Using an inheritance to buy first home, invest in EFS, or both?

Question

Hi everyone,

I'm about to receive a $500k inheritance, and my parents are encouraging me to use it as a down payment on an apartment. I'm in my mid 20s with no kids, no debts and I earn around 100k a year.

I’m weighing a few options: 
1. Use the full $500k and take a small loan to buy my first home 
2. Use $250k for a down payment, take a larger loan, and invest the remaining in ETFs 
3. Invest the entire $500k in ETFs (considering to set and forget it with A200 DRP)

Owning a place would be great, but I’m unsure about taking on a long mortgage, especially since I want to travel and might live in other states someday.

What would you do?

Thanks

Answer

Hello,Deciding how to best utilise a $500k inheritance is a significant decision, and it’s great to see you considering various options. Each of the options you’ve outlined has its own set of benefits and potential drawbacks, depending on your personal circumstances and financial goals.Using the full $500k as a down payment and taking a small loan: This option would minimize your debt and potentially reduce the total interest paid over the life of the mortgage. Owning a home can also offer stability and the potential for capital appreciation. However, it would also tie up a large portion of your capital in a single asset, which might not be ideal if you plan to travel or live in different states.Using $250k for a down payment, taking a larger loan, and investing the remaining $250k in ETFs: This approach provides a balance between investment in real estate and the stock market. It allows you to diversify your investments, which can reduce risk. The real estate market and the stock market can react differently to economic changes, so diversification might offer a smoother overall investment experience. However, managing both a mortgage and an investment portfolio requires careful financial planning.Investing the entire $500k in ETFs: This option could be appealing if you prefer liquidity and flexibility, especially with plans to travel or move. ETFs offer diversification within the stock market and can be less management-intensive, especially if using a ‘set and forget’ strategy with a Dividend Reinvestment Plan (DRP). However, you would miss out on potential benefits of property ownership, such as using it as a primary residence to potentially save on capital gains tax.Each option has tax implications and potential costs, such as capital gains tax differences between a primary residence and ETFs, and costs like stamp duty when purchasing property. It’s important to consider these factors in your decision-making process.Given your situation and the desire for flexibility and potential travel, you might find a mixed approach (option 2) appealing as it allows for both property investment and stock market exposure, maintaining some liquidity and diversification.At Pearler, we focus on helping investors like you make informed decisions that align with their long-term financial goals. Whether you’re looking to invest in ETFs or considering how to balance property investment with stock investments, Pearler offers tools and resources to help you plan and execute your investment strategy effectively.

Answer

Hi Charlotte,

Tricky question, especially at this age.

A couple of things to consider…

—  If you were wanting to maintain some lifestyle freedom and unsure where to settle, perhaps owning a home isn’t the right move at this stage of life.

—  That said, if owning a property would give you a sense of security over your future (valid) considering you’d like to own one day, you could possibly buy an apartment as an investment property (IP) instead.  One you would be open to living in in the future.

—  As for small vs larger loan, if you go the IP route, the loan shouldn’t be too much of a burden due to rental income.  This would give you a potential future home to live in while getting you in the market, while also letting you diversify by investing the rest into ETFs, and also giving you the freedom to travel and move around as a renter.

That might sound a bit unusual, but that’s what I’d be looking at with the concerns/priorities outlined.  Either way, in the short term I would probably just spend some time thinking about it, while the money earns interest in a good online savings account (look up the best offers as they always change).

No need to rush into anything, but hope that helps your thinking.

Invest

Explore

About

Pricing

Sign Up

Back to Exchange

Previous

Next

FINANCIAL INDEPENDENCE

Charlotte Muller.

Like
2

2

Follow

2 Comments

Dave Gow - Strong Money Australia

Like

2

•

Post Comment

Related posts

Financial Independence

ETF choices for debt recycling

Financial Independence

How do I access my investment if pearler no longer exists in 20Years?

Financial Independence

When to retire early? Seeking advice on my FIRE journey

Products

Resources

Community

Company

Support