1.9 M windfall. My plan; input requested

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briansacct
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1.9 M windfall. My plan; input requested

Post by briansacct » Tue Jul 31, 2018 10:59 am

34 years old. Live with fiance, 2 kids. She stays at home (kids are homeschooled), I earn 50k a year. No debts. Assets ~ 15k in 401k. We are currently renting in the rural Midwest where real estate is cheap.

Windfall: 1.9 Million

Rough plan:

180k home (buy with cash for sake of diversity?)
30k Same as cash ( savings acct)
60k-new vehicles for me, fiance (We both lease right now, terms end soon on both leases)
30k- furniture, wedding (incl. ring,) honeymoon.
1M- index fund (help here?)
300k- bonds (help here?)
300k- real estate (various) (have been planning the details of this for a long time)


assuming ~3 percent net on 1.6M investments gives 50k a year. firecalc says 100%. Going forward, I plan to put 18k a year of my employment income into a 401k. We do not plan to pay for our childrens' college fund, should they choose to attend.

This leaves roughly 80k a year, net.

Anything stand out as spectacularly misguided? Thank you!

bloom2708
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Re: 1.9 M windfall. My plan; input requested

Post by bloom2708 » Tue Jul 31, 2018 11:48 am

Welcome.

Don't do anything for at least 3 to 6 months. Don't tell anyone.

In general I think your plan is OK. This is a life changing amount of money, but you should understand you have a long, long window ahead and it can be spent quite quickly.

My thoughts:

Rough plan:

180k home (buy with cash for sake of diversity?) - This seems low. What type of home is this? Is it a "long term" buy?
30k Same as cash ( savings acct) - Is this enough for a 6 month Emergency Fund? It is probably fine because your taxable money is available anytime.
60k-new vehicles for me, fiance (We both lease right now, terms end soon on both leases) - Seems reasonable, 2 30k cars, but high compared to house purchase.
30k- furniture, wedding (incl. ring,) honeymoon. - Seems reasonable.
1M- index fund (help here?) - Go slow here. Picking your mix of stocks and bonds and how much risk you want to take. 60/40 or 50/50 seem reasonable but you are in a position where you can be flexible. It depends on your tolerance for the market dips and drops.
300k- bonds (help here?) - Consider your portfolio as one entity. Index funds can be stocks, bonds or mixtures of stocks and bonds.
300k- real estate (various) (have been planning the details of this for a long time) - This, I would pass on or go very slowly.

I would bump up your house and skip the Real Estate portion. With this windfall, do you want 2 jobs? Your day job and being a rental property owner/manager?

A well thought out, diversified, low cost set of index funds can work for you. That is passive income. You will already own a house, I understand the allure, but you don't have to or need to do this. I would use the windfall to buy your precious time, not use it dealing with rental issues and scouring for paying tenants.

As for your future portfolio. Go slow. Do not start interviewing advisors. They will see your windfall as a fee paradise. It does not have to be expensive, complicated and you do not have to pay someone thousands each year to manage it.

I'll give you an example of what I might do. This is 60/40 stocks/bonds.

Open a taxable brokerage account at Vanguard. Stick with a 3-4 fund portfolio. We don't know your state and if you have state tax. I assume you are in a pretty low tax bracket.

42% Total US Stock index
18% Total International Stock index (30% of your 60% stocks)
40% Total US Bond index

Even with dividends/interest, you should still be in the 22% top bracket at most. Perhaps 12% with your pre-tax 401k taken off the top and standard deduction.

Send dividends/interest to your settlement account (just an account setting to not re-invest dividends). Sell shares for funds needed. Re-balance with withdrawals or 1 to 2 times per year if allocations get off from the desired percentages.

Very easy, low cost, total market, index funds. Can you get more complicated? Sure. Do you need to? Nope.

Others will give great advice. There is a windfall wiki page you should visit.

Congrats on the windfall! Use it wisely.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

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Pajamas
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Re: 1.9 M windfall. My plan; input requested

Post by Pajamas » Tue Jul 31, 2018 11:58 am

Don't be quick to spend so much of your wealth on cars, a house, and other real estate. Might make financial sense to do those things, but give yourself some time to mull the possibilities. For instance, at 3%, you could quit your job in just a few years and maintain the same amount of spending. That might be preferable to owning a house and cars now.

