I Just Sold My House, What Should I Do With The Funds?

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This is the affluent Entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money, and scale your life while creating a deeper impact and living with complete freedom, because that's what it really means to be an affluent entrepreneur.

Hey there. Welcome back to this episode of the Affluent Entrepreneur Show. This one's a little different. This one is a little unique because some of you may know this already because you follow me that I do a weekly about a weekly live broadcast on my Instagram @melabraham9, where I'm bringing people on or I'm answering questions about money, about wealth, around business, even life. But really it's about us moving you forward on the path to financial freedom. It's to build that affluent lifestyle. And so I do this thing called money mentoring over coffee on Instagram live. Like I said weekly. And I thought about it. I said, gosh, there's some valuable questions in there that I think would help the broader audience even if you couldn't make it live, which I hope you do one time. And so what we decided to do is to release portions of that live broadcast as episodes of the affluent Entrepreneur show. And so this episode of the affluent Entrepreneur show is me answering those questions from my live broadcast of money mentoring over coffee. Enjoy it. And if you have questions that come up, if things come up, you can do what these folks do. If you can't join me live, then just submit your question@askmelnow.com and we'll make sure that we get it answered for you. All right, the whole idea is here to have real saves, same conversations that are real about money, about your path to financial freedom, because after all, it's your birthright. All right, Enjoy the episode I'll see you soon.

All right. X dance for you. Would you be willing to come on live and let's chat? Chat about your question. Just sold my house. What should I do with the funds?

Because I have some questions for you just so I can get clarity.

Hi, how are you?

Good. I see your name. Name's Joseph, huh?

Yes.

Where are you coming in from?

My friend originally from California, but I am in Maryland at the moment.

Oh, whereabouts in California, man?

San Diego.

Okay. Not far from me. I'm in Laguna Beach.

Oh, yeah. La Jolla.

All right. Beautiful area. So welcome. Thank you for coming on. Thank you for being open about it. So, hey, here's my question for you. You sold your house, you've got funds. What should you do with the funds? Are you looking to buy another home or invest in something in the next three to five years?

That's the idea. And.

The question is, what do I do with it and how do I make it work for me? The house is in California, so in Maryland, it's fractional.

Cost of home.

So do I buy 10 homes here and just rent them all out or.

You know.

Okay, so this isn't just rolling into a residence. This is good.

So.

Do you have any other debt?

No.

Beautiful. Do you have some?

And I've got zero debt.

Beautiful. And you have. You've got cash on the side. If there's any other than this. This. This money that.

Yeah.

Okay, cool. So here's what I would do.

Do you have anything in retirement or is this retirement.

Part and parcel?

Okay.

Got.

401 that I've had for years and.

Forced and which led to the sell of the house. So, you know, a few things in life had happened.

Cool. I get it. All right. And I appreciate your openness. So here's the thing. Here's what I would first do is I would look at it and say, if I was going to buy a residence here, how much do I need to get into that residence? And set that aside, if, if I plan on getting into a new residence in the next two years, three years, given the volatility of the market, we don't want to put that at risk. So I'm going to tell you to put that in a high yield cash account, then I would take the rest of the money and then I would use the rest of the money to get access to either, if you're kind of desired, getting into. So one of the things to think about with investing is that I believe that we should invest in a way that fits our lifestyle. So if you like real estate and you want to be kind of, you want to own real estate because long term you can leverage it. So it takes a little bit of money to get into a bigger asset. You can get it to cash flow, you get a tax deduction, you get all of that. But it's more complicated than just going into an ETF or an excellent. And if you're cool with that and you say, that's what I like, then cool. Then we take the rest of that money and we start to look for properties that you can get into at an effective rate. I think that you're going to see things coming on the market that are probably going to flatten out a little bit given the rise of interest rates and with the fact that you have cash, you have negotiating power and the ability to take advantage of opportunities that come your way. And so I wouldn't rush into things. I would look for the opportunities. The money on the real estate is made on the buy side, not the sell side. Purchase it, right, you'll be taken care of. But the money you need in the next three years or so for living for a residence or a down payment on a residence, I wouldn't risk it in the stock market for sure because it's going to be volatile and you wouldn't put it into another asset that's illiquid, another piece of real estate, because you can't get out. And it's costing to get in and out because of the sales commissions and all the costs. Now let me give you another possibility. If you found a property that you said, hey Mel, I'm willing to live in this for two years, great, you can invest in it, live in it for two years, and then after that two year mark, you can actually sell the property or flip the property if you choose to do so.

Because. And not pay tax on $250,000 of gain. So there's an exclusion on the residence. So a lot of people will do that. And as long as the gain is less than 250,000, I do that every two years. As long as the primary residence for two out of the last five years, you're cool. You don't pay tax on it. So it's a way to use the tax code, at least as it exists right now, to move yourself from one residence to another without paying tax on the sale of one.

