Should you invest a lottery win in real estate? Admittedly! The chances of becoming really rich with a lottery win are rather small. Experts speak of a ratio of 1 : 140 million. And yet, week after week, countless people put their crosses on the lottery tickets in the hope of hitting the famous “jackpot”. Everyone dreams of the big win and what they would do with it. And what if the dream becomes reality? Investing in a capital investment?
Lottery win is here: Is investing in real estate worth it?
In this article you will learn what to do first. First, keep calm, keep your money together and do not trust your information to anyone. In short, keep calm. We’ll go through this step by step. What are the most important questions? What is the right thing to do if you win the lottery? What are safe investments? And… what do you do if the really big windfall really does come your way? All reputable lottery companies employ lottery advisors who provide comprehensive advice to an actual winner.
One more time:
Reputable lottery companies employ winnings consultants
In the event of a win, please always contact the official lottery company winnings advisors. Here you will get all the important and latest information.
As a lottery winner, you are doubly lucky. Lottery winnings are considered non-taxable income. So you get the full amount from the jackpot. However, as soon as people find out about your winnings, the peace of mind is quickly over. Financial advisors, tax consultants, who knows your individual situation better than you do?
Instead of relying on external advisors who will approach you with knowledge of your assets, think for yourself about a sensible investment strategy. If in doubt, take tax coaching from an expert to build up your own knowledge. However, stay in control of your money if you have no previous experience with large sums of money. Learn how to deal with finances and taxes. For example, this article can give you a start: turning taxes into personal wealth. Because instead of spending or “investing” your money right away, think about the possibilities.
First: Hold your money (short term)
If in doubt, put your money back into a savings account first. That doesn’t pay much interest, but it doesn’t carry any risk either. Or, get ETF funds. These are index funds that combine different companies into one security. The risk of default is very low. An index fund you probably know is the DAX. Here the 30 largest German companies are summarized. Even if a company defaults, the index remains stable.
My recommendation, as from any reputable investment advisor: don’t buy sports cars, invest in real estate. That won’t bring you immediate, big profits, but it will bring you long-term stability. Retirement provision, if you like.
As seen later in the videos, many winners spend their money. On sports cars, expensive trips. The standard of living increases. Once the bank balance drops, it becomes hard to roll back that upscale standard of living. This is exactly where most lottery winners run into problems. Insolvency is often the consequence.
Why? The money is invested in short-term “fun”, not in long-term investment
Don’t buy a sports car! Invest safely & for the long term
No matter whether the prize is only a few hundred thousand euros or millions. What opportunities the real estate market has in store for lottery winners and what the winner should look out for, we will clarify on the following pages. Once again, my main point is to tell you:
- Always invest safely and for the long term
- Short-term profit means more risk
- Risk is too dangerous without experience
- Think about your retirement provision
You can still buy the sports car then.
Here’s a little anecdote, too:
A friend in the business always wanted a Ferrari. At 27 he was able to buy his first Ferrari, red of course. No matter where he parked (meetings), he always had to have it in view. People constantly leaning against the car for photos. Any parked car is a risk. After 3 months he sold it again, at a high depreciation. Not only was the money gone, but so was his dream. The conclusion: Now he had a Ferrari and as beautiful as the dream was always, the reality was not.
Therefore, always think long-term. For you and your environment.
Step 1: Equity and leverage explained
First of all, without any tips and tricks, you need 20% equity to buy a property, and the bank will finance the rest. This is called the leverage effect.
Equity capital: 100,000 euros (20%)
+ Bank: 400,000 euros (80%)
Purchase price: 500.000 Euro
So you get an immediate equivalent of 500,000 euros, for the investment of 100,000 euros.
Step 2: Renting instead of owning
Just as there are mistakes for lottery winners, there are mistakes for home buyers. One is owner occupancy. Without going into exactly what the detailed benefits are. For creating living space, you get one euro per investment, another from the state. Thus, you further increase the investment amount. In short:
The landlord pays the loan of the property
So ideally, you can buy the next property after a few years. All this, without tips. With the right tax knowledge, you can of course act even faster. But that’s not what this is about, it’s about the security that real estate offers as an investment.
