Inherited Money, Bought a House, What should IDo?

Hi there my mother and father both passed away I have been left with approximately 700K, I am 21 and a university student, I do not have a jobâ€¦ my overall goal is to grow the money safely into something even more substantial, I am currently building a house that was bought for about 450K. My questions:
1) Should I pay off the entire 450K on the house? Or should I take a mortgage. If yes, how much mortgage should I take on and why? (Note: My uncle is extremely wealthy and would co-sign on any type of mortgage with me, because of me not having a job)
2) What other investments, besides GICs should I invest in?

Overall, I want to structure my financial plan before I am working full-time. Basically i would like to know what would you do if you were in my position. Thanks.

What the hell??? Don't pay off the mortgage? Don't listen to most of these idiots! Pay off the mortgage and you still will have plenty of money left over to generate a lot more cash. What is the benefit of paying out interest if you can afford to pay it off? The deduction in taxes? You still are paying out money!!

Listening to advice here is just about the worst thing you can do.

GET A CPA!!!!!!

If you pay off the 450K now, you will end up paying less overtime (less interest). You will also be more secure (not running out of money over time, etc . . .). Plus, when/if you go to sell it, everything will be pure profit.

I would definitely put some money away for a rainy day - in a high interest CD or something -- pull it out in ten years.

I would also "invest" in an education . . . It'll eventually get you further than having 700K in the bank right now and will lend you an aire of credibility in future business dealings, etc . . .

contact a realtor,CPA, and a good investment counselor...until you get job i would not be to fast to do anything...this market is so volitle you need not act to fast...listen to the 3 above mentioned people for advice

First thing you should invest in is a good financial advisor. Not a broker, not an insurance salesman, but a fee-only financial advisor. Look for someone with the CFPÂ® designation (Certified Financial Planner). A CFPÂ® must always act in the clients best interest, which is exactly what you need right now. I suggest you search for a planner at www.fpanet.org.

I work for a fee-only financial firm and I've seen clients in similiar situations to you who have be deceived by all sorts of salesman that calls themselves "financial advisors".

Check out my blog at www.sbvfinancial.com
Under client update

Do not pay off the mortgage. Get a larger one if you can and start investing the capital in a tax-advantaged "retirement" plan. A Roth IRA if you are eligible is one. An insurance contract is another. You are leveraging the difference between the tax deductible mortgage payments and the tax-free earnings you can get from insurance. Although I am giving you sound advice, I wouldn't count this forum for much. Especially at your age, find a good financial planner (maybe your uncle or someone he knows) who can explain all of this to you,

1) Pay off the entire $450k ; taking money you have to borrow money you dont have seems a bit like the kind of thing that has the housing market in the shape its in.

with the remainder ;

Investor sentiment is at a very low point similar to 2002 and 1988, a carefull selection of stocks and etfs, cefs seem smart

1)25% cash - if dow jones goes to 12000 and /or nasdaq goes to 2250 consider putting some of this cash to work

2) 25% (CWF - $7/share) - Chartwell Dividend and Income Fund pretty stable traded fund that pays a 0.90 cent dividend yearly , monthly pays 0.075 cents pershare. 12.85% DIVIDEND PAYING 1.08% monthly .

3) 25% for RISK - SCMR - Sycamore Networks ; a decent small business trading at a 52 week low, a $900million company with about $750million in cash, cash is king for small companies now. A good bet for 25-50% gain by dec 2008

4) 25% for the Future - HOLX ; Hologic - diversified medical technologies company serving the women's health-care market. The company specializes in the screening, diagnosis, and therapy of many major women's health issues. Hologic operates in four segments: breast health, diagnostics, surgical, and skeletal health. THIS IS THE TYPE OF BUSINESS THAT IS NOT AFFECTED BY THE SLOWING ECONOMY ALSO GROWTH BY AN EMERGING FEMALE MIDDLE CLASS IN ASIA AND EASTERN EUROPE IS OFF THE CHARTS

hope this helps

also if youre gonna go the cfp route suggested above beware , they werent required to have a college degree until 2008, so most are not even college graduates, and from my experience these cfp really specialize in passing the buck, they quarterback for a fee but take no responsibility, i cut mines out and went directly to the equity advisor he was using and saved 0.30% annually

hi... im in the same position with regard to gettin the same in inheritance through a house... i am also not currently working,my plan is to invest in my career so the money doesnt dwindle-i know i could spend thousands quite quickly... i am a recent painting graduate,not so easy to get a high paid job but i have some plans which i am hoping to be self employed in...i have recently bought an apt with my BF,.... eventually we would like a family home so i want to tie up the money til i buy the house,in investments....

if i was to advise you i would say to clear your morgage,and give yourself a chance to get your career off the ground.. once you have a salary you will have more options,and this will not eat into your inheritance...if you want to study you will not be under alot of financial pressure and you will be able to enjoy it more....

i read somewhere that 70% of people squander a lump sum of money they come into... i am desperate not to allow that to happen....it could easiy.i figure if i tie it up straight away i wont be able to touch it... the house is sold and i am awaiting the cheque any day now.....first things first im going on a holiday,then im buying car.... the rest will be untouchable for years hopefully making me a bit extra in interest....

