by Ashley
We are set to receive an inheritance soon. This is one of those happy cases where no one has died (which, I would think, is the most common reason for inheritance?). Instead, a relative has liquidated some of their assets and decided to bequeath some to us now, while they are alive, versus waiting until they pass away.
It’s a good amount of money, but still in 5-digit territory (just to give a rough approximation of the amount). At one point in our younger lives, this money may have felt life-changing. Heck – I remember receiving an inheritance from my Grandfather for $10k when I was 22 and it definitely felt like a life-changing amount of money! This inheritance is much higher than that.
Our Current Financial Position
At this point in our lives, however, we don’t really need the money per se. We make enough to cover all of our bills. The only debts we have are my student loans (scheduled to be forgiven in October 2026), and our mortgage (on a super low 2.625% interest rate). We both have healthy retirement accounts, we’ve maxed out our Health Savings Account, I have healthy 529 accounts for the kids, and we also have a mix of financial investments in stocks, bonds, mutual funds, and CDs (outside of the retirement accounts).
Investment Ideas
Given that we don’t need the money to help pay bills, my thought is that we should invest it and let it grow. To me, the obvious next place to invest is in real estate. I’ve written before on the blog about my budding interest/desire to invest in real estate. To me, this is the next obvious spot to place an investment to help diversify our financial portfolio. The amount we are inheriting – it’s not enough to buy a house, but it’s certainly enough for a down payment large enough to avoid PMI (for a modestly priced home) and likely some leftover for repairs. Kind of like a rental house “Emergency Fund” separate from our normal emergency fund.
I’m pretty financially conservative, but hubby is even moreseo than me. I know his preference is to put the money toward our mortgage on our current home. He has a goal to own our home outright before he retires in 7 years. And while I love that as a goal, I’ve been pulling out calculators and running numbers to show how much more we stand to gain from another investment versus paying off our home early. And although we aren’t running out looking at real estate right this second…..I do think he’s come around and is cautiously on board.
Short-Term versus Long-Term Rentals
This brings me to my next conundrum. If in fact we go the real estate route – what kind of rental should we get? Selfishly, I like the idea of buying a house someplace a couple hours away that is more of an AirB&B vacation rental type place. That way, we can use and enjoy it as a family, and we will also make income from short-term renters. PROS of this approach: our family gets to enjoy it and take vacations for cheap; you can also stand to make potentially more money on short-term rentals. CONS of this approach: income is more inconsistent, and there’s a lot of hassle involved with oversight, management, cleaning in-between guests, etc.
The other alternative is to buy a house in-town someplace that we try to rent with a one-year (or longer-term) lease option. PROS of this approach: it’s a lot less hassle, and cleaning/upkeep is less. The income is more consistent month-over-month. CONS: it’s potentially less money than a short-term vacation rental, and we wouldn’t get to enjoy it as a family.
Making a Decision
While I lean toward the short-term rental option so our family could enjoy it, I’m also split because I like the idea of having less ongoing oversight and maintenance. Also, I have no idea how to manage an Air B&B so I know it would be a lot of work to get up and running.
If anyone has had both short-term and longer-term rentals, do you have any insight or opinions to share? I’m curious to hear from folks who have done both. Other factors that may weigh in on your decision – if we go this route, we plan to have a dedicated EF just for the rental, with enough money to cover a potentially “bigger” repair (like a new HVAC or new roof). Also, with our current incomes we can afford to pay the mortgage of both homes if we need to. It would make things tight at home and is not ideal, but it is possible to do if needed (this is more on a short-term than a long-term/ongoing basis).
For now, it stays put
Just as I’m in no hurry to buy a new-to-me car (see my last post), we also aren’t in a hurry to buy a home. Especially with higher interest rates right now, it might be wise to wait a bit and see if things come down. In the meantime, the money will be safe and sound in a money market mutual fund. But I like to think and plan ahead and diversifying seems like a wise financial decision.
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
Govts are starting to crack down on AirBNBs. The housing market is suffering because folks want to buy up cheap property and make money off it. So that is something to keep in mind that you might have to pay a lot just to keep running the place (at least in Canada there are a lot more costs coming to owners of AirBNBs) Hopfully you can find the right solution for you guys, worst case you make some interest on the money!
You could go either way with real estate, short term or long term tenant. What jj said in the previous comment is noteworthy…although you live in AZ and with the rental market there things may be projected differently into the future. Whatever you do, if going to get into the real estate game, I would suggest setting up an LLC to run all your expenses through and bifurcate the earnings, etc. It protects you more if there are unforeseen issues. You can file a solo LLC on your individual taxes. I am a software attorney and used to practice in private practice business law (but not AZ), so seek tax and legal advice first before going this route.
Great advice! I was thinking of setting up an LLC already anyway so I could pay my kids and help them invest into their own Roth IRAs. It also makes great sense to help protect us from liability if/when we start investing in real estate. Thanks for the comment!
When it comes to owning a rental property, whether it’s a short-term or long-term rental, your primary goal shouldn’t necessarily be profit, but to aim for a break-even point. By choosing a strategic location with a steady 3-5% annual appreciation rate, you set yourself up for a meaningful return in just a few years. When the time comes to sell, you can leverage a 1031 exchange to maximize your gains and reduce tax obligations.
Owning a rental or vacation home requires both financial and emotional investment, often beyond initial expectations. From my own experience of owning a vacation property, I spent countless visits managing or tackling repairs. However, the property’s value has doubled over four years, transforming it into a solid financial asset. Initially, my only hope was to avoid steep losses, but the appreciation has turned it into a rewarding venture.
If you are seeking a hands-off approach, an index fund offers a secure, hassle-free investment. Just sit back, monitor it from your smartphone, and let the market do the work for you.
This is fantastic insight! I wasn’t familiar with a 1031 exchange, so I learned something new here! Thanks for the thoughtful comment and sound advice!
If you haven’t already, I’d suggest listening to Paula Pant/ Afford Anything podcast. She talks a lot about Real Estate Investment. We kept our first home as a rental property and while I think it will pay off there is some work to it, even with long term rentals – we don’t use a property manager so if something breaks it’s on us. We did have a realtor screen our tenants for us, which was absolutely worth it (we payed her one month’s rent).
I’ll check out this podcast. Thanks for the tip!