Where Do You Save Your Money?
Rental Property Investor · Effingham, IL · Member since 2021 · 46 posts · 22 votes
Hello everyone!
I am a new investor in the process of building my real estate savings, and I'd love to hear where everyone is keeping their own money while waiting to invest it into real estate. I want something with a high yield so I can earn as much as possible on my money. I know it's difficult to keep up with inflation right now, but my regular savings account just isn't doing enough for my money.
Thanks in advance!
Hello everyone!
I am a new investor in the process of building my real estate savings, and I'd love to hear where everyone is keeping their own money while waiting to invest it into real estate. I want something with a high yield so I can earn as much as possible on my money. I know it's difficult to keep up with inflation right now, but my regular savings account just isn't doing enough for my money.
Thanks in advance!
If I was just starting out I would never put my money in a bank, especially with inflation whipping up. There are other reasons a bank is a bad place for your money. It's called " fractional reserve banking" and "bail ins" but I won't go into detail on those here.
For practical options, you could buy something of value that will go up as inflation goes up. Physical Silver - it's at $22 an ounce (don't buy paper silver - not ETFs), yes to collectibles, yes to things that can be bought wholesale, can be preserved, are "dense" in value and don't take up much space. These might include baseball cards, autographed art work etc.
I know it sounds odd, but that type of thing is the only hedge against inflation when you can't afford to buy land, houses, gold.
Fractional reserve banking is a system in which only a fraction of bank deposits are backed by actual cash on hand and available for withdrawal. This is done to theoretically expand the economy by freeing capital for lending. But it means they don't have enough "cash on hand" for the depositors. Most banks have less than 10% on hand so 90% is not available to return to depositors
A bail-in provides relief to a financial institution on the brink of failure by requiring the cancellation of debts owed to creditors and depositors. Bailouts help to prevent creditors from taking on losses while bail-ins mandate creditors & depositors take the losses.
The problem arises when there is a problem in the economy and you want or need your cash and the banks "close the window". That occurs as in the “bank runs” of previous recessions and depressions. Everyone wants their money Now! And you are stopped from getting your money. Yes, the FDIC insures up to $200,000 of your deposits but they don't guarantee to give you that money when you need it most. It is in their timing that they dole out what is rightfully yours.
The banking problem of 2008 was that the velocity of money stopped. No one had money to lend on the overnight exchange. If a bank like Chase can’t get money, you are surely not going to get your money. That’s when you want and need it most. That is when a fire sale on commodities is on since everyone is selling to get a hold of cash. You want availability of cash so you can buy things up cheaply.
Also, Banks have recently been granted the right to take and use your money in order to stay solvent. And you have no say in the matter.
I don't follow. You are saying, rather than putting cash in the bank, I should buy physical silver, baseball cards and artwork. How would that be more solvent than putting money in an FDIC insured bank account? If there is a run on the banks, I have trouble believing the baseball card and art collectable market will be much of a sellers market.
I had no trouble accessing my cash in my banks during the 2008 financial crisis. I guess it depends on what bank you are doing business with. I actually sold off some baseball cards a few years ago and the collectable market was brutal. I realize it has now recovered, but we are in an asset bubble right now. A friend recently sold a Mickey Mantle baseball card for over $50K at auction. It was mint and graded. He paid a few hundred for it back in the 1980's. Nice investment, however if the grading had come back one level lower, he said he would have gotten a couple thousand for it. I personally think the collectable market is way too risky. I do own silver, but not a significant portion of my wealth.
@Lieren Schuette Ally Bank. Savings pays 0.5% but will be paying more in 2022 if the news is correct that we should expect 3 interest rate hikes. Also helps to show whomever you’re getting a mortgage through that you’ve had “seasoned” money in the bank that you’ll be using for down payment. Seasoned = 90 days. Good luck finding a deal!
I know what FRB is. This doesn't answer my question.
No problem, I guess you didn't see the second part of the answer: It's called Not having ACCESSS to your money when you really need it.
