Ideas For Reinvesting Proceeds After A Home Sale

After a home sale, you will hopefully be flush with cash. However, reinvesting proceeds after a home sale is important if you want to keep up or beat inflation. Therefore, here are some investment ideas to consider after selling your property.

Thanks to inflation, you need at least a $3 million net worth to be considered a real millionaire today! We always need to be investing to try and beat inflation.

To minimize your regret of selling your home and watching it go up further in value, it's a good idea to reinvest the proceeds in other potentially appreciating assets.

In a low interest rate environment, holding too much cash will act as a drag on your overall net worth growth. Further, the housing market is likely to remain strong for years to come.

Be Patient Before Reinvesting Proceeds After A Home Sale

A large financial windfall can either be a joyous occasion or a stressful occasion. It all depends on how well you plan. Because it's generally easier to spend than to save, I always recommend folks sit on their cash for at least a month before making any moves.

Holding a lot of cash is not a bad thing even in a raging bull market. A cash stash is only stressful if you suffer from an overwhelming amount of greed.

Greed can kill your returns because you don't properly think about the risks. All you think about is how much you could be making from a particular investment class without realizing how much you could lose as well.

In this post, I'll focus specifically on what to do with the proceeds after a property sale. This post is applicable to any type of large windfall e.g. inheritance, year-end bonus, gift, etc. But specifically, this post targets those who have sold their homes for big bucks.

Questions To Ask Before Reinvesting Proceeds From Your Home Sale

As we're more than 12 years into a bull market. Selling a property to cash in the gains is becoming more common. At the same time, demand for real estate has never been higher post-pandemic.

With mortgage rates still low, massive gains in the stock market, and a desire to live more comfortably at home, demand for real estate will likely continue for a long time. Personally, I believe national housing prices will grow in the high single-digits for the next three years.

Before you sell your home, here are some questions you should first ask yourself.

1) How much will the sold house be worth in 5, 10, 20 years? The goal is to come up with a baseline financial target to shoot for. Either use the asset's historical annual rate of return over a 50 year time period or a risk free rate plus a reasonable premium. Inflation is a powerful force that should be ridden for as long as possible. For example, it requires at least $3 million today to be considered a real millionaire thanks to inflation.

2) What does your net worth allocation look like post sale? Once you find out, you can make a better assessment on where to allocate capital. After an extended period of time, your net worth allocation may skew more towards one asset due to outperformance.

3) How do you feel about the current economic environment? You are either bullish, neutral, or bearish. Make a best estimate of where we are in the cycle by studying previous cycles and extrapolating current data into the future.

4) What are your upcoming financial needs over the next 1, 3, 5, 10+ years? There must be a purpose to investing otherwise there's no point. The biggest expenses include another home purchase, college tuition, healthcare costs, and retirement.

5) What is your estimated tax liability? There's no avoiding the tax man. Calculate all the costs involved in selling your house (commissions, taxes, etc), the amount you spent improving your house, and any tax benefits such as the $250K/$500K tax-free profits to figure out your taxable profits. Put that money aside.

6) How much are you will to pay in commissions? The cost of selling a house is still egregiously high. It may be best to hold on and keep on renting it out.

Once you've answered these questions during your one month+ cooling off period, you'll have a much clearer sense of how to reinvest your proceeds.

How I Reinvested Proceeds From My House Sale

In 2017, I went from having $2,740,000 of exposure in one asset in SF with $815,000 in leverage (mortgage) to having ~$1,800,000 in cash after selling. The sale paid off the mortgage.

Here were my initial thoughts after depositing the check.

1) Reduce risk by $815,000 by paying $1,800,000 cash for a different San Francisco single family home. But I've already got exposure in San Francisco through my primary residence, a rental condo, and a vacation property in Lake Tahoe. So I'm thinking this isn't the best idea unless I can find another sweet panoramic ocean view home that has a clear appreciation path to $2,500,000 (39%+) over the next 5 – 10 years.

2) Reduce risk by $815,000 by investing all $1,800,000 in a portfolio of different real estate assets e.g. REITs and real estate crowdfunding projects to keep real estate exposure from falling by only 29%. This is the most sensible move since I'm bullish on real estate long term and I get to diversify from a single home to multiple properties around the country.

3) Find a dream home in Honolulu with a 10,000+ sqft flat lot near the beach. Unfortunately, these homes cost ~$3,000,000 – ~$5,000,000 and we're not ready to leave San Francisco until its time for my little one to go to kindergarten in 2022. I've been searching for a couple years and haven't found the ideal property at an affordable price.

Years after my rental home sale in 2017, I feel great because I was able to successfully reinvest my home sale proceeds in real estate crowdfunding, stocks, and municipal bonds. The reinvestments have done well.

Slowly Invest Your House Sale Proceeds

I usually like to reinvest proceeds in the same asset class while I work on building up greater amounts in other asset classes to get to my desired net worth asset allocation. But after much deliberation, I wanted to focus on de-risking.

When you survive a financial crisis with a relatively large amount of assets that got pounded, you really appreciate second chances to take money off the table.

Remember, I took a big risk in 2014 by taking out another $1,000,000 mortgage to buy another property while keeping my previous home as a rental with a $1,000,000 mortgage for three years. Further, I'm unemployed!

Here's how I've reinvested the money so far:

These are the three main categories that accounting for the majority of reinvested proceeds. They've all done well so far.

Municipal Bonds: $500,000 into various individual California municipal bonds with a 3% – 4% tax free coupon, which is equivalent to a 4.4% – 5.9% gross yield based on a 32% effective tax rate (federal plus state). I've always enjoyed keeping a good amount of low-risk/risk-free investments because it ironically allows me to take maximum risk in my life: moving cities, switching firms, starting a business, retiring early, etc. Target annual return (gross): 5%

Real Estate Crowdfunding: $250,000 into multiple real estate crowdfunding projects, which brings my total to $500,000 + a $10,000 Conshy, Pennsylvania commercial project. The fund made new investments in Virginia, Dallas, Seattle, and Utah.

This investment is my way of reinvesting a portion of the proceeds in 100% passive real estate that hopefully has more upside than San Francisco real estate, which has started to slow. Target annual return: 8% vs. their 15% target return.

My favorite two real estate crowdfunding platforms are Fundrise (diversified private funds) and CrowdStreet (specific real estate projects in 18-hour cities mostly). Both platforms are free to sign up and explore. I really like how CrowdStreet is also offering speciality funds on occasion as well.

Stocks: $100,000 into an S&P 500 index ETF IVV and $50,000 into various large cap tech growth stocks. I used the small sell-offs in August and September to allocate capital. I'm not excited about the stock market, so this is more an asset allocation decision. I will be allocating $100,000 into the stock market with every 2% correction, with an assumption the stock market won't correct by more than 10%. Target annual return: 7%.

reinvesting proceeds after a home sale
Snapshot of various buys of iShares S&P 500 ETF and a couple CA zero coupon muni bonds

College Savings

529 Plan: Reinvesting home sale proceeds of $35,000 to my son's 529 plan felt wonderful. I can super fund the plan with $70,000 in one year, but I'm not sure I'll do so because these long-dated target funds are very aggressive. With an 18 year target date, the fund has a 90%+ weighting in stocks, so this 529 plan is really just a stock fund at this moment.

Besides, I have 18 years to reach the limit of $359,000, which should go up in the future. I'm more worried about allocating capital at the top of the market and not being able to legally allocate more if there is a correction.

