$175k Windfall: Is it not even worth looking at real estate investment these days?

Question

Background:

Ages: 41 and 37. No Kids.

Income: $160k

Retirement Savings: ~$900k

Home Equity: $250k

Cash: ~$130k not counting windfall.

Debt: $203k on mortgage at 5.125%.

Recently inherited $175k. Not counted in above numbers.

We had owned investment properties (long term and AirBnB) in the past but cashed out a few years ago have not looked at real estate for the past few years; I know things have gone crazy since then.

I guess my open ended question is that after looking at a couple of properties from a rental perspective; I'm getting the strong impression that it will take a ton of effort these days to get even a 7-8% return on anything but a low end property; and that just paying off our mortgage and taking the 5.125% risk free instead of investing it in any other way is looking better and better the more I try and find real estate to invest in. Just wanting a sanity check on this conclusion I'm reaching.

Maybe, is there anything I'm not thinking about?

Travis Timmons · Answer

I've sold 3 businesses, and my lesson learned after a cash windfall is to not do anything for 6 months. You have this itch like you have to do something with it or you are losing money. That's just not true. Nothing fails like success and stupid loses more than smart wins.

And I would not invest that cash in real estate unless you like or love real estate. Margins are just too tight to give up that kind of liquidity if you are not all in on RE as a business.

V.G Jason · Answer

Likely not worth it to invest in RE, unless you are a total nut for it. Best advice is to give it a thought process of what you can do.

This isn't advice, but what I would do personally if I had that income/no kids is pay down my mortgage via recast to get it down to about $2k/annually. So if you have 25 years left total $203K that means pay it down 50k(apply $153k of the 175k) through a recast.

The monies you are saving via the recast you invest in other areas 9-10 months/year and 2-3/months year enjoy life with some fun stuff. You have bird in hand, peace of mind by low debt now, and can escalate the risk the factor as it comes but also on a drop of dime run up the "life" factor and enjoy it some too. The simple view is you cannot predict what will happen, but you can prepare for it. I think reducing debt, and having optionality to go from investing to leisure is an immeasurable joy.

Becca F. · Answer

@Michael Zagorsky

I agree with the other comments. You mentioned cashing out of the long term rentals and AirBnbs you had before. Was that because you didn't like investing in real estate anymore? Not trying to be too nosy. There is a hassle factor with RE for sure.

For me if I came into a windfall, it'd be toss up between putting it in index funds and buying more real estate. My reasoning is to buy a rental property to leave my kids more property so they can either continue renting it out or one of them move into it as their primary home. It would NOT be for cash flow reasons for me - in fact I'd be break even (at best) without accounting for future capital expenses or vacancies, etc if I bought a new build (lower interest rate with builder) or negative cash flow. I bring this up because I've seen at least 6 posts (specifically from CA investors looking for cash flow).

I want to leave my kids assets because I think the younger generations will be in a very bad financial spot, unlikely they'll get Social Security, inflation, other world issues etc. I'm willing to sacrifice some of my own comfort and retiring earlier for my kids.

I'd leave the money in a HYSA and let it sit while you think through your options. Good luck.

Julius Vincent · Answer

Hey @Michael Zagorsky - If you bought a short-term rental (even with modest cash flow) and qualified for material participation, you could potentially use bonus depreciation (now back to 100% in 2025) to offset tens of thousands in W-2 income in the first year. That kind of tax play can bump your effective return way beyond what the surface numbers suggest.

Even on a long-term rental, using a cost segregation study could front-load depreciation and increase your paper losses, especially useful if you or your spouse ever qualify for real estate professional status (REPS).

Paying off the mortgage gives peace of mind and a guaranteed return, but investing with a tax strategy might give you more leverage, liquidity, and long-term upside, especially if you're open to STRs or syndications. Just my take.

Sam B. · Answer

Honestly no. The numbers do not work.

Patrick O'Sullivan · Answer

Hey Michael,

Totally hear you on the challenge of making deals pencil out right now. Between higher interest rates, inflated prices, and compressed rents in many markets, finding properties with solid cash flow takes either a lot of digging or a willingness to take on more risk.

Your idea about paying down the mortgage isn’t crazy at all. A 5.125% return (guaranteed and tax-free if it's your primary home) is not insignificant in today’s environment. That said, there might still be opportunities depending on what your goals are and how involved you want to be. Since you've already been in both long-term and short-term rentals, you probably have a good sense of what level of work you're willing to take on.

One thing you might consider: What role do you want this $175k to play? If it’s about growing wealth, maybe you allocate some toward investments with higher upside (even outside of real estate), and keep some liquid or low-risk. If it’s about peace of mind or freedom, then reducing debt or keeping the cash parked makes a lot of sense.

Also agree with others here—there’s no rush. Letting the dust settle and waiting for better opportunities or clarity on your personal goals can be a smart move.

Appreciate you sharing your thinking—lots of folks are asking similar questions right now.

Emily Valenzuela · Answer

@Michael Zagorsky

In regards to your question is there anything I'm not thinking about: Have you considered putting yourself in a position to be the bank? There would be less work, less risk (if the money you lend is secured by real estate), and potentially higher returns. You can lend directly to people you already know and trust that are already active in the real estate space, or work with a company such as Fundrise or Groundfloor. You could also look into investing in real estate notes rather than making the loans directly your self. Admitedly, purchasing notes is not something that I have any experience in. However, I do know there are companies out there that can help you with this and it is an arena that people with more cash than I have yet to acquire tend to play in.

Alecia Loveless · Answer

@Michael Zagorsky You can get into a lot of deals with $175K as a down payment. Depending on the market many would not necessarily be low-end properties. If you bought a multi unit property and had a 40% down payment you should be able to find some that cash flow.

That being said my primary is paid off and I enjoy the security of that.

Only you and your spouse can figure out what path makes the most sense for your situation with this money.

If you’re still undecided put it in a HYSA for a while and ruminate on the possibilities.

Nicholas L. · Answer

@Michael Zagorsky

i totally agree with your first point.  margins on real estate have been compressed because prices are high, rates are high, and demand is high.  i keep getting outbid on deals and wondering, how are they going to make money on that?  do they know something i don't?

but, with that said, i don't know that the ONLY other option with cash is just pay down your mortgage.  that's a very personal decision that i wouldn't be comfortable advising someone that i don't know on.  that's not a bad rate.

$175k Windfall: Is it not even worth looking at real estate investment these days?

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