Ronald McDonald house 2014

[rasaid111]

Could someone answer my question please?
if you win the 4,000,000 Ronald McDonald house, what of the following options could you choose and why?

1.- Receive the cash for only $1,400,000
2.- Receive $2,100,000 through 20 years $8,750.00 monthly
3.- If you have enough money to pay everything, title, taxes, etc. then try to sell the house a better price, how much money do you think that could you receive for this house?
Thanks for your response

[Coronita]

lol…… This is a joke, right?

[scaredyclassic]

I think you can also opt for 1.9 million in burgers and fries.

[Coronita]

[quote=6packscaredy]I think you can also opt for 1.9 million in burgers and fries.[/quote]

Not in NYC… I think super size drinks are banned (still)….

[spdrun]

^^^

LOL, no… that was struck down by a court ages ago.

Getting back on topic, I’d take the lump-sum cash as follows.

Say $950,000 after taxes, invested in rental property at 7% = $66,500/yr = $5,541/mo. If it’s in rental property, deductions ensure a lower tax rate than that on the $8,750/mo, and my return (rents) will likely go up over time, plus it will last longer than 20 years. Seems like a better deal than the 20-year payout, especially since the payor could go bankrupt five years from now and I’d be left with bupkiss.

I may consider taking the house IF it’s actually worth $4 million other than on paper and if I can get a hard-money loan to cover my up-front expenses before I am able to sell it.

I’m not greedy, but I’d always prefer cash in hand as soon as possible to invest as *I* please, rather than as whatever entity’s funds manager pleases. I’d sure he’s a good guy, but I probably don’t know him personally 🙂

[UCGal]

My gut instinct is take the cash.

But I always try to make the comparables more apple to apple.

If I were to buy an income annuity for 20 year period certain (in other words – it pays for 20 years, not a month more or less – benificiaries get it if you die sooner.)
An annuity that pays $8750/month for 20 years would cost you: 1,558,361. (This is from immediateannuities.com plugging in single male age 40).

Then you have to look at taxes. If you take the lump sum, and pay taxes on it – it’s mostly taxed at the maximum bracket. So you have a one time huge hit. If you take the annuity – that’s $105k/year – which means a much smaller portion of the money is taxed at the high rate. (Especially if you quit your job).

So… after doing the math – I’d do the annuity, and invest it in index funds. (And push my retirement sooner.)

[(former)FormerSanDiegan]

14296 Dalia Dr, SOLANA BEACH, CA 92075

Zillow thinks it’s worth $4+ mil

[an]

I’d take the house if it’s truly a $4M house, assuming that I can sell it for $4M. I would then sell it, pay the taxes, and invest the $1.9M. I can never see myself living in a 7k+ sq-ft house. I rather live in a small house w/ panoramic ocean view than a ginormous house w/out ocean view.

Do you have to pay the tax on day 1 or do you pay it at tax day? What happen if you don’t pay the tax right away? How much penalty do you incur?

[spdrun]

You’d likely have to make an appropriate estimated tax payment for the quarter that you won the prize.

If you do that late, you’ll likely be charged ~3% per annum interest rate until you do. TSOR says that money only gets withheld up front in case of a cash prize.

Thus if you can sell within 6 mos to a year, there’s likely some wiggle room.

[an]

[quote=spdrun]You’d likely have to make an appropriate estimated tax payment for the quarter that you won the prize.

If you do that late, you’ll likely be charged ~3% per annum interest rate until you do. TSOR says that money only gets withheld up front in case of a cash prize.

Thus if you can sell within 6 mos to a year, there’s likely some wiggle room.[/quote]Then, wouldn’t it be cheaper to “borrow” from the IRS than hard money? 3% beats 10%+. I’d totally get the house and sell it. Then pay the taxes from the proceed of the sell. Even if it takes >1 year (that just mean you’re not pricing it right and price of the house isn’t really $4M), it’s still worth it to just “borrow” from the IRS than anyone else.

[joec]

This is not tax advice for anyone’s situation so consult your tax adviser first…

The 3% varies based on what interest rates are currently…Obviously, if you have other debt higher than 3%, you might want to consider it, but you can’t deduct underpayment penalties like student loans or mortgage debt or business debt…A business might just get other loans and just deduct it against income which maybe better to overall minimize taxes.

I’m not sure if taking the annuity is better. Remember that after 20 years, that 104k is no where near what it is today. You also have to look at how much income a lump sum can generate vs. an annuity of 100k per year vs. taking say 1.2 mil after taxes.

It’s probably overall the same, but with the cost of money and inflation and lack of control, I think people who can manage their finances are probably better off taking the lump sum.

[moneymaker]

House just lost $104,000 in the last 30 days according to Zillow. Is there an HOA there? That might be a deciding factor for me, and if so how much is it? Seems like a relatively small lot for the area, is the old owner going to build another house right behind it?

[rasaid111]

Where did you find the address?

Thank you

[rasaid111]

If I understand your response, I don’t need to pay taxes immediately, I can wait to sell the house and pay the taxes and 3% interest. right?

For you how much money could you receive after all expenses if you sell the house for $3.5 instead 4
Thanks again

[an]

[quote=rasaid111]If I understand your response, I don’t need to pay taxes immediately, I can wait to sell the house and pay the taxes and 3% interest. right?

For you how much money could you receive after all expenses if you sell the house for $3.5 instead 4
Thanks again[/quote]Take $3.5M, then subtract ~53% for taxes. You can then round down to the nearest hundred thousand to for fees/penalties/etc. I’m guessing $1.5-1.6M? If you invest $1.5M lump sum in a long term CD making say 3% over 20 years, you’ll have ~$2.7M after 20 years. That sounds better than $2.1M if you take the monthly cash payment. Increase that rate to just 4% gets you $3.2M after 20 years. Still very conservative estimate for a 20 years average, IMHO. Considering ~7-8 years ago, you can find CDs in the 6-7% range.

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