"The problem arises when there is a problem in the economy and you want or need your cash and the banks "close the window". That occurs as in the “bank runs” of previous recessions and depressions. Everyone wants their money Now! And you are stopped from getting your money. Yes, the FDIC insures up to $200,000 of your deposits but they don't guarantee to give you that money when you need it most. It is in their timing that they dole out what is rightfully yours.
The banking problem of 2008 was that the velocity of money stopped. No one had money to lend on the overnight exchange. If a bank like Chase can’t get money, you are surely not going to get your money. That’s when you want and need it most. That is when a fire sale on commodities is on since everyone is selling to get a hold of cash. You want availability of cash so you can buy things up cheaply.
Also, Banks have recently been granted the right to take and use your money in order to stay solvent. And you have no say in the matter."
Don't misunderstand me. I'm not saying banks are a good place to put your money. It's probably one of the worst. I'm saying (while I'm agreeing with your description of what would happen if...) that if that scenario you described ever comes to light, whether you have your money in the bank, under your bed, or invested in RE, wouldn't matter. The impact of a sh&% storm economic crisis wouldn't impact only the banks.
So, if you want to put your money in the bank, that storm I mentioned above, and you accurately described, isn't going to single out those that have their money in the bank.
When FRB became the way banks do business, it brought on tremendous opportunity for everyone, if you know how it works and can execute it on the other side of the banks. The trouble is, it also is a ticking time bomb, and the reasons why are many more than the one(s) you mentioned here.
@Lieren Schuette
It’s worth building the foundation rock solid with a vault (aka infinite banking). It’s not going to beat inflation, today, but it will build a very strong foundation for the future.
https://cashflowtactics.com/blog/what%E2%80%8C-%E2%80%8Cis%E2%80%8C-%E2%80%8Cthe%E2%80%8C-%E2%80%8Cvault%E2%80%8C/
I know what FRB is. This doesn't answer my question.
No problem, I guess you didn't see the second part of the answer: It's called Not having ACCESSS to your money when you really need it.
"The problem arises when there is a problem in the economy and you want or need your cash and the banks "close the window". That occurs as in the “bank runs” of previous recessions and depressions. Everyone wants their money Now! And you are stopped from getting your money. Yes, the FDIC insures up to $200,000 of your deposits but they don't guarantee to give you that money when you need it most. It is in their timing that they dole out what is rightfully yours.
The banking problem of 2008 was that the velocity of money stopped. No one had money to lend on the overnight exchange. If a bank like Chase can’t get money, you are surely not going to get your money. That’s when you want and need it most. That is when a fire sale on commodities is on since everyone is selling to get a hold of cash. You want availability of cash so you can buy things up cheaply.
Also, Banks have recently been granted the right to take and use your money in order to stay solvent. And you have no say in the matter."
Don't misunderstand me. I'm not saying banks are a good place to put your money. It's probably one of the worst. I'm saying (while I'm agreeing with your description of what would happen if...) that if that scenario you described ever comes to light, whether you have your money in the bank, under your bed, or invested in RE, wouldn't matter. The impact of a sh&% storm economic crisis wouldn't impact only the banks.
So, if you want to put your money in the bank, that storm I mentioned above, and you accurately described, isn't going to single out those that have their money in the bank.
When FRB became the way banks do business, it brought on tremendous opportunity for everyone, if you know how it works and can execute it on the other side of the banks. The trouble is, it also is a ticking time bomb, and the reasons why are many more than the one(s) you mentioned here.
Yes, there is much more, but TLDR (Too Long, Didn't Read) kicks in for most people. ;-)
What is your realistic timeframe and numbers you are trying to achieve before getting into real estate? Anyone who is giving advice to put your down payment money into illiquid or even slightly volatile assets hasn’t experienced having to get that money when it will be sold for a loss.
For example, during the market crashes of 2020 you may have wanted to take advantage of the low rates before the housing prices rose drastically. It would suck if your down payment savings plan was tied to the sp500 or any other stock. Just looking at the fluctuations of crypto should automatically put that option out of the question.
If you realistically see yourself putting a down payment on a property within two years just put it in a savings account.
