Deceased sister's home sold - thoughts on what to do with proceeds?

[stephenson]

Hi All,

I am the only heir, as well as the trustee for my sister's estate.

Her house sold, today - proceeds of about $500K. No other bills related to her estate. I will dissolve her trust in the next couple of months.

My wife and I (both 69) have a moderate sized, well-balanced taxable equity/bonds portfolio, significant tIRA and smaller rIRA, two pensions, have not started SS, cash sufficient for at least five years of living expenses without the pensions or social security, paid off cars, etc.

We have a few rental houses and a primary home. The primary home has a 15 year (2035), 3 1/8% mortgage of about 40% of value, and the rental house a 30 year (2046), 3.5% mortgage of about 30% of the value. We file jointly - the interest payments on the personal home are not enough to allow us to itemize.

I would like to use the proceeds of my sister's property to pay off both of the mortgages. I can see that putting the proceeds in CDs would net more for some period of time, or investing in bond ladder would net more. I also really like the idea of not having any mortgaged properties.

Thoughts?

 

[REWahoo]

Were it me, I would pay off the mortgage on your primary home, sell the rental, and be both mortgage free and an ex-landlord.

 

[njhowie]

I would like to use the proceeds of my sister's property to pay off both of the mortgages. I can see that putting the proceeds in CDs would net more for some period of time, or investing in bond ladder would net more. I also really like the idea of not having any mortgaged properties.

Financially, it may not be the correct choice. However, there is a big psychological value in not having the mortgages. Remember the MasterCard commercial "Priceless".

We paid off our home mortgage 13 years ago - 9 years in. One of the best decisions we ever made...though it was likely not the best from a financial perspective.

 

[erkevin]

The net, after taxes, on CD income would be about 3.9% or less assuming a 5% CD. Not much of a difference from the mortgage interest.

 

[stephenson]

Were it me, I would pay off the mortgage on your primary home, sell the rental, and be both mortgage free and an ex-landlord.

We have several rental houses - so, the one won't really matter to the "business.

 

[OldShooter]

Don't do anything. Park the money very short term, take your time --- maybe a few months even --- to identify and think through options. SGOTI cannot possibly know enough about your financial and personal life to accurately shoot from the hip with a recommendation, while taking some time to identify and think through options is a luxury, you can easily afford.

 

[PERSonalTime]

Payoff your primary residence, any CC debt you may have, and bank the rest in an online bank. If the rentals have a positive cash flow, leave as is.

 

[pacergal]

Payoff your primary residence, any CC debt you may have, and bank the rest in an online bank. If the rentals have a positive cash flow, leave as is.

I agree with this.

 

[wrigley]

Buy yourself something you always wanted but never bought. Your sister would want you to do that!

Mike

 

[stephenson]

Thanks for thoughts!

Given we have sufficient cash reserves, taxable holdings and are getting ready to pull SS and then very soon MRDs, I think we’ll probably pay off the mortgages.

We could have paid off mortgages previously, but I kept delaying “just in case” - this just makes it seem more reasonable. And, given no other debt, it will feel good!

 

[skyking1]

At this point you have "won the game", so how it will feel to remove those mortgages is what matters. I like it for the sheer simplicity of it.

 

[pb4uski]

...We have a few rental houses and a primary home. The primary home has a 15 year (2035), 3 1/8% mortgage of about 40% of value, and the rental house a 30 year (2046), 3.5% mortgage of about 30% of the value. We file jointly - the interest payments on the personal home are not enough to allow us to itemize.

I would like to use the proceeds of my sister's property to pay off both of the mortgages. I can see that putting the proceeds in CDs would net more for some period of time, or investing in bond ladder would net more. I also really like the idea of not having any mortgaged properties.

Thoughts?

In the current environment, I would keep the mortgages. You could put an amount equal to your combined mortgage balances in a ~5% money market fund in your brokerage account and have the peace of mind that at any time with a few clicks that you could pay off both mortgages. If you can set up the mortgage payments to autopay from that same money market fund then that would be a bonus.

Then if money market yields go down to the mortgage interest rates pay of the remaining balance if you wish to. Sounds like easy money to me and I love easy money.

 

[38Chevy454]

I think paying off your primary house mortgage will be a good move. You will feelvery good about that. Rest I think in some fixed income investments for now, since you can get 5% or so with safe returns. Then decide on longer term plans for that money.

Just a comment, on the estate. OK to settle it out, but keep an account open with a little money for any lingering items that come up. You never know, and it is a lot easier to have an existing account that is able to use. Never know what might come through and need depositing. Or paying if some bill is late. Insurance and medical can take along time to settle out completely.

 

[Bryan Barnfellow]

Financially, it may not be the correct choice. However, there is a big psychological value in not having the mortgages. Remember the MasterCard commercial "Priceless".

