What would you do with an extra $1 million?

[Kroeran]

Anyone in the family needing extra help?

What about extended clan?

How about a second home or compound stateside in a fun location chosen by the kids for family to gather more often, that would be airbnbed when not in use to cover expenses?

How about a fund that provides seed money to family to invest in rental properties?

How about a small self sustaining farm ranch project stateside for fam to retreat to when China invades Taiwan then Hawaii? Or the grid is nuked

Make your home crisis proof, off grid, walled, deep well, hydroponics,

Invest in startups with a significant social value.

 

[imnontrad]

Wow. you need a CPA to ensure you won't get hit too badly in taxes. You will have capital gains tax and that is figured on the selling price - purchase + all previously declared depreciation. So make sure you set that money aside or pay as a quarterly payment.
Then you can invest/spend the rest. If you have any debts at all, I suggest that these be completely paid off. The suggestion of a Donor Advised fund to set aside money for donations for many years which will also reduce income is a good idea. The CPA can tell you how much would need to be put there to have an effect.
Also, since Medicare premiums for Parts B and D are based on the AGI from two years previously, also expect a significant increase in premiums for the year 2021 (the AGI on the return for 2019 will determine the premiums in 2021).

 

[steveark]

One million

I inherited that much after I was already an FI multimillionaire. I just put it into the same investments I already had. But the first year I left it with my late dad's advisors out of respect for their having done a good job for him. Then I moved it to Personal Capital and they've done better with lower fees. I guess we spent $30k to upgrade some toys but everything else is basically in escrow for our kids to inherit. We don't need it and our lifestyle is far less expensive than our investments would support even without the inheritance. On the other hand our kids will likely appreciate it some day.

 

[Scrapr]

without getting political i saw a story that elizabeth Warren is worth 2.86 million and upwards

The first thing I thought....I'm pretty close to that. Maybe I should run for Prez. You could be my running mate. I will let you carry the black box though. I'm not good in crisis

 

[catii]

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 ?

Great summary! Very accurate, too. With some days on multiple missions, even my bruises had bruises! No chance of falling asleep, either!

Wow. you need a CPA to ensure you won't get hit too badly in taxes.

The lady we had for 28 years was great, very proactive in looking out for us, too. I hope the drunk who killed her gets lots of time in prison. I need to stop procrastinating, & call the big firms. I've got friends in KPMG, Deloitte, & several other companies, so I guess I'll flip a coin.

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.

My one summer in Vegas dealing blackjack was more than enough for me, & I haven't been back there in 20 years. Most of our trips are either cruises (which I get for free as a speaker), or just choosing someplace we'd like to visit, & going walkabout. We've never been on a tour, as getting "lost" is more fun for us. We spent 3 weeks wandering around Turkey back in 2005, & had a ball, but with all the terrorism these days, we're not going to try that again. We have family all over Japan, & that's likely the direction we'll head.

Anyone in the family needing extra help?

What about extended clan?
How about a second home or compound stateside in a fun location chosen by the kids for family to gather more often, that would be airbnbed when not in use to cover expenses?
How about a fund that provides seed money to family to invest in rental properties?
How about a small self sustaining farm ranch project stateside for fam to retreat to when China invades Taiwan then Hawaii? Or the grid is nuked
Make your home crisis proof, off grid, walled, deep well, hydroponics,
Invest in startups with a significant social value.

I like the way you think! Not much clan to help, including grandkids - tried that, got rebuffed. The seed money would be a great idea, anywhere but Hawaii, where all property prices are crazy (average price around $800K). Our house has solar thermal & PV, battery backup, & two generators, all of which will be useless if we're hit with a nuclear weapon. No place to go.... We're 29 feet above sea level, & I don't need a well if I want to drink salt water.

Since we're both engineers who attended university on academic scholarships (decades ago), we've decided that education is the most-valuable social issue we can assist, & are still awaiting a package from our alma mater on how to endow scholarships, & maybe a chair. But, again, that's for after we're no longer around, so keep those ideas coming!