@Lieren Schuette there is a concept called Infinite Banking. Basically, you overruns a whole life insurance policy, then(depending on how much you overruns it) in a few years. You take out a loan against your policy from the insurance company.
I think the best way to save is to get a first position heloc on a property (primary or rental) and keep money in the heloc paying down debt, until you are ready to buy.
Trying to save in a regular savings account is a death sentence in my opinion. You can't keep up with inflation.
I think the best way to save is to get a first position heloc on a property (primary or rental) and keep money in the heloc paying down debt, until you are ready to buy.
Trying to save in a regular savings account is a death sentence in my opinion. You can't keep up with inflation.
HELOC are great products to have on your properties. However, do not count on it to be available when you need it.
Banks have frozen line of credit in the past and will do it again. It does often happen at the most inopportune time (like when you attempt to withdraw to put your down payment at closing time). So I would advise to take all the money out of your HELOC while you can and store it somewhere safe where your bank can't access it, but also where you can get an interest rate covering at least the HELOC interest.
Maximum overfunded permanent life insurance (properly set up Whole Life or Index Universal Life policies) are excellent products to put your cashflow in. You can use the cash value as a collateral for a bank loan at very low interest rate, while the full value continues to grow in the life insurance. They are complex products, but when used properly are great wealth multipliers, safe, liquid and tax free.
Hello everyone!
I am a new investor in the process of building my real estate savings, and I'd love to hear where everyone is keeping their own money while waiting to invest it into real estate. I want something with a high yield so I can earn as much as possible on my money. I know it's difficult to keep up with inflation right now, but my regular savings account just isn't doing enough for my money.
Thanks in advance!
The extra .5% or whatever one gets from changing from a savings acct or money market on pretty small relative dollars isn't worth a lot of effort or risk IMO.
Savings like emergency or opportunity funds are more like insurance. It's primary purpose is to be stable and available. Do not tie it up into something illiquid or unknown just to squeak out an extra minscule return.
How much are we talking about? I'll keep a couple hundred k in a money market earning peanuts but is available pretty much immediately and not think about it. The return is earned by it being available. It earned me $43k in October for example. If it was in silver.... LOL
I think the best way to save is to get a first position heloc on a property (primary or rental) and keep money in the heloc paying down debt, until you are ready to buy.
Trying to save in a regular savings account is a death sentence in my opinion. You can't keep up with inflation.
Let me see if I got this straight. You want to get a heloc on a property, use the money (which you charged interest for), and use your money in the bank (which is free) to pay off the not free money, with interest. Basically, you want to exchange free money for not free money?
Hello everyone!
I am a new investor in the process of building my real estate savings, and I'd love to hear where everyone is keeping their own money while waiting to invest it into real estate. I want something with a high yield so I can earn as much as possible on my money. I know it's difficult to keep up with inflation right now, but my regular savings account just isn't doing enough for my money.
Thanks in advance!
The extra .5% or whatever one gets from changing from a savings acct or money market on pretty small relative dollars isn't worth a lot of effort or risk IMO.
Savings like emergency or opportunity funds are more like insurance. It's primary purpose is to be stable and available. Do not tie it up into something illiquid or unknown just to squeak out an extra minscule return.
How much are we talking about? I'll keep a couple hundred k in a money market earning peanuts but is available pretty much immediately and not think about it. The return is earned by it being available. It earned me $43k in October for example. If it was in silver.... LOL
You just pointed out another example of how using percentages as a measuring stick isn't a good way of judging the value of returns. Dollars, and only dollars, will give you an honest answer.
I tend to accumulate cash over a short time frame (less than 6 months), so for me it makes sense to keep it in my credit union money market account. Inflation is a real issue but keeping my cash liquid is very important to me.
@Joe Villeneuve no, that's not at all straight
I think the best way to save is to get a first position heloc on a property (primary or rental) and keep money in the heloc paying down debt, until you are ready to buy.
Trying to save in a regular savings account is a death sentence in my opinion. You can't keep up with inflation.
