Where do you park your free cash?

[Craig Garrow]

Hey, everyone! I'm in the process of buying my second property, which would give me 5 apartments total. This would give me roughly $1000/month in cash flow between both properties. I want to keep about $10,000 in cash liquid in case of an emergency with one of the properties, but what should I start doing with anything above and beyond that? My goal is to keep saving money to buy more multi unit properties, so I would need to be able to access it without too much hassle or penalty to buy more deals in the near future. Thanks in advance!

[Scott Trench]

I keep a nominal amount of free cash in a personal checking account, and about $15K in a checking account for business and real estate related expenses. This $15K will increase now that I have another property and want even more of a cash cushion.

Every dollar over that is invested in index funds (my favorite is VOO). Sure, I risk losing all or part of it in the event of a market downturn, but historically, long-term investors have seen about 10-12% annualized returns in index funds like these. 

My theory is that even if I lose (I lost a few thousand over the last year or so), I'm fine with that because I believe I'm taking the statistically correct approach over the long term. Sometimes, I'll cash out at the wrong times in the market cycle while buying a next investment property, and sometimes, I'll get lucky. 

I think that this is a much better mathematical, long-term approach than parking dollars over and above those needed to stably maintain your life and real estate business in low interest savings accounts. That said, if you don't have the stomach to just stick with it through the tough times, it may be frustrating for you.