Financial Samurai 2017 529 college savings contribution
Contributed $30,000 to my son's 529 plan in two tranches. Have $40,000 left to contribute for 2017

Paying Down Debt

Debt Pay Down: Reinvesting proceeds of $50,000 to pay down a 4.25%, 30-year fixed mortgage on my Lake Tahoe vacation property also felt good. The goal is to pay this debt off completely by 2022 before leaving California.

I plan to consistently pay down mortgage debt using my FS-DAIR framework.

Total Invested: $935,000 over three months

Total Cash Remaining: $865,000 from home sale proceeds

Return Goals For Reinvested Home Sale Proceeds

Return Hurdle: 4% (I estimate the house I sold will increase by 4% a year on average for the next 20 years). $1,800,000 of my equity will turn into $3,944,000 in 20 years at a 4% compounded return, if I cancel out the cost of carrying the $815,000 mortgage (2.35% + 1.2% property taxes + maintenance expenses = a wash).

Estimated Return Of Reinvested Proceeds: 6% (blended rate of return for investments excluding cash). $935,000 will turn into $3,000,000 in 20 years at a 6% compounded return.

Activity Difference: Going from semi-passive income to 100% passive income. Hallelujah!

Rating The Reinvestment Risk

It's always good to make sure that what you are reinvesting in matches your risk tolerance and financial goals. Here's my reinvestment risk assessment:

On a scale of 1-10, 10 being super risky and 1 being risk-free, I rate keeping $2,740,000 of exposure in SF real estate with a $815,000 a mortgage an 8. My rental property was valued at ~30X gross annual rent, which was very expensive. I'm already long three other properties in the Bay Area.

If this was my primary residence and I had no other properties, I would assign a risk score of 5 for holding on, despite the surge in prices because I have to live somewhere.

I believe there's a 50% chance the property I sold could decline by 10% ($2,500,000) over the next several years due to an increased supply of luxury condos. There's a small chance mortgage rates could go higher as well.

Heck, I may have sold my property for $2,500,000 this year if the buyer threatened to walk away. But I also believe there's a 70% chance my old SF property will simply appreciate at a rate of 1% – 4% a year forever, just like inflation.

I give my reinvestments a 3 out of 10 in terms of risk. 51% of my reinvestment is in almost risk free investment grade municipal bonds that will pay back their principal plus a coupon over the years.

25% of my reinvestment is in real estate crowdfunding in cheaper markets with higher yields.

20% of my reinvestment is in higher risk equity investments. While the remaining 4% of my reinvestment was used to pay down debt.

Why Still Hold So Much Cash?

Despite not wanting to own any more physical property, I just can't seem to break my addiction. For 20 years, I've been combing the listings and going on open house walks every Sunday. There's still so much upside for cheaper property on the western side of SF.

There are inefficiencies in the real estate market. Some reasons are due to out of town sellers, out of town realtors, bad listing timing, bad marketing, inexperienced sellers/realtors and so forth.

I always believe I can get a deal for 5% – 10% below fair market value. Why? Because that's what I've done with the past two properties. It's smart to buy big city real estate before there is herd immunity and everyone comes rushing back.

I ended up investing the remaining cash proceeds all within nine months of receiving them. I also ended up buying a large single family home a month into the pandemic. Our forever home was a great deal.

Visualizing Reinvesting The Remaining Proceeds

With whatever cash you have left, clearly visualize how you plan to reinvest the proceeds in what time frame. You don't have to exactly follow your plan. However, you should write something out in order to have a good idea when opportunities arise. In my case, I've got $815,000 left.

1) Taxes: $100,000 $150,000 set aside for taxes. I've actually been looking to buy a Honolulu dream home to do a 1031 exchange once 2014, but couldn't find the right house.  It's hard to leave my network in SF and get on a plane before my son turns three.

2) Physical property in SF: All $815,000 if a bargain can be had at a 10% discount to market. Need to have lots of cash to be competitive, unlike my buyer who had to take out a $2,000,000 loan and a $300,000 bridge loan to get the deal done. Rental properties are looking very attractive given interest rates have plummeted. Further, the value of cash flow has gone way up.

2) Municipal bonds: $100,000 if the 10-year yield gets back up to 2.3% and $300,000 if the 10-year yield gets back to 2.5%. Minimum $10,000 a month no matter what happens to interest rates. This is unlikely to happen as the 10-year bond yield sits just under 1% for 2021.

3) Stocks: $100,000 for every 2% correction in the market, and up to $500,000 if there is a 10% correction. Minimum $10,000 a month no matter what happens in the market.

4) Debt pay down: $10,000 a month without fail, and $100,000 in 12 months if the 10-year yield doesn't get to 2.5% and stocks do not correct by 10%.

5) Real estate alternatives: An additional $100,000 – $500,000 in real estate crowdfunding if existing investments do well.

Real Estate Alternatives Look Attractive

Given all the fund's investments are equity and not debt, it can take years to see any type of returns. This is exactly what I want because of my current high tax rate, especially since I just sold a house.  I plan to have dinner with a member of the investment committee before committing more capital.

Below is a snapshot of my account so far. I've received $330,283.73 in distributions as of 2021 after investing $810,000 in capital. I still have 13 real estate crowdfunding investments that will be paying out over the next two or three years.

Earning real estate income 100% passively is a blessing now that I have two young children to take care of. As a result, I'm very happy investing in real estate crowdfunding, real estate ETFs, and public REITs. Just know that REITs and real estate ETFs are more volatile, as we saw during the March 2020 correction.

Real Estate Crowdfunding Dashboard

It's Worth Being Patient With Cash

You don't have to reinvest proceeds after a home sale immediately. You also won't get all your investments and timing right. If you are unsure about an investment, go halfsies.

For example, locking up $310,000 in a 4.1%, 7-year CD from 2007 – 2014 was a suboptimal financial move since the S&P 500 outperformed. At least I earned a steady, guaranteed return.

However, using $246,000 of the $400,000 in proceeds from the CD to buy a fixer upper for $1,230,000 in 2014 was great. The property has now appreciated to ~$2,200,000 (78%), has ben a good financial decision so far. Although, I did spend $100,000 remodeling the property. The $426,000 in equity for the downpayment and remodeling costs has grown to ~$1,600,000 in equity (+276%).

There will always be great opportunities in the future if you have the cash and the courage to take advantage. Not everybody could have bought my house in 2014 because not everybody had a $250,000 downpayment or the desire to look west. When you have cash, you have options.

Besides providing optionality, cash also provides security. You don't have to worry as much about losing your job, paying for an unexpected medical bill, or seeing your business go down the drain. With less worry, comes more happiness. And happiness is what having money is all about!

Real Estate Is My Favorite Investment

With stocks at record highs, I think real estate is the most attractive investment going forward. People will convert some of their stock gains into hard assets like real estate. Mortgage rates will continue to stay low. Further, everyone is spending a lot more time at home due to the work from home trend.

Reinvesting proceeds after a home sale into diversified real estate makes sense. If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Real estate crowdsourcing allows you to be more flexible in your real estate investments. You can invest beyond just where you live for the best returns possible. Reinvesting proceeds into real estate crowdfunding after a home sale is good for diversification. Further, you can back a lot of your time.

Sign up and take a look at all eREITs Fundrise has to offer. It's free to look.

Real Estate For Accredited Investors

If you are an accredited investor who wants to invest in individual real estate crowdfunding deals in 18-hour cities, check out CrowdStreet. I've met a dozen of their people before in Palo Alto and I really like what they are doing.

CrowdStreet's deals are in 18-hour cities where valuations are cheaper and net rental yields are higher. Thanks to positive demographic trends and work from home, 18-hour cities are doing well. Reinvesting proceeds from a house sale in individual commercial real estate projects in faster growing areas can be a wise move.

CrowdStreet is also free to sign up an explore as well.