Let me see if I got this straight. You want to get a heloc on a property, use the money (which you charged interest for), and use your money in the bank (which is free) to pay off the not free money, with interest. Basically, you want to exchange free money for not free money?
I'm not taking a position on this strategy as I decided a few years ago that this wasn't for me. But just for clarification, this works only if you have a mortgage on your primary and you replace that mortgage with a 1st lien HELOC. Basically, instead of keeping a sizeable dry powder balance, you use that money to paydown the 1st lien HELOC. The reasoning behind this is, why pay interest on your entire mortgage balance while you have free cash available when you can apply that cash to reduce your interest expense. And then when you need that money, you can just draw from the HELOC. Sure, the mortgage balance goes up, but it'll just go up back to around where it originally was... assuming you don't pull more than you put it. Or perhaps you don't need the entire $200,000 that you used to pay down the HELOC. Maybe you just need 180,000 so you pull that amount out...so 20K of your original money is still working to reduce interest expense. Or maybe you need 250,000....so you pull that amount out to acquire another property.
Since a HELOC's interest is calculated daily instead of monthly like a traditional mortgage and you can set these 1st Lien Helocs like a checking account, you can direct all rental income into this account to minimize interest expense on your home. @Luka Milicevic, correct me if I'm wrong on the above. Also, was wondering... are these HELOCs also recallable like the more traditional 2nd lien ones?
@Joe Villeneuve no, that's not at all straight
Please explain
I think the best way to save is to get a first position heloc on a property (primary or rental) and keep money in the heloc paying down debt, until you are ready to buy.
Trying to save in a regular savings account is a death sentence in my opinion. You can't keep up with inflation.
Let me see if I got this straight. You want to get a heloc on a property, use the money (which you charged interest for), and use your money in the bank (which is free) to pay off the not free money, with interest. Basically, you want to exchange free money for not free money?
I'm not taking a position on this strategy as I decided a few years ago that this wasn't for me. But just for clarification, this works only if you have a mortgage on your primary and you replace that mortgage with a 1st lien HELOC. Basically, instead of keeping a sizeable dry powder balance, you use that money to paydown the 1st lien HELOC. The reasoning behind this is, why pay interest on your entire mortgage balance while you have free cash available when you can apply that cash to reduce your interest expense. And then when you need that money, you can just draw from the HELOC. Sure, the mortgage balance goes up, but it'll just go up back to around where it originally was... assuming you don't pull more than you put it. Or perhaps you don't need the entire $200,000 that you used to pay down the HELOC. Maybe you just need 180,000 so you pull that amount out...so 20K of your original money is still working to reduce interest expense. Or maybe you need 250,000....so you pull that amount out to acquire another property.
Since a HELOC's interest is calculated daily instead of monthly like a traditional mortgage and you can set these 1st Lien Helocs like a checking account, you can direct all rental income into this account to minimize interest expense on your home. @Luka Milicevic, correct me if I'm wrong on the above. Also, was wondering... are these HELOCs also recallable like the more traditional 2nd lien ones?
OK. You want to replace what's left of a mortgage, with a HELOC. How do you plan on doing this? Unless you have more equity than mortgage balance, you can't get enough money from the HELOC to replace the mortgage.
Let's assume the equity is higher. Why would you do it? I would rather get a HELOC on the equity, and have it available for emergencies...and keep my cash (free money) as my money.
I think the best way to save is to get a first position heloc on a property (primary or rental) and keep money in the heloc paying down debt, until you are ready to buy.
Trying to save in a regular savings account is a death sentence in my opinion. You can't keep up with inflation.
Let me see if I got this straight. You want to get a heloc on a property, use the money (which you charged interest for), and use your money in the bank (which is free) to pay off the not free money, with interest. Basically, you want to exchange free money for not free money?
