Best Way To Invest Home Sale Proceeds

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BowgleheadBobblehead
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Joined: Sat Oct 03, 2020 3:53 pm

Best Way To Invest Home Sale Proceeds

Post by BowgleheadBobblehead »

Hey folks, long-time listener here just want to first express how grateful I am for everyone's contributions here. I've gained so much and built a solid financial foundation based on the Boglehead philosophy, and I hope I'm posting this question in the right section. Also I do plan to talk to a tax professional about the following, but wanted to get the community's feedback and hopefully start a discussion that can benefit others as well.

SO, basic situation is that wife and I are 31, no debt besides mortgage, household income of ~$100k, household expenses of $50k, retirement accounts totaling $100k, and about $250k in home equity. Planning a cross-country move next year to lower COL area, and intend to buy a house with a VA 15-yr fixed. Possibly putting a down payment to keep some home equity, but with interest rates so low and our long time horizon we'd both rather maximize returns by investing everything we net from the home sale ($200k+ after closing costs, tax-free). I don't want to try to time the market, but probably couldn't stomach a 25% drop right after investing all of it, so I want to lump sum invest maybe 50% and DCA the rest for 12-24 months.

My question is about retirement accounts and taxes. We are both self-employed and will be doing seasonal work for a family business where we have the option to design our own compensation packages. We have discussed contributing 100% of our incomes up to the annual maximum to our IRAs and 401ks ($56k/yr each if I'm not mistaken) and living off the home sale proceeds so we maximize the taxable account benefits. Is this a reasonable tax reduction and investment strategy? Any obvious drawbacks or restrictions we're missing?

Thanks!
- Bobblehead
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gr7070
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Re: Best Way To Invest Home Sale Proceeds

Post by gr7070 »

A VA loan is probably the worst mortgage option available. Do not get one.

I would pay cash for the house. If I got a mortgage it would be a conventional mortgage.

Certainly funneling money into tax-advantaged options is a good way to go. Be careful on your budget and the knowledge on how much cash to live off of with a big surplus like that.
Normchad
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Re: Best Way To Invest Home Sale Proceeds

Post by Normchad »

Honestly, I’d put all of the home proceeds into the new house. (Don’t let it influence you to buy a more expensive house than you otherwise would).

If that means you don’t have a mortgage at all, that is awesome. Use the new excess cash flow to save for the future....

Others will chime in recommending you get a 100% mortgage. That’s not an obviously terrible idea either. Each approach is reasonable, but personally, I’d plow it into the new house.
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Quirkz
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Re: Best Way To Invest Home Sale Proceeds

Post by Quirkz »

Does the VA loan avoid PMI? Otherwise I'd think you'd want to put at least 20% down to get rid of that. It's a huge waste of money.

Beyond that, keeping some amount of equity on hand and taking a bigger loan doesn't seem totally unreasonable at these rates. I'm doing more or less the same thing myself. Not quite that extreme, but after a long-distance move I want to beef up the emergency fund, set aside money for some possible repairs (roof, water heater, air conditioner, + unknowns) before we get to know the house, and if there's money left maybe funnel it into investments rather than back into home equity.
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