Best account for down payment saving

37 Replies

I am relatively new to real estate and am in the process of trying to save for a down payment. Right now I am stashing money away in a savings account earning 2% (not a lot, but better than most savings accounts). I am just wondering where everyone else keeps their money while saving up for an investment? I'd like to keep the money somewhat liquid in case I find something I want to buy with it, but I also want to get the most return for that money at the same time. Does anyone have better ideas? Thank you in advance!

Ooh. This comes up frequently. We discussed it on the BiggerPockets Money Podcast with Andy Hill, Episode 34. (www.biggerpockets.com/moneyshow34) and (spoiler alert) we just interviewed J Scott for Episode 70 which airs on 4/29. That episode also has tips for places to stash your funds while you're saving up. 

There aren't a lot of options for high returns and low risk. 2% is about topping it out as far as safe spots to store the cash. 

Awesome! I knew I had heard or read about it before, but I couldn't remember where. I will definitely go back and listen to show 34 again, and I look forward to your episode with J Scott! 

I really appreciate the reply.

Originally posted by @Andy Murray :

I am relatively new to real estate and am in the process of trying to save for a down payment. Right now I am stashing money away in a savings account earning 2% (not a lot, but better than most savings accounts). I am just wondering where everyone else keeps their money while saving up for an investment? I'd like to keep the money somewhat liquid in case I find something I want to buy with it, but I also want to get the most return for that money at the same time. Does anyone have better ideas? Thank you in advance!

If that's your mindset, quit while you're ahead.

... or, invest in your own financial education and learn how to use money to make money instead of being a "consumer" and trying to "save" money .

For example, in order to save $20,000 you must comfortably be able to stash that much over time out of your take home pay, whether monthly, weekly, bi-weekly, ...

How long will it take to "save" $20,000? I'm thinking at least a year, depending on your circumstances. Probably, much longer.

How long will it take to RAISE $20,000? Well, that depends on you. What do you know about analyzing deals? Finding private money? If someone looked at your deal would you be able to show them how their investment is protected? ... where their profit comes from? ... how the deal produces profit and how that profit is realized?

You're asking about scraping together a down payment.

The question you should be asking is, "How do I raise money to do deals?"

My $0.02 ...

Thanks for the reply David. I am aware there are ways to use other people's money to make a purchase - as well as the fact that I need to know how to find a deal, analyze it, and be able to show others how the numbers work. This question was simply for where I park the money in my life that I am not currently using. Surely at some point in your life you've saved some of your take home money instead of spending it? I'm asking where the best place to park it is, that's all. 

@Andy Murray exactly where you’re putting it is the best idea. You don’t want the stock market because you may lose money which is counter productive

Here is an old thread I started that discussed "Where Do You Park Your Money".

https://www.biggerpockets.com/forums/519/topics/526153-where-do-you-park-your-money

Discover Savings account has no minimum, currently pays 2.1% and they offer a $200 bonus if you deposit at least $25,000 into the account. Easiest $200 that I ever made. It is FDIC insured like other savings accounts out there.

It seems 2.25% is about the best rate out there right now for FDIC.

@Andy Murray that's about the best I've found- I've got an ally bank savings account online that pays 2.2% interest. Is that what you're working with?

As soon as it grows past a couple tens of thousands I go buy another property, though. 2.2% is nothing if you're getting 25%

Thanks Joe! That's the kind of information and thread I was looking for and couldn't find! I appreciate it and will check out your old thread. I actually use discover bank for my savings because they had one of the best rates when I signed up. 

I appreciate the reply. 

@Andy Murray

I second Ally bank. 2.2% with no catch or fees. They also have good customer service. There are other options like treasury direct 4 week tbills that yield over 2.4%. But personally I don't think it's even worth tying it up for the extra .2 percent.

@Andy Murray I just closed on a whole life policy to store my cash at 4-6% and can access it within days. Tax free. Several people on here that can give you better info than I. Mine set up by Gary Pinkerton at paradigm life. It’s a easy system complicated easily. It’s basically a savings account that throws in a life insurance policy. Search this forum for more info!!

Life insurance is good. I’ve got Indexed Universal Life policies that mimic growth in the S&P500. When you take the money out it’s a loan with the insurance company so your money can continue to grow. People often do that with participating Whole Life to keep the dividend. The IRS does limit how much you can put in while keeping the tax free status of the growth (the percentage of the account that can be overfunded), but that doesn’t mean you can’t start a sizable account. 

Borrowing your money from the life insurance company is way easier than trying to access money from a retirement  account. You do pay interest, but it’s rarely significant considering the continued growth. 

@Andy Murray have you done any research on robo-advisors? I’m currently using Betterment... obviously not as safe as a savings account but it lets you pick a risk tolerance (asset class mix). I’m currently using lower risk (more bonds than stocks). They have a nice platform that lets you track to your major purchase goal, have low advisory fees, and your money is liquid. You have the opportunity to make more than you would with a savings account, but you have to deal with the volatility of the stock market.

Originally posted by @Andy Murray :

Thank you everybody! Thank you for all the replies. 

Life insurance policies - that's interesting. I will have to look for more information on that.

 All of the pros and cons of using the cash value of an over-funded life insurance policy for real estate investing are discussed in excruciating detail on this thread...

https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3

Don't let your first impressions and the haters dissuade you. They are thinking of your typical, minimally-funded, maximum commission whole life. An over-funded policy is a completely different animal. Low fees and commissions.