8 Best Money Moves To Make With the Proceeds of a House Sale
Selling a home can be an exciting milestone, especially when it leaves you with extra money in your pocket. However, receiving a sizable financial windfall can sometimes feel just as overwhelming as it does rewarding.
While the proceeds from your home sale may provide welcome financial relief, keep in mind you might owe taxes on that income. Generally, if your profit exceeds $250,000 for individuals or $500,000 for married couples filing jointly, you’ll owe taxes — though certain exceptions apply.
If you’re wondering about the smartest moves to make with your home sale proceeds now that they’re sitting in your bank account, financial experts offer several strategic suggestions.
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While it’s tempting to spend any big windfall that comes your way, according to George Carrillo, co-founder and CEO at the Hispanic Construction Council, “Now is not the time for lavish vacations or luxury purchases, particularly with economic challenges like tariff wars and a looming recession casting shadows over the future.”
Instead, focus on shoring up savings and ensuring your portfolio is robust enough to weather turbulence, he recommended.
If you sell a house, and you have no other pressing financial needs (like loans to repay), the most obvious choice — and the most tax-beneficial — is to buy another house, according to Adam Hamilton, CEO of REI Hub.
Whether you purchase a new primary residence, “which helps establish and build up long-term wealth,” or an investment property, which helps you begin to take in monthly earnings “that can be a game-changer in building your wealth and supporting you through retirement,” a new purchase is a great idea, Hamilton said.
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Another great option is to buy a cash-flow earning investment, such as a duplex, according to Brian Rudderow, a real estate investor at HBR Colorado. “A cash-flowing duplex is a great use of funds from a house sale because it turns a lump sum of money into regular passive income.”
He suggested targeting a duplex that can provide around $200 to $500 in cash flow per month “for each door purchased.”
If you have no immediate need for the proceeds, the best thing to do with them is to invest them, according to Melanie Musson, a financial expert with Clearsurance.com.
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“Investing the proceeds after selling your home can maximize your equity. Investing in index or mutual funds can be a relatively safe way to let your assets start building your wealth,” Musson said.
Carrillo agreed and suggested diversified investments such as U.S. large-cap equities or cost-effective index funds in thriving sectors like technology.
If you’re uncertain about exposing your proceeds to market volatility, the safest places to park these proceeds is into a CD, where you can earn interest over a set period of time, Musson said.
“If you plan to buy another house within a couple of years or you have plans for your money but aren’t ready to do it right away, a CD keeps your money somewhat accessible and safe while still earning interest.”
Additionally, these funds could be a big chunk toward future goals, such as your retirement or a child’s college education.
“Many people are not prepared for retirement or their children’s education, so selling a home can provide an opportunity to catch up and experience tax-advantaged investing,” Musson said.
High-interest debt can drain your paycheck, as you end up owing more than you borrowed. Paying off that debt with the proceeds of the sale of a home can free up your finances to prepare for a stable future, Musson pointed out.
Specifically, Carrillo said, you should try to pay off student loan debt — especially as the Trump administration has just stated that they will be suspending some student loan repayment plans, making it harder to delay or reduce payments.
“With over 5 million borrowers recently in default, significantly impacting their credit scores by an average of 130 points, eliminating this financial burden can provide long-term relief and open doors to better credit opportunities,” he said.
At the very least, it’s a good idea to put your proceeds into a high-yield savings account while you decide what else to do with it, as you’ll earn interest, Carrillo said.
Additionally, safer short-term vehicles like high-yield savings accounts (many of which are offering 4% to 5% annual returns) deliver steady, low-risk growth while maintaining liquidity.
A high-yield savings account is also the best place to keep your emergency fund, Musson said. “So, if you don’t have a fully funded emergency savings account, you may be able to immediately fund yours with the profit from selling your home.”
If you’re thinking about selling because you want to get access to the equity you’ve built up in your home, there is one other option, according to Michael Gifford, CEO and co-founder of Splitero — and that’s a home equity investment (HEI).
HEIs allow you to access the cash you need for things ranging from paying off debt or renovating your home, without taking on additional debt or having to make monthly payments, he explained.
“Homeowners can also stay in place and still access the cash they need — without trading in their 3% mortgage for a 7%-plus one.”
Whatever path you take, be sure to talk it through with a financial advisor so that you don’t end up wasting opportunities to grow your funds and minimize taxes.
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This article originally appeared on GOBankingRates.com: Finance Experts: 8 Best Money Moves To Make With the Proceeds of a House Sale