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BeBH65
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Re: 1.9 M windfall. My plan; input requested

Post by BeBH65 » Tue Jul 31, 2018 12:00 pm

Hello Brianact,

Welcome to the forum.

The lead-in of ourwiki entry on windfall mentions:
Do nothing rash. Set aside one year's living expenses and place the rest of the windfall into low risk investments (FDIC insured accounts, money market funds, treasury bills) for one year.
Do this, while you work yourself through the investing start up kit.

The page Bogleheads_investing_start-up_kit has a seven step approach.:
1. Are you ready? Get your expenses under control.
2. Educate yourself Ideas worth learning.
3. Investment plan. Plan ahead.
4. Asset allocation. Set your percentage of stocks and bonds. What are you comfortable with?
5. Control your emotions, Recognize how emotions and biases influence decisions.
6. Portfolio construction. Invest in the entire market using low-cost index funds.
7. Maintain your portfolio. Rebalance your portfolio once a year.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

Goal33
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Re: 1.9 M windfall. My plan; input requested

Post by Goal33 » Tue Jul 31, 2018 12:02 pm

To echo bloom2708, I think the primary residence number seems low, and I would also pass on investment real estate.

Also, you probably could spend less on furniture... Edit.. nvm, that includes the ring, honeymoon, and wedding.
A man with one watch always knows what time it is; a man with two watches is never sure.

aristotelian
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Re: 1.9 M windfall. My plan; input requested

Post by aristotelian » Tue Jul 31, 2018 12:10 pm

Buying a new house and two new cars will be a giveaway to all your friends and colleagues that you are a millionaire. Think very carefully about whether you really want to change your lifestyle.

I would also hold off on the real estate until you have done some more research. Also ask yourself if you want to be a landlord.

Maxing your 401k is a great idea.

keepingitsimple
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Re: 1.9 M windfall. My plan; input requested

Post by keepingitsimple » Tue Jul 31, 2018 12:25 pm

A windfall can be a wonderful, life-changing event when managed well.

Here are my general suggestions:
- Don't tell anyone about the windfall. It'll save you potential hassles in the future.
- Don't make quick decisions. Be certain you have educated yourself on each decision, purchase and investment in advance.
- Create a detailed budget and investment plan to be certain your money truly goes where you intend.

Regarding investing in real estate: I understand you have been planning this for a long time. Does it now still fit with your financial situation, since your financial situation has changed? I ask because investing in real estate can be like getting a second job, depending on the type and purpose. You should measure the effort vs. return since your need for a return has now changed.

srt7
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Re: 1.9 M windfall. My plan; input requested

Post by srt7 » Tue Jul 31, 2018 12:26 pm

aristotelian wrote:
Tue Jul 31, 2018 12:10 pm
Buying a new house and two new cars will be a giveaway to all your friends and colleagues that you are a millionaire. Think very carefully about whether you really want to change your lifestyle.

I would also hold off on the real estate until you have done some more research. Also ask yourself if you want to be a landlord.

Maxing your 401k is a great idea.
This. Don't let others know it (directly or indirectly) and even if they somehow got a whiff of it, just downplay it ... a LOT. You have enough going on emotionally with that much windfall.

I would definitely encourage moving ahead with the wedding and honeymoon :sharebeer

Congrats!
I can't think of anything more luxurious than owning my time. - remomnyc

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TxAg
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Re: 1.9 M windfall. My plan; input requested

Post by TxAg » Tue Jul 31, 2018 12:30 pm

Reconsider helping your kids through college! Of course, there are lots of factors...

crystalbank
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Re: 1.9 M windfall. My plan; input requested

Post by crystalbank » Tue Jul 31, 2018 1:00 pm

As others have already pointed out, be very wary of inflating your lifestyle. You'll be surprised at how easily you'll find a liking towards 'finer' things in life. I would hold off on the car/house purchases for a while, unless the real estate in your area is ridiculous.

