What should I do with $100k equity cash?

June 21, 2023 7:37 AM

I sold my house today, and will walk away with $100k. I'm moving to Portland Oregon where I will rent for a year before trying to buy a house. My immediate financial future is uncertain. What would you recommend I do with the money?

Part of my mind says "This cash is EQUITY. You cannot do anything with it but reinvest it." If that were the case, I would put it in a high-yield bank account for 12 months to try to keep it above inflation at least, and then use it as a down payment for a house as soon as possible.

Part of my mind says "This is just cash." If that were the case, I would put it in my checking account and let it sit there in case I need it for - moving expenses, living expenses if I can't get a job, etc.

Part of my mind says "Now's your chance!" I would love to sell my gas car and buy something safe and electric. I'd love to buy an electric bike, and upgrade my wardrobe, and pay for a personal trainer, and buy a new pair of glasses. These are all things I can't see myself feeling comfortable spending money on unless I get a serious raise at work.

In the end this is all personal preference, I'm sure. So, I'd love to hear how other people think about this.

posted by rebent to Work & Money (25 answers total)

I can't find a reference to this subject now, but doesn't putting the money into a new house within the same tax year shield your profits from the sale from taxes?
posted by SPrintF at 7:50 AM on June 21, 2023 [12 favorites]

You probably want a combination of a high yield savings account (~3.5%) which you can easily transfer to/from your debit in a few days and an even higher yield cd(~5%) that will lock up the money for 6-12 months. (Can sometimes be retrieved earlier with penalty).

I would only keep a little bit in your checking, some more in high yield savings and most in a cd, ratio is up to you. 5k checking, 25k high yield savings, 70k cd, for example.

You may have to use different banks for each. Make sure you can link your accounts and note any transfer limits. Some have xxxx per day limits on ach, but can do wire transfers with more between a linked account for a fee.

Many of the more common banks are unfortunately paying near zero on savings and CDs still though.
posted by TheAdamist at 7:51 AM on June 21, 2023 [4 favorites]

I would definitely check with an accountant on the possible tax implications of holding on to it for a year.
posted by jquinby at 7:54 AM on June 21, 2023 [8 favorites]

I’m in a similar situation with a similar amount of equity that I pulled from the last house that I owned. I’m also renting for the time being, and I have a job that I hate & would love to change.

So for me - after I used a chunk of it to pay off my car finance so that I didn’t have that as a monthly bill any longer - the remaining 100k is a safety net in case I really can’t bear this job at some point & need to leave before I line something else up. And, it’s also a partial answer to the question about where I live in the longer term, because renting isn’t going to be a long term option for me - in the next 3-5 years or so, I plan to buy a place somewhere cheaper & use it as the down payment.

In the meantime, it’s sitting somewhere very safe, out of sight & earning a few percentage points of interest.
posted by Puppy McSock at 7:54 AM on June 21, 2023 [1 favorite]

Congratulations! In your position, I would:
1. Get your eyes checked and buy new glasses. (Wait on the car, bike, trainer, and wardrobe until you know where & how you'll be living in a year or so.)
2. Half locked up in CDs.
3. Half in that high-yield account in case stuff happens this next year.
posted by mersen at 7:56 AM on June 21, 2023 [2 favorites]

doesn't putting the money into a new house within the same tax year shield your profits from the sale from taxes?

This is only important if the OP realized more than $250K in gains from the sale of the house (e.g. if they bought the house for $500K and sold it for $760K they might owe taxes on $10K of that).

If I were you I'd buy the glasses and probably the ebike (ebikes are seriously amazing and can save you tons of money compared to cars/transit/etc.) and maybe a couple of wardrobe pieces (buying a "whole new wardrobe" all at once is almost never a good idea, imo). Then put the rest in high-yield savings (maybe CDs as others mention, or maybe multiple accounts to grab some signup bonuses, which could net you another few thousand dollars).
posted by mskyle at 8:00 AM on June 21, 2023 [11 favorites]

The tax law that provided an advantage from repurchasing a new house after selling one was repealed in 1997.

TheAdamist has good advice if you will definitely need the money to purchase a new house.