So what I would do is make sure that I have the money aside for the next residence if you're going to get into in the next couple years, and then start looking for properties that make sense, that cash flow, based on the analysis that you're willing to get into and see if we can negotiate a good deal to get into it. Does that make sense?

It does. So.

On the subject of real estate, is it better to buy an existing property or develop the land?

Oh, gosh. Development. So I just went through a remodel here, and I have this. I have this newfound horrible belief that contractors are a special form of plankton, a single cell human being with which isn't a brain cell. I mean, they completely screwed up things. So what'd you say?

Much like lawyers.

Yeah, yeah, yeah. You know, so, so here's especially. Especially family law lawyers.

So here's the thing. When you get into development, you get into.

Permits, you get into a lot more complexity than you would otherwise do with buying an existing property or rehabbing an existing property. Because now you potentially have things like what's the infrastructure, the plumbing, the electrical, and that kind of stuff that needs to be brought to the land, if anything. And if you get held up at the city or at the county for any reason, then the cost of carry gets higher. So it's a bit more complicated to do that kind of work. But before you do it, then I would spend the time researching what's it like to build in that area, what's the city council like, what's the county purging process about? Like talking to the contractors and understanding the nuances, the problems that can happen. I have a guy here that, because we're right on the beach, he. He wanted to build up. Well, it's. They put the wash on it and he's. And he's. He's been battling for three years. And that property is sitting because he can't build what he wants to build. And I don't think he's going to get away with it and be able to do it. And so he's been sitting in a property that he can't use.

So before you take over a property or a piece of land with an idea to build, you want to make sure that you know exactly where the. Where the pitfalls could be.

Yeah. Good. Well, thanks for the advice.

You got it, my friend. Keep crushing it. And if there's anything I can do, hit me up.

I appreciate it. Thanks so much.

You got it. Now I have no idea how to take. I have not figured out how to let go of a guest, but from the. Tell me. They tell me to have you log off the app and then log back in.

All right, I'll do That. Thanks.

All right, man. Cheers to you. Awesome. That was a great question. So, anyone else have questions? I'll bring you on. I've got a little while longer before I have a. I have a keynote and everything to do. Appreciate you all being. Being here with me.

All right, so, because I have other questions that came in, I've got another one from someone who looks like they're young. They're just out of college. Just out of college. So I'm just starting to invest. Should I max out my 401k.

Said I don't get an employer match? Shame on that employer. But should I max out my 401k before going into other investment accounts, or is it better to spread it out from the start? Here's my. Here's the fact that you're just out of college means that you have a long time of investing ahead of you. You have time is your greatest wealth creation lever. And so to the extent that we have time available to us, it becomes really important for us to use time to our benefit. Now, that's one piece of it. Second piece, and I don't know this from what you said, does the employer, even though they don't match, do they have a Roth option to the 401k? Here's why I'm saying this, is that if they have a Roth option to the 401k, then we max out the Roth option. That means you can put up to 20,500 this year away and it will grow tax free. You won't get a tax deduction for it. But right now, my guess is that your tax rate is in the lower side because you're just starting out of college. And so you're going to put $20,000 a year away in order to make that happen.

And if it's in a Roth and you're not paying tax on it, when you go back to get it out, it's 100% not taxable. So you have a tremendous ability to leverage your wealth at this age using a 401k match or no match. But if there isn't a Roth option to this 401k, what I might do is this. I want people at your age to be saving 20 to 25% of your income, 20 to 25% of your income. So what I would tell you to do is this. If there isn't a Roth option, I would max out the Roth on the outside of your company. That means you can put $6,000 into a Roth IRA on the outside. So you get that Roth Money growing completely tax free for the future. That's $6,000. Then I would go back to the 401 and max it out till you get to the 20, 25% of your income total saved. Okay? So that's how I would do it. I would work those plans before I start going into a regular investment account and do it that way. Cool. Any other questions online? Before I go to this, another question that came in through the hotline. Let's just make sure I see some friends on. James is on. So, so good. All right. One more question that came in. I think last time we kind of talked a little bit about this and I touched on this earlier.

Should I get term insurance or whole life insurance? Here's the thing. I am a firm believer that 95% of the people out there, all they need is term insurance. I don't believe in wrapping investments in an insurance policy and insurance wrapper. You can get better returns. If you do the math, you can get better returns in the market on your own versus paying the kind of commissions and fees and expenses in a policy that is a whole life policy. Right now the reason we buy insurance is for the insurance, not for the investment side of it. And so if someone's coming to you to offer you insurance.

Then clearly they make money off of. Off of offering you insurance. Anytime you're looking at investments, it's so important for you to start to question what's the bias? This is why I love my show. I don't sell investments. I don't sell insurance. Okay? I want to have unbiased, safe, sane conversations that I can be direct. Now I get it that there's going to be some insurance person that's going to hear me say this and he's going to come at me like a troll and say, how dare you say that whole life policies are inappropriate. Well, because I believe they are. Okay? I believe they are for a lot of folks. I, I have someone that they sold them into a whole life policy for teenage girls. I'm sorry.