Fundrise Due Diligence Funnel - reinvesting proceeds after a home sale
Less than 5% of the real estate deals shown gets through the Fundrise funnel

Invest In Private Growth Companies

Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

Investment Ideas After Selling Your House is a Financial Samurai original post. I've been helping readers achieve financial freedom sooner since 2009.

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121 thoughts on “Ideas For Reinvesting Proceeds After A Home Sale”

      1. Could you let me know why you choose to invest in cali muni bonds directly vs through a vanguard cali intermediate or long term etf?
        Wondering what option makes the most sense

      2. Would you suggest buy cali muni bonds directly or purchase through an ETF such as the vanguard cali intermediate or cali vanguard long term muni bond etf?
        If you buy direct, how do you pick which cusips to invest in, and think about short term vs long term?

  1. Clarisse Haack

    Currently in process of reading all of your posts, and stalking you for advice. First off, you are a wizard. ?’s :

    • Can you 1031 c exchange into Realty Shares or REITs and which do you prefer?
    • What is a good technique to foresee condo / apartment growth softening rents in metropolitan area like SF or Austin?
    • What signs do you look for to foresee real estate downturn?
    • How are your Realty Shares Investments doing, and how much have you bought in as of now?
    • I am considering Hawaii 1031 exchange currently for the same reason as you, are you not concerned as it is a blue state?

    TY <:)

  2. How are you not laddering a series of step and trigger notes (derivatives) against the major indexes? Between the insurance and the leveraged earning you miss out by doing things like iShares/etfs unless you’re literally caring so much about liquidity you’re willing to give up on the upside and forgo insurance.

    How are you not just working with an advisor and someone that can walk you into far more lucrative private equity deals? (targeting 15% return or better) Crowdfunding – seriously – sigh.

    Has citi wealth management (I think I read you were with them) even approached you with some alternative strategies? How are they not part of this conversation with you? I mean – my banker (ubs) walks through 5 scenarios, faces a grilling from me, works through the changes or questions based on my conversation and represents and we go forward with one in the second meeting. We talk on the phone weekly – he, his team, and I communicate more than once a week in email. That’s what private bankers and wealth management should be like.

    1. Hey Bruce, how’s the bat cave?

      I’ve set up some collars and butterfly spreads of mine own to protect some of my wealth.

      Are you making more than a 15% IRR consistently? If so, what are the strategies? Don’t think even the great Warren Buffet has done that well. Please share!

      The idea of talking to a wealth manager weekly is NOT attractive to me. I want to be left alone.

      1. When you live in America, you are golden. Period. What we achieve here, is completely up to us. End of story.

  3. sunny shakhawala

    Hey Sam,

    Question about your crowdfunding investments. I’m assuming you’re making mostly debt investments? If so, are you doing so in your personal name or under the protection of an LLC?
    I do private lending deals (in my local area to people I know, like, and trust). But I’m doing them straight out of my personal bank account. I’ve done 3 deals so far and I’d like to start doing more but want to incorporate so I can 1) not be the name on the lien and 2) write some business expenses off against the interest income. Would love to know how you’re set up, if at all.



      1. I have a thought. Why don’t we fly to North Korea and discuss their thoughts on investment diversity.

  4. Hi Sam,
    Thank you for sharing your re-investing thoughts. It helps me a lot. I have two questions on Realtyshare investing:
    1. Why you only invest in Equity not Debt? Realtyshares says Debt is most secure, safer than Equity investment.
    2. Which Equity fund will close by November? There are so many of them.
    Thank you.

  5. Sam, very thought provoking post as per usual…..I may have missed it, but are you totally out of P2P (Lending Club, Prosper, etc) and only into Realty Shares and CA Munis…..??


  6. Hi Sam,

    Have a couple questions regarding the RealtyShares DME Fund:

    1. What in particular draws you to this investment versus a more traditional private equity real estate fund?

    2. Also agree with your idea to de-risk by selling your home (pretty conservative myself) but curious why you would invest ~ $1mm into a fund that only has 10 – 20 holdings when you could potentially get access to other funds with even greater diversification/split that investment up between the fund, individual investments etc to get closer to 40 – 80 holdings.

    Thank you!

    1. 1) I liked their investment objectives, holding period, target returns, and I’ve met Management multiple times in SF. CEO is a fellow Cal MBA grad as well. At the end of the day, all the investments take risk, which is why I’ve started at $250,000 and waited five months until investing another $250,000. I have another $1 million cash to invest, so I’m taking my time.

      2) Diversification and concentration on particular types of investments. I have other investments in real estate fund and public REITs as well FYI.

      How about you? What are you investing in, why do you invest, and how much exposure do you have to real estate and other investments?

      1. Thank you for the response!

        The majority of my assets are in low-fee index funds but I’ve recently begun diversifying into real estate and am considering several other alternative investments including an investment in a couple Search Funds. Open to doing direct real estate/alternatives with about 10 – 25% of my portfolio but probably wouldn’t go beyond that amount as I think there is some degree of safety in investing with the herd (traditional stocks and bonds).

        In terms of real estate investments, I’m currently invested in a hard-money loan fund, and in the near future would like to invest in some syndicated real estate/real estate crowd funding deals and/or the DME fund.

        I am going to speak with RealtyShares to learn more about the fund but wanted to get your take on it first!

        Makes sense about diversification for you – I don’t have as much capital to apply so I’m a bit more reserved and concerned that RECF in general may be more risky than some alternatives (am33 reflected those concerns well) but it is still an intriguing space to me due to the potential of investing in multiple properties at a relatively low amount /per property, with one K-1…

        am33 comment: “Also, Realtyshares is fairly high risk, no? I don’t know anything about them, but based upon first glance it appears that they catering to a higher-risk pool. After all, there is no shortage of conventional (and cheaper) real estate financing for legitimate developers and projects.”

          1. Yes, completely agree there are a lot of variables to consider. Which is why it can be so overwhelming! Currently no physical real estate because I don’t want to be tied down to one area but if I ever settle anywhere, would love to go that route at some point in time.

            Not sure if I can post outside links but I found this website and some of the corresponding investing material very helpful:

            That’s one of the reasons I was curious you went with such concentrated picks when you clearly have enough capital to truly diversify. At the same time concentrated picks seems to have worked well for you in the past with some great physical home acquisitions whereas my family lost 20% on a home here in Chicago and that makes me absolutely see the downside to real estate and has increased my desire to diversify!

      2. You know who is rich? The guy who has one more dollar than I have. To a billionaire, the guy with two billion is rich. If I was the only person on the planet, would I be rich or poor?

  7. Great post. Curious, why do you prefer muni-bonds over a blue-chip dividend stock? Dividend tax rate is only 15% (or 20% if you’re in the top income bracket), and you have the benefit of stock appreciation, plus more liquidity.

    Also, Realtyshares is fairly high risk, no? I don’t know anything about them, but based upon first glance it appears that they catering to a higher-risk pool. After all, there is no shortage of conventional (and cheaper) real estate financing for legitimate developers and projects.

      1. Great post (and site)!

        As you’ve mentioned the bonds as “diversification”, I need to ask: Have you read the book “The long and the short of it”?

        The author has some interesting remarks about risk and diversification, and criticises bonds to a certain degree. I read and tend to agree with him. I know nothing about CA bonds, but I wonder if you are not simply investing in the state of California debt, which is probably somewhat dependent on the general US economy and property market as well.

        S&P 500 also highly linked to general US economy and the REIT, well, property + economy.