But it's yours and you can spend it or invest it in pork bellies, or whatever. To decide, try to imagine 2024 you. If you invested it and it went down 20 percent, or if you spent it on other things you would enjoy, would 2024 you be panicking because you can't buy a house, or would you be comfortable renting for a bit longer? If you just saved it and then bought a house, would you feel relieved, or bitter because you passed up the chance to enjoy those nice clothes and/or ebike?
posted by Mr.Know-it-some at 8:09 AM on June 21, 2023 [6 favorites]

IMO it really depends on how expensive your next house is going to be. If $100k represents 1/3 of the purchase price vs 1/10 is a huge difference. At 1/3, I'd be happy spending down from 33% down to 25%. At 1/10, I'd be holding on to it pretty tightly.
posted by The_Vegetables at 8:28 AM on June 21, 2023

Portland, our metro region, and Oregon are all looking at starting ebike incentive programs soon. It’s worth checking it out to see if it might be worth it to wait.
posted by bluedaisy at 8:37 AM on June 21, 2023

I would at least open a HYSA while you decide. $100k would earn $300-400 a month at many banks. That's an entry-level Ebike in a few months of thinking about what to do.
posted by justkevin at 9:05 AM on June 21, 2023 [2 favorites]

When you get to Portland, you might find the cheapest rents and lowest house prices in the neighborhoods right next to Portland International Raceway, but I think it would be wiser to spend some of your gains if you have to, in order to avoid that proximity and even avoid being downwind of the racetrack at more of a distance.
posted by jamjam at 9:09 AM on June 21, 2023 [1 favorite]

If you end up wanting to save, I Bonds are a good choice. since you are maybe only looking at a year it’s not going to give you maximum bang for your buck, but it is inflation proof.

Personally, I wouldn’t spend a dime if I were going into the very expensive housing market you’re moving to. It sounds like a lot of money but it’ll be gone so fast in that market.
posted by Bottlecap at 9:29 AM on June 21, 2023 [1 favorite]

CD rates are up around 5 percent right now if you shop around. If you know it will be at least a year, you could buy a 12 month CD. If you are unsure of the timeline, you might go with a series of 3 or 6 month CDs.
posted by soelo at 9:33 AM on June 21, 2023

Response by poster: Thank you everyone for the comments and suggestions. I'm not looking for advice on the best way to invest the money. I'm looking for thoughts on how much I should invest, save, and spend.

Typically when I get a windfall, usually though a bonus, I will spend up to $1000/half, whichever is less. $100k is way more than I know what to do with - but, like Bottlecap says, I am worried it could disappear in a flash if I'm not careful.
posted by rebent at 9:44 AM on June 21, 2023

I don't know that I'd think about it in dollar amounts exactly in your shoes. I'd probably go for "get one neglected practical thing taken care of" (glasses) and allow myself one extravagant quality-of-life-upgrade splurge (on the order of the new bike or similar amount spent on wardrobe upgrade.) A new car would be more than I'd allow for this, and an ongoing financial commitment like a personal trainer for more than a couple of sessions would feel unwise to me.

Then I'd put the rest aside for new house buying somewhere not my regular checkings/savings account, which I think counts as "invest" in your breakdown. I would allow myself the understanding that if things got really dire before then I could dip into it for absolutely essential expenses on the order of keeping a roof over my head, but would try hard not to use it for anything else short of that level of emergency.
posted by Stacey at 10:12 AM on June 21, 2023 [1 favorite]

I thought the same thing as Bottlecap, having read that you're moving to Oregon and planning to buy another home there. You're going to need every cent of that to make a ~20% down payment in that housing market so in your circumstances, I would move the entire balance into a dedicated CD or HYSA immediately.

However, $1000 out of that is a pretty modest amount and I would also feel totally okay using that much on a few strategic life improvements such as new glasses and a few good pieces of clothing. Could you sell the gas car and use that money to purchase the e-bike and put the rest of the funds from the sale into an emergency fund for future moving and living expenses?
posted by anderjen at 10:14 AM on June 21, 2023 [1 favorite]

I just did something similar (though only for a month) in a high yield savings account yielding between 3.85 and 4% at Ally Bank. I already had accounts with them so it was easy to just set up a new account and put it in there. But if I recall, they were really easy to set up when I was a new customer. They have a no-penalty CD that's a little higher yield than the savings account, and then other CD accounts at various time intervals that are even higher. Ended up getting about $1200 or so in the month we had our money sitting there.