 

[hotwired]

So based on your 2d reply, you're getting about 4% on your money (i.e. $36,000 net income on a $1,000,000 property). This is fairly low for income property AND of course it's unpredictable. there will be years, like you've already had, where you need to spend some of that 36K on extra capital improvements / unexpected repairs / vacancies, etc. Plus it can be time consuming. Assuming you already have enough in your current portfolios, you could do one of the following:

1. Distribute it among your current investments. Because this is the most boring sounding strategy, it's probably the best!

2. Foray into other RE type investments. There are some well reviewed Peer to Peer RE opportunities out there. I plan on putting some funds into a couple of them in the next couple of years. Here's a link to some reviews: https://investorjunkie.com/47367/p2p-real-estate-crowdfunding-comparison/

3. You could do "hard money lending" to RE investors. You can make 8-12% on your money. Of course you'll need to lend $40-$200,000 in one chunk so it's hard to spread your risk. HML is quite lucrative though and some people literally do it for a living.

4. Put the bulk of it in fairly safe, boring investments but take $100,000 and move it into riskier things that despite their risk, pose a good chance of taking off. There's "Angel Investing Funds" now. I made $36,000 on a $2,000 investment recently in bitcoin and 2 other crytpo currencies. What I do is simply take a VERY SMALL % of my money and put 1-3K into things that COULD go to zero but also stand at least a decent chance of going up 1000% of more. The secret is diversification, AND making sure each and every micro investment at least stands a chance. This is NOT gambling when you look at it via a macro view. You wouldn't just put half your money on bitcoin but you might put 2K each into the top 6 crypotcurrencies, then 2-3K into 15 different angel investing themes, etc. Most of them could go to zero but if 1 goes up 1,000% you're a hero.

5. What I personally would do: I already know what I'd do with an extra million and that's to purchase property overseas. Colombia, Ecuador, Panama. Perhaps even an oceanfront condo here in Maine in Boothbay Harbor or OOB. Whether you use it as a VRBO unit or not is up to you.

6. Think of the "probable" direction of interest rates and inflation (i.e. up on both) and think of the outlook for investing styles (high dividend, value style is predicted to edge out growth style and this is very probable due to its underperfomance in recent history). Then some "alternative" asset classes to buffer your portfolio. Call it your "tilt portfolio". Keep in mind that it's designed to buffer losses from your main money, so try not to get discouraged when your main portfolio is doing great but my proposed mix is doing horribly. You'd put fairly equal amounts into:

a. MLP's (mostly energy)
b. Preferred stock closed end funds, but ONLY those that have a steeper discount than their 3 year avearage
c. Small company value fund (vanguard)
d. precious metals (no more than 5% of your mil)
e. BDC's (business development companies)
f. Funds that invest in bank debt, where the interest rate rises when general rates rise. This buffers the effects of rising rates (Pimco has a couple of great ones!)
g. MORTGAGE REITS. I hold MORT myself. This is a reit which invests in mortgages NOT real estate.
h. ETFs that invest in the 2-3 worst performing countries over the past 1-2 years. (I'm holding GREK and RSXJ, for example)
f. Farmland or timber ETF's.

 

[imoldernu]

What would you do with an extra $1 million?

"Extra" ?

Probably bury it somewhere. I can envision myself in the police interrogation room for days. People in my town know me.

 

[Rochester_Smitty]

After you sell you are losing a large chunk of the Real Estate Asset Class in your Investment Portfolio. Give some consideration to looking at a Direct Investment into commercial real estate with either a crowdfunding platform or directly with a sponsor. You would still get the benefits of owning real estate (income, appreciation, etc) without the headaches of running the "business" of being a landlord.

I chose this route for my RE investments as I did not like the idea of searching out a property, maintaining the property, dealing with tenants, etc.

