Where to Keep Cash While Searching for Next Deal?

13 Replies

Hi Everyone, 

I feel like this is sort of a Catch-22 since, while searching the next (or first) deal, I feel like I'm losing out on potential interest while holding tens of thousands in a savings account (on top of 3-6 months of living expenses), but liquidity is also important to be a prepared buyer. Mentally, though, I also feel like holding a lot in my savings account is a motivator to step on the gas any get myself a deal, because the money is sitting there and waiting to be put to work. 

Once you have enough cash saved up for one, where do you stash it while on the prowl for a property? 

Thank you, 

- Derek 

If you have a personal home you park it there and set up a HELOC for the maximum amount available. You then use your own money as a revolving line of credit.

@Thomas S. thanks for the response. I closed on my primary residence just 3 months ago, and am house-hacking through roommates (I'm 25). I wouldn't reckon a HELOC is really available to me quite yet, as I put down a small, owner-occupied down payment.

Do you have any secondary advice, given more details on my current situation? 

You are correct about the HELOC. Until you have 20% equity you will not be able to get one most likely. Unfortunately parking 20% is also costly if you can not access it. Best approach is to purchase a multi to house hack and keep moving every year to the next one. This method keeps your cash flowing as opposed to being parked in the bank.

Once you are in your present place a year find a multi to house hack. Assuming you have enough for another DP you keep your savings working for you as opposed to sitting in the bank.

Saving up the equilivant of a DP in the bank over a year is not a major loss. The key is to buy another property as soon as you have the savings.

How much will a multi unit cost in your area.....how much DP do you need. 

@Thomas S. after purchasing my primary, I'm pre-approved for another $120,000 at 4.75% interest and 25% down. I've got $55k saved up right now, which grows at a pretty solid pace thanks to house-hacking. 

In the immediate Chicago area where I live, the numbers don't make sense on multi units for how much they're being listed for. This weekend I am headed 30 minutes outside the city to look at a $70k duplex that would need $15-20k in TLC. 

not worth the small amount of money you'll make.... just keep it in a existing account. If you MUST get something out of it look for new account bonus and chase that, you could catch a few of them I'm sure. 

@Derek Luttrell

I believe what Thomas was saying is that you take all the money you have for investing and apply it to the principal of your mortgage thereby giving yourself more equity to draw a heloc on. Then, your cash would at least be earning an roi of whatever your mortgage interest rate is. But, the interest you would pay on the heloc if/when you used it would more than likely be greater than your mortgage rate. This could work but there are risks such as if the bank ever cancelled the line or didn't renew it at the end of the term. Plus, your money would then be tied up in your mortgage indefinitely.

Another option depending on your relationship with your bank could be to take the cash you have for investing and put it into a shorter term CD, then open a revolving line of credit with the same bank collateralized by the CD. Your money wouldn't be earning much more than a savings account but it wouldn't be trapped in your mortgage either. And you wouldn't have to pay interest unless you used the line. 

Or, if having your money in a savings account earning next to nothing is a motivator, then use it as a motivator to find a great deal to put that money to use. 

Cameron

@Matt K. thanks for the reassurance that I probably won't be missing out on much....assuming it only takes a few months to find a property. Not a bad idea to bank-hop a couple times in search of those promo bonuses. 

Originally posted by @Derek Luttrell :

@Matt K. thanks for the reassurance that I probably won't be missing out on much....assuming it only takes a few months to find a property. Not a bad idea to bank-hop a couple times in search of those promo bonuses. 

 just make sure your credit score can take the hit of new inquires/age of accounts.

@Cameron Pendergraft thank you for the insight. To be honest, throwing that much into my current mortgage doesn't feel right, considering I closed on it 3 months ago and there isn't any equity yet. This could be a viable plan to add onto the equity that my primary builds over the years, though. Like if I was just shy of 20% equity, but had enough in savings to get me there, I can then throw some cash at the principal in order to qualify for a HELOC.

Start moving money into a SDIRA, then use your SDIRA to do/partner on deals.  My SDIRA has a Brokerage account attached to it. I can move money in and out of the brokerage as needed to do deals. 

@Christopher Blanco thank you. I've been hearing SDIRA all over BP, and need to educate myself more on that. I have a Roth IRA I contribute to with TD Ameritrade, but I know that's different.

High yield checking or Certificate of deposit. Since this is short term money, I am okay breaking even with or losing a little to inflation. I am not okay with that on a long term basis. In the scheme of things it doesn't mater on a 6-18 month period. I have a bit of money earning an average of 1.25% right now, but I'm okay because I know it's waiting for 20% return opportunities versus trying to eek out 4-8% returns with greater downside in the short term.

Originally posted by @Thomas S. :

If you have a personal home you park it there and set up a HELOC for the maximum amount available. You then use your own money as a revolving line of credit.

 This is a interesting concept that I may have to consider. Any pro's and con's to this?

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