Where should I save my money before I invest in a property?

[Michael Lee Gundersen]

Hi Fellow Members!

This is my first post and my first month of being on BiggerPockets and I am so excited about all of the things I've learned from all of the podcasts, forum posts and blogs I've read so far. I am SOLD on this mindset and am trying to absorb as much information as I can before pushing forward into the decision-making time of buying my first rental property. My wife and I currently have about $10,000 in liquid savings, $20,000 in stocks, $130,000 in 401K and about $40-50K in equity in our only home, our current residence. We have the capacity to save around $4,000 a month or so from my paychecks and want to begin saving as much as possible for a future down payment on our first property. With this savings growing quickly, where should we keep our savings to get some kind of a return in the meantime while I crunch numbers, read books and absorb as much as I can before making that first decision? We're currently doubling our mortgage payment, should we stop? Thank you so much in advance for any advice any of you can offer!

[Bernard Reisz]

@Michael Lee Gundersen@Donald Aleshire

All else equal, local is always preferable for any form of RE investment, provided that the local market presents attractive opportunities. You may want to look into tax liens, private lending, etc. in whichever area you intend to purchase RE. Private lending, in particular, can get key connections for subsequent RE investing.

All those options present, however, present opportunity and risk - which to some extent go hand-in-hand. With proper networking, education, and hands-on involvement, you'll be equipped to make your own decisions. You're on BP which is the best place to start and has a wealth of helpful info and participants.

Regarding @Scott Trench's great post that was referenced, "Where Should You Invest the Cash For Your Next Down Payment?", I would not encourage the use of the stock market if you're plan is to use those funds for RE. Index funds are great for long-term investors, potentially terrible for those with a short time-horizon. You will not lose money in index funds - unless you sell your shares when the market is down. When will it go down? Up? Who knows! That's the premise that underlies indexing. Over time, the stock market will provide healthy returns, but it comes with lots of volatility (ups-and-downs). Indexing is great if your committed to the stock market or are OK deferring your RE plans, if the market drops.

RE can beat the stock market because the RE investor can put in the time and effort to influence the investment outcome - which can't be done in the stock market.