Windfall Planning
Windfall 1:I mentioned in Sunday’s post that we got an unexpected bit of windfall, in the form of a payout on a life insurance policy we did not expect to payout, and that we already had a plan for that money. In this case, it was an easy plan. Given that we are in the midst of the adoption process, an extra $10k will pretty much means we do not have to worry about how we are paying agency and attorney fees. On its own it will not cover all expenses, but combined with what we already have saved, we are good.
Normally, I would recommend that anyone who gets a windfall of over a couple thousand take more time to think about what they will do with that money. It is not exactly a life changing amount, but it is significant enough that you can either blow it, or make a difference. Given our current circumstances though, this was a pretty easy decision.
Windfall 2: What is not as easy a decision is what to do with the money we will get from the MIL’s condo. We are still in limbo land here. There is enough money in the estate and the life insurance payout we were expecting, to pay all of her medical bills and pay off the mortgage. The plan was to continue renting it out to our current tenants as long as they wish to stay, and then sell it, or sell it to the current tenants now, if that is what they want. We have talked to the tenants, and they are considering their options.
Windfall 2 Plan A: If we keep the condo, we will get $750/month in rent. $155 of that will go toward HOA fees. (Yes, they are ridiculously high.) We would then need to build up a reserve account to cover repairs, taxes, and holding costs once the current tenants decide to move until it could be sold. But a few thousand dollars should cover that, considering we will own the place free and clear. That is certainly not a bad return on investment. What exactly we would do with the extra each month, though, we have not decided. (Originally, it would have gone toward savings for adoption expenses.) It would likely get saved toward home improvement projects.
Windfall 2 Plan B: If we sell the condo, we could expect to walk away with around $30,000. That would be enough to totally redo our kitchen. That is not what C wants to do with his inheritance, though. What C would like to do with his inheritance, if we were to sell the condo, is pay off my student loans. I currently have about $36,000 left in student loans, so we could use the other money in savings and get rid of student loans entirely once the condo sells. Or we could not dip into savings, but using an aggressive strategy, still be done with all student loan payments by the end of the year. That would give us $710/month (what we are currently paying) back in the budget- with no strings attached.
Let me be honest- the thought of having my student loans just gone is incredibly tempting. At the same time, using C’s inheritance to pay them off bothers me. The debt is mine; the money is his. And even though we have combined finances since before we were even engaged, I still think about it this way.
I could see paying off the graduate student loans (about $20k) with the money. After all, me getting my MBA was a decision we both made. That was debt that was accrued while we were married, for both of our benefits. But I have a hard time thinking that his money should go toward my undergraduate loans. I graduated undergrad only 5 months after we started dating. It is most definitely my debt- not ours. Add to that the facts that the interest rate on my undergrad loans is 3.5%, and my current minimum payment is around $125/month (I pay $160), I am just not certain that being free of that debt should be our top priority. Besides, paying off my graduate student loans would still give us $550 back a month.
Either way we go, the theory is that we would then use the money we are saving each month to go toward, you guessed it, home improvement projects.
I think you are on the right track about what to do with the $30k from selling the condo–paying off the grad student loans only, and using the rest maybe to firm up your emergency or retirement or education (for the kid) savings. In any case, it's a good 'problem' to have, the extra money I mean of course, not what led to it. Good luck with your decisions!
I agree, as problems go, it isn't one I'd trade away.
An college fund for the kid is certainly one of the things we discussed, but I think you might need an actual kid before you can invest in a 529 fund, and we're not even through the home study process yet.
Well, firstly, a big congrats on getting in the adoption cycle and being able to easily pay for the expenses.
Your life is about to change with kids running around and being able to remove the stress associated with high bills, is going to add some real relief.
I just wish I had a MIL's condo that I could sell 🙂
Thank you. We would have been able to manage the expenses even without this windfall, it just would have been much tighter. We might have had to put something on a card and taken 2-3 months to pay it off instead of not carrying a balance, but this removes even that possibility.
I don't know that you would wish you had a condo to sell in NV. MIL bought her condo in the early 90s, long before the bubble, and yet, if we sell it today, it will be for less than 50% of what she bought it for.
There are two points I'd consider on top of those you've presented:
1) What's the market like where the condo is? Since you don't need the money right now, what's the $30k investment worth five years from now vs. today? A trip to Zillow might help with that question.
2) How do you feel about being a landlord? Some of my clients loved it and others absolutely hated it the second they began. If you don't mind the extra time/effort, then keeping it as an investment might be a good option, too.
The condo is in NV- do I really need to discuss the market with you? The MIL bought the condo in the early 90s, long before the boom, and if we sell now, we will get less than half of what she paid for it. However, given that this is an older complex, and the market is NV isn't going to recover any time soon, we don't see the price going up much even in the next 5 years.
As for being a landlord, with the current tenants, it hasn't been bad at all. They were friends of the MILs and communication has been great. If they don't want to buy the place, we will happily continue to rent it to them as long as they want to stay. However, we don't really want to go through the hassles of turning renters over given that we live out of state. If my mother (who basically flipped the condo for us when we moved the MIL out, to get it ready for renters) were going to be staying in the area, we might consider keeping it with her as property manager. But, she's moving come late summer/early fall. I don't mind so much being a landlord. I do not like being an out of state landlord.
I have to say, I really respect your comment that using his inheritance to help pay off your loans would bother you. There are people that would look at a windfall more opportunistically, but I think it's great that you are viewing things honorably. You're right, it's his choice not yours, and I commend you for seeing this. A lot of people feel entitled to a significant other's inheritance or have a major say in it, which has always seemed wrong to me.
That said, if he is interested in paying off those loans, that seems like an enticing option. I know what you mean! Anyway, it seems like you guys are on the right track whichever way you go, that or home improvement.
Inheritances are weird for me, maybe because they generally come attached to a profound personal loss. But even for people who pool all their money, I just don't believe that inheritences should automatically go in the pool. This is one case where I just can't feel like it is our money- it is his money.