How do you grow capital while saving to invest?

Question

Hey BP! I have spent a lot of time studying the real estate world, but I am still lacking in the rest of personal finance knowledge.

I have decided to only focus on the BRRRR strategy moving forward, so I am saving up to purchase my first cash property in 12 months.

Some context, I am still full time in the Army and have had my real estate license for about 8 months. I am building my sales business currently, and work mostly with investors in the Columbus, GA and Atlanta areas. I am focusing on growing my sales business and saving all resulting capital for my BRRRR.

Obviously, cash in a savings account is not a great idea. Where do you recommend placing this cash while I continue to build? Something ideally able to be liquid in 12 months, possibly sooner if I decide to partner on a deal while I wait for my capital to grow to where I need it. I don’t want to lose out to current inflation rates, and would love to for it to have some additional growth besides just what I contribute. Thank you!!!

Gene Livingston · Answer

"Obviously, cash in a savings account is not a great idea"

Not posting any financial advice here, but...its NOT obvious that cash is a bad idea (as of April 2022). Why? Because your timeframe is 12 months or less. If I were in your situation I would consider that...

*The Dollar Index (a weighted basket of various foreign currencies) is currently getting smoked against the Dollar. In other words, most foreign currencies are FALLING right now against the Dollar (Dollar is rising). The Dollar is also rising against Bitcoin (the only "crypto" that actually matters).

*Gold is performing well, gold stocks not so much; but gold has short-term volatility

*Some REITS are doing well, some aren't (DYOR/DYODD); income generated would be taxed, so meh, in the short term. (better to hold REITS in a tax-sheltered way, like IRA accounts).

*Fed is raising rates while economic activity is crumbling, the rate of change in inflation is slowing (in other words, inflation is high, but its rising at a much lower rate than it was last year), oil prices are creating demand destruction, and the US/UK are trying to create WWIII.

*the current macro setup is bad for stocks (rising rates + declining real economic growth)

So my point is, if you are stacking cash for a likely real asset purchase in the near future...cash is perfectly fine. If your time horizon were further away then I'd answer differently!

Doug Spence · Answer

@Cody Smith I agree with @Caleb Brown. If you haven't already used your VA entitlement, then I would 100% house hack a 2-4 unit. Otherwise, I would find a private lender or hard money lender to get you the cash to buy an off-market property for your first BRRRR. Yes, it will cost more than using your own cash, but how much potential appreciation, cash flow, and knowledge will you miss out on whe you wait to save up the cash?

Most dilemmas in real estate can be solved by thinking about 'who' not 'how'!

Good luck and keep us updated on your progress.

Most dilemmas in real estate can be solved by thinking about 'who' not 'how'!

Good luck and keep us updated on your progress.

Mike Dymski · Answer

Online savings account.  Google search "best online savings account" and you will find nerdwallet.com and other sites that have reviewed them.  Citi, Marcus, Discover, and Ally have been common ones mentioned on the forums in the past.

Caleb Brown · Answer

I would use a VA loan and house hack. Gives you a learning opportunity and you can ride the appreciation wave. Besides that you could partner and invest the capital you have.

Cody Smith · Answer

@Caleb Brown @Doug Spence thank you both for the responses. I agree, the VA loan is a phenomenal option for anyone to get in a house for free, and a house hack would be ideal. However, I have two VA loans already, both in my current market. I am not willing to sell/refi out of either property and find it more beneficial to keep those loans for now. Additionally, MF is hit or miss around here as far as one I would be willing to put my family in.

For the private/hard money, I have considered this as a potential option to use prior to the 12 month mark. I have some investors I am working with that I could partner with, problem is I need to get a couple deals done correctly for them personally first before I will approach them about the partnership. Just my view on it.

Cody Smith · Answer

@Gene Livingston wow. That was a lot of very well thought info that is well above my head lol thank you! My first thought for setting the capital was to just place it in the market for the short term in conservative index funds or something similar, but the market isn’t looking so great for making me money at the moment, at least through my uneducated perspective. Buy the dip??? Lol

Joe Garretson · Answer

Lots of info there. Not sure I agree about US/UK trying to start WWIII but that's probably a different forum for us to argue in lol.

I was going to ask a very similar question to the OP. I'm in cash stash mode for my first investment property. I'm at $13k at this point, all in Betterment at a 90/10 stock/bond split. The market is eating away at not only earlier gains but principal at this point. At my current savings rate I'm estimating to be at my goal of $50k in August 2024. That estimate is predicated on 5% return on investment in the market. Got any suggestions beyond sticking all the money in Betterment that might balance out the market over the next two years? Or just figure that over the next two years, my return will be close enough to 5% to negate any gymnastics of moving money here, there and everywhere?

How do you grow capital while saving to invest?

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