What would you do with an extra $1 million?

[Huston55]

1 CRT - Charitable Remainder Trust? need to read how they work.
2 Structured sale - carrying a contract? we may do this on one place
3 1031 - doesn't have to be a physical property. Que?
4 QOZ agree, but not finding hard numbers on cost and return. Big benefit from my perspective is one can invest all or a portion of the sale price, thus possibly delaying the capital gains portion of a sale while being able to spend or use the remainder. But will taxes be lower in 5,7, or 10 years?

1. Yes, Charitable Remainder Trust. Basically, you donate the appreciated asset (property), the cap gains are avoided since the CRT is a charitable org, you get a sizable tax break and, you get a structured income stream.

2. Sounds like you know about these.
ETA: Rereading your post, you seem to be referring to personally carrying the note. That is not a ‘Structured Sale’, which is described in the link below:
https://en.m.wikipedia.org/wiki/Structured_sale

3. Correct, doesn’t have to be a physical property.
https://www.realized1031.com/blog/rolling-from-property-to-reit

4. I think these are relatively new so, may not be much earnings/expense history. But, here’s a good link with a great graphic.
https://www.forbes.com/sites/janetn...funds-cut-your-taxes-three-ways/#235187bd6ee3

 

[CardsFan]

If I had a million dollar.. isn't that a song?

Seriously, since we are already FI, I would probably invest the new money in a higher equity than normal, and consider it part of our legacy. 20 to 30 year timeline.

 

[Lakewood90712]

1, upgrade to a better zip code , one where gunshots in the night are rare.

2, hire a live in housekeeper / cook .

3 buy a CPO (certainly previously owned) used Tesla Model X

4 Buy an Airplane ( have owned boats and an RV, need to complete the trifecta of waste )

 

[HI Bill]

1) Upgrade the condo to a house
2) Invest the rest in VOO or VTI.

 

[catii]

1) Upgrade the condo to a house
2) Invest the rest in VOO or VTI.

If we were going to reinvest in real estate, we'd just keep our rental property. And we're already invested in both VOO & VTI - pretty decent returns.

1, upgrade to a better zip code, one where gunshots in the night are rare.
2, hire a live in housekeeper/cook .
3 buy a CPO (certainly previously owned) used Tesla Model X
4 Buy an Airplane (have owned boats and an RV, need to complete the trifecta of waste)

We already live in very-rural Oahu, where gunshots are nice & rare. I already love to cook, so why give that up to a cook/chef? Wife drives an S-class Mercedes, & I have my sports car. I'd love to buy an airplane, as I was an F-4 combat pilot in Nam, but there just aren't enought places to fly it. Wife does want to buy a 2-seater ultralight plane with pontoons, & we're looking for somewhere close to store it. Never argue with a woman who wants the same toys that you do!

Our legacy...hmm. I'm sure that the kids would love to have our money, but since that's the only reason that they ever contact us these days, charitable donations are appealing to us more & more, especially since that will generally bypass Uncle Sam.

 

[brucethebroker]

Of course there will be capitol gains to pay I would think, but still a nice amount to invest.

The bigger problem is recapture of past depreciation-taxed as ordinary income.

 

[Huston55]

How much are you going to lose when the depreciation is re-captured by IRS? Have you bounced this off your CPA?

Not to be critical, just curious for ideas since we often consider doing the same thing, but are put off by the taxes.

The bigger problem is recapture of past depreciation-taxed as ordinary income.

I think the OP’s CGs will be much larger than depreciation recapture because, they bought the property 30 yrs ago (likely low 6-figures). So, most of the tax hit will be LTCGs.

However, on the subject of rental property depreciation recapture, I’m also in a similar situation (significant depreciation recapture) and am very interested in ways to avoid it upon sale, if anyone happens to know of any.

 

[24601NoMore]

Nice..you can generate an additional $25-30K per year dividends off that $1M. VMMXX or brokered CDs is what I'd do, unless you "need" additional growth in your portfolio.

 

[catii]

they bought the property 30 yrs ago (likely low 6-figures). So, most of the tax hit will be LTCGs.

Yes, purchase price was $395K, & LTCGs are what we're planning on. There are also some tax advantages because we've rented one of the two units to Section 8 renters the entire time we've owned the property.

Nice..you can generate an additional $25-30K per year dividends off that $1M.

What frustrates me is that we're already bringing in $36K/year by renting the property to tenants who have been there for more than a decade, while it continues to rapidly appreciate in value! Just wish my wife would realize what a gold mine it really is....

Major decision time! Just got a call that our CPA was killed by a drunk driver last night, & we now have to interview for a new one, after 28 years! Need to get all of our extensive paperwork from her one-person shop, which should be interesting. May be time to go to one one of the big boy accounting firms, with their big fees.

 

[Gumby]

I have a lottery ticket in my pocket right now for a drawing tonight. If I should win a million dollars in that drawing, I would pay the taxes and then fold it into our nest egg alongside the money that we already have. I would continue along living my life as I do now.

 

[Walt34]

I have a lottery ticket in my pocket right now for a drawing tonight. If I should win a million dollars in that drawing, I would pay the taxes and then fold it into our nest egg alongside the money that we already have. I would continue along living my life as I do now.

What he said.

Well, I might spring for having my pickup truck detailed....

 

[W2R]

I've been happily retired for the past few years, & wife retires this year. She has decided to sell our rental property, which will net us around $1 million. However, in this weird market, I have no idea exactly what to do with that much cash!