 

[Retired Expat]

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.

I would look into a 1031 tax defered roll over. Find property somewhere with a strong rental market and professional property managers and collect the net rentals with little actual work involved.

I rather like the Orlando area for this. Not so much of a bubble there, not as likely to flood and many options. I found myself in a similar situation and took the proceeds from one home and put it into 3 properties instead. Rent is nice and I can sell off the lower valued units more easily should I need a cash infusion as some point.

There are also tax benefits to owning investment property that don’t exist for other investments.

 

[Retired Expat]

1031 exchanges

You can reinvest rental property proceeds with no capital gains tax under the IRS 1031 program. There are limitations and restrictions such as the money must go to a 1031 agent and not directly to you, and your time is limited but it is not really hard to do.

Yes at some point taxes will be owed but you get to reinvest the entire appreciated amount. It works great. Contact the the 1031 exchange experts at 1031expert.com if you need help

 

[FinancialDave]

First and foremost, get a good solid read on what your after-tax proceeds will be after depreciation recapture and state income taxes... it may be a lot more than you think... a poster a few days ago was looking at about 40% IIRC... so that 1.0 million may only be 0.8 million.

Second, as other advise, I would put it into a balanced portfolio.

Third, if sounds like you have way more than you'll ever spend so you may want to start thinking of what you want your legacy to be either with family or the community and start shaping your estate plan accordingly.

+1 on the fact there is probably no way you are going to be in 15% tax bracket.

Also, if you like the income of real estate, keeping a similar asset allocation would mean putting a "sizeable" portion into a REIT index fund like VNQ.

If you don't need the income, then increasing a taxable account by that amount could seriously put you in a higher tax bracket and higher Medicare expenses later on if you invest it in too many "income paying" assets like REITS and dividend paying equities or bonds.

Dave

 

[dixter]

We are going thru the exact situation you are asking about...

one year ago (Jan 15,2018) we sold our rental property...

we closed and took the check to the bank and I open'd a savings account just for that check...

Not knowing what to do with it and how much taxes we owed or how to even figure the taxes out I went to https://www.treasurydirect.gov/ and open'd an account there and linked the savings account and let it invest in the prevailing Treasury Bill rates... month by month

I chose Treasury Bills because they have a 4 week duration and pay me the coupons monthly... and I used those to pay bills each month...

I did this because I didn't know if or when the IRS would be contacting us and asking for their share... so the funds are never actually tied up that way and if I needed the money there is no penalty of early withdraw..

and that has worked out well for us... the IRS never has asked for any of it..

What also happen'd was medicare found out about it and sent me a letter in the fall of 2018 telling me that my medicare monthly was going from $134/mo to $502/mo... so that stinks to high heaven... tried to protest it and they said no way...

So fast forward to today...

I have now gathered my normal tax filing doc's and bought Turbo Tax for Business edition... and done so much reading on the IRS site that I am tired of figuring out the taxes on all of this...

This is how that is going... for rental property the tax software asks for cost basis + sales expenses and any depreciation numbers... I had the rental property for 6 years (condo)... had to dig out all of the past tax forms and took note of how much each year of depreciation was taken... added that up and put that figure into the program... and reading about depreciation recovery noted that its counted as standard income... so it gets taxed at your normal income rates and will place you higher in the tax tables... so thats a big hit... for cost basis it was easy to get the figures for the sales expense as its all listed right there on the closing docs... you just add them up and input those into turbo tax... and if you made any improvements while you own the property you can also add that up and then you will have adjusted cost benefits... so digging around for receipts from the past 6 years is also fun. Its good the wife took great notes to fall back on...

so when we decide to file I will pull back the money from the treasury direct folks and write the IRS the check and be done with it all...

Turbo Tax also notes that you didn't pay taxes all year on that money so it will offer to figure out any penalty or let the IRS figure out the penalty... my understanding for 2018 the IRS is not charging a penalty due to the confusion of the new tax rules... I guess I'll see if they send me a separate bill for the penalty or not...