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BL
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Re: 1.9 M windfall. My plan; input requested

Post by BL » Tue Jul 31, 2018 1:03 pm

TxAg wrote:
Tue Jul 31, 2018 12:30 pm
Reconsider helping your kids through college! Of course, there are lots of factors...
+1
Also with cars, if you like what you are driving, consider buying the cars as they come off lease. If not, look for a cheaper new or used car.

Any show of wealth will attract insurance, financial, and other folks who smell money (for them!) Friends may not stay the same either.

Let the money sit in MM at Vanguard for a while. Meanwhile, study, and think about things and what you want in life.

Max 401k at 18.5k, even if you need to use other cash to live on. Try to live within your income otherwise, rather than using the dividends. They would do better reinvested and helping to grow your net worth. Yes, there are many who use up everything, and end up broke even if they had a lot. If you increase your standard of living, you will need that much more to live on in retirement, so you might have to work longer to save more.

You have until April to see about a Roth for this year. You have time to do your taxes first.

Dottie57
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Re: 1.9 M windfall. My plan; input requested

Post by Dottie57 » Tue Jul 31, 2018 1:10 pm

TxAg wrote:
Tue Jul 31, 2018 12:30 pm
Reconsider helping your kids through college! Of course, there are lots of factors...
+1.

My parents paid for my state university education. It was a wonderful gift which I have thanked my parents for years.

jehovasfitness
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Re: 1.9 M windfall. My plan; input requested

Post by jehovasfitness » Tue Jul 31, 2018 1:15 pm

"We do not plan to pay for our childrens' college fund, should they choose to attend."

ouch even after getting a windfall, that's harsh

Flyer24
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Re: 1.9 M windfall. My plan; input requested

Post by Flyer24 » Tue Jul 31, 2018 1:24 pm

You just got almost 2 million dollars and don’t want to help your kids with college? Dang...pay it forward.

briansacct
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Re: 1.9 M windfall. My plan; input requested

Post by briansacct » Tue Jul 31, 2018 1:37 pm

Thank you all very much for your thoughtful replies. Some clarifications/elaborations:

-180k home: In my area, this buys (more than) what we want. It's actually more home than we originally intended. We prefer an "off grid" lifestyle with an eye towards permaculture ( "off grid" by our definition; it seems to mean different things to different people).

- Psychological concerns: I sold a business. We have known that this has been coming for around 2 years. As such, we've spent significant time thinking about what we want. I say this not with an aura of smug (after all, I'm asking for help!) rather to clarify that this plan is not some half-drunken weekend spreadsheet. We've thought this through for some time, however we haven't spoken to anyone else about it (at all). Thus, this thread (thanks again to those who have commented, and thank you to the owner of this forum!)

-cars: We're both looking for a new type of daily driver. My wife wants a 4 door sedan, I (need) a truck. I'm not knowledgeable in auto repair- at all. Thus buying ten year old vehicles doesn't make much sense to me. Particularly because I need a 4x4 pickup truck and they tend to hold their value VERY well around here. Is this naive? Buy a 10 year old tundra with 150k miles and Youtube my way to maintaining it myself?

- Real estate: this ties into a business my brother is already in. The short version is that it's been a successful small business for 6 years; the 300k would simply double the current business. This business gives my parents a free place to live near the ocean for 6 months a year. So it's sort of half investment half for my folks.

- Lack of college fund: This a sociopolitical decision my fiance and I have made. It's not financial. An elaboration would likely be inappropriate on this forum. The kids will receive significant financial help.

MotoTrojan
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Re: 1.9 M windfall. My plan; input requested

Post by MotoTrojan » Tue Jul 31, 2018 1:44 pm

briansacct wrote:
Tue Jul 31, 2018 1:37 pm
Thank you all very much for your thoughtful replies. Some clarifications/elaborations:

-180k home: In my area, this buys (more than) what we want. It's actually more home than we originally intended. We prefer an "off grid" lifestyle with an eye towards permaculture ( "off grid" by our definition; it seems to mean different things to different people).

- Psychological concerns: I sold a business. We have known that this has been coming for around 2 years. As such, we've spent significant time thinking about what we want. I say this not with an aura of smug (after all, I'm asking for help!) rather to clarify that this plan is not some half-drunken weekend spreadsheet. We've thought this through for some time, however we haven't spoken to anyone else about it (at all). Thus, this thread (thanks again to those who have commented, and thank you to the owner of this forum!)