There might be other banks with slightly higher rates, too, but Ally is usually one of the highest.
posted by msbrauer at 10:14 AM on June 21, 2023 [1 favorite]

So I'm in the same boat you are - selling a house and renting for a while before buying something. With real estate prices and crazy interest rates, I'm hanging on tight to what I make from the house. My feeling is that the house expense is the big unknown in my future, and I have no idea what amount of cash could end up making a difference for me. And what if I find what looks like my dream home, but I'm a little short because I decided to buy something I could easily have lived without? After you buy your house, there will be time enough to figure out whether those other purchases make sense.

$100K seems like a lot, and it IS a lot, but with all of the other things you want, you could spend $5000 easily and not be quite sure where it went - more if you decide to get a car.
posted by FencingGal at 10:42 AM on June 21, 2023

Glasses are way cheap if your prescription is good.
posted by charlesminus at 12:16 PM on June 21, 2023

If you move to Portland, Columbia Credit Union does 5% interest up to something like 25k in checking.

And get your glasses! You wear them on your face, they help you exist in the world, and you have to seriously splurge to even spend 1% of your new windfall on them. Is there really anything you're looking at with a comparable cost/benefit ratio?
posted by PikeMatchbox at 2:35 PM on June 21, 2023 [1 favorite]

Portland is not a cheap city to buy a house in. If your short-term financial situation is uncertain but you know you want to buy eventually, I would absolutely go with the part of your brain that says the money is equity. Maybe keep like 10K to get yourself on your feet once you get here, buy yourself the new pair of glasses, and forget you own the rest of that money - by parking it in a savings account, or even a one year CD - until you are ready to buy a residence.
posted by pdb at 3:15 PM on June 21, 2023

I'd try to reframe this away from thinking of it as a windfall. The median home price in Portland is around $540,000ish right now, and the housing market is tight, even as home prices have softened slightly in the past year. But even if you bought a $400,000-$450,000 house, it sure would be nice to have that 20% downpayment plus some extra.
posted by bluedaisy at 3:49 PM on June 21, 2023 [1 favorite]

I can't find a reference to this subject now, but doesn't putting the money into a new house within the same tax year shield your profits from the sale from taxes?

This is incorrect. As pointed out previously, gains of less than $250K (single) and $500K (married) exempt from capital gains taxes for personal residences, provided they are used as a primary residence. In addition, there is no exemption from capital gains tax by using capital gains to purchase a new property.

There are some ways to defer capital gains taxes for business/rental properties (1031 exchanges, business opportunity zones). However, they do not apply to personal residences.
posted by saeculorum at 7:35 PM on June 21, 2023

I’m having flashbacks to 2015 when I moved to Portland, Oregon with $85K in equity cash. I was going to code school to increase my skills after 15 years as a developer and thinking that I’d land a high-paying job in a few months and use my equity cash as the down payment for a house.

I made the mistake of renting expensive places and trying to continue the lifestyle I had in the Bay Area, spending indiscriminately and frivolously. It took me almost three years to find a contract job and the equity was long gone by then.

If you have FTE in place then congratulations, if not I’d advise you to not go overboard. In your wish list I think they’re all great purchases. Though, you might consider selling your car and going car-free for awhile. The car market now is out of control and Portland has pretty good public transportation.
posted by bendy at 9:21 PM on June 21, 2023 [2 favorites]

> I'm looking for thoughts on how much I should invest, save, and spend.

The "safe withdrawal rate" -- basically the percentage you can withdraw from your investments without ever running out -- is around 4 percent. So my strategy for surplus cash is to spend 4 percent and invest the rest. This way I can spend that much every year. Eventually I'll have enough saved up to retire on and I can revisit the rule but until then, 4 percent for now, 96 percent for later.

If you want to get fancy you can factor in inflation and durable good depreciation, but spending $4,000 seems like a safe number and even HYSA will replace that money within a year.
posted by pwnguin at 10:50 AM on June 23, 2023 [1 favorite]