I'm not taking a position on this strategy as I decided a few years ago that this wasn't for me. But just for clarification, this works only if you have a mortgage on your primary and you replace that mortgage with a 1st lien HELOC. Basically, instead of keeping a sizeable dry powder balance, you use that money to paydown the 1st lien HELOC. The reasoning behind this is, why pay interest on your entire mortgage balance while you have free cash available when you can apply that cash to reduce your interest expense. And then when you need that money, you can just draw from the HELOC. Sure, the mortgage balance goes up, but it'll just go up back to around where it originally was... assuming you don't pull more than you put it. Or perhaps you don't need the entire $200,000 that you used to pay down the HELOC. Maybe you just need 180,000 so you pull that amount out...so 20K of your original money is still working to reduce interest expense. Or maybe you need 250,000....so you pull that amount out to acquire another property.
Since a HELOC's interest is calculated daily instead of monthly like a traditional mortgage and you can set these 1st Lien Helocs like a checking account, you can direct all rental income into this account to minimize interest expense on your home. @Luka Milicevic, correct me if I'm wrong on the above. Also, was wondering... are these HELOCs also recallable like the more traditional 2nd lien ones?
OK. You want to replace what's left of a mortgage, with a HELOC. How do you plan on doing this? Unless you have more equity than mortgage balance, you can't get enough money from the HELOC to replace the mortgage.
Let's assume the equity is higher. Why would you do it? I would rather get a HELOC on the equity, and have it available for emergencies...and keep my cash (free money) as my money.
Again, want to reiterate that I'm not necessarily a fan of this. I'm just explaining the product the way I understand it.
You'd basically be refinancing your home with a 1st Lien HELOC...so this would probably be underwritten in a similar way as a traditional mortgage. So this is basically like a line of credit and mortgage combined into one. And the product I was presented with, from a long standing and respected member of this forum, is that this LOC can go up to 85% LTV of your home. It also has a checkbook, so it almost works like a checking account. I.E., you would be using all of your free money to reduce mortgage interest. You can direct all of your rent payments and work paychecks directly into this account which will immediately tighten the interest faucet the day funds hit the account.
I believe the downside to this product is that the effective interest rate is higher than that of a traditional mortgage.
I think the best way to save is to get a first position heloc on a property (primary or rental) and keep money in the heloc paying down debt, until you are ready to buy.
Trying to save in a regular savings account is a death sentence in my opinion. You can't keep up with inflation.
Let me see if I got this straight. You want to get a heloc on a property, use the money (which you charged interest for), and use your money in the bank (which is free) to pay off the not free money, with interest. Basically, you want to exchange free money for not free money?
I'm not taking a position on this strategy as I decided a few years ago that this wasn't for me. But just for clarification, this works only if you have a mortgage on your primary and you replace that mortgage with a 1st lien HELOC. Basically, instead of keeping a sizeable dry powder balance, you use that money to paydown the 1st lien HELOC. The reasoning behind this is, why pay interest on your entire mortgage balance while you have free cash available when you can apply that cash to reduce your interest expense. And then when you need that money, you can just draw from the HELOC. Sure, the mortgage balance goes up, but it'll just go up back to around where it originally was... assuming you don't pull more than you put it. Or perhaps you don't need the entire $200,000 that you used to pay down the HELOC. Maybe you just need 180,000 so you pull that amount out...so 20K of your original money is still working to reduce interest expense. Or maybe you need 250,000....so you pull that amount out to acquire another property.
Since a HELOC's interest is calculated daily instead of monthly like a traditional mortgage and you can set these 1st Lien Helocs like a checking account, you can direct all rental income into this account to minimize interest expense on your home. @Luka Milicevic, correct me if I'm wrong on the above. Also, was wondering... are these HELOCs also recallable like the more traditional 2nd lien ones?
OK. You want to replace what's left of a mortgage, with a HELOC. How do you plan on doing this? Unless you have more equity than mortgage balance, you can't get enough money from the HELOC to replace the mortgage.
Let's assume the equity is higher. Why would you do it? I would rather get a HELOC on the equity, and have it available for emergencies...and keep my cash (free money) as my money.
Again, want to reiterate that I'm not necessarily a fan of this. I'm just explaining the product the way I understand it.