        I also love property investment and like to invest on S&P 500, and other tracker funds. So my interrogation mark is certainly raised against the bonds, even more with such low return (unless they track inflation, of course…)

        I would guess that for true diversification you could be looking at ETFs tracking other economies (EU, Japan, etc), or certain commodities, etc

        Great article anyway. :)


  8. I would not consider capital gains on an investment as “windfall”. They are just normal earnings if you are in the business of investing money (even if it is only your own). They do not occur regulary, but they aren’t an anomaly.

    I strictly separate spending money and investment money. Whatever cash I’ve moved to the investment bucket stays there. So any unexpected gains in this area will wait for opportunities to reinvest them at a good expected (real) yield.

    I have a somewhat unusual view on a lot of these issues. I tend to extremely separate this stuff. In addition to my emergency and depreciation account I would consider investment cash as an emergency credit line and charge myself interest of 10% or so for borrowing from it (I’ve never used it so far). Probably sounds very weird but it is the way I think about it. But I am still in the accumulation of capital phase, not the retirement phase. I have some ideas about how I am going to manage the process then. I am very aware that my approach is very much on the conservative side (especially from your US-perspective). But I want to sleep well at night.

  9. Sam: instead of moving to HI, why not consider San Diego? Might be a good compromise. San Fran is a nice town but the HCOL would scare me off.

  10. Sounds like you dispersed your cash really well! Wow, I’m amazed the 529 plan (which sounds similar to the RESP in Canada) can go up to $300K! In Canada, our max RESP contribution amount is $50,000. We just funded ours but with only $16,500 since the Canadian government matches $500 for every $2500 each year. We will definitely have non-registered investments for him too because he might want to go to the US for school in which case <$100K is not going to be enough.

  11. Hi

    Haven’t been reading your blog for long, but I do enjoy it.

    What strikes me about your use of proceeds is your shift from a leveraged investment to what are now almost all un-leveraged investment options

    I’m not pro or against the use of debt for real estate. It has its place. I’m more interested in your thought process on it, and why it’s not on your list for possible new investments.

    And perhaps you have some leveraged exposure I can’t see in the RealtyShare’s Domestic Equity fund.

    Thanks again for sharing.

  12. I don’t invest in any investment that doesn’t generate consistent double digit returns (10% or higher). There really is no reason to, especially when you have accredited investor status. I have found so many private placements just from googling and conducted my own due diligence by meeting with the investor relations people, reading the PPM, reading investor reviews, reviewing historical returns, etc. My favorite are real estate debt and equity private funds. I’m in 3 debt funds right now that pay monthly based on an annual 11-13% consistent net return to investors – all first lien position loans. Its also easy to find rental properties in the “bread and butter” markets that generate double digit returns through turn key providers or you can invest in a private real estate equity fund that owns a portfolio of high yielding real estate across the country. Don’t waste your time with munis…….those returns are for the birds!

  13. Sam what do you think about Roofstock- different business model than realtyshares with a bit more risk but you own a tangible asset. However owning a turnkey property could be a logistical nightmare. Just curious to know your thoughts?

  14. Hi Sam! Looking for your insight:

    Married with 2 young children own
    A 1 family rental with 20 years left on mortgage (330k) nets about 10k/year
    With 500k equity

    Primary home (480k debt 25 years left)
    About 700k equity

    Vacation home (290k debt 28 years left)
    350k equity.

    Have some funds in the bank earning a little over 1%.

    What would you do?

  15. Congrats again on the sale and thanks for the insightful article. I am having a challenging time finding options to earmark cash in this environment. I have also tried to look at investing into the RS domestic equity fund. I just struggle w/ being their first fund, the small size of the fund, and the lack of track record. It does not appear to be a pure play on the heartland as states like NY, IL, CA, FL, and VA make up 5 out of the 10 possible states. Also, not sure about the approach of having a yield play in some areas, while pursuing appreciation in others …imagine that could be difficult with such a small offering. I do not know much about this space at all, but I was just curious if you had similar concerns at all. Thanks!

    1. I always have concerns before investing in anything, hence I spend months doing my due diligence before I put money to work. I start small ($10K), and work my way up ($250K) then another $250K.

      Depends on what your current financial situation and risk tolerance is JP. What are your goals? Will being down 10% on a $250K hurt you? Do you need the money within 5 years, etc?

      $250K of the $1.8M in proceeds went into the fund. That’s 13.9%. I’m considering investing another $250K before November, but I plan to have dinner with one or two members of the investment committee to share my thoughts and listen to their thoughts.

      Related: The Risks Of Real Estate Crowdfunding

      1. Appreciate the quick response Sam. All of my NW is currently in equities/cash. I would ideally want to find another option outside of my existing equity portfolio. I would want an investment that isn’t totally correlated to equities and doesn’t have all the fees associated w/ alternatives. I just turned 30 and my total liquid NW is basically the same figure that you just raised from the sale of your home. I am saving a large % of my after tax income and I wouldn’t need any of these funds/liquidity for quite some time. I just don’t know this space well and have general concerns w/ the lack of visibility etc.

  16. Brian Chong

    Sam, good timing on this article. I’ve had about a dozen clients sell their homes this summer and being in San Jose, CA those gains are often over the $250K/$500K exemption.

    My advice is to seek a knowledgeable CPA before selling your house (or stocks or business). If you work with a CPA before you sell a large asset, your CPA can come up with strategies to minimize your taxes and potentially save you hundreds of thousands of dollars. Once, you’ve made the sale, you have a taxable transaction and there are some strategies to minimize your taxes, but it’s not as effective.

    Here are some strategies to reduce your taxes:
    1031 exchange, monetized installment sale, land conservation easement, defined benefit plans for business owners.

    -Brian CPA, CFP

  17. I’m sitting on the sidelines with a bunch of cash, but SO aren’t many others. Hard to find good real estate deals now. I’ve got 9 units I’m renting out. Does it make sense to deploy some of this extra cash into a deal, knowing you’ve gotta put down 30-40% to make the numbers work rather than the typical 20-25 %. I’m at the point at 38 where another couple deals that cashflow well and I can retire, BUT it’s getting hard to find anything.

  18. Having mainly read posts about windfalls in relation to inheritance, I had never heard as sort a time-frame as one-month to consider what to do with the profits. It makes sense now that I’ve seen it. Happy windfalls don’t have the same type of emotional resonance. And it is not like the windfall is from something as traumatic as the lottery. You made good choices in the past and can reap the benefits now.

    For me, with debt, the choices are easy. If I had a windfall, I would pay off the smaller of my student loan obligations to change my DTI into manageable territory. I would then pay off any CC debt and beef up the EF. Any leftover would be split between a 20% down payment for a small condo, and buying index funds. All boring and vanilla, but that is what someone at the beginning of their journey needs.

  19. Sam have you considered being silent minority owner in a small business ex. Microbeer cafe, fast food franchise?

  20. Can you explain the 250k/500k tax benefit? I am about to sell a rental i have not lived in 2/5 years. I thought I’m on the hook for taxes on the gains.

  21. FS,

    Thanks for sharing your ideas. I don’t think I’ve seen any of your post concerning corporate bonds. I briefly looked thru Fidelity Corporate Bond offerings and noticed they also offer
    High yield short term, i.e. 3, 6 & 9 months etc. Do you dabble in this at all? Would like to
    hear your thoughts on this type of investment/gamble?

    1. I haven’t been focused on individual corporate bonds, even though bonds paid by Giants with massive balance sheets like apple are probably going to do just fine.

      My issue is that I don’t need more income because I’m already pushing the max I want. Everything is being taxed at the highest marginal tax rate now. With a huge windfall selling my house this year, the goal is to make zero income. I wish I made zero income the first six months of the year. Something all homesellers should think about.

