What would you do?

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Topic Author
sg13
Posts: 31
Joined: Fri Jul 05, 2019 1:35 am

What would you do?

Post by sg13 » Wed Sep 11, 2019 2:35 pm

I am 40, just received 6 million in a business asset sale (4 dental practices) in April this year and need some frank input from fellow forum members here. For now I have my investment in 3 areas:

Commercial: Out of that 6 million, I paid off my commercial building ($2M) from which one of my dental practices run. The corporate that bought from me gave me guaranteed 15 years lease and it pays me about $140K/year (grows 2% annually too). The building is already worth more than $2.5M.
This way I keep appreciating my commercial building and won't need to worry about income (I can retire from practicing).
Commercial investment: $2M.

Residential: I paid off my home (loan of $400k) and it is worth about a million now (Seattle).
Residential value here: $1M.

Non-taxable market: I put in $300K (maximum I could) in Vanguard account for 529 plans for both my kids. They are 4 and 8 now.
So non-taxable value: $300K.

Taxable market: I put in $700K (over last 3 months) in Vanguard;s total stock market (VTI). I also have about $200K worth of individual stocks for last 3 years which have grown to about $300K.
Total taxable: $1M.

So this is all set. Here's the dilemma:
We live in a house that has bedroom upstairs only and we cannot add any on the main floor. Number of bedrooms is not a problem, the location of them may turn into one in future (I hope not) for parents (live with us) and us when we get older.
I have two options:
A. Build or buy a larger home that is future proof for comfort of parents and then us of course. Cost would be about $1.8M to $2M at least. Remember it is Seattle and we need good schools (or will have to use private schools). Schools where we are now are above average but not the best. After we move into new house, sell the other home OR lease it? This way I'll still have total of approx $2.5M in the market (invested or investable) and about the same in residential market.
B. Keep living in the same house, invest the rest of funds in the market and buy only if needed in future (may be during downturn of housing market----it is Seattle though). This way I'll have about $4M invested or investable in the market and only $1M in the residential.

What would you do?
Get a new house and diverfisy the assets by adding more stake in the residential market OR live small (decent) and keep more in the market (and let it grow)?

dbr
Posts: 30137
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Re: What would you do?

Post by dbr » Wed Sep 11, 2019 2:38 pm

What I would do is a lot of thinking about the plan for the future. What do you want and where do you intend to go? The trade-offs you are considering now can't be evaluated without an idea of what you want for the duration.

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Meg77
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Re: What would you do?

Post by Meg77 » Wed Sep 11, 2019 2:47 pm

B.

Just because you have had a windfall doesn't mean you can or should finalize every financial decision today. If you like your current home, then stay there. If/when you need a bigger home, or a different home, then you can decide whether to buy or build one and where and how to finance it. I certainly wouldn't do it now based on mere possibilities as to the care of your parents in the future. They could die suddenly and never need it, or they may not want to live with you, or you could develop different needs of your own well before they need full time care (surprise third pregnancy that turns out to be twins - just an example that just happened to my sister). All that to say...I'd go with B.

Now if you actually really want to move anyway, then that's a different story. But I still wouldn't buy/build based on possible future needs (your parents) unless they are very close to already needing/wanting to make a move themselves. Note that you may have a tough time getting financing though. The lease income alone isn't sufficient to justify a 7 figure mortgage. So you'd probably have to sell your current home and your brokerage assets to buy it. Usually former homesteads don't make the best rentals anyway, especially million dollar ones in expensive areas. You can probably do a lot better for real estate investments elsewhere if you want to get into that market. Then you'd have a $2M house and a $2M commercial investment property which is a bit of an odd total asset allocation. And I doubt you could live off the $140K lease income with a $2M house given the maintenance and taxes that might require. It's doable with no debt, but in an expensive area with kids it might be a stretch, meaning your early retirement may need to be postponed.
Last edited by Meg77 on Wed Sep 11, 2019 2:53 pm, edited 1 time in total.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Jack FFR1846
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Joined: Tue Dec 31, 2013 7:05 am

Re: What would you do?

Post by Jack FFR1846 » Wed Sep 11, 2019 2:53 pm

B



.....
Bogle: Smart Beta is stupid

DesertDiva
Posts: 489
Joined: Thu Mar 01, 2018 12:49 pm
Location: In the desert

Re: What would you do?

Post by DesertDiva » Wed Sep 11, 2019 2:56 pm

Required reading:
https://www.bogleheads.org/wiki/Managing_a_windfall

Also - I wouldn't go around talking about it since you will have family and friends you never knew you had.