-cars: We're both looking for a new type of daily driver. My wife wants a 4 door sedan, I (need) a truck. I'm not knowledgeable in auto repair- at all. Thus buying ten year old vehicles doesn't make much sense to me. Particularly because I need a 4x4 pickup truck and they tend to hold their value VERY well around here. Is this naive? Buy a 10 year old tundra with 150k miles and Youtube my way to maintaining it myself?

- Real estate: this ties into a business my brother is already in. The short version is that it's been a successful small business for 6 years; the 300k would simply double the current business. This business gives my parents a free place to live near the ocean for 6 months a year. So it's sort of half investment half for my folks.

- Lack of college fund: This a sociopolitical decision my fiance and I have made. It's not financial. An elaboration would likely be inappropriate on this forum. The kids will receive significant financial help.
Seems well thought out. Still iffy on the real estate but that is up to you and you obviously ran a successful company.

As to the cars, it is less binary than you are making it. You could save a bit by getting a CPO car off the lot and still have similar risk of major expenses/maintenance in the next 10 years, but with a bit more $$$ to handle it.

3-fund portfolio is all you need. Depending on the expense ratio of your 401k, you should research (Boglehead Wiki is a great resource) tax-efficient fund placement and view your entire portfolio as one entity (bonds in 401k). Research tax-loss harvesting to make you feel better if equity markets go down. Also I'd max a Roth IRA for you and the fiance/wife yearly.

Congrats and good luck!

chrissyp
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Re: 1.9 M windfall. My plan; input requested

Post by chrissyp » Tue Jul 31, 2018 1:57 pm

OP you are looking at the car thing the wrong way. Yea maybe get a 30,000 truck cause well trucks are expensive but if your wife is a stay at home, why can't her car be broken? Other than the "well she needs to go places" a new car will probably be driven less and it isn't sheltering income.

I will give you an example. I bought a 20,000 midsize after trading off a 8 year old midsize with lower miles. I wanted a "new" car. My wife has a 9 year old Ford Focus with 130,000 miles on it. The AC just went out, but the car runs and her commute is short (under 2-3 miles). The Focus is maybe worth 3,000/4,000 at most. I have been saying for about 2 years the car is going to break any day, but it still runs. In the next 3 years my car deprecation will be close to 7,000 or 8,000. I don't care if you buy a 2018 Camry LE for 22,000 or a 2018 30,000 Fusion for 22,000 they will be worth about the same in 3 years ~1-2,000 of each other.

My deprecation on my midsize could have paid for 3 AC systems in her car and her years 6-9 year depreciation.

Just get one nicer truck and a shit box or buy out one of the leases assuming they are cheaper cars.

trueblueky
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Re: 1.9 M windfall. My plan; input requested

Post by trueblueky » Tue Jul 31, 2018 2:12 pm

Goal33 wrote:
Tue Jul 31, 2018 12:02 pm
To echo bloom2708, I think the primary residence number seems low, and I would also pass on investment real estate.

Also, you probably could spend less on furniture... Edit.. nvm, that includes the ring, honeymoon, and wedding.
$180,000 will buy a lot of house in parts of the rural Midwest. There's no reason for anyone to know how they are paying for it.

bkweathe
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Re: 1.9 M windfall. My plan; input requested

Post by bkweathe » Tue Jul 31, 2018 2:16 pm

Live with fiance, 2 kids. She
FYI:
Fiance = engaged man
Fiancee = engaged woman
(they're pronounced the same)

Brad

NHRATA01
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Re: 1.9 M windfall. My plan; input requested

Post by NHRATA01 » Tue Jul 31, 2018 2:30 pm

I see no reason to decline a pair of new 30K cars when considering the size of the windfall and the fact the existing lease terms are ending. Though 30K may be bare bones for a full size pickup these days. A big 3 pickup and a Honda/Toyota sedan, and you're getting a pair of very reliable vehicles that will have 3/36 full warranties and 5 year powertrain warranties. My belief is one of the purposes of money (when somewhat plentiful) is to make life easier - using that logic, in what's realistically a financially reasonable purchase, why play around with out of warranty higher mileage and older vehicles that will need more service and maintenance?

