What to do with inheritance?

[EzraJ]

Hello all. A paternal uncle of mine recently passed away and after dealing with a bunch of familial drama I inherited 500k. I didn't know my uncle that well and had only met him a few times. He was very eccentric and traveled a lot, but I spent time with him over the summer at his summer home. I currently receive an allowance of a few thousand a month from my maternal grandmother's estate, which also pays for my college tuition. With a part time job waiting tables I live comfortably enough. I however have no relationship with my parents. I haven't spoken to my father for more than a year, and my mother since she kicked me out when I was 16 (crazy parents, addiction, family drama, whatever). I'm completely lost as to what to do even though I've spoken with a few people.

I really kind of want to buy a multifamily home property that I can move into from my apartment. I'm thinking that the steady cash flow each month from one of the units would be nice. After I move on I would have cash flow from both. However, I'm not really sure. Totally confused.

One of the listings I was looking at:
realtor.com/realestateandhomes-detail/3326-3328-E-Fairfax-Rd_Cleveland-Heights_OH_44118_M39543-21943?row=4
I looked at the home and spoke with the agent. She said that the downstairs unit could list for 8-900 a month and the upstairs unit for 11-1300 a month. I would probably live in the unit that brings in the lesser amount of rent. However, this is less than half of what I've been given. I have a slight shopping problem :P and I'm not too financially responsible.

I've split the money up a bit and haven't spent much of it. There was a bit of a family squabble since my uncle only left a little money to a few people and gave the rest away to charity.

I've heard annuities are bad. I've looked into CDs, talked to a couple financial advisers, thought about investing, retirement funds, buying gold (lol), etc. I however do not understand like any of this stuff and I'm really nervous. Its not a ton of money, but I want it to go as far as possible. Any advice where to start would be very helpful.

Thanks

[kork13]

Although you weren't close to your uncle, my condolences... Also, congratulations on having the truly fortunate "problem" of dealing with a sizable, unexpected inheritance. We'll give you the best advice we can, but don't totally discount the possibility of consulting a fee-based (non-commissioned) financial planner. Some banks or investment houses, such as Vanguard, offer discounted (or even free) access to qualified CFP's, but you do sometimes need to be wary of them selling a product vs. giving you good, unbiased advice.

I'm sure others will give you more specific inputs, and I'll try to come back to readdress, but here are my initial thoughts:
- First & foremost: Do NOTHING until you have a solid plan in place for exactly how, why, & under what circumstances you will use this money. You will likely encounter many people (family, friends, "investment advisors", and so forth...even random people on an internet forum) who all have **great** ideas for how you should spend/save/invest/give away your newly acquired mini-fortune. My top recommendation: stick it in a savings account and/or short-term (1 year or less) CD until you are fully prepared for making this money work for you to enrich your life. Be sure to use at least 2 separate banks though, because there is a limit of $250k per person per bank for FDIC insurance protection.
- Strongly recommend that you start buying some I-Bonds from TreasuryDirect.gov -- these are inflation-protected savings instruments, sold & guaranteed by the US Treasury, that will earn tax-deferred interest that will adjust for inflation for 30 years. There are some limitations to keep in mind here, but totally worth your money because they are secure, keep up with inflation, and will protect your money very well. Provisos: the first year of ownership, you can't withdraw from them at all...between years 1-5, there is a 3-month interest penalty for withdrawal (with taxes due on your withdrawal), then after 5 years, no penalty (though taxes still due at withdrawal). Also, they earn interest for 30 years, but at that time they mature & you need to either withdraw the money (and potentially buy new I-Bonds), or they will sit in the I-Bond earning no interest.
- Buying a home, if you're ready for that level of responsibility & financial/time obligation, could be a very good option. Just don't go nuts & spend more than you need to just because you can. Buy a practical home that meets your needs, and just buy it outright in cash. A 2-family home could be appropriate, if (again) you're ready to be a landlord & everything entailed with that.
- A Roth IRA is an EXCELLENT option for you, assuming you have a qualifying earned income -- inheritance money from your grandmother's estate doesn't count, nor would investment income from your uncle's 500k, but a salary from a part-time or full-time job WOULD qualify, as would income from a rental property such as your 2 family home idea (I think... fact check from the forum?).
- Any other tax-advantaged retirement or other account (like a 401k/403b/etc., 529 plan, or anything similar) is another excellent option. You could easily max out any available plan like this & live off of your inheritance money if necessary.

I have to run for now, but those are my initial thoughts. I'll try to come back & readdress some things. Stick around, you'll get some fantastic advice from the people on this forum. Another option, you could go to the Bogleheads forum and ask you questions there -- they are very well-versed with investments, and in some cases, more accustomed to considerations for large amounts of money.

