Where to put Cash Reserve

Question

Where to hold your Cash Reserve and money you are building up to buy more properties? I have mine in a regular savings account making 0.75% interest.  Is there a better place to put money that is flexable but makes more interest?

Waleep Alvi · Answer

I would say good old hard cash in a bank account. Yes, not earning interest on it, but when you have an emergency it's there and readily available (speaking from personal experience this year).

Ned J. · Answer

I want as much of my $$ working for me as possible, with enough in an account that I can access pretty quickly without a major penalty if I access it.

I had mine in Ally for awhile making 2.2% but that has dropped to 0.5% now.... my BofA is like 0.1%......

I have most of my quick access cash at Iron Bridge lending.....its in a senior note investment..... acts like hard $$. It technically has a 30 day call to pull $$, but in discussing that with them, that's really only if I need to pull big $$.... that cash is making me 5% right now, down from 6%. Worst case is a put a big expense on a CC and then pay it off as soon as I can get that $$ out, before I incur interest etc

DON'T FORGET...... that cash you having sitting is actually losing value every day..... that $10 sitting there now is worth less next year.....its value is dropping somewhere in the 1-2% each year....so cash just sitting there is LOSING value every day..... so "earning" 0.5% is still a net loss. So you want $$ to be available quickly but don't forget that the safety of that is actually losing $$ every day, so it comes at a small price but still has a price.

Joe Aiola · Answer

@Lance Jorgenson We're always trying to get the most out of our money as investors, but I think it's really important to be smart about reserves. Like @Waleep Alvi said, reserves are there for when you need the money - they don't necessarily need to make you money.

Let's say you had 50k in reserves and wanted to make 5% interest on that money... that's only $2,500 for the year. In my opinion, knowing I'll have my reserves if / when I need it is way more valuable than the $2,500 I could have made.

Hope this helps. Best of luck!

Nam Trang · Answer

TIPS or I Bonds (although there are disadvantages to both depending on how fast you need access, whether you're worried about deflation, limits on I bonds per year, etc).

Lance Jorgenson · Answer

@Tucker Cummings  Thanks it is appreciated

Rodney Sums · Answer

@Lance Jorgenson

One place to consider is a money market settlement fund.  You would earn better returns than a savings account, have fast access to cash with less risk than other traded securities.  At best you're off setting the depreciation of your savings capital better than a savings account paying virtually nothing.

Tucker Cummings · Answer

I’ve got a few cash reserve places. I keep 10k (3 months expenses) in a personal savings account at Ally. I have a separate real estate savings (just to keep personal and RE funds separate) that I keep 5k per property in cash, also at Ally. I only have 2 doors so it’s 10k.

Everything above that goes into the stock market. If you buy your stocks the way you buy you’re real estate, meaning you buy good deals (such as when the 10 day moving average bounces off or breaks below a 50 or 180 day moving average, but it’s still a good company with a great balance sheet), then you’ll realize better and quicker gains in the market.

Make your money you buy.

Latasha Griffin · Answer

I like the concept of keeping your reserve monies growing and working for you. I've heard investors say that they keep their reserves invested in high yield money market funds like VMFXX and use HELOCs if cash is needed immediately. But as the economy declines in the next year or so, HELOCs may dry up so keep that in mind. Also, back in 2016 the SEC amended the rules governing money markets giving funds the right to charge liquidity fees up to 2% or temporarily suspend withdrawals for up to 10 days in circumstances of extreme market distress to discourage investors from withdrawing their funds all at once forcing the funds to sell below market value. All that considered, in boom times, money market funds are a great option to keep your money active. With the looming downturn, its probably good to have cold hard cash available for opportunities that will most certainly begin to present themselves soon.

Jon Kelly · Answer

@Lance Jorgenson I love the question because it shows you have an investors mindset. You're always looking for opportunities to earn more on your money.

Wherever you put it, just make sure you can access it quickly, without penalty, if you need to.

As others have said, most of the time the money you can earn will be immaterial (e.g. $2k), so it's not worth worrying about. If you have more in reserves or savings for additional properties you can consider a mutual or index fund earning 6%+. You'll be charged the short-term capital gains tax rate assuming you hold for less than 1-year.

Nathan Gesner · Answer

I keep it in my regular bank account. I try not to hold it for more than 3-6 months. If you saved up $50,000 and earned 2% interest for six months, that's only $500. At 0.5% it's $125 or a difference of $375 in a six-month period. It's not worth worrying about.

Where to put Cash Reserve

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