Leesbro63
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Re: 1.9 M windfall. My plan; input requested

Post by Leesbro63 » Tue Jul 31, 2018 2:33 pm

Seems like a good plan overall. $30K vehicles (two of 'em) isn't excessive, but you might want to pretend those vehicles have to get paid off out of current income. In other words, if your current income won't support the vehicles, then you've just consumed wealth to subsidize your current burn rate. When they wear out or you get tired of them, will you go back to the tree and cut off another branch? Just something to think about, but overall I think you are on the right track.

Louis11111
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Re: 1.9 M windfall. My plan; input requested

Post by Louis11111 » Tue Jul 31, 2018 3:15 pm

Bottom line, do not underestimate the disruption this can cause. Believe it or not, you are playing with fire. Whatever you do, go slow and careful and keep your head about you. Best of luck.
Last edited by Louis11111 on Tue Jul 31, 2018 9:19 pm, edited 1 time in total.

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Sandtrap
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Re: 1.9 M windfall. My plan; input requested

Post by Sandtrap » Tue Jul 31, 2018 3:20 pm

BeBH65 wrote:
Tue Jul 31, 2018 12:00 pm
Hello Brianact,

Welcome to the forum.

The lead-in of ourwiki entry on windfall mentions:
Do nothing rash. Set aside one year's living expenses and place the rest of the windfall into low risk investments (FDIC insured accounts, money market funds, treasury bills) for one year.
Do this, while you work yourself through the investing start up kit.

The page Bogleheads_investing_start-up_kit has a seven step approach.:
1. Are you ready? Get your expenses under control.
2. Educate yourself Ideas worth learning.
3. Investment plan. Plan ahead.
4. Asset allocation. Set your percentage of stocks and bonds. What are you comfortable with?
5. Control your emotions, Recognize how emotions and biases influence decisions.
6. Portfolio construction. Invest in the entire market using low-cost index funds.
7. Maintain your portfolio. Rebalance your portfolio once a year.
+1
Excellent advice.
also. . .
8. Hold off on burning through the money on real estate and cars.
9. Once you start spending "a little" , it's like a pencil size hole in a large dam. It will leak and the hole will get bigger and more will leak and then. . . . :shock:

briansacct
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Re: 1.9 M windfall. My plan; input requested

Post by briansacct » Tue Jul 31, 2018 7:18 pm

Great advice in here. Thanks again!

Nicolas
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Re: 1.9 M windfall. My plan; input requested

Post by Nicolas » Tue Jul 31, 2018 8:09 pm

Deleted
Last edited by Nicolas on Wed Sep 05, 2018 7:49 pm, edited 2 times in total.

WanderingDoc
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Re: 1.9 M windfall. My plan; input requested

Post by WanderingDoc » Tue Jul 31, 2018 11:17 pm

Your plan is very reasonable.

Keep in mind, real estate produces (much) more income and had better tax benefits than index funds or stocks.

$1M down on a 3.5M 50 unit apartment complex will generate $100K in annual income, NET of expenses and CapEx. Factoring depreciation and other expenses, you legaly won't pay any tax on this income if you do it right. Also, your tenants will pay down your entire principal and interest on the note.

No matter what, you will pay taxes on those index funds. And a 1.8% dividend or 4% withdrawal rate isn't much in terms of income, and you will pay tax on it.

Take your time to learn all you can about real estate investing. It's a very forgiving investment. Even if we experience a huge recession, C/B class apartments are incredibly resilient. Even if your vacancy drops from 98 to 93%, you will be just fine. If your $1.2M in index funds drops to $700K, you will be waiting a long time with that 1.8% dividend.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

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dogagility
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Re: 1.9 M windfall. My plan; input requested

Post by dogagility » Wed Aug 01, 2018 5:22 am

OP,
Regarding college fund, I don't want to get into the reason behind your thinking of the value of college. However, I find your two comments a bit contradictory and confusing. I don't want you or your kids to be blindsided about college costs should they choose to attend.

Your initial post stated: "We do not plan to pay for our childrens' college fund, should they choose to attend." In a subsequent post, you stated: "The kids will receive significant financial help" if they go to college.

