4 Things to Do With Extra Cash in a Low Inventory Housing Market

by | BiggerPockets.com

After a recent conversation with a prospective investor on best places to put extra cash, it got me thinking. I’m sure most investors are probably in a similar position given the housing recovery of the past few years. Even as recently as last year, you could still scoop up cash cow properties if you knew where/how to look. Unfortunately, they are getting much harder to come by. So if you’re struggling with figuring out how else to put those little green soldiers to work for you, here are a few things to consider!

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4 Things to Do With Extra Cash in a Low Inventory Housing Market

Pay down loans.

If you are a buy and hold investor with multiple mortgages, consider paying down your loans with extra cash flow. There is constant debate over whether or not it is mathematically feasible to pay down a loan in a market environment with historically low interest rates. However, by directing all excess cash flow toward ONE loan and then moving on to the next (i.e. the snowball method), you can make great strides toward owning your properties free and clear. For some investors, it’s worth it for the peace of mind of having a stream of cash that is not subject to the ebbs and flows of housing prices (until you go to sell, of course).

It’s also important to take into consideration your overall investment portfolio when making this decision, i.e. your stocks/bonds/precious metals/etc. Examining the opportunity cost of each option will help you determine what the best thing is for YOU. If you already feel overexposed to the real estate market, then perhaps redirect your excess cash (flow) to padding your investment accounts.  

For me personally, this is always my inner struggle, as I am extremely debt-averse, but I am also very heavily concentrated in real estate. I own REITs (Real Estate Investment Trusts) in my portfolio, own several properties, AND my primary occupation is as a real estate agent. So while emotionally I want to get rid of the debt, it makes more sense to keep investing in the public market. It’s all up to your individual comfort level and your long term financial goals.


Related: Trying to Buy & Hold in a Hot Real Estate Market? Stop! And Consider THIS Instead.


When housing inventory is low, it is the perfect time to sell, especially in areas where the overabundance of buyers and investors leads to bidding wars. Depending on how many properties you own and when you bought them, it may be in your best interest to unload a few while the market is so out of balance. In my area, even investment properties that in recent years have sat on the market for 30-40 days are now going under contract for full asking in a day or two. If you’re thinking of re-focusing your efforts elsewhere or just want to consolidate while you have the chance, it could be a good time to do so.

Make sure not to forget to examine the opportunity cost of freeing up your capital, though. What has kept me from selling my units despite a favorable seller’s market is that I can’t think of anywhere better to put the money (plus the costs of selling, though that is somewhat mitigated by the fact that I can just list my own properties). I could sell and reinvest the proceeds in another property, but long-term cash flowing rentals are even harder to come by right now, so it seems kind of pointless.

Consolidating would make more sense if your goal is to work on a bigger project, such as an apartment complex or an office building. Selling off a few smaller properties now to raise capital in that case could be a great business decision that would ultimately help you reach your goal. If you’re able to successfully do a 1031 exchange whereby you defer taxes on the capital gain you’ll incur, that’s even better for you!   

 Consider alternate methods.

The customary advice given to investors when there aren’t many deals to be found in one area is to simply invest in another area. For those in areas with a high cost of living and pretty crazy real estate prices, such as Manhattan or Silicon Valley, that is probably a wise choice. However, many investors are wary of out-of-state investing. It can be a little daunting to purchase a property in another state, especially if you’re just starting out. At the very least, you have to have complete trust in your real estate agent and property manager, and unless you already have some connection to the city you want to invest in, forging those relationships takes a lot of time and effort.

However, there is an alternate way that is gaining more steam — real estate crowdfunding. Platforms such as GroundFloor and RealtyMogul (just to name a few) are catching on as a way to match real estate developers/rehabbers with investors who are looking for a decent return on their money. In the very recent past, many of these opportunities were only open to accredited investors. However, Title III of the JOBS Act went into effect in May, effectively allowing non-accredited investors to invest their money via these crowdfunding sites. There are still limitations in place to protect the investors that restrict the amount of capital they can invest, but it’s a start.


Related: The Lesser Known Home Price Index That’ll Give You Unique Market Insight


While this may not directly be a “job” for all your extra cash, networking strategically can help get you access to off-market properties. Some sellers may not want their home on the MLS, or they may be talking to their friends about selling before they completely decide to list. Knowledge is power, and people talk. So the more people you know who know you are in real estate, the better.

When it comes to sitting on cash, it can be painful to have money lying around earning a pithy 0.1% rate in a checking account, so hopefully some of those ideas help spark a decision. Whatever you decide is best, there’s still no hurry! I’d much rather sit on cash for a while (even if it means losing some money in interest) if that allows me to capitalize on an opportunity that much quicker. You just never know when the next opportunity may show up. So while it is sometimes painful to sit on cash, don’t let that push you into a situation where you pull the trigger too quickly just to deploy some capital and end up stuck with a less than stellar investment.