      Dividend income and corporate bond income are great if you are in a relatively agreeable tax bracket.

  22. Awesome timing for this article for me, Sam. Thanks for sharing your experience.

    I just made some money selling my house and am debating whether to pay off debts (all sub 5% interest) or invest or some of both? I’ve read your FS-DAIR many times but I’m not sure what to do in the case of a windfall. Have any advice?

  23. Just signed the offer to sell one of our 5 properties in RTP, NC yesterday (4 in NC, 1 in Fremont, CA). Simply speaking, I will put some cash available in Nov to my mortgage in primary residency. Sam’s analysis is great but different from my case, I still have a job. I need a job for the health insurance for my family. If I have less mortgage in five years, I will less depend on the job or have more freedom to do something I enjoy. Meanwhile, I can talk to BOA to open up a LOC from a paid-off townhome. I can use this LOC to search the right investment oppty, which I can’t do it now. BOA only gives me 4 loans/mortgage. I also think both stock and real estate are having a higher risk now (even though I like real estate like Sam). I am 47 so getting more conservative than many here.

  24. How did you go about finding municipal bonds to invest in?
    I am interested in investing in Municipal Bonds but have not been able to find a broker/platform to do it in my local area.

    1. Adam and Jane

      Use a self service brokerage like Fidelity to search and buy your own individual municipal bonds in your state. It is 2% cheaper than using a financial advisor at a bank or a broker. Also, financial advisors will try to sell you insurance or an annuity. I learned my lesson to avoid them and now I buy all of my bonds at Fidelity.

      Buy munis only if your state or city is financially strong.

      Read and also read my comment on how I choose my muni bonds.


  25. scott thomas

    Good morning, Sam. Last year, I refinanced my 30 year mortgage (4.25%) to a 15 year (2.75%) on my California home. Now I’m buying a mountain condo as a vacation home. Mortgage rates are higher now than when I refinanced, and even higher for a condo and a second home (about 3.3%). I’m 50 years old and can afford to pay cash for it, but concerned about lost opportunity if the market corrects significantly and I don’t have as much cash to invest.

    At what point (if ever) do you recommend paying cash for a second home? What’s your thought process and your criteria?

    Thanks for all your help!

  26. Recovering Engineer

    This article was serendipitous timing for me as I recently received a large (to me) windfall via inheritance. At only 32 I would much rather have not received the inheritance given the circumstances but some things in life can’t be controlled. Given my age and with no plans to retire in the near future I am still highly aggressive in my investing with ~90% allocation to equities and 10% cash today. This windfall isn’t life altering but it is the largest amount I have had to invest at one time in my life so I’m trying to decide on the best course of action.
    I’m going to take $70k and superfund a 529 plan as well. I think the market is relatively near a top but with 18 years to grow I would rather just invest the chunk now and forget about it while I have the cash on hand. I plan to put away 2.5%-5% of the money into a “fun” account to pay for some family vacations over the next few years I might not otherwise be able to afford. I have a low 5-figure student loan outstanding which I could pay off, it’s variable rate at LIBOR+2.875 so I haven’t been aggressively paying it off at such a low rate. However that’s still higher than my returns on anything other than equities at the moment so I might go ahead and pay it off.
    The rest becomes the big debate for me. I currently have 0% exposure to real estate so part of me wants to set aside money for a downpayment. But I live in NYC and as much as I hate burning $3,500/month in rent on a 2/2 apartment, at the market rate for my unit that is probably a 1.5%-2% cap rate before financing costs. I’m less bullish on NY real estate than you are on San Fran so those cap rates seem particularly unattractive. I could make the Metro North commute and buy a more reasonably priced place (relative to Manhattan) in Westchester or Connecticut but that means long commute times and less time with my new baby at home. What’s the point of having more money if it doesn’t allow me to have time with my family? My next thought is to just invest it all in the market and try to save enough to quit my job and leave NYC that much faster.
    I’ll probably settle for some middle-ground. I have a high yield savings account I can stick some money in at 1.2% that currently functions as my emergency fund. That way if a good deal comes up and I take the plunge on a house I’ll have some liquid funds. Then invest the rest in the stock market with the idea that it won’t be touched for 5 years+ because I suspect there will be a large interim drawdown in the market during that time period. Now I just have to convince the wife to not use the money for living expenses…

  27. Thanks for sharing your process. I’ve been thinking about selling our home also. Prices are still going up in Portland, but I’m sure it will slow down soon. We should sell one or two properties over the next few years. A good chunk of the proceed will go toward renovating the home we’ll move into. The rest? I don’t know. We’ll see how different investments look then. Maybe the market will have corrected by that point.
    Good move going more passive. That’s my goal too.

  28. Sam, I’m curious as to whether you looked at any of the muni closed end funds. Fees are often outrageous, but you can generally buy the bonds at a discount and get a modest amount of leverage if that’s of interest (some have leverage, some don’t). Buying individual bonds in small chunks can be painful from a trade cost perspective, although some of these closed end funds are pretty illiquid too. I use Schwab, and I know they charge a out-sized bid-offer spread for even US Treasuries.

  29. Eduardo Santos

    Hey Sam,

    The Personal Capital link at the bottom of the article doesn’t seem to open for me, not sure if it needs fixing.

    Another great article as always.

  30. Wife and I sold a vacation rental property in January and after paying off the mortgage had about $330k to invest. $230k of which was just dumped into our portfolio of super cheap globally diversified index funds. Kept $100k in a HISA until tax time next year (way more than necessary but its also an emergency fund). KISS for me as my main focus is running my booming business. Just finished our 10th fiscal year up 26% (last two years were 36% and 34%). No debt other than an investment loan against a private equity deal with a guaranteed >10% dividend/year for 5 years.

    Its sure nice not dealing with the rental. I didn’t exactly have sleepless nights over it but it did take up a considerable amount of time managing it. Still have a commercial rental but my operating company is the main tenant and I am never late in paying myself rent!

  31. “Not everybody could have bought my house in 2014 because not everybody had a $250,000 deposit…”

    Ok, but not everybody could get an $800,000+ loan, either…

  32. I was looking at fundrise rather than realty shares. I did a search on your site for fundrise and there were 4 or 5 posts about fundrise that were variations of same thing each with different urls? Why all the different posts, kind of confusing especially on mobile.

  33. Here’s a good quote from Warren Buffett on cash: “The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time. And you don’t want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it. We always keep enough cash around so I feel very comfortable and don’t worry about sleeping at night. But it’s not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially.”

    Takeaway: If you don’t know what to invest in, then you should hold cash. You can then use this dry powder when stocks of good companies are too low.

  34. I like dfn on the toronto exchange. bluechip Canadian stocks 10 percent dividend distributed monthly-very stable chart over the long term. It is a closed end fund. I take the monthly dividends and reinvest them in the spiders. the monthly dividend reinvestment is the hedge against market risk because you can wade or slowly reinvest back into the spiders-sandp500 monthly or you could use it as income..
    also-Canadian dollar looks good right now

  35. Thanks for such an interesting post! The CA muni bond return is pretty good given interest rates in today’s market. You’re basically getting HY index returns on a tax adjusted basis for munis – not bad!

    I had the same question as Esther though – How are you thinking about gift tax and the higher 529 contributions? We did large deposits my son’s first year to get to $28K, but didn’t want to exceed and create any future contribution limits or tax issues. Would also love to know what your target funding is! Our goal is to have both 529s fully funded for our boys before our oldest starts kindergarten.

    1. My goal is to Superfund his account with $70,000 by the end of the year, and I’m hoping there are more mini corrections before the years out so I can deploy the remaining $40,000.