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ray.james
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Re: What would you do?

Post by ray.james » Wed Sep 11, 2019 2:59 pm

Seattle market is already down by 10% and inventory is raising from peak 2018 prices. Are your numbers current?
Also at that real estate tax rate of king county: lower priced home+ lower taxes will pay itself 70% of 2 private school tuition. I would also recommend B.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

cherijoh
Posts: 6283
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: What would you do?

Post by cherijoh » Wed Sep 11, 2019 3:01 pm

sg13 wrote:
Wed Sep 11, 2019 2:35 pm
I am 40, just received 6 million in a business asset sale (4 dental practices) in April this year and need some frank input from fellow forum members here. For now I have my investment in 3 areas:

Commercial: Out of that 6 million, I paid off my commercial building ($2M) from which one of my dental practices run. The corporate that bought from me gave me guaranteed 15 years lease and it pays me about $140K/year (grows 2% annually too). The building is already worth more than $2.5M.
This way I keep appreciating my commercial building and won't need to worry about income (I can retire from practicing).
Commercial investment: $2M.

Residential: I paid off my home (loan of $400k) and it is worth about a million now (Seattle).
Residential value here: $1M.

Non-taxable market: I put in $300K (maximum I could) in Vanguard account for 529 plans for both my kids. They are 4 and 8 now.
So non-taxable value: $300K.

Taxable market: I put in $700K (over last 3 months) in Vanguard;s total stock market (VTI). I also have about $200K worth of individual stocks for last 3 years which have grown to about $300K.
Total taxable: $1M.

So this is all set. Here's the dilemma:
We live in a house that has bedroom upstairs only and we cannot add any on the main floor. Number of bedrooms is not a problem, the location of them may turn into one in future (I hope not) for parents (live with us) and us when we get older.
I have two options:
A. Build or buy a larger home that is future proof for comfort of parents and then us of course. Cost would be about $1.8M to $2M at least. Remember it is Seattle and we need good schools (or will have to use private schools). Schools where we are now are above average but not the best. After we move into new house, sell the other home OR lease it? This way I'll still have total of approx $2.5M in the market (invested or investable) and about the same in residential market.
B. Keep living in the same house, invest the rest of funds in the market and buy only if needed in future (may be during downturn of housing market----it is Seattle though). This way I'll have about $4M invested or investable in the market and only $1M in the residential.

What would you do?
Get a new house and diverfisy the assets by adding more stake in the residential market OR live small (decent) and keep more in the market (and let it grow)?
If you can retire from practicing, what is keeping you in Seattle? Could you move out of your pricey neighboorhood to somewhere else in the greater Seattle area and get a better floor plan, good schools and a more reasonabe price tag? Or totally relocate to a lower COL area? I'd at least settle in to your new reality before jumping in to purchase a new house.

I would definitely diversify away drom real estate and sell your current house if you end up moving.

aristotelian
Posts: 6045
Joined: Wed Jan 11, 2017 8:05 pm

Re: What would you do?

Post by aristotelian » Wed Sep 11, 2019 3:04 pm

Do you actually want your parents to live with you and do they want to live with you?

I see no downside to option B. You can always build or buy a bigger house later. No point in doing it now. Not only is the future unknown, you will spend a lot of time and money on maintenance of the larger property for events that may be a long time off.

megabad
Posts: 2382
Joined: Fri Jun 01, 2018 4:00 pm

Re: What would you do?

Post by megabad » Wed Sep 11, 2019 3:13 pm

sg13 wrote:
Wed Sep 11, 2019 2:35 pm
What would you do?
Get a new house and diverfisy the assets by adding more stake in the residential market OR live small (decent) and keep more in the market (and let it grow)?
First, you have way more than 2 options. You are 40 and have 6 million so you basically have unlimited options. 2nd, owning a more expensive primary residence would not "diversify" anything in my mind. That said, this is completely dependent on your family's preferences so only you can decide.

If it were me, I would buy the new house if you both were going to continue to work in some capacity with reasonable income. I would keep the old house if you both intend to perma retire.

Topic Author
sg13
Posts: 31
Joined: Fri Jul 05, 2019 1:35 am

Re: What would you do?

