Where to Keep Cash Between Projects

Question

I was thinking of selling a 3-plex I have in Denver. I will not be able to reinvest the money for a few months after the property is sold. So, I have a simple question: Where do people keep large sums of money in between projects/Deals? Is it as simple as just keeping it in the checking Account? If it is, are you worried about having these large amounts in one place, at one time? Maybe you have other ways of storing money while keeping it relatively liquid, and available for another deal?

Glenn McCrorey · Answer

For a few months I would just leave it in the bank.  Safe and liquid plus it feels good and it makes loan underwriters love you.

Edward Burns · Answer

Another option, is to open a stock brokerage account, most are free and will invest any funds, not in stocks etc.,  in the account in a "high" interest bearing account.  These funds can be transferred to your bank account within 72 hrs. or with many brokerage accounts, you can simply write a check.

Bill Gulley · Answer

Money market accounts for short term liquidity. not great but pays interest.

CDs staggered out with a maturity distribution, 30, 60, 90 days can roll over or be cashed at maturity. Check for higher rates paid nationally.

I don't think you'll be in a bond fund or T-Bills, but you can also ask your bank about investor services. :)

Kevin Fletcher · Answer

@Edward Burns Wow, you're right, I didn't understand. I will deinitely look into that

Edward Burns · Answer

@Kevin Fletcher

You misunderstood my post.  I was not recommending that invest in the stock market, but rather that you allow a large brokerage firm to "bank" the funds for you.  Brokerage firms take most of the money from their clients accounts (not that in stocks but the remainder) combine them and deposit them until used in a high interest savings account.  By combining your funds with others they can and do demand a higher interest rate (of course they take a cut) then an individual can usually get.  Plus some offer monetary incentives for opening an account (but you have to read the agreement carefully).  One I'm currently in offered $150 if you opened an account and put at least $25/month into the account for 6 months and no minimum for opening the account. I opened the account with $250, put $50/month into it and will have $700+a little interest in 3 more months. In this case a rate of return of $150/$550 or 27% in 6 months on a government insured account.

Kevin Fletcher · Answer

@Stephen Lofthus and @Aly L Im gonna check out that American Greed for sure, that show is crazy. Yeah, that's why I asked, I get nervous just having big amounts of money in the bank. I feel like my visibility is high.

@Dipo Aromire and @David Krulac I Bought the multi-unit in 2008 and since it has dropped in value and came back to around where I bought it for. I may not be worth the trouble for the small gain I made on the property to this point. I'm just trying to free up some capital so I can work a few other deals I'm hoping to get later this summer. So i will definitely use the 1031 exc. in the future.

@Edward Burns Yeah,  I need to learn a lot more about stocks before i head that route. With real estate for me the risks are measured, with stock and my lack of comfort with the market I feel like I'm just gambling. At this point id rather not make a dime then lose money on stocks, but i know thats not sustainable. I need to learn more and make smart decisions, cause with inflation, not making money on your money is losing money

Aly W. · Answer

@Stephen Lofthus

I just watched that episode too! A friend's friend was the woman named Bonnie who lost her life savings.

Jeff S. · Answer

You'll be lucky to earn 0.25% APR on a three month CD now, @Kevin Fletcher  -- hardly worth it for the few months you state.  With interest rates this low, you might just put your money in an FDIC insured account at a large bank, as Glenn suggested.  If you know you need it for an upcoming deal, then don't risk that deal for a higher short-term return.

If you don't have anything imminent, you might consider buying a rehab note from a local HML.  Many sell their notes, where they keep the points and you keep the interest.  This could be for 6 to 8 months but, since stuff happens with flips, there is no guarantee, so you can't rely on getting paid back by a certain date.

First position notes to experienced rehabbers are generally safe, so long as you do your homework. Depending upon the local rates, you could make 10 or 12% APR or more on your money.  Notes are fungible and can be assigned over an over, so you're not necessarily locked in.  That is, a motivated property seller might accept your note as partial payment.

No matter what, don't get greedy for what could be a minimal return in dollar terms. Maybe you'll decide to lend instead of continuing to landlord :-)

Jeff

Jon Klaus · Answer

If it's just a few months, leaving it in the bank may be the best option.  On the other hand you might keep your eyes open for a a quick flip that needs little or no rehab. If you don't find the right one, don't sweat it.

Where to Keep Cash Between Projects

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