And what is the plan for the remainder cash ? We like going to the caribbean to scuba dive a lot and so we are going to purchase a non rental condo along the gulf coast that has a airport hub to the caribbean and use it for the stop over going and coming from those trips...

we decided not to go rental condo this time simply because on our last rental condo when we would get there the first day seemed like we were just cleaning it up and on the last day there we were putting away our personal items and again cleaning it up.. so that kinda took away the time we actually used it... with the new non rental condo... we can come in the front door knowing its just how we left it and we don't have to worry about leaving our personal items out... like binoculars, cameras and such...

will be glad to get this tax season done and gone...

 

[catii]

I went to https://www.treasurydirect.gov/ and open'd an account there and linked the savings account and let it invest in the prevailing Treasury Bill rates... month by month

Treasury bills - that's one I hadn't thought of - thanks! Pretty paltry 2.39% right now for the 4-week bills, but also hard to find a safer place for short-term investment. That's the kind of thinking that really helps in our planning. I'm curious on whether Medicare raised your rate because you had extra monthly income, or because you just had more money to invest - do you know? And what has made you invisible to the IRS??

Wife & I are both long-time engineering managers, so we have spreadsheets that track every penny we've spent since we bought the rentals in the late 80s, & receipts to go with it. Thank goodness we only gave copies to our now-deceased CPA, as nothing will be coming out of her office for a long time, thanks to probate & lawyers. I still haven't found a CPA to replace her, & the big boys aren't in any huge hurry to help me make a decision, friends or no friends. We may end up using tax software, after all.

We like the 1031 approach if we can find something suitable for reinvestment. The rental market out here is crazy-good, for landlords. Studios rent for an average $1650, & 3-bedroom rentals like the two we have go for over $3425/month! And there is never enough housing out here, either. So I guess finding a well-managed condo building shouldn't be too difficult to find, although I'm still wrapping my brain around the need for both a 1031 agent AND a property manager when we've handled our rentals successfully for more than 30 years.

With my wife still working until June, we haven't had to worry about Medicare premiums, & I'm not sure that she's factored in the income we'd get from a 1031 or REIT, because it may be a wash with what we earn from the rentals now. Yet another reason to convince her to just hold onto what we have, raise the rents, & get a full-time property manager! Redheads are pretty hard-headed, so I doubt I'll succeed.

Give some consideration to looking at a Direct Investment into commercial real estate with either a crowdfunding platform or directly with a sponsor.

How about spelling that out a bit, Rochester_Smitty? I understand crowdfunding, but don't see how that can apply to our situation.

What I personally would do: I already know what I'd do with an extra million and that's to purchase property overseas.

At one point, we owned a house in Arizona, & a house & a condo in New Orleans, as well as our house & rentals out here - the paperwork drove us crazy! So being a VRBO of sorts is exactly what she doesn't want to be. I'm 72, & think it's a bit late to be buying property that we may not even get to visit overseas. But feel free to convince me otherwise!

MORTGAGE REITS. I hold MORT myself. This is a reit which invests in mortgages NOT real estate.

We're actually considering holding the mortgage on our rentals when we sell, knowing we'll get them back in case of a default. The only possible "glitch" is that nearly half of all real estate transactions out here are done on a cash basis, literally! Not that having 25 pounds or so of $100 bills bothers me!

precious metals (no more than 5% of your mil)

We have about 2000 Troy ounces of silver bullion, & about 5% of that amount in gold bullion. And a well-monitored security system, & a nice TRTL30 vault to keep them in! No thanks on cryptocurrency - along with our energy company, I run a computer consulting company, & know how volatile Bitcoins can be, especially if you don't know all of the ins & outs.

Damn! There are a bunch of really smart people on this forum!

 

[LARS]

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.

I'd buy you a monkey, but not a real monkey... that’s cruel. [emoji41]