[97guns]

the property you are looking at appears to be a single family home converted to a multi family property, just be aware that the property will have 1 water meter and 1 electrical meter which means you will need to calculate these costs into the rents

[snafu]

Like Kork, I suggest you get the inheritance into more than one bank to ensure the money is protected from loss. It will take time to plan, verify and make good, long term decisions. It's smart to ask for help in finance and avoid learning by trial and error.

When do you expect to graduate college? Faculty? Is there any possibility you'd take a job elsewhere [other city/other state] ? Property is so illiquid and can take so long to sell and can lose a lot of value while you must continue to pay property task, utilities and insurance. Unless you've had experience as a landlord, it's not a task I'd recommend for a student as it's fraught with problems.

Keeping in mind that most financial 'advisors' are salesmen selling you a product that benefits them while you absorb all the risk, I too suggest you discuss creating a portfolio with a Vanguard Agent For further protection, I'd ask an independent Certified Financial Planner to critic the plan and percentages. I know the knowledgable folks who participate here could likewise point out risks and gaps. Vanguard is often recommended because it has a long history, low fees, lots of choices and most of it's products are successful. You can set it up to receive quarterly cash dividends if you need them. You can adjust the mix as economic conditions change so it's very flexible for the long haul.

[MakeAStash]

Complete your education and start a career as if you never received the inheritance. Move the money to a broker like Vanguard or Fidelity that can advise you of reasonable investments. Let the money grow and after a few decades retire early. Via a will (with that sum, you should make one even at your age), donate at least some of what remains to charity.

[llckll]

I really kind of want to buy a multifamily home property that I can move into from my apartment. I'm thinking that the steady cash flow each month from one of the units would be nice. After I move on I would have cash flow from both. However, I'm not really sure. Totally confused.

Sounds like you're not confident you want to buy a multifamily home. "I really kind of want to", "However, I'm not really sure.", "Totally confused."

Owning a home is a huge responsibility let along being a landlord. Lot of maintenance involved just for my house alone and having a multi unit adds more work. What if the tenant decides to move and that unit is vacant for a while? You'll have to pay out of pocket to cover the costs. You'll probably end up paying higher homeowner's insurance and property tax cause it's multi unit.

I agree with MakeAStash. Basically, make a stash (no pun intended) with a good financial advisor and park it and let it grow. Focus on school and start your career. That money will grow with compounding interest and you'll be good to go. You don't want to start your brand new career after college with a headache.

[BrianWeatherdonCFP]

protecting your new-found wealth

Along the lines Kork mentioned above, do nothing without establishing a plan. This forum is a great place to explore ideas and cautions (eg splitting a house could leave you holding the bill for utilities) ....but before all that I look at the process of establishing your personal values around wealth. It's a subject I raised in writing "A Lifetime Of Wealth -- And How Not To Lose It". You can see summary of that on ---- or other resources I've posted on the web. If I can put into two key areas for you:

1) Sometimes inheritance brings opportunity to explore the "values" of the person(s) who bequeathed such money. To the extent this is possible (eg. hard work, philanthropy, live-life, whatever their positive values were) then you can happily associate your windfall with positive values that support how your use, enjoy, and sustain thie wealth for yourself. It's a journey then of creating your own values around wealth ...so you live, give, sustain the values you feel are most important to you.

2) Long term sustainability of wealth isn't around any one specific product, for they all may excel or frustrate over extended times. You can do a web-search of "life income mandates" to explore how to put four or more pieces together where the real estate you mention is one mandate. Truly, 500K is not a huge fortune...so if you go into real estate you'll probably just manage 3 mandates. So ponder this .... and one more thing:

3) Discuss your plans with a professional advisor who is local to you, well acredited to show they've studied and have strong experience, and also recommended within your community. Someone who can "listen" and listen some more, and then help you consider the alignment of this money/wealth and your personal feelings/values about it. I'm not concerned whether this is a fee-only advisor or someone who helps implement your planning; what I do care about is you getting the results you want, in a manner that will continue to sustain and grow wealth for your future and even for those you might bless through your own estate.

So warm wishes from us all, and thanks for sharing your situation with the group.
BW

[adviceseeker]

If I were in your shoe, I'd put the money first in the bank until I am "financially responsible" and decided to what to do with the inheritance it got. It's hard to rush things and at the end, you will regret everything. You can put the money under time deposit in order for your money to earn interest and at the same time, you won't be able to withdraw any amount for a certain period of time.

Don't make any final decision till you are very sure of it. 500k is a large amount and you are very fortunate on receiving this.

Good luck!