Many homeowners have cashed in on the hot real estate market over the past year, with some selling their homes even if they didn’t plan to because the offer they got was irresistible. These homeowners may now have an unanticipated financial windfall. So, what should they do with these funds? Invest it? Use it to buy another property? Funnel it all into retirement savings?
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Here’s what financial experts say to do with a large cash windfall right now.
Buy a Less Expensive Home
Reinvesting your funds in real estate is one of the best ways to use these funds, especially if you sold your primary or sole residence. Ideally, you will use the cash from your sale to pay for the new property in full — and have money left over.
“Buy a less expensive home than what you just sold,” said Ariel Acuna, president at LTG Capital. “Hopefully, it’s one that doesn’t require you to carry a mortgage.”
You may even be able to purchase multiple properties and use one for rental income.
“I am a great example of taking windfall earnings and investing them in rentals during this market,” said Deb Cleveland, real estate investor and founder of Small Town Dynasty.
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Cleveland sold her home in Rochester, New York for $345,000, and used the funds to purchase and renovate a two-family home and a three-family home.
“All in on both properties, I invested $280,000 with $65,000 left to use as I wish,” she said. “I moved into the two-family and have a passive income coming in from the other four units of $3,400 a month — money that I didn’t have living in my $345,000 four-bedroom house.”
Funnel It Into Savings
If you purchase a less expensive home — or don’t purchase a new home if you sold a secondary residence — you should then put any leftover funds into savings, Acuna said.
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“Excess money should go toward making sure you have sufficient savings or emergency cash reserves,” he said.
Pay Off Debts
If you have any outstanding debt — like student loan debt — use your windfall to pay them off. However, having a sufficient emergency fund should be a priority before debt repayment, according to Acuna.
Add Funds To Retirement Accounts
“Cash left over after paying off debt should be dedicated to making sure your retirement income plan is on target,” Acuna said.
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Even if you are on target, it’s still a good idea to add funds to retirement accounts where they have the ability to compound over time. Plus, these funds can give you more financial wiggle room in retirement.
Enjoy Any Cash Left Over
“If there’s still cash left over — and that would be great — then feel free to spend on yourself, giving gifts to family, friends, charities or causes, or all five,” Acuna said.
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