      With 18 years to invest, I take the view that there’s really no excess need to frontload. But who knows the future. All I know is that at the moment, with continued luck, my wife and I can max out the fund limit by the time he goes to college, so we’re not too worried about paying for college, even if it does cost $700,000 in 18 years. Hopefully my municipal bond portfolio can take care of that expense by then.

      But it’s weird, because I would hate to invest in the market and lose money for my son off the bat. It’s a psychological challenges that will annoy me if I do lose money for him. A much more careful investing other people’s money than my own. Hence, I don’t feel great investing all I can immediately. So I will patiently wait.

      Oh yeah, and I will do my friendly attend to lobby his grandparents to contribute as well :-)

  36. A few non related thoughts to the post:

    – Where do you ‘park’ your cash in the meantime? I continue to find new ways to invest ‘cash’ that you are waiting to invest. Interested in yours.
    – If you super fund the 529 today(to the max) it can continue to grow (just no new contributions) for a long time. You can use excess amount for your kids kids….interesting estate planning move (kids kids as benificaries are a non taxable event).
    – Not sure your 4% on your house equity is apples to apples given it is levered so that 4% should be on the value not the equity value. That being written, just a nit not really a comment.

    Finally – still looking forward to the 5.0 tennis macth (although would prefer doubles….with you as my partner)

    1. Not at all. I love nitpickers! Especially those nitpickers we can help make better solutions and clarifications in my post. I didn’t include the $815,000 mortgage (full value of house sold) because the mortgage was 2.35%, the property tax is 1.2%, and then there are random maintenance fees that make the 4% return a wash.

      Tell me about yourself and where you are investing your cash in this expensive market? What is your current financial position and have you sold a house recently? Thx

  37. I just sold my rental property as well. The headache of managing the property from overseas was just too much and the Toronto housing market has gotten to ridiculous levels.

    I haven’t re-invested any of the proceeds yet and have the cash sitting in a savings account collecting 2.1%.

    This is largely due to my opinion of the stock market being way overvalued. I think we are due for a major correction and am interested to see how the market reacts now that everyone is
    piling into ETF and passive investments. This removes a lot of the price discovery in the market as large amounts of money are flowing into stocks with the largest market cap and not those with the most attractive valuations or growth potential.

    Passive investors may have outperformed active investors since the financial crisis but have not yet proven themselves through a bear market. What will happen when the automatic bid from the ETFs go away when people start selling?

    Would be interested to get your perspective on this!

    1. I’ve been thinking we’ve been due for a correction since 2015, and I’m still waiting :-)

      Although everything is expensive, everybody has a ton of money nowadays to invest. It is multi generational wealth from all over the world that is fungible. None of my neighbors have full-time jobs because their parents bought their house for them, for example.

      I’m pretty sure now that I’ve sold, the San Francisco real estate market will continue to go up strongly especially with upcoming IPOs on the horizon. But I figure, I escaped the financial crisis unscathed, I didn’t sell the house five years ago for $1 million less, and now I’m busy with my son. Therefore, I might as well take some profits and simplify life.

      I think there was an 80% chance I would not have sold if I did not have my son. United States property is cheap compared to Canadian property, especially when you look at our incomes.

      Do you live in a rental now, or another property you own?

      1. I got transferred internationally for work so they cover my rental costs in my current city. If and when I move I will have to re-evaluate my living situation. I just cannot justify moving these funds into the stock market at these valuations. Things could continue going up from here but historically the expected returns when the market is at these levels is less than 5%. I am happy to hold cash in a high interest savings account and wait for opportunities back in the housing market or invest in the stock market at more appropriate valuations.

        I think the wealth transfer you are referencing to will be concentrated towards high net worth individuals as the average American Baby Bomber doesn’t have enough to retire. Additionally, with bond yields so low these baby bombers are overweight equities which are at peak valuations.

        What happens if these retirement savings are cut in half right as the baby bombers are retiring? The retired have no disposable income or useable savings to re-buy equities and the millennials don’t have the ability to counterbalance the forced selling of the retirees.

        Could be a great buying opportunity in the future for those with cash ready to deploy!

    2. Bear

      Where are you banking that you are getting 2.1%? Is their a cap on the $ amount you can hold in the account at that rate? Best I have found is Ally with 1% and no cap other than FDIC limits


  38. Quick question on your municipal bonds. You say the coupon is 4% or so which I think is a fair statement, but surely the yield to maturity must be much lower, 1.5-2% assuming you aren’t buying 30+ year bonds or junk paper?

    1. I purchased muni bonds with YTM between 3% – 4%. Most were 20 year duration, and the lowest rated was BBB.

      For example, I bought one muni bond at $94 with a 3% coupon. The yield to maturity is higher than the 3% coupon because when the bond expires, I get paid back $100 a share. I hope that makes sense.

      What have you been buying in this market and I will have you allocated any windfalls? Thx

  39. Congrats on the sale and proceeds! The 529 jumpstart is probably the wisest decision in my book :-) I also like the strategy of buying more ETF at every 2% market correction. I guess you use the starting point of the S&P when you last bought and calculate when it goes down 2% or more to trigger a subsequent buy?
    Do you think it may be a bit easier to hold onto cash right now since the housing and stock market is relatively high? If we were back in 2009, when valuations were falling, I suppose it would be harder from a psychological standpoint to deploy funds.

    1. The overall long-term trend is up and to the right, so my starting point is really every time I last invest so long as I am generating new capital each day or each week. The day my income generation dries up is the day that I slow down my investing accordingly. My income generation is going much quicker than the overall stock market, so I don’t feel it necessary to take excess risk, especially since I already reached my target networth goal back in 2012.

      It’s much easier to hold on to cash when the world is falling apart, because cash becomes more valuable each day the market falls.

      When everything is going up, like many things are now, you have this desire to just invest everything immediately to ride the wave. Some people just go to far. Already pushed my limit in 2014 when I took on another $1 million mortgage to buy a $1.24 million house. Now I’m cashing out and just going for a conservative returns to try to make the gains last forever.

  40. Hi Sam-Love reading your articles every few days and congratulations on the windfall gains! You deserve it as you took the risk and held on when the Bay Area market was dropping. One question for you…how come only $100k in tax allocation when you have a $1.2M+ gain?

    1. Thx. A lot of reasons. Tax free profits, selling expenses, remodeling expenses, mortgage paid out over the past 13 years, and more.

      If the tax bill is more, then so be it. Hope not though!

  41. Sam,

    I am surprise you are that conservative with your newly acquired liquid assets. Especially with an 10-18 year? outlook on the 529 plan. I guess my appetite for risk is much different than yours when I am 30 years old with only 2.5x my salary in non home equity investments (primarily stocks). I still can’t really imagine the day where I passively make more than I spend but I am sure that my risk tolerance will go down at that point.

    1. It’s true. Once you have a family, and once you get to your target net worth figure, there’s a tendency to become more conservative, especially if you survived the financial crisis with a decent amount of assets. I should get some credit for leveraging up into my 4th Bay Area property in 2014 though.

      How much investable assets did you have in 2008 and before? Your answer might answer your question on why you are more aggressive.

      How are you investing your money and any new windfalls today as an aggressive investor? Thx

      1. Haha in 2008 I never leveraged but did drained my $5K high school savings to support my “social networking”. I did lose $ on an educational fund I had set up for me but never viewed it as my investment. Anyways, I am not ready to change my hyper growth strategy yet but there will be a time. I’m just not sure when. I am getting married at the end of the month so there is a little thought about risk adversion way back in my mind. Maybe kids will me reconsider my strategy more in the future.