It seems your kids may attend college, so a couple of things to keep in mind:
1) college is expensive. In today's dollars, the cheapest route to a bachelors degree (living at home; community college for two years followed by local university for 2 years) is about 40K (depending upon the state). Four years living at and attending a public flagship university is anywhere from 80K to 130K. Private universities are more... can be as much as 350K for four years. Add inflation to these costs that may outpace the CPI.
2) your family will likely not receive much financial help in the form of grants, especially for attending public college/university. Most aid will be in the form of loans. Kids with tippy-top grades and test scores can receive significant merit aid (grants), but I wouldn't count on this.

So, it seems any "significant financial help" to pay for college would be coming from your family, not the college or government.

Just pointing this out for planning purposes. I don't think you should open a 529 account... but be aware of the potential cost.
Taking "risk" since 1995.

Leesbro63
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Re: 1.9 M windfall. My plan; input requested

Post by Leesbro63 » Wed Aug 01, 2018 8:16 am

WanderingDoc wrote:
Tue Jul 31, 2018 11:17 pm
Your plan is very reasonable.

Keep in mind, real estate produces (much) more income and had better tax benefits than index funds or stocks.

$1M down on a 3.5M 50 unit apartment complex will generate $100K in annual income, NET of expenses and CapEx. Factoring depreciation and other expenses, you legaly won't pay any tax on this income if you do it right. Also, your tenants will pay down your entire principal and interest on the note.

No matter what, you will pay taxes on those index funds. And a 1.8% dividend or 4% withdrawal rate isn't much in terms of income, and you will pay tax on it.

Take your time to learn all you can about real estate investing. It's a very forgiving investment. Even if we experience a huge recession, C/B class apartments are incredibly resilient. Even if your vacancy drops from 98 to 93%, you will be just fine. If your $1.2M in index funds drops to $700K, you will be waiting a long time with that 1.8% dividend.
You cannot seriously be talking about real estate in the rust belt. Real estate success or not is local.

ryman554
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Re: 1.9 M windfall. My plan; input requested

Post by ryman554 » Wed Aug 01, 2018 8:33 am

briansacct wrote:
Tue Jul 31, 2018 1:37 pm
- Real estate: this ties into a business my brother is already in. The short version is that it's been a successful small business for 6 years; the 300k would simply double the current business. This business gives my parents a free place to live near the ocean for 6 months a year. So it's sort of half investment half for my folks.
Let me caution you strongly against going into a business with family. no matter how altruistic the reasons. My brother in-law-in-law right now (and over the past seven years) is fighting to keep his mother's half of a family real-estate business that was run with a handshake between his father and uncle. I think the lawyers are going to get it all. My father's brother and the rest of his siblings also broke the family with a similar real-estate disagreement.

If you do the $300k "investment", make sure you treat it like you would any other business deal and dot your T's and cross your I's. You're both businessmen, so you know how to act. Better yet is probably to "invest" and be a silent partner or "gift" and stay away. Your future extended family will thank you over Thanksgiving.

smectym
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Re: 1.9 M windfall. My plan; input requested

Post by smectym » Wed Aug 01, 2018 6:45 pm

Congratulations and best of luck to OP and OP's loved ones and I like a lot of elements in the plan presented.

We just made a sociopolitical decision to pay all of our kid's college at the school he decided to go to, which oddly turned out not to be one of the several that had offered a substantial scholarship. That done, we've now made a sociopolitical decision to also pay for his law school.

Making these decisions was made quite a bit easier by having socked away significant 529 and other college-earmarked savings, starting from the day he was born.

If college is a long way off for your kids, keep in mind your opinions may evolve. Whatever your views, I don't think its something you lightly decide not to plan for.

Smectym

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knpstr
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Re: 1.9 M windfall. My plan; input requested

Post by knpstr » Wed Aug 01, 2018 7:00 pm

briansacct wrote:
Tue Jul 31, 2018 10:59 am
Anything stand out as spectacularly misguided? Thank you!
That looks good.

Is the $300K various real estate investments or vacation home or REITs?
I'd probably just park that $300K with the $1M in equity index fund

You're financially independent with $1.6M invested, but you can raise your standard of living by continuing to work/save/wait.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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