out and go change your life. Plenty of cheaper places to buy a home for cash. But before, go travel a bit – splurge $30k and take some needed time off to gather your thoughts.
i’d be curious what the alternative housing options are. I’m a big fan of zero mortgage but $1m for me would buy a house and have like $700k leftover to setup the rest of my life. i’d be real hesitant to blow $1m on a home. and I know the east is more expensive but idk, i feel like $500k shouldn’t be impossible there, and if it is, maybe you need to evaluate if that region is a sustainable one for your future.
Save a good chunk of that money for the inevitable new furnace, roof, etc. make a large down payment. Make extra large payments to accelerate the payoff
Buying a house is not always the best way to use a windfall. Especially not a house that would otherwise be well outside your budget.
I would start here: [https://www.reddit.com/r/personalfinance/wiki/commontopics/](https://www.reddit.com/r/personalfinance/wiki/commontopics/) and then read this: [https://www.reddit.com/r/personalfinance/wiki/windfall/](https://www.reddit.com/r/personalfinance/wiki/windfall/) (or https://www.bogleheads.org/wiki/Managing_a_windfall)
For the record, you or your wife will inherit. Inheritance is not community property unless commingled with communal assets. Spending it all on a home that you can’t currently afford seems like the wrong thing to do. Those property taxes and maintenance could be scary. Taxes will adjust for the sale. Owning a home can be great, but buy one within your means. I absolutely would not spend all of my inheritance on an expensive home. I would consider buying one we could afford reasonably and then set myself and my family up with an emergency fund and invest the rest.
It’s already been said. Just understand that an inheritance is not a gift and while the proceeds are not taxable, any interest you earn on those proceeds is potentially taxable at the federal and state level.
Do you have debt? If so, pay that first.
Mix of both. Buy your home with a 15 year mortgage. Invest 3/4 of your inheritance and the keep the rest in HYSA or MMF. Pay your mortgage from your 1/4 account and pay every three weeks instead of once a month. Pay it off quickly and build an investment account at the same time. This is just a suggestion. The key is, it does not need to be one or the other. You can do both and benefit coming and going…
I guess I would ask myself how much I like the house. 1M generates roughly 40-100k per year in income. So 10 years in that house costs u another 400k-1M. BUT, as we all know, markets go down too.
Not saying what you’re doing is right or wrong. Can I go live in a 500k house and have 500k in the bank? That’s more attractive to me, but u do u.
No. Unless your mortgage rate would be higher than the average rate of return of investing in the stock market (7% adjusted for inflation), you should finance it. Actual returns have been much higher in recent years, like ~10%.
Make a competitive down payment, and stick the rest in low-cost index funds like VOO and VTI.
Get mortgage. Put the million in high yield savings account. Pay mortgage with the interest.
Is this in the united states? And if so, is the inheritance being distributed in a trust? If so, the purchase of the home may be a bit more involved as the home will most likely become an asset of the trust. You and your spouse will need to have a very frank discussion about how to proceed as one of you will not be inheriting anything and feel left out causing resentment. Be clear and open.
Who is inheriting this money? You and your wife are not inheriting money. I’d hope it’s you, since you’re the one posting about what to use it for.
Don’t buy it outright. Make your payments whatever you want, but take the 30 year loan.
It will keep your credit active and build your credit to a good score.
You can pay it off whenever you want.
Once you know what the net is after taxes, I would buy a house and put down enough to keep your payments affordable. I’d take the rest and invest it in the stock market ( with a good advisor) for the long run. Say you get $750k. I’d buy a $650k house. Put down $300k, invest $450k in the market.
Any ballpark idea on the rental income it could bring in? It would be pretty nice to have the home paid off and bringing in rental income
Probably most people would say don’t spend all the money but honestly would you be going on more vacations and spending more if you have all that cash sitting around? Sometimes the textbook answer doesn’t really translate to real life
And a mortgage is interest and fees and all that
Probably the must prudent frugal thing would be buy the home in cash and rent it, not most glamorous or most fun. But then you could probably be living pretty close to free right? Like rent can cover property taxes and a lot of other stuff
I would invest it myself because the returns will almost always be higher than the mortgage interest. Depends on how badly you must have that specific house I suppose. But putting everything into one asset is pretty concentrated risk.
Why buy that house? To help your parents or getting a deal?
Short answer: no, don’t buy the house with cash. If the house is something you want and you can afford the upkeep, insurance, and property taxes you can consider putting enough down to get you into a mortgage payment you can afford. Invest the rest.