Post by sg13 » Wed Sep 11, 2019 3:18 pm

cherijoh wrote:
Wed Sep 11, 2019 3:01 pm
sg13 wrote:
Wed Sep 11, 2019 2:35 pm
I am 40, just received 6 million in a business asset sale (4 dental practices) in April this year and need some frank input from fellow forum members here. For now I have my investment in 3 areas:

Commercial: Out of that 6 million, I paid off my commercial building ($2M) from which one of my dental practices run. The corporate that bought from me gave me guaranteed 15 years lease and it pays me about $140K/year (grows 2% annually too). The building is already worth more than $2.5M.
This way I keep appreciating my commercial building and won't need to worry about income (I can retire from practicing).
Commercial investment: $2M.

Residential: I paid off my home (loan of $400k) and it is worth about a million now (Seattle).
Residential value here: $1M.

Non-taxable market: I put in $300K (maximum I could) in Vanguard account for 529 plans for both my kids. They are 4 and 8 now.
So non-taxable value: $300K.

Taxable market: I put in $700K (over last 3 months) in Vanguard;s total stock market (VTI). I also have about $200K worth of individual stocks for last 3 years which have grown to about $300K.
Total taxable: $1M.

So this is all set. Here's the dilemma:
We live in a house that has bedroom upstairs only and we cannot add any on the main floor. Number of bedrooms is not a problem, the location of them may turn into one in future (I hope not) for parents (live with us) and us when we get older.
I have two options:
A. Build or buy a larger home that is future proof for comfort of parents and then us of course. Cost would be about $1.8M to $2M at least. Remember it is Seattle and we need good schools (or will have to use private schools). Schools where we are now are above average but not the best. After we move into new house, sell the other home OR lease it? This way I'll still have total of approx $2.5M in the market (invested or investable) and about the same in residential market.
B. Keep living in the same house, invest the rest of funds in the market and buy only if needed in future (may be during downturn of housing market----it is Seattle though). This way I'll have about $4M invested or investable in the market and only $1M in the residential.

What would you do?
Get a new house and diverfisy the assets by adding more stake in the residential market OR live small (decent) and keep more in the market (and let it grow)?
If you can retire from practicing, what is keeping you in Seattle? Could you move out of your pricey neighboorhood to somewhere else in the greater Seattle area and get a better floor plan, good schools and a more reasonabe price tag? Or totally relocate to a lower COL area? I'd at least settle in to your new reality before jumping in to purchase a new house.

I would definitely diversify away drom real estate and sell your current house if you end up moving.
We have a lot of friends, family here and in Vancouver BC which is 2 hrs away.
The other place where we have decent connections is Chicago. Real estate is much cheaper there but weather is bad.

Topic Author
sg13
Posts: 31
Joined: Fri Jul 05, 2019 1:35 am

Re: What would you do?

Post by sg13 » Wed Sep 11, 2019 3:23 pm

aristotelian wrote:
Wed Sep 11, 2019 3:04 pm
Do you actually want your parents to live with you and do they want to live with you?

I see no downside to option B. You can always build or buy a bigger house later. No point in doing it now. Not only is the future unknown, you will spend a lot of time and money on maintenance of the larger property for events that may be a long time off.
We all want to live together, no doubts.
We are Asians, it is in the culture too and we all are indispensable to each other in a good way :)

Topic Author
sg13
Posts: 31
Joined: Fri Jul 05, 2019 1:35 am

Re: What would you do?

Post by sg13 » Wed Sep 11, 2019 3:24 pm

megabad wrote:
Wed Sep 11, 2019 3:13 pm
sg13 wrote:
Wed Sep 11, 2019 2:35 pm
What would you do?
Get a new house and diverfisy the assets by adding more stake in the residential market OR live small (decent) and keep more in the market (and let it grow)?
First, you have way more than 2 options. You are 40 and have 6 million so you basically have unlimited options. 2nd, owning a more expensive primary residence would not "diversify" anything in my mind. That said, this is completely dependent on your family's preferences so only you can decide.

If it were me, I would buy the new house if you both were going to continue to work in some capacity with reasonable income. I would keep the old house if you both intend to perma retire.
This makes sense, thanks!

Topic Author
sg13
Posts: 31
Joined: Fri Jul 05, 2019 1:35 am

Re: What would you do?

Post by sg13 » Wed Sep 11, 2019 3:26 pm

ray.james wrote:
Wed Sep 11, 2019 2:59 pm
Seattle market is already down by 10% and inventory is raising from peak 2018 prices. Are your numbers current?
Also at that real estate tax rate of king county: lower priced home+ lower taxes will pay itself 70% of 2 private school tuition. I would also recommend B.
Yes thats why I am leaning towards option B.
I asked the question wondering what others would do. I am in consensus with Boglehead community :)

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