What to do with home sale proceeds?

[gpmaxwell28]

Fresh on the scene, been reading and tracking MMM forums for a while now.  Getting ready to close on sale of primary residence in April, crazy market in the WA area, bought last March for $718,000 and selling for $1.1 million.  Relocating for work to Southern California.  SO will be primary income, I will be a SAHD with 2.5 year old.  With cash on hand, looking for recommendations.  Current mortgage to pay off is $565,000, costs to sell, fees, taxes, etc., we plan to walk away with about $375-425k.  We will set aside some for emergency fund ($30k) and plan to make some upgrades to the place we will be moving into (family rental, $50k), but want to do with the other ~$300k???

We are going to set some aside in the event we pay Cap Gains, although we seem to be clear with the relocation for work and are planning to come in under the $80,801 MFJ income threshold. 

Would love some advice here, happy to provide more information if need be, we plan to MAX SO 401k with her new job, I won't be working for a while.

All signs pointing to brokerage account to remain flexible for early FI (both SO and I 35 this year)

Trying to FI in 10-12 years (more to come on that), have accounts with Vanguard (ROTH IRA and Brokerage) and Fidelity (Brokerage and UTMA).  Not sure if we should DCA, $25k a month? 

Appreciate the feedback, thanks for the time.

[JLee]

Statistically, time in the market wins.  Personally, I would put it all in at once.

[talltexan]

You're gonna need a lot of that nut for paying for a place to live in SoCal. Even if you plan to rent during the first year or two after you move, you don't want to have the equity for a future house purchase get socked by another bear market while you're waiting to buy.

If you want some upside, you could put it in Vanguard Wellesley.

[JLee]

You're gonna need a lot of that nut for paying for a place to live in SoCal. Even if you plan to rent during the first year or two after you move, you don't want to have the equity for a future house purchase get socked by another bear market while you're waiting to buy.

If you want some upside, you could put it in Vanguard Wellesley.

...?

plan to make some upgrades to the place we will be moving into (family rental, $50k)

[gpmaxwell28]

You're gonna need a lot of that nut for paying for a place to live in SoCal. Even if you plan to rent during the first year or two after you move, you don't want to have the equity for a future house purchase get socked by another bear market while you're waiting to buy.

If you want some upside, you could put it in Vanguard Wellesley.

...?

plan to make some upgrades to the place we will be moving into (family rental, $50k)

Moving into fully paid off house owned by father, paying $1500/month.  Needs some upgrades to make feel like ours. 

Do you think my best bet is brokerage?  Appreciate the Wellesley note, will review. 

[JLee]

You're gonna need a lot of that nut for paying for a place to live in SoCal. Even if you plan to rent during the first year or two after you move, you don't want to have the equity for a future house purchase get socked by another bear market while you're waiting to buy.

If you want some upside, you could put it in Vanguard Wellesley.

...?

plan to make some upgrades to the place we will be moving into (family rental, $50k)

Moving into fully paid off house owned by father, paying $1500/month.  Needs some upgrades to make feel like ours. 

Do you think my best bet is brokerage?  Appreciate the Wellesley note, will review.

When I sold my last house I dropped it into VTSAX. I'm sure you'll get a variety of responses, but there is a brief overview of a variety of funds here: https://mymoneywizard.com/6-legit-vanguard-index-funds/

[ChpBstrd]

Sounds like you lucked out! You made hundreds of thousands of dollars exploiting the coastal housing bubble and then switched to renting for the FIRE home stretch just as interest rate increases imperil the bubble. This is the way.

However it also sounds like the $30k in "updates" are part of the deal and why the rent is only $1500. I know this is not the question, but I recommend putting all this in writing. You'd hate to drop $30k in updates plus 1500*12= $18k in rent on someone else's house and then after 12 months they tell you to move along because they want to sell. Spending $48k (4k/mo) to live in a So Cal construction site for 12 months might be an OK deal, but it would be much better if you could spend 30+18+18= $66k (2.75k/mo) to live there for 24 months. I'd negotiate for a long lease in exchange for the inconvenience and I would specify with great care the exact amount you are required to spend* on updates. Also specify in writing how decisions are made about the updates.

OK, back to the question.
     Simple answer: Buy VTI with the money.
     Harder answer: Set up a long-duration costless options collar on SPY with 15% of upside potential per year. Roll annually.

