Where to invest down payment while house hunting?

[Kim Leduff]

Hi BPers,

We are hunting for investment properties and in the meantime have a significant amount of cash in our checking accounts ready for when we want to pull the trigger with a down payment. I feel like there could be a better way to earn interest on this money while we hunt. One idea was to put it into Index Funds for the time being. Another idea is to put it in a high yield savings account (Some credit unions have 3% on amounts above 20k for instance). I'd love to know best strategies.

More Info:
This is for additional investment properties
Hunting can take 3-7 months
Amounts above 20k+

[Jacob H.]

The stock market is the place where you have the greatest chance of making the highest returns while you wait. However, a sound investor understands that for manageable risk and success, the long-term play is essential. If you are expecting to use the cash within the year, placing your money in low-fee index funds (like a vanguard S&P 500 index) would essentially be a gamble. If you expected to pull that money out in 10 years, there's a much higher chance that you'll have gains. With higher reward, there is high risk and I'm sure you're aware of that. If I was expecting to be purchasing a real estate property within the year and had $20k+, I'd probably place a smaller amount into the stock market (but not so much that it'll affect my ability to make the down payment) and put the rest in a high yield checking/savings account. Again, the likelihood of the overall stock market being higher in 30 years is pretty great. The chances of it being higher within the next 3-7 months is 50/50.