deciding what to do

my wife and I are fortunate enough to come upon some money. Unfortunately, the money came by the death of one of our family members. We both realize that we should do something in the spirit of the person that left us the money and don’t want to blow it on a new car, a lavish vacation, or a big screen tv. What we want to do is invest the money in something that won’t loose value. Given the amount of our net worth in the stock market, we don’t want to put more into the market. The next option is property. This brings up the question of what do you do with your resources to improve your position. It got me thinking that this isn’t much different from a CIO of a company. Assume that you are part of a company that is publically traded. The stock rises by 2x over a year from the given market conditions, condition of the company, and great job that you and the rest of the executive team are doing. The board has opted to issue some new stock thus giving the company a influx of capital. The CEO has agreed that this money should be split across all divisions since an acquisition is not something that anyone wants to do. In doing so, the CEO asks for a plan on what to spend the money on. I realize that this isn’t common place. Most IT departments have to fight for any new dollars and if they are given any extra money it is to launch a specific project.

Given that my family has a blank sheet of paper, what property do we want to invest in? Pay for our existing house? Buy some rental property and become landlords? Buy some beach or lakefront property? Buy a timeshare in another country? It begs the question where do you want to be in a year and what incremental cost will you get with this new property. What cost is there of a new property.

Paying for our existing house has some positives. Given Texas law, once we own the house, it can’t be taken from us unless we start running guns or drugs across the border. The biggest disadvantage is that it effects the way that we file federal taxes. We might not be able to itemize but have to take standard deductions. This isn’t a big deal but it will increase out taxes by a few hundred dollars a year. On the positive side we won’t have to pay the thousands in interest that we currently pay. We also have a very low interest rate so if we are getting 6% yield in the market, we would be loosing money because our house value does not go up 6%.

Buying a rental property and managing it is another alternative. This will allow us to supplement our income assuming that we can rent the property for less than the mortgage and insurance. We can probably do this but there is risk. We will establish a relationship with someone we don’t know and won’t necessarily respect our investment like we do. We were renters once. I remember this one duplex in college that I totally trashed. Ok, I didn’t trash it, my new puppy did. I strongly believe in karma so becoming a slum lord is not something that I want to deal with because I don’t want to be on the other end of that nightmare.

Buying a lake front, beach front, or river front property is another alternative. The advantages of this are that it would give us a place to get away once a month and a place for the family to gather even after we all graduate. I see my oldest son about five or six times a year. If we had a common gathering place I can see this going up to ten times a year. As my other kids get older the same will be true. They are already talking about a place to build a tree house, building a canoe or rowing boat together and going down the river together. My wife is talking about leaving town on Thursday and coming back late Monday during the summers. We both have flexible schedules and can work remotely during the summer. The drawback is that someone will have to mow the lawn, water the plants, and make sure the property is secure. This also means another cable or satelite subscription for internet access remotely. It means another water, electric, and garbage bill. It means an extra tank of gas per month for driving to and from the new location. It means a boat or jet ski to play with on the lake. It means a new set of appliances for the new house. It means a net set of beds, couches, kitchen tables, you get the picture.

What about a condo or time share? We could easily do something like this. It gives us all the benefits of a lake or beach house without having to do yard work. Unfortunately it is something that will probably be rented to other people and we won’t have exclusive access to the property. We will need to plan out trips to our property and pay a management service to clean the property. True this will give us some additional income but it will also give us restrictions on how we use our new investment. We will also have to share the income with a management company. This isn’t a bad idea, just something that we need to consider. We also need to make sure we get a property in an area that we want. The monthly maintenance fee and management property fee will be additional expenses. We will also have to buy new furniture but not necessarily new appliances. This option will not have room for a tree house or an area where we can jointly build a boat or deck.

I guess I will need to ponder this a little more. I’m glad I’m not a CIO. I dont’ think I want to look at big issues like this on a daily basis. I tend to overanalyze things.