1. Have a party. Sounds like you could throw a good one.

2. Consider a mortgage. The tax savings make them worthwhile, and rates are still pretty cheap. if you get a wealthy co-signer, rate will likely be VERY cheap. You can actually outperform the rate you are paying with a basic diversified portfolio.

3. Consider a small portion of the difference between your mortgage and your cash as higher risk capital. By small percentage, I mean about 10-20% of the remainder.

4. Be smart. I know a lot of people don't treat their inheritance like real money and blow it all, or take too much risk with it. GICs, some bonds, remember that cash can still hurt as the USD keeps falling. Consider perhaps buying EUR futures to hedge against the declining US Dollar. You wouldn't more than 1 or 2 contracts.

(My information is assuming the US. Most is similar elsewhere but numbers might be different )

It is mostly about taxes first. Then "after tax" return.

Take out the mortgage. You can always pay off your mortgage as long as you still have the money, if for some reason you decide that gives you the better return.

But you can't get a first mortgage on the property later without selling and buying another place.

Put a down payment large enough to avoid paying mortgage insurance (PMI) on the loan. That will save you that cost.

Your inheritance is now TAX FREE so DON'T put it in a retirement account. The benefit of retirement plans is being able to invest PRE-tax with earned income. (But a Roth is a consideration once you have earned income).

Later, with the income from the invested money you should be able to max out your retirement savings and that will grow quickly once you get a job and have earned income.

Your first goal, imo, should be to get your taxable income up to the 25% tax bracket, both with work and investments. Then you are getting the better benefit of being able to deduct the mortgage interest and benefit from pre-tax retirement savings.

I.e. if your tax rate is 25% you only get 75 cents of every dollar you earn. That means pre-tax money invested in the 401(k) each dollar is costing you only 75 cents. But you don't get that benefit with investing after tax money in to tax deferred retirement funds.

Let's say you get a mortgage at 6%. But you get to deduct the interest off your taxes (at eventually a 25% tax rate). That means it is only costing you 4.75%. (You get the difference back, on your taxes),

You only have to earn over 4.75% return on the money invested to be profiting off the borrowed money over paying off the loan.

Considering the S&P 500 has averaged, long term, over 11%, then you would be making over 6% profit on the money borrowed. That looks like "free money" to me.

FWIW I don't expect that high of a return in the market for a while, more like 8% but maybe higher. But that is still well enough above the 4.75% to be hugely profitable.

Let's say you had to put down 20% on the loan. That leaves $360k borrowed. And let's say you are averaging 8.75% in the market. That means the $360k produces an average $31,500 but your mortgage, after tax, costs you $17,100.

You then are making $14,500 MORE by having a mortgage than if you paid it off.

Starting out you likely won't make as much as later, in your "higher earning years". But with the investment income you should be able to get in to the 25% bracket soon.

Once there, after maxing out your pre-tax retirement savings then you can look at more tax advantaged investing and concerns. But that comes later.

You have the opportunity to be very rich with that much money at your young age if you don't blow it by spending it away.

Money makes money that makes more money.

Just non professional opinion from a guy with a calculator.

To sum up.

The tax deductible mortgage interest is a big benefit and shifts all the numbers in your favor regarding paying off the mortgage vs. investing the money. It allows you to more easily profit off the borrowed money. (My opinion might be different on a rental home where the interest is not deductable.)

If you are not writing from the US the bottom line is the same.

You only need to be able to get a return on your investments higher than the after tax cost of the mortgage. With it that low here, you do not need to take much risk and can diversify well with some lower risk investments and still beat the 4.75%

Having money invested after tax helps you afford greater pre-tax retirement savings from earned income later.

Condolences on the loss of your parents but thank them for leaving you an opportunity that can help set you up for life if managed well.

Enter Your Message or Comment

User Name:
User Email:
Post a comment:

Archive: Forum -Forum -Finance - Links - 1 - 2 - RSS - All RSS Feeds
The Causes and the Results. 0.034
Copyright (c) 2011 Financial Crisis Monday, May 28, 2012 - Terms of use - Privacy Policy