Investing after a home sale. Where to put the proceeds?

[Newtosavage]

If you sell a house to buy a more expensive house, and you had $100K proceeds from that sale, would you:

a) immediately put the $100K into the new house to pay down the principal,

b) invest that money somewhere you can get to it if you need it

c) use it for improvements to the new house that you can enjoy while you live there (and hope to get it back out when you sell the place).

d) invest in other property you can enjoy.

e) something else?

I hate being in debt, so my instinct is to put it straight into the new house, even though we can still afford to pay off the new house in 6-7 years without it. If we put it into the new house, we are tying it up and won't have easy access to it if we need it. If we use it for improvements on the new property, we're also tying it up but we will be able to enjoy those improvements in the meantime and hopefully will see it again when we sell the place in 6-7 years.

Any of you been in a similar situation? What did you do and how did it work out for you? Anything you'd do differently?

 

[bsanders8181]

Similar issue, but we bought a house that needed work so it was a plan from the get go to put it into new house improvement


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[Apollo117]

Is there going to be capital gains tax on the home sale?

 

[Whisky]

When I was in that position I did the responsible thing and put most down on the new house. Kept back just enough to cover some basic updates, and any snow/lawn/food plot equipment purchases necessary for the new place....

Then, I got married, and now have 2 kids.......I shoulda went on a god damn sheep hunt instead!!

 

[ODB]

Yes, we we did that. We made 100k on a house, put 50 into the next (smaller/cheaper) house and the rest into a slush fund. Lived in the smaller house and saved a good amount of money. Three years later we sold the small house, took 79k out of it and used it for 20% down on next house. Never touched the first 50k we put in the slush fund. That money continues to grow and we will use it for college and other expenses. We are too conservative as far as investments most would think, but it’s worked out Ok.

we had enough cash to almost buy the next house for cash, but the flexibility of holding back some cash made sense. Not sure if it’sa good idea or not...

 

[Marble]

After tax implications I would pay off any consumer debt and put the rest into the house.

After your house is paid in full you can really put a significant amount of money into other investments.

 

[KChunter71]

On the new home and apply for a second on the Equity. Only pull if you need it.

 

[007hunter]

Put it towards the new house. It doesn’t sound like you are hurting for money so pay that mortgage off. That’s assuming you have plenty set aside for retirement as well.

 

[Marble]

Yes, we we did that. We made 100k on a house, put 50 into the next (smaller/cheaper) house and the rest into a slush fund. Lived in the smaller house and saved a good amount of money. Three years later we sold the small house, took 79k out of it and used it for 20% down on next house. Never touched the first 50k we put in the slush fund. That money continues to grow and we will use it for college and other expenses. We are too conservative as far as investments most would think, but it’s worked out Ok.

we had enough cash to almost buy the next house for cash, but the flexibility of holding back some cash made sense. Not sure if it’sa good idea or not...

I wouldn't touch the money designated for college.

I would keep enough for a big emergency, depending on your income it will be more or less.

Example, if I made 150k a year, I would keep somewhere at least 40k available immediately and anything left would go to the down payment.

 

[5MilesBack]

If you bought a more expensive house, then all of the proceeds from the previous house would go right into the new more expensive house. Otherwise you're just taking on more debt than you had before.

 

[Newtosavage]

Is there going to be capital gains tax on the home sale?

I don't know that much about capital gains tax, but I suspect that may affect the decision of where to put the money.

 

[Newtosavage]

When I was in that position I did the responsible thing and put most down on the new house. Kept back just enough to cover some basic updates, and any snow/lawn/food plot equipment purchases necessary for the new place....

Then, I got married, and now have 2 kids.......I shoulda went on a god damn sheep hunt instead!!

Now there's a thought...

 

[Newtosavage]

If you bought a more expensive house, then all of the proceeds from the previous house would go right into the new more expensive house. Otherwise you're just taking on more debt than you had before.

Right, that's how I usually look at things but the interest rate on the new loan is so low that I wanted to ask about options I may be missing. Also, tying up cash in a house vs. having it available if needed is a consideration. Just wanting to look around before I leap.

 

[Newtosavage]

After tax implications I would pay off any consumer debt and put the rest into the house.

After your house is paid in full you can really put a significant amount of money into other investments.

This is what's available after all our other debt is paid off. The house and utilities would be our only bills at that point.

 

[Apollo117]

I don't know that much about capital gains tax, but I suspect that may affect the decision of where to put the money.

Do you have a CFP? Do you have a CPA? Having a conversation with both would give you a much better idea of what to do with the money.

If I were in your shoes, I'd look for a way to minimize how much I'm paying Uncle Sam in taxes.

 

[Newtosavage]

Do you have a CFP? Do you have a CPA? Having a conversation with both would give you a much better idea of what to do with the money.

If I were in your shoes, I'd look for a way to minimize how much I'm paying Uncle Sam in taxes.

I know that's good advice. To be honest, we've lived so modestly for so long to get to this point that we've never had any need for a CFP or CPA, but I do have access to one. That's the next step but I know there are plenty here with lots of experience too, so I saw no harm in asking.

 

[bigdesert10]

I would pay off consumer debt, establish an emergency fund for a couple months expenses, then put the rest towards the principle on your home. Open a line of credit with the bank if you think you might need more money at some point, but getting out of debt is the first step to generating wealth. Most conservative investments won't outpace the money you would lose over time in interest on the extra principle.

 

[zion zig zag]

On the new home and apply for a second on the Equity. Only pull if you need it.

This isn't really a good plan for having accessible cash. It hasn't been uncommon for banks to cancel or call HELOC loans in times of financial crisis.

I'm not sure you've given enough info for a real suggestion. For example, what percentage of your yearly salary do you have in accessible cash for a rainy day? How funded are your retirement accounts? How close are you to retirement? How diversified are you? You say that without putting the 100k towards the note you'll still pay off the loan in 6-7 years, but how would the 100k accelerate that?

 

[JakeSCH]

100% agree with getting a CFP but I would recommend investing the money it in the stock market unless you have credit card / consumer debt with interest rates above 6%.

I am off the opinion is that I would rather have cash in hand / invested and have the debt in the house and pay the really low 3% interest. When you can make 10% or significantly more in other investments with the money.

Went through a similar situation, house closed mid march and got the money into the stock market the week after the crash.

 

[Newtosavage]

This isn't really a good plan for having accessible cash. It hasn't been uncommon for banks to cancel or call HELOC loans in times of financial crisis.

I'm not sure you've given enough info for a real suggestion. For example, what percentage of your yearly salary do you have in accessible cash for a rainy day? How funded are your retirement accounts? How close are you to retirement? How diversified are you? You say that without putting the 100k towards the note you'll still pay off the loan in 6-7 years, but how would the 100k accelerate that?

All good questions.

1) presently zero.
2) on pace with our goals
3) 6.5 years
4) not very
5) 100K would allow us to be debt free in 4 years instead of 6 with the same monthly payment.