Investors: What do you focus on when inventory is low in your market?

Let me know with a comment!

About Author

Tiffany Alexy

Tiffany Alexy is the Broker/Owner of Alexy Realty Group, a boutique real estate firm located in the Raleigh-Durham, NC metro area. She actively invests in her own buy and hold projects. With several financial certifications under her belt, Tiffany specializes in helping individuals understand how real estate can fit into their investment portfolio. In her spare time, Tiffany loves to ride horses and travel.


    • Several problems with REITs vs. investing directly on a fractional basis in deals via sites like Groundfloor (non-accredited and accredited investors) or RealtyMogul (accredited investors only).

      1) The investor doesn’t choose assets/properties for investment

      2) Instead, the investor pays fees to the REIT’s manager to allocate capital

      3) Required holding periods can be long, with steep penalties or waiting periods for withdrawing capital

      4) Most REITs expose the investor to equity risk

      Investing directly lets you build your own REIT — composed of properties you choose, with capital allocated according to the risk/reward you desire and with liquidity you control.

  1. Joe Canfield

    Great article. I have this conversation with investors that are looking to invest in my business. Many people look at stocks/bonds as safe. While I own a portfolio of stocks/bonds, it is very small compared to my real estate portfolio.

    Real estate provides real cash in the form of rent payments and/or profit from flips, and it provides an added level of collateral in the form of the real estate itself. If a company goes under or a municipality declares bankruptcy, there is no recourse for the investor. When investing in real estate, there is always a real asset behind the investment that provides an additional layer of collateral to the investor.

    My investors love my deals because there are no fees, they get a cash return every month or at the end of project, and they know there are real assets backing their investment.

    • Tiffany Alexy

      Thanks for reading Joe! That is definitely why many people invest in real estate — including foreigners. In Asian culture, cash is king, and Chinese investors are always looking for places to put their cash that will generate returns. Of course NOTHING is safe, so I hesitate to say that real estate or stocks are safe. They are just different, and behave differently… hence the reason why a diversified portfolio should be the end goal. I talk to many real estate investors who got burned by the stock market and then consequently got into 100% real estate.. which isn’t a good idea, either.

  2. Mark Easley

    Good ideas in this post. The new online real estate crowdfunding sites like Groundfloor.us and RealtyMogul.com provide an easy and interesting way to generate very good returns on well vetted loans to real estate projects. These are a great place to allocate some of your real estate portfolio.

  3. Jerry W.

    Tiffany, very nice article, thanks for writing it. You clearly have a deep pool of knowledge about financial matters. As my market has been hit by the oil price drops and resulting layoffs I have decided to invest my extra money into fixing up big ticket items in my portfolio. It is easy to forget that houses need new roofs or need upgraded by adding new furnaces, etc. I decided to leave a house empty a month or two to put in some new windows and put in baseboards that were never done. The second bathroom only had a toilet and so I am getting a vanity and basin added. Putting carpet on stairs or even just adding new handles on kitchen cabinets can dress up places that have not been touched for a few years. I am still watching my market for deals, but when worried about your local economy it pays to make sure your properties are in good shape from both a rental demand to value of equity viewpoint.

    • Tiffany Alexy

      Thanks Jerry! Absolutely, it’s important to keep your properties well-maintained… “an ounce of prevention is worth a pound of cure” as they say! No need for them to have all the latest and greatest if they are just rentals, but it’s still important to make sure everything is still running properly. I don’t consider it an ‘expense’ though it reflects on my income statements that way.. to me it is more like a reinvestment.. except rather than reinvesting in more shares like with stocks or mutual funds, I’m reinvesting in my property so it continues to generate income for the long haul!

  4. Are small apartment complexes (5 – 30 units) cash flowing in the Durham area? We just drove down there and met with the property manager. Hoping to find something, seems like a good area.

    • Tiffany Alexy

      Melisda, it’s hard to know without knowing which complex, and I’m not a big fan of generalizing. Raleigh-Durham is a great area, but I’m also biased 😉 I’m happy to look at your numbers though if you want to PM me or email me.

  5. Wesley Emison


    Great points. Paying down your mortgages can be painful because it dollar for dollar reduces your ROI. One of the ways I use excess cash is to have a HELOC on my personal property and apply excess cash to my personal mortgage. That way, if you need the cash for an investment you can just go and grab it from your HELOC, in the mean time you are more than beating the savings returns, you accelerate your amortization schedule on your home note making each subsequent payment applied slightly more to principal instead of interest while still having access to the cash you are setting aside and this preserves the ROI on your investment properties.

    Wes from Knoxville, TN

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