    1. Individual CA muni bonds. If you look at one of the graphics in the post, you can see two examples of zero coupon bond is that are yielding 3.8% – 4%. The entire $500,000 municipal bond portfolio is made up of individual municipal bonds.

      How about you? What are you investing in and what have you done with any windfalls?

      1. Maybe in a future post you can talk about how you pick your individual CA muni bonds. Besides having a primary and a rental property I put most of my money into stocks depending on what looks reasonable at the time. Though I’m getting to an age (50) where I want to have some conservative holdings such as muni bonds. The conservative holdings would be in case of emergency but also partly as an opportunity if there is a large market drop. I don’t want any more complicated investments that will take up my time such as real estate. Though I would consider buying some if I had the extra cash so that my kids could afford to live in the Bay Area some day.

        1. Ditto on a future post on muni bond investing. I’m about to get a $200k after tax windfall from a property sale and would like to deploy some like you did. Now if I can only get another property and clear $1.8M like you did…

  42. I’m considering selling some rental real estate myself. My primary use for the profits would be to pay down and hopefully pay off my primary mortgage and eliminating a monthly payment. Also, I would look to increase the line of credit on my primary residence which I would use to then invest in some higher quality rental property. I like how you spread the profits around to different areas and are willing to hold some cash.

  43. Working Optional

    Timely post. We are just looking to allocate some funds to real estate + real estate crowdfunding. in the next few months. Trying to figure out if I should use the taxable funds for actual real estate and maybe convert the Roth IRAs to self-directed Roth IRAs for the crowdfunding. Hope to do some research on this over the next few weeks and then start making some moves…

  44. Mr. Freaky Frugal

    When Mrs. Freaky Frugal and I sold our primary, we had a windfall of more than $400K in cash after taxes.

    I originally had no Vanguard REIT in my portfolio because I felt we had enough exposure to real estate through our home. I modified our asset allocation strategy to include a 10% allocation to Vanguard REIT and then re-balanced the entire portfolio to suck up the $400K in cash.

    We don’t plan on buying a new home anytime soon – maybe never – because we’re happy renting an apartment. But my though process was that I wanted exposure to a REIT for

    1) Diversification
    2) In case we decide to buy a property, I wanted the REIT to basically track housing prices. If prices went up, I wanted to be able to pull more money out of the REIT to buy a home and vice versa.

    Does that make sense?

    1. REITs are good for diversification and other reasons but they don’t necessarily track housing prices since they are usually based on other types of property such as retail, resorts, office space, etc.

      1. Maybe something like Invitation Homes. It would at least track SFR’s better than a REIT index fund.

    2. It does makes sense – especially with the dual diversification of the Vanguard REIT and the relative liquidity if you need or want to utilize the capital elsewhere.

      About 25% of our net worth is in real estate exposure, with nearly all of it in the Vanguard REIT (although recently invested a small amount via Fundrise to try some direct crowd sourcing).

      We’re also in the same boat as far as our home: we’re quite content renting and living in our current apartment (although we might consider buying a place in the future if it makes sense).

      With your Vanguard REIT investment, do you hold it in a taxable account?

      1. Mr. Freaky Frugal

        I hold our Vanguard REIT in Traditional IRA Account. It’s a little more tax efficient for us.

        1. I had a feeling you’d mention an IRA; we also hold our Vanguard REIT in an IRA, but a Roth (sorry Sam, I know your thoughts on this… :/ )

          I asked regarding the taxable account though because you mentioned in your second point about leveraging the capital invested in the REIT if you might buy a property in the future depending on market conditions.

          Are you able to avoid the 10% tax penalty (as I don’t know your age) if you were to withdraw from your traditional IRA? I know you’d be able to from a Roth (at least your contributions).

          1. Mr. Freaky Frugal

            Balanced Dividends Mike – The 10% penalty is not likely to be a problem for us. Mrs. Freaky Frugal and I are 57 and I don’t see us possible needing the money before 59.5 when we can withdraw penalty free.

  45. i thought the 529 plan maximum contribution is $28000 per year ( $14000 from each parent).
    My accountant told me that If you want to superfund it the you can put a total of $140k this year ($70k from each parent). I am doing this this year since i screwed up these past few years and did not do anything.
    but you won’t be able to add for the next 5 years and you have to file the gift tax form next year .

    1. I fear more contributing everything I legally can now, and NOT being able to contribute anything in the next 5 years if there is a downturn/correction.

      Your accountant is right. Consider becoming a lobbyist to raise 529 money from other people e.g. grandparents. It’s my plan!

  46. Great timing! We just sold a 2nd home to offset some of our future college costs (we have a 18, 15 and 13 year old). We also have 529’s for each. What would you do with cash if you do not need it for 4-6 years Sam? It sounds like you love CD’s??? What is the cut off years to put money in the market?

    1. I loved CDs when they were paying above 4%! Now I don’t like CDs at all, and would rather just buy a tax free munibond with a higher yield.

      I would spend all your time telling your kids to work hard, apply to scholarships, and inform them that mom and dad are gonna live it up and to not count on you guys for financial support! :)

      And if not, then my cut off year for putting money in the market with money that’s really needed is two or three years.



      1. You are so helpful!!!!! Cannot thank you enough! Don’t stress about the little guy too much- love, discipline and a good family life- 3 nice gifts you will give him.

  47. Hi Sam, I listened to your podcast with Noah Kagen (twice :p) and one thing really stuck out was you saying all these kids who has only seen a bull market might be caught holding too little when the stump hits. I can see why you are holding cash – I would do the same too.

    If we are planning for a family in 5 years I would like to have more time enjoying the simple things. If I sold our rental, it is only because I’m beyond tired of being a landlord/host and want to enjoy life. Therefore my investments would be mad simple and liquid.

    1. Call you listen to the podcast. I will guarantee you that you will feel beyond tired after you have a little one! Maybe by then, prices will have increased even further, giving you an even larger windfall to consider selling. Could be good!

  48. Money Miser @

    I don’t really envisage many financial windfalls in my lifetime. The only one I can imagine will be inheritance, which is (hopefully) a long way off as my parents and in-laws are only around 55-65 years old.

    One mistake many people make is to actually use their expected windfalls as part of their long-term financial plan. This is a risky undertaking as you never truly know if that windfall is coming. I like to see these financial windfalls simply as a luxurious top up or security on my own pursuit of financial freedom.

    As for how I would spend it, well that depends on how much it is. I’d like real estate one day but currently I am very bearish on Canadian real estate, and the stock market isn’t too tempting for a large one off investment either. I’d probably dollar cost average over a couple of years, even if it means lower returns.

    1. Do people really bake in an inheritance as part of their financial planning? That’s really sad, and poor planning if so.

      I’m AMAZED at the verocity of Canadian real estate. Blows US real estate out of the water in terms of cost/income.

      What are the booming industries there? Perhaps global warming is making cooler places more attractive? Or is there open borders that allow foreigners to buy up everything and price out the locals for an under the table fee? I don’t get it.

      What is the GE or Google of Canada? thx

      1. Money Miser @

        Oh for sure people use their expected inheritance as their financial plan, I’m pretty sure a lot of people rely on this windfall actually. It is pretty sad as you say, that your whole financial ambition is solely reliant upon your parents/in-laws dying. What if they live to 100 and you hit 70 with no inheritance to speak of?

