Where should I park my capital?

Question

Where do you like to put your capital while you are saving for a real estate deal? Currently my capital is sitting in a savings account gaining nothing. I’m wondering if I should be putting my capital somewhere that makes a modest gain until I am ready to make a buy and hold investment about 1.5 years from now? What do you do?

Ivonne Pinedo · Answer

@Alec McGinn another place to park funds is a local MCA company. We have our real estate reserves parked there and receive monthly checks for the contracts. We also get 1099's to report our earnings at the end of the year. Feel free to message if you have questions.

Fahadbin Alam · Answer

@Kevin Dean So when you're saving up for real estate do you invest in ETF's and mutual funds or do you open a ROTH account?

Andrew Syrios · Answer

If you're getting 2.25% and it's completely liquid, I think you're doing pretty good and would probably leave it there unless you don't think you're going to use it in the near future.

Ray Johnson · Answer

@Alec McGinn @Andrew Syrios I use the Goldman Sachs savings account (Marcus), currently paying 2.25% and rises as the rate index rises and it's always liquid, If you know you wont be using the money for at least a year, there's a CD they have to lock in for 1 year at 2.75% and an unlocked CD at 2.35%, all these rates are far better than the typical retail banks like Wells Fargo, Bank of America, etc...

Kevin Dean · Answer

Hey @Alec McGinn personally, when I am saving specifically for Real Estate, I use liquid money market securities. If you're plan is truly to take that money and allocate it to real estate when the time is right, then this is your best bet as it will provide liquidity and will hedge inflation.

Unlike many real estate investors, for many reasons I am still a big proponent for allocating a portion of your money to equities. When you are savings specifically for another investment however, investing in the stock market opens you up to timing risk. All of my money that I put into equities I see as long term retirement money, it will compound for decades to come. I know I cannot time the market, so I let it sit and will not sell unless I absolutely need to for liquidity reasons.

Putting your real estate specific savings into money markets will keep you ahead of inflation (unlike a savings account) and will keep you liquid without risking selling during a downturn (like investing in the stock market).

Let me know if you need any more specifics!

Zac Lester · Answer

I'd definitely start with something like an Ally account. Current rates are 2.20% which is better than the fraction of a percent it sounds like you're currently working with.

Andrew Syrios · Answer

That really depends. We often put our excess capital (or rainy day fund) in money market accounts (that earn about 0.5% interest) with the various banking partners we have. They all want deposits, so by splitting up our reserve accounts, we can keep them happy and lending to us. Before you get a loan, however, it's hard to say. A CD or money market will at least get you something (although not much), but other investments come with a lot more risk. It really depends on your risk tolerance I think.