That to me is unethical. It's unnecessary, you know, and so I have no problem with pissing some people off. If I'm. I'm here to work for you all to make sure that you guys are taken care of. And so when I see something, I'm just gonna call it out and it pisses em off, they can unfriend me. I'm good. I'm good with that. Cancel me. I'm good. So I think that if we're gonna buy insurance we buy the insurance piece. If we're going to make investments, we invest separately. Term insurance is very low cost. And you're buying, you're getting what you pay for insurance. That's it. You can less than a thousand bucks. You get a million dollars insurance. If you're young, it's even less and you cover it. The reason we get insurance is to protect the income streams that were being.

May generated while you were alive for your family, for your children. So if, God forbid, something happens and those income streams stop, we want to have enough insurance to replace those income streams so they're taken care of. Now you might sit back and say, I work and my husband doesn't, or I work and my wife doesn't. So do I need to get insurance on my husband or wife that doesn't work? And the answer is, yeah, possibly, because think about it. If your wife or husband doesn't work, but they're taking care of the home, they're taking care of the children, they're doing things that maybe are, from a money standpoint, uncompensated, but from a life standpoint, hugely important, hugely valuable, and hugely undervalued. I think a mother is.

God bless him. I was a single full time dad, so I was kind of part mother, part dad. My son from 6 years old. And parenting a child is one of the greatest jobs, toughest skills, and one of the most beautiful learning.

Lessons that you'll get at the hands of a child. Okay. So it's important to realize that just because one person in the relationship is earning money, all, oh, well, we'll insure them. There may be a need to insure the person that isn't earning the money, but is there allowing you to go earn the money, don't discount it and think that they have no value from a life insurance standpoint. They actually have a tremendous value. So good. So that was a great, great question. This is so helpful for someone like me who's looking into getting a life insurance. Absolutely. If you have specific questions, I don't know, is it jalop? Jane? I hopefully I did that right. But if you have questions, hit me up. All right. If they send you illustrations or you, you have questions, hit me up. Let's make sure that, that you're getting what you need for the reasons you need it. Okay.

Drew, I knew you would ask that question. I think that infinite banking is something that, that may work for some people, but it is not the solution for all people. It's not the first stopping point, in my opinion. I Think there's some circumstances, it leads to complexities that people are not prepared to take on effectively. And so I think the important thing is to see everyone's circumstances. It's good for people that are of high net worth, high income that, that can come into play. But I, I don't think that it's the, it's the tool for everything. So hopefully that helps. Drew, I figured if we would, if anyone's gonna ask that question, it would be you, man. So. All right, this is a great question that came in. How should a 20 year or 20 year in college working full time investor? How should a 20 year old beauty and health. 10, 10, 8. You're saying how should a 20 year old in college working full time invest? Is that what you're asking?

So here's the thing. They're still in college. Hopefully if they have money for investing, they're not going into debt for the college. In making that happen, what I would look at is depending where they're working, if there's a 401, I just get into the 401k and then I would make sure that I just invested. They're 20 years old, they got such a long time. I would put it through into a Roth 401k if they have it. If they don't have a Roth 401K, then put it into a Roth IRA in all likelihood. And I would just invest it to keep it simple in some sort of low cost target date index fund. So they're 20 years old, they're not going to need the money for 40 plus years. So you get a fund that is, we're in 2022, so call it a 2065 fund. Here's the reason for that. They take care of the rebalancing, they take care of the portfolio allocation. Now at some point in their life, once they graduate college, they start making more money, their financial will get more complex and at that point we get more strategic and more laser focused on the plan and, and the things to do. But at the very beginning, the biggest thing that you can do for creating wealth is start and start exercising the muscle. Wealth creation is a muscle. It's a behavior, it's a habit, it's a decision, it's a choice. And too often we put that decision, choice and habit and behavior off for the future because we think we have time because we're in 20s and I'm in college and this and that. I started my son investing when he was in his teens, young teens, so we could have the conversations but more importantly, to develop the muscle, the behaviors. So it made it easier down the road. It's less about how much they put in. Even if they can only afford to put in five, $10, put in $5, $10, because you're still exercising the muscle to make that happen. And then we get more complicated as things grow. So I would put it into a Roth ira because you're going to have all that time to grow tax free and take it, be able to take it out tax free. One, two, if you needed it, if they needed it, they could pull out their contributions tax free. They can't pull out the growth tax free, but they can pull out the contributions before retirement tax free if, God forbid, they needed it. Three, you're exercising the muscle and now all of a sudden you're starting the investment process. And then if it's an index fund, a target date index fund, someone else is doing the allocations and everything for you. Okay, so hopefully that makes sense.

Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.comgroup group and I'll see you there.

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