        Our real estate is pretty crazy. It’s very difficult to put your finger on what it is exactly. There is certainly no booming industry that is driving it. There is a bit of a perfect storm right now (or at least a year ago). Some reasons are:

        – Low interest rates (thankfully they’re now rising)
        – Very lax mortgage regulations. People can buy houses with 5% down and even borrow the 5% from smaller credit unions, so houses can be bought on 100% debt. The government has also introduced “down payment loans” to allow people to take out a loan to use as their down payment. So, using debt to take on more debt…
        – Self governed real estate board that window dresses all stats to make real estate appear to be an amazing investment
        – Obsessed media that is funded by the real estate boards to promote real estate investing. Even during weak periods, the media portrays things with rose tinted glasses.
        – Lack of information for potential buyers (We have no Zillow, or any public access to sales information like days on the market, price drops, recent local sales etc. This is intellectual property of the real estate boards, apparently). This lack of information keeps buyers blind from actual information, they can only believe what they are told by the real estate boards and media
        – Fear of missing out. Everyone is panicking that if they don’t buy now, they never will be able to afford it
        – Foreign money. This gets blamed for it all but it’s a small part of it (but definitely has an impact)
        – Assignment clauses. People can buy houses, ask for a long closing date, never move in and sell them again for more before the initial purchase has even closed. Many realtors use this to buy a lot of houses at once with no intention of living there, just to sell them again within the year for more (there is a serious issue with fiduciary duty here)

        There are many more reasons adding to it. Thankfully the government now seems to be taking a hard line to it, especially in Ontario where SFH prices have cratered over 20% since April due to a swathe of government interventions.

        Canada doesn’t have any booming industries. If you look at the biggest employers in Canada it’s a bunch of retail chains, banks, communications companies, mining companies etc. We have very few global companies here. Certainly nothing that is driving the house prices.

        1. The worst is when people get an inheritance that’s either expected, or unexpected, then completely blow it. I’ve seen firsthand, and heard of a few other stories, about this. One in particular blew a $80k inheritance on a car at the ripe young age of 23. Could have bought a nice rental property with that as the down payment. Another story was an inheritance that literally went to Vegas, and you guessed it. Sad.

          International real estate in general has been blowing out American real estate based on two ETF’s I follow – VNQ & VNQI. YTD the international based VNQI is up 21% while it’s American based counterpart VNQ is up 4%. On a longer term basis the story is different.

          1. Money Miser @

            In that regard, it’s undoubtedly better to receive an inheritance later in life than at 23. Most 23 year olds don’t really have the financial discipline to use that money properly and most will likely spend it on things they don’t need. Somebody older would hopefully have the nous to use the money wisely (invest it)

          2. Latetothegamerookie

            How does one even go about finding their first rental property? I feel like brokers do not really offer any investment advice or insight.

  49. My go to investments when I have a financial windfall are to buy new rental properties (I target 9-11% cap properties, which are plentiful where I live), hard money lending to other real estate investors (can easily make 12-16% with a fully secured investment, first lien, 75 LTV deal… junior lien deals can be 16%+), and closed end funds. Closed end funds are the best of both worlds since many pay out monthly distributions in the 7-10% range while giving you high liquidity. If you reinvest the monthly distributions you end up with a nice cushion that protects you from downside risk.

    1. Wonderful! Where do you live so I can join you? Is there a maximum number of properties you are able to invest in before you decide it’s too much work? How old are you now and what percentage of your net worth is real estate?

      1. Rochester, NY and I’m 33 years old. About 55% of my net worth is in real estate currently, but will likely be rising since it’s a specialty of mine. I’m not yet at the point where I need to outsource management, but will certainly have to do that at some point. I decided early on that the part I enjoy and am good at is finding the deals, structuring them (often with creative financing), and managing the investment and relationships… neither my strength nor interest is in doing repairs, so I outsource ALL maintenance and repairs. I have a great team of contractors and handymen that I can call on at any time to deal with issues. For me to stick with it long term I first and foremost need to enjoy it, and if I did all the work myself I’d get burnt out and it wouldn’t be fun.

        In terms of management, I’ve ran the numbers, and even with a 10% management fee, I can still make a 10-15% cash on cash return, and after accounting for loan pay down I’m up in the 15-20% range. I never invest based on appreciation alone, but I’m always hoping for it and I buy properties that I think have at least some appreciation potential. My next property will probably be a small apartment building (commercial loan), and the goal is to keep scaling up. As you get into larger apartment buildings, management fees drop considerably. In the meantime, I’m using my HELOC to lend to other investors and it’s a very passive investment (getting a payoff in the next week for a junior lien deal with an IRR of 27%!). The goal with all the investments is to have real assets with plenty of equity, strong cashflow, and systems/management in place to make it as passive as possible. To me, the most valuable commodity is time, so I’ll gladly give up some profits to have the time to spend with my wife, two year old, and baby. If I can make 15-25% returns in the process it’s a win-win!

        1. Sounds interesting, care to chat more? Looking at turnkey properties right now but having trouble finding a good company /property.

          Email is Harry at TheRideshareGuy dot com

      1. I like PFN (short term bond and MBS fund with yield ~9% and duration <4 yrs), FLC (preferred stock CEF), RA, and BGH. But as always, make sure you do your own research!

  50. Sam, great timing for this post, as we’re in a contract to sell our “Good” cabin (which we own debt free) and will soon be looking for places to park the cash as we approach retirement in 9 months. I’m also a big fan of muni’s, and expect we’ll be parking the equity proceeds there while evaluating our longer term options.

    Thanks for giving me exactly what I needed, at the exact time I needed it!

  51. Sounds like you have a solid plan for reinvesting your windfall. I get a mini (by comparison) windfall every year in the form of my bonus from work, and I spend about a month considering different options as well, although I’ve always just allocated the investment according to my normal target split among stocks/bonds/alternatives.

    It seems like you’ve really doubled down on RealtyShares. I’m planning on giving them a shot once our house purchase is finalized (probably re-allocating some of my Yieldstreet real estate investments). I’m guessing your experience has been good so far? Any insights for new users of the platform? Thanks!

    1. So far, so good w/ my RealtyShares experience. I started small with a $10,000 investment after I did some research and met some folks in SF. Then I invested $250,000 in the fund early in 2017, and studied their investments. With the home sale, I felt comfortable investing another $250,000.

      I was going to invest another $500,000 instead of $250,000, but I stopped myself b/c I tend to get overly excited about any investment I deem as invesmentworthy. Hence, I’ve spaced the contributions out and will have dinner w/ one or two of the investment committee members before November to potentially invest more.

      I want them to explain their rationale about investing in a Las Vegas multi-property deal that I’m not bullish on, as well as a multi-family property deal in Miami.

      I just had dinner with three RS employees last night actually. A couple positive things on the horizon they will probably announce.


      1. Sam,
        Do you consider paying off debt the same as a return on investment? I understand the tax benefits of mortgage deductions but for me, really simplified my approach by focusing on the mortgage interest amount and treated that like a return when I paid it down. I admit it was also emotional as I really enjoy addition by subtraction and being debt free. For me, I own a home debt free, sold a fully paid off rental so now sitting on cash, still have a 401(k) and a couple pensions in the future by 47 years old. It may not have been the optimal use of my money but getting out of debt sure feels wonderful.

      2. Latetothegamerookie

        Sam, so far I love your newsletter. I find the information very useful and valuable. However, the real estate crowdfunding strategies only seem to be available to high net worth investors. Do you have any recommendations for average investors? Also, the CD strategies only seem to make sense if people are able to put the amount of money that you are investing, with the way current interest rates are for any fixed bank investements.

  52. Albert @ Mr. Smart Money

    Thank for this post! It was timely for me… I’ve found a mistake I tend to make is not having a solid plan.
    I’m currently just sitting on my cash because my goals weren’t clear enough. (albiet its a much smaller amount than yours!)
    I wanted to use the money to just re-invest in real estate, but have yet to find a property ‘good enough’. :

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