Spend a few hundred dollars on a tax planner so that you are not surprised by your tax liability. If you will have to pay taxes for short-term capital gains, or get bumped into a higher tax bracket, it probably makes sense to max out your 401k(s) ASAP. You might still be able to contribute 2021 dollars to your old 401k if your broker will let you.

*to spend, do not promise specific outcomes because your estimates could be off.

[gpmaxwell28]

Sounds like you lucked out! You made hundreds of thousands of dollars exploiting the coastal housing bubble and then switched to renting for the FIRE home stretch just as interest rate increases imperil the bubble. This is the way.

However it also sounds like the $30k in "updates" are part of the deal and why the rent is only $1500. I know this is not the question, but I recommend putting all this in writing. You'd hate to drop $30k in updates plus 1500*12= $18k in rent on someone else's house and then after 12 months they tell you to move along because they want to sell. Spending $48k (4k/mo) to live in a So Cal construction site for 12 months might be an OK deal, but it would be much better if you could spend 30+18+18= $66k (2.75k/mo) to live there for 24 months. I'd negotiate for a long lease in exchange for the inconvenience and I would specify with great care the exact amount you are required to spend* on updates. Also specify in writing how decisions are made about the updates.

OK, back to the question.
     Simple answer: Buy VTI with the money.
     Harder answer: Set up a long-duration costless options collar on SPY with 15% of upside potential per year. Roll annually.

Spend a few hundred dollars on a tax planner so that you are not surprised by your tax liability. If you will have to pay taxes for short-term capital gains, or get bumped into a higher tax bracket, it probably makes sense to max out your 401k(s) ASAP. You might still be able to contribute 2021 dollars to your old 401k if your broker will let you.

*to spend, do not promise specific outcomes because your estimates could be off.

Great feedback, thanks for chiming in.  Have been doing some research on tax planners, not many willing to talk 2021 right now as they wrap up 2020 for their paying clients.  We have deferred as much 75% SO, 95% in our 401ks for the next six weeks with our jobs, that'll help.

In terms of the upgrades and house, great points, it's family, but documentation and 'receipts' will keep things orderly.  Have my eye on VTI.  Will have to look into the 'harder' model.  Sounds like more risk, but greater reward? 

Thanks again!

[ChpBstrd]

Sounds like you lucked out! You made hundreds of thousands of dollars exploiting the coastal housing bubble and then switched to renting for the FIRE home stretch just as interest rate increases imperil the bubble. This is the way.

However it also sounds like the $30k in "updates" are part of the deal and why the rent is only $1500. I know this is not the question, but I recommend putting all this in writing. You'd hate to drop $30k in updates plus 1500*12= $18k in rent on someone else's house and then after 12 months they tell you to move along because they want to sell. Spending $48k (4k/mo) to live in a So Cal construction site for 12 months might be an OK deal, but it would be much better if you could spend 30+18+18= $66k (2.75k/mo) to live there for 24 months. I'd negotiate for a long lease in exchange for the inconvenience and I would specify with great care the exact amount you are required to spend* on updates. Also specify in writing how decisions are made about the updates.

OK, back to the question.
     Simple answer: Buy VTI with the money.
     Harder answer: Set up a long-duration costless options collar on SPY with 15% of upside potential per year. Roll annually.

Spend a few hundred dollars on a tax planner so that you are not surprised by your tax liability. If you will have to pay taxes for short-term capital gains, or get bumped into a higher tax bracket, it probably makes sense to max out your 401k(s) ASAP. You might still be able to contribute 2021 dollars to your old 401k if your broker will let you.

*to spend, do not promise specific outcomes because your estimates could be off.

Great feedback, thanks for chiming in.  Have been doing some research on tax planners, not many willing to talk 2021 right now as they wrap up 2020 for their paying clients.  We have deferred as much 75% SO, 95% in our 401ks for the next six weeks with our jobs, that'll help.

In terms of the upgrades and house, great points, it's family, but documentation and 'receipts' will keep things orderly.  Have my eye on VTI.  Will have to look into the 'harder' model.  Sounds like more risk, but greater reward? 

Thanks again!

Less risk and less reward, but with more understanding or self-training required. Stick to the simple answer.