All of our other retirement funds are spread out in stocks, bonds, IRA, etc., but there must be something better to do with a lump sum like this, & I would love some recommendations & ideas. (No, I don't make loans & don't gamble!)

House is paid off, no long-term debt, kids are grown & gone, grandkids almost so, & no student debt.

Since you won't have the rental income, probably you will want investment income of some sort to make up for it. So, if you want to know what I would do.... I'd invest it like your other retirement funds. I'd probably DCA ("Dollar Cost Average") it into my taxable investment accounts at Vanguard over 2-3 years, in mutual funds at my present AA.

But then, suppose you neither want nor need that rental income and just want to spend it? I have thought and thought, and have no clue other than to just give it to loved ones. I know, that's sort of passing the buck on that dilemma.

 

[Souschef]

Fly to Houston First Class, Stay at a nice hotel, then strap myself into an F-4 Phantom for 2 hours of flying at $8000 an hour.
Then spend some more on frivolous things.
The rest will be allocated for our children and grandchildren.

 

[Timeisprecious]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

+2

 

[catii]

strap myself into an F-4 Phantom for 2 hours of flying at $8000 an hour

Great fun for you, but you couldn't PAY me $8k/hour to fly a Phantom again! Too many bad memories from the early 70s.

DCA ("Dollar Cost Average") it into my taxable investment accounts at Vanguard over 2-3 years, in mutual funds at my present AA

Hmm, I'll have to run some what/if numbers on that, versus laddered CDs, which is my default for the moment. Wish I had a crystal ball for the market (yeah, me & everyone else)!

I think I mentioned that we don't NEED the income from the rentals to be very comfortable in retirement, but of course it's nice to have, or its equivalent from investments. What really irks me is that wife has priced the rentals at about half of what they would normally rent for in today's market, saying that's the best way to keep our tenants. But if we did double the rent, it would be really stupid to sell the property! I may have to work on her to change her outlook.

1031 Exchange (doesn’t have to be a physical property so, you may consider this) https://www.realized1031.com/blog/rolling-from-property-to-reit

I've been doing some research on this concept, as I didn't realize you don't have to swap physical property. My CPA was supposed to give me some feedback, but her funeral is next weekend.... Educated guess that my real estate agent probably wouldn't be gung-ho about us going that route. Guess it's time to get off my butt & find a new CPA who specializes in real estate.

 

[brett]

No change whatsoever to our lifestyle. It would impact our children and our grandchildren.

 

[Badger]

Nice..you can generate an additional $25-30K per year dividends off that $1M. VMMXX or brokered CDs is what I'd do, unless you "need" additional growth in your portfolio.

+1

 

[Oakster]

I would just invest that $1M in the same AA as I have now with the existing investable assets.

If I knew a better way to invest the extra money, I would have applied that to the existing assets already.

Exactly!

 

[Lakewood90712]

Great fun for you, but you couldn't PAY me $8k/hour to fly a Phantom again! Too many bad memories from the early 70s.

What ? You no like the wild weasel ? Coming back from a mission with a splitting headache , bruises from the harness and that comfy ejection seat ?

 

[SonofCohoes]

I like the idea of the laddered cds, no risks plus youd pickup 25k or 30k a year
Less taxes to blow. That’ll buy a trip or 2.

 

[morriss003]

The rentals (two on one property) generate about $36K/year, which we've poured back into first paying off the mortgage, & then into much-needed upgrades & repairs. We've managed the property since we bought it back in 1989 because we've never been able to find a property manager without larceny in his soul. In Hawaii, long-term capital gains are taxed at a maximum rate of 7.25%, & our federal rate is estimated to be 15%.

We don't really need the rental income, although I've tried to convince her that holding onto the property, even if we pay someone else to manage it, will let its value increase, as well as continuing the income stream. But she's adamant that we should sell it, & I don't really care enough to argue. She loves playing with money far more than I do, & does a good job, too.

Our other funds are more than sufficient to let us live without being overly frugal (we're both long-time engineers & own our companies), so this money really would be a windfall. We already have the boat & the car, & my hobby is speaking on cruise ships, so our vacations are essentially free, too. Not really much of anything else that we want or need.

None of our kids or grandkids are the least bit interested in living in Hawaii (go figure), so we have about $3 million in real estate to consider, plus all of the other assets I mentioned. We've been discussing charitable remainder trusts, but I'd rather use the money for our own enjoyment, & give it to charity after we're gone. Right now, we'll probably ladder CDs in this uncertain market, as well as increasing our existing ETFs. We won't sell for the next 8-12 months, & who knows where the market will be by then?

I live on Maui, so I understand your circumstances. I think it depends on what other things you like to do. You know as well as I, that many Hawaiians would use the money to purchase a condo in Las Vegas. Personally I would rather have a condo on the east coast, so we would have some place to stay before traveling to Europe. It would be nice if you could find one in a vacation pool, so it could be rented.

 

[Pointby2]

Everyone is so practical.

 

[AirOps]

Maybe a self funded foundation.

 

[gooddog]

I'm going to go a slightly different route than others have said. Since you are already invested, and apparently have a good income - don't need the money. A good strategy may be to go into ultra safe 3.5% CDs. At a certain point, at least for me, it is more about protecting principle and getting a very conservative percentage. If you got so much money that you have already won the game, why risk losing the game?

 

[Retiree_Having_Fun]

If I had an extra million I would hire extra police and setup a speed trap to catch the bastard that speeds down our residential street every afternoon - money well spent.