Ah, remember those ads very well. I went back to look at some of these on YouTube and the first one up was from Australia. Perfect!

https://www.google.com/search?q=Ame...#fpstate=ive&vld=cid:18d3d472,vid:QJUawVULURM

-BB

 

[Route246]

We got a similar windfall a few years ago (1.2m). I use DCA over 12 months (100K/month) and dumped it into Vangard 500 (same as SPY) and just leave it there. Since it is "free money" and not expected I feel putting it at risk in equities is a no-brainer for our current situation. We have 3x critical mass so the funds will most probably never be needed. Your mileage may vary.

 

[pacergal]

Thanks for thoughts!

Given we have sufficient cash reserves, taxable holdings and are getting ready to pull SS and then very soon MRDs, I think we’ll probably pay off the mortgages.

We could have paid off mortgages previously, but I kept delaying “just in case” - this just makes it seem more reasonable. And, given no other debt, it will feel good!

Wonderful. And what a nice way to remember your sister, being debt free!

 

[captain3d]

Paid off house = money prison [emoji3]

 

[Spock]

Given 1) current interest income would be higher than mortgage expense and 2) inflation allows paying loans with increasingly cheaper dollars, I'd keep the mortgages for now.
I never got a "mortgage free" emotional boost when I paid off our mortgage shortly after "involuntary early retirement".

 

[Koolau]

Were it me, I would pay off the mortgage on your primary home, sell the rental, and be both mortgage free and an ex-landlord.

Agree completely. You have a chance to break free from something that still has a hold on you - your rental business. Money = freedom. Don't waste the opportunity to break free from entanglements that, while potentially money-making, tie you down and may give you heart burn when you should be enjoying your FIRE life.


What REWahoo said!

 

[stephenson]

Good stuff, All. Thank you.

The reason I am keeping the rentals is that they were bought with cash mostly from foreclosures - bottom of the market - are worth 3X now with significant income. Also, I have two kids - good way to transfer at stepped up basis. Sure, benefits them, but I don't need the money. Am I thinking about this wrong?

 

[pb4uski]

...I never got a "mortgage free" emotional boost when I paid off our mortgage ...

+1

 

[Dash man]

I’m all for being debt free. None of our five properties have a mortgage.

 

[kgtest]

Good stuff, All. Thank you.

The reason I am keeping the rentals is that they were bought with cash mostly from foreclosures - bottom of the market - are worth 3X now with significant income. Also, I have two kids - good way to transfer at stepped up basis. Sure, benefits them, but I don't need the money. Am I thinking about this wrong?

My DS passed away and we just unloaded all 4 of her properties. We talked her out of buying a fifth as she could barely leave the house to do paperwork. Hindsight we should have let her buy the brand new home and let it sit empty. The markets skyrocketed right before rates also went up.

The markets recovered nicely though and we were able to get her 3 small children a healthy return on both the sales of the properties and the rise in the markets, catching RE high and Markets low.

The stress of being threatened by tenants for property we had 0 emotional cnxn too was one main reason to unload. My dividends never call telling me they will be late, like tenants so often do with rent checks.

 

[CaliKid]

Good stuff, All. Thank you.

The reason I am keeping the rentals is that they were bought with cash mostly from foreclosures - bottom of the market - are worth 3X now with significant income. Also, I have two kids - good way to transfer at stepped up basis. Sure, benefits them, but I don't need the money. Am I thinking about this wrong?

I find that most people (including myself) lie to themselves about their actual NET income on rentals. First most landlords, even those with property managers, underestimate the time/energy/stress spent on their properties which has a cost. Beyond that many landlords underestimate the obvious costs such as taxes, insurance, mortgage, utilities, etc.... Lastly, many landlords ignore or undervalue the cost of maintenance, deferred maintenance and vacancy.

With all that said I like the idea of selling rentals and diversifying into DSTs via 1031 exchange. Or, if they are valuable even 1031ing into syndication projects via TICs. For the latter it's typically $750k+ required so doesn't work for everybody but can greatly increase your returns.

 

[Badger]

Were it me, I would pay off the mortgage on your primary home, sell the rental, and be both mortgage free and an ex-landlord.

Good stuff, All. Thank you.

The reason I am keeping the rentals is that they were bought with cash mostly from foreclosures - bottom of the market - are worth 3X now with significant income. Also, I have two kids - good way to transfer at stepped up basis. Sure, benefits them, but I don't need the money. Am I thinking about this wrong?

Seems like you are already in the catbird seat. I see retirement as having enough saved and readily available so that all you have to do about income is to use it for whatever you planned for the future.
It sounds like you have more than the one rental that you posted in the original post. So it seems like you will still have to deal with the maintenance, taxes, insurance, and other expenses associated with rental ownership until the time your kids take them over.

Cheers!