You'd basically be refinancing your home with a 1st Lien HELOC...so this would probably be underwritten in a similar way as a traditional mortgage. So this is basically like a line of credit and mortgage combined into one. And the product I was presented with, from a long standing and respected member of this forum, is that this LOC can go up to 85% LTV of your home. It also has a checkbook, so it almost works like a checking account. I.E., you would be using all of your free money to reduce mortgage interest. You can direct all of your rent payments and work paychecks directly into this account which will immediately tighten the interest faucet the day funds hit the account.
I believe the downside to this product is that the effective interest rate is higher than that of a traditional mortgage.
OK. Now I get it...and I still don't see any advantage. That "downside" you mentioned is huge. All you're doing is replacing your mortgage with a higher interest charge LOC. When you refi, you still have the same debt you had before with the mortgage, but with a higher cost. If you want to access your equity this way, then it's much better just to get a separate LOC on that equity. This way, you don't get charged interest unless you use it. If you do a combo (refi and access your equity) as one loan (which this would be) you're unnecessarily applying that higher interest to the refi and LOC, instead of just to the LOC.
@Lieren Schuette We save our money in a whole life policy. The life insurance portion is good but the reason we own a few is for the cash value and the cash accumulation with a guaranteed interest of 5%. Way better than any bank or saving institution and less risky/volatile than the stock Market.
Would love to give you or anyone else more info.
I know what FRB is. This doesn't answer my question.
No problem, I guess you didn't see the second part of the answer: It's called Not having ACCESSS to your money when you really need it.
"The problem arises when there is a problem in the economy and you want or need your cash and the banks "close the window". That occurs as in the “bank runs” of previous recessions and depressions. Everyone wants their money Now! And you are stopped from getting your money. Yes, the FDIC insures up to $200,000 of your deposits but they don't guarantee to give you that money when you need it most. It is in their timing that they dole out what is rightfully yours.
The banking problem of 2008 was that the velocity of money stopped. No one had money to lend on the overnight exchange. If a bank like Chase can’t get money, you are surely not going to get your money. That’s when you want and need it most. That is when a fire sale on commodities is on since everyone is selling to get a hold of cash. You want availability of cash so you can buy things up cheaply.
Also, Banks have recently been granted the right to take and use your money in order to stay solvent. And you have no say in the matter."
Mike is right about the not having access to your cash when needed, at least when attempting to transfer funds electronically from one account to another. For example, PNC only allows you to transfer $15,000 per month out of a PNC account to another institution. I found out the hard way after opening up a PNC account into which some of my 1099 income is deposited. I suppose you could always write a paper check made out to your name and deposit it into the destination financial institution.
I’m buying crypto again. I have quite a bit of real estate and started buying crypto about 2017 but always sold during times of fear, uncertainty and doubt and threw everything at real estate. Don’t get me wrong, my real estate portfolio is rocking but I always ask what if I just kept buying crypto, I’d be killing it for sure. Recently a guy bought every top 10 crypto and decided to study it for a year. 7 of the 10 lost money and 3 went to the moon and he made like a 1000% return on the year. Spread out the investment amounts over 10 or so cryptocurrencies (they don’t have to be top 10-just something you like), 7 may lose money but the winners will prop up the losers, maybe to the tune of an insane return. Watch videos to find good entry points so even if you buy a loser it was still be bought at a good entry point at least. Be patient, it is liquid, though I’m trying to treat it more like real estate and make it illiquid till I have a significant amount in there to buy more real estate. I want to own physical assets, but I also want to play the crypto game because I don’t want to miss out on that. One is a truck and the other is a sports car.
@Lieren Schuette
You might want look at "Stairs" by Groundfloor. It's not FDIC insured.
Base interest rate is 4%, but can be as much as 6%. This is based on setting up regular deposits (+1%), and setting up round ups on your bank account (+1%).
No fees and can move it back to your “real” bank account at any time.
Alternative option is to go directly to groundfloor and invest in their loans. This would be a slightly longer option, since most loans are 6-12 months, but there are shorter loans too.
infinite banking and pref equity shorter term deals
@Lieren Schuette
I read most of the comments and only one person gave you the best advice! All are pretty okay but the best advice here happens to be the smartest one.