Should I have cash on hand before investing in Real Estate?

[David Yee]

Hello,

I'd like to start investing in real estate within the next year. I don't have much cash on hand because every month I put money away into index funds and only keep enough in savings to cover about 3 months worth of living expenses. Should I start putting away cash in my savings account now and stop putting money in the stock market so I'll have the cash readily available for a down payment? How far in advance of my down payment should I have the cash on hand? I'm not sure of the correct strategy because the stock market could be way down when I want to invest in real estate which would make selling my stocks less than ideal.

Thank you!

[Zach Lemaster]

@David Yee

None of us want to have too much cash sitting in the bank with 40yr high inflation currently, but you will need some. Banks require 3 months mortgage payments as a standard for reserves. My opinion is to have 6 months, or min of $5k per property up to 3 properties before reducing that if the home is newer, or in good condition. It's necessary to have reserves beyond that for life in general, but don't keep it in the bank. Just make sure you have reasonably quick access to capital if needed. A HELOC or LOC could also be a great option for reserves without having to keep capital stagnant in the bank. Keep in mind you will need at least 20% down for a pure investment property if not house hacking.