First flip complete. Now what???

Question

I recently finalized my first flip. We purchased a home for 130k put about 30k into it and sold for 245k after all taxes and fees we ended up with 220k in the bank.

We are currently looking for the next deal but in the mean time what do most of you do with your money during the lull??? I have a good chunk of change and would like to keep growing it while I look for the next deal.

Steven Laub · Answer

Thanks everyone. That was certainly helpful getting some insight into how others manage their money between flips. I am hoping that this next deal that we have a bid out for now will work out. J you were right red was the winner... 400k ;) After all of the responses about staying away from the markets I do believe that it is a good idea. BTW I really enjoyed the book...

J Scott · Answer

Just realized I never posted an actual useful response in addition to my bad joke...

I think the big question here is:  How long do you think it will be until you need the money for your next project, keeping in mind that you'll likely want the money in some relatively liquid format to provide POF for potential deals?

If that amount of time is less than 2-3 months, you're probably best to stay ultra-liquid, meaning a savings account or money market account.

If that amount of time is likely 4-12 months, you're probably best to use a short-term CD (though I'd still leave it in a savings account).

If that amount of time is likely 12+ months, that's when you can start considering alternative investments.  Personally, I wouldn't put the money in a stock/ETF or bond fund unless my time horizon was 5+ years to need the money, but I think one year is the right amount of time to start being concerned about the money just sitting around.

Btw, if the number is right about a year, perhaps consider making a loan or two to other investors...

J Scott · Answer

Put it on black...

Just kidding...red is always the safe bet!

:-)

Jacob A. · Answer

I 100% agree with Account Closed .  I have my first flip on the market at the moment and any money I make on it will be going to paying off my primary residence and paying off my fiancé's student loans.  I read an article recently that quoted Mark Cuban regarding the best investment advice he ever received and he said "Freedom from debt is worth more than any amount you can earn."  Couple that with that fact that you can borrow against your equity in your home like Minh said and it makes the most sense to me.

Account Closed · Answer

Steven,

Congrats! That's about a 40% profit on the flip.

Other than putting the money in the savings account and collecting 0.25% interest rate, there's another alternative that I think it might make sense. That is paying off your primary house. Then open a HELOC on the house. You can use the HELOC for your flipping business. In the meantime, you save about 4%-5% interest rate on your mortgage, which is essentially the yield you get when your cash is idling. Why pay 4%-5% interest rate to save 1%-1.5% on the mortgage interest deduction when you have the cash idling?

Just my 2 cents. By the way, that's a beautiful name for your city.

Again, congrats on the flip.

Steven Laub · Answer

Hi David, I took you advise and wrote a success story.

http://www.biggerpockets.com/forums/48-general-real-estate-investing/topics/111368-success-story-flip-from-kuwait-qatar

David C. · Answer

@Steven Laub

you seriously just did a flip from Kuwait?  That's amazing, you should write up a success story in one of those threads.

That's some real motivation to try to find a way to do a flip myself, I mean if you can do one from Kuwait??  my excuses seem very small.

Chris K. · Answer

I think FDIC has been raised to $250k.

Johnny Aloha · Answer

If you need the money in the next 1-2 years, I wouldn't put it in a stock market, bond market, REIT, or any other mutual fund or ETF.  Yes, we've been in a bull market for 4 years, but that could end tomorrow.  Unless you are very educated and understand the risks, don't put short term money into stocks, bonds, ETFs, etc.

I would either payoff a primary and open a HELOC, as suggested earlier, or hold the money in treasury bills or an FDIC insured bank account.  Keep in mind FDIC insurance limits are $100k, so you'll need 3 accounts.

Darrell Shepherd · Answer

Good work!  You should figure out your cash flow needs, a lot of what you want to do depends on when you'll need/want it.  I do private loans when I'm cash heavy.  Lots of investors out there that will give you a good return on your cash with very low risk (If you do your homework) and not tie it up too long.  Its a juggling act when you do any volume on this stuff, sometimes I'm lending sometimes I'm borrowing.  Might be hard to do draws and such overseas, though if they're doing a rehab.

The real answer is to go find another deal!  Plenty of places to park money, but you're better off putting it to work.