What would you do with unexpected cash windfall?

[CirclesandSpirals]

Hi All,

We’ve been waiting on an expected cash windfall (long story) of about £200-300k. We had earmarked this for fixing up our Victorian semi, do a side return extension, new plumbing and wiring throughout, new kitchen and bathroom etc etc. With the rising cost of building work, we expect that the renovations will take all of the money (and possibly more), but we would hope to be able to recoup that money and a bit more on the house when we sell in a few years. This is not our forever home, and we always intended to do it up and sell it on when the time was right for us.

Now we’ve heard that the windfall might actually work out to be as much as £750k (after capital gains etc). Even £500k would be life changing.
This is a big surprise to us, and I’m unsure what we should do with the money. We’re unlikely to get an opportunity like this again.

What should we do with it? What would you do with it?

We could spend a lot more on the renovations and make it into a much better house, but with property prices possibly stagnating in London, I worry we might not the recoup all the money when we sell in 3-4 years.

We could spend the original amount we had planned on renovations, and use the rest for something else.
We could pay down our mortgage.
We could invest in something (what?).
We could put it into pensions or away for the kids futures?

Or we could leave this house as it is and use the money to move to a better house. We’d lose the chance to make money on this property (the main reason we bought it) but the hassle and risk of a full renovation is a lot.

I’d love to hear others opinions. This is absolutely life changing money for us and I don’t want to waste this opportunity by not being prepared should it be significantly more than we anticipated. What would you do?

Definitely watch the Rebel Finance School videos on YouTube - also join their Facebook page. great place to start to understand finance

Pay down mortgage
possibly do extension / add garden office
Lock money away for DD
Put some in pension
Update car

This is enough money to justify a meeting with a financial advisor, who will consider your entire situation. Just make sure you are paying a fee to see him or her, or you may wind up speaking to someone trying to sell you financial products on a sales commission. Lots of chartered accountants will do this too, without the conflict of interest.

How much would the additional profit be from the renovation, and how badly do you need it now?

A major house renovation is a massive stress that will take over your lives for months/years. I'd be minded to skip it and use the money to buy a better house.

I agree with PP suggestion to meet with a financial advisor who is ready to work for an advice fee without selling you an investment product. What does or does not make sense will really depend a lot on your individual circumstances.

Regarding house renovations, it depends where you live I suppose, but my sense is that unless you are doing a lot of it yourself in order to keep costs down, it is VERY difficult to get a value uplift in excess of what you spend, unless you are doing cosmetic/superficial work to "dress it up for sale", or adding square footage for a lower cost than the value per square foot in your area. It can be worth doing work on a property for your own use and enjoyment if you stay in the house after, but doing work just ahead of a sale is not an easy way to make money.

I would look at the possibility of moving to a forever home mortgage free or very low mortgage, to save the hassle of disruptive building work only to move in a few years time.

Depending on how much is left, consider talking to an IFA but that depends on how much (not worth it unless well over £100k) and how you're set up for pensions and accessible savings/investments.

If you have DC, consider earmarking some of the money for university costs and house deposits.

If you'd benefit from it, possibility of electric cars?

The financial flow chart is a good 'to do list' of general financial things to consider so you can see how many you've ticked off so if it's everything, you have the freedom to consider working less and enjoying your money more.

ukpersonal.finance/flowchart/

In your situation, I would do the basics in terms of renovation so not bother with the extension and a new kitchen and bathroom, sell up later this year and use the sale proceeds and windfall money to buy the new house, ideally keeping a big chunk to invest and save. I think it’s too risky to hope to expect to make that money back, in this day and age with the gloomy economy and property market the way it is.

Invested 90% mine ten years ago and am retiring at 55 in December.

I’d look at moving to the forever home rather than put up with all the building work.
Max out your ISA allowances and Premium Bonds.

Could you move into your ‘forever ‘ / for the foreseeable home now by selling and buying ? If so I would do that.

I think that money can be made by refurbishing a complete wreck but that lovely extensions and upgrades to ‘ok’ houses rarely make the cost back. Do it because you want the space or the quality of life but iffy as an investment. IMO.

I wouldn’t bother doing the renovations if I was in your situation, since you’ve said you’re planning to sell in 3-4 years. It’s not long in the grand scheme of things and it’s entirely possible it would take half that time to get a decent builder to actually do it since the best ones are booked up months in advance.

It also sounds as if you’re not sure when you’re going to get the money based on your post, so you may easily be waiting a year or so for it before you could even consider engaging said builder!

Just do the basics to make it sellable if it needs it, and find your future home.

I’d prioritise pensions first then savings for kids. Money put into a house can’t be easily used in the future unless you downsize. The longer you save into a pension, the better the returns will be.

What are your savings like at the moment?

I’d just do basic renovation to the current house to get your money back then move to the forever home. London property at the £750k+ level is stagnant at the moment.

Thanks all for your input, it’s been extremely helpful hearing your perspectives.

Houses on our road are always in demand (we get notes through the door regularly) because we’re in a great school catchment area and close to a train station. There’s no doubt that our house would sell, but whether we would make the money back is the question. Things seem very uncertain in the housing market. I’m going to do some snooping on Rightmove and see if anything is stuck on the market and most recent sold prices.

Thanks to everyone who suggested meeting with a financial advisor, I hadn’t thought of that. I’ve got a recommendation for an IFA from a friend so I’ll book it with him once we have the money.

Yes, the time line is a little uncertain, but it should be through by May at the latest.

I think I’d want to find a balance with the money (assuming there is enough) between improving where we are living (reno or move) and shoring up our future / providing a future income. I guess if this was 8-10 years ago we might have gone down the buy-to-let route, but I hear everyone is getting out of that now because of all the new regulations and the returns aren’t really worth it.

In my dreams we’d buy a holiday home but I think that’s probably not the best use of the money, and it would take a lot of managing!

Before seeing your IFA think of some answers to questions like when do you want to retire, do you want to go part time after 60 is pension planning your priority or is your kids getting a degree without loans what is your attitude to risk re investing.
Is being debt free including mortgage important to you or not, do you want a substantial nest egg for future in case of ill health before retirement age or are you happy to have used the money on a house and using the money that would have been a large mortgage payment to build up future savings there isn't one right answer but 500-750k is a large amount you don't have to do anything straight away apart from putting it in savings accounts until you decide
My personal opinion is to divide it into 100k chunks, one for education / kids house deposits, one for pension for you another pension Dh then one for replacement vehicles holidays etc and the rest on either renovation or moving . But renovations rarely make substantial profit so only do what will actually make your personal lives better not what you guess will be best for the market, people rip out brand new kitchens as not to their taste