You manage with a value of 500.000 Euro, instead of 100.000 Euro
More tips on the topic: Buying and renting (external)
Step 3: Find a property
You can find real estate in a good location in every city! Really in every city.
For now, however, this little insight should suffice.
Frequently asked questions about winning the lottery
The 3 most common questions are: “Which bank do I go to with the lottery winnings?”, “Will the lottery winnings be taxed?” and “What to do if I win a big lottery prize?”.
Which bank do I go to with the lottery winnings?
Any German bank is a good place to start. The interest rates hardly differ at the moment (current low-interest phase).
Will the lottery winnings be taxed?
Good news: Lottery winnings are considered non-taxable income. So you, as the player, are entitled to the full amount from the jackpot. Lottery winnings are not taxed. So from a tax point of view, as a lottery winner you are lucky again. This is conclusively stated in §2 para. 3 EStG. Here it is stated which incomes are subject to income tax. Lottery winnings are not listed there.
§2 para. 3 EStG:
(1) Subject to income tax:
- Income from agriculture and forestry,
- Income from business operations,
- Income from self-employment,
- Income from employment,
- Income from capital assets,
- Income from letting and leasing,
other income within the meaning of § 22 that the taxpayer earns during his unlimited income tax liability or as domestic income during his limited income tax liability. 2 The type of income to which the income belongs in the individual case shall be determined in accordance with §§ 13 to 24.
(2) Income is:
- In the case of agriculture and forestry, business operations and self-employment, the profit (§§ 4 to 7k and 13a),
- For the other types of income, the excess of income over income-related expenses (§§ 8 to 9a).
In the case of income from capital assets, section 20(9) replaces sections 9 and 9a, subject to the provision in section 32d(2).
… Continue reading at Source: Federal Ministry of Justice and Consumer Protection.
What to do if you win the lottery big?
I want to go into this question again in great detail.
What is the right thing to do when you win the lottery?
“Keep calm,” advise the win advisors. It is important to keep the good news of the win to yourself at first or to share it with your partner under the seal of secrecy. Winning advisors repeatedly stress that lottery winners are asked for “credit” by real and supposed friends. Apart from the dubious preservation of these friendships, these “capital investments” are of no use.
Peace of mind: contact asset manager
In order to be able to think about the right use of one’s profit in the required peace of mind, the classic call money account is a good choice. The interest rate is of course minimal, but for the necessary planning time of about half a year, this safe money park, which you can also dispose of at any time, is completely sufficient. This period should also serve to not tell anyone about your profit or to change your standard of living, for example.
Depending on the amount of the winnings, one or the other lottery millionaire also makes the mistake of quitting his job immediately. This is exactly what the lotteries’ winnings advisors also advise against in public statements. Above all also because the “range” of a smaller million profit is shorter than one generally thinks. Depending on age, standard of living and one’s wishes, the million-dollar sum would have to be in double figures in order to give up working altogether, experts say.
What happens after winning the lottery?
Videos are worth a thousand words. This is the typical procedure after winning the lottery.
Downside and risk: When lottery millionaires become impoverished
As mentioned at the beginning, the wrong “investments” can ensure that your lottery winnings are quickly gone. Examples abound, like here:
Suddenly a millionaire? Where to go with the millions?
What do other experts have to say about the sudden lottery win? Here is an insightful interview.
Investment guide: Serious investing
In any case, according to reputable profit advisors, the profit should be divided among various forms of investment. “The spread risk provides security against losses on investments” – This applies even to profits in the purely six-figure range, they say. In addition to shares, pension insurance with monthly payable immediate annuities, it can also be a rentable property in which the lucky lottery winner invests part of his winnings. But which property suits which winnings?
10,000 euros, 100,000 euros, 1 million euros from when is it worth investing in real estate, shares, funds, overnight money, cars and art? Consumers can use various options to invest capital. There are many mistakes. Therefore, investors should know in advance what risks they actually want to take. For the final selection of the individual capital investment is important, how much capital you want to invest. Already knew? Real estate can offer additional tax advantages for capital investment.
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Good luck with your learning! Buy, invest, hold and sell: