Save Cash or Invest?

Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes

What do you recommend for short term savings?

I’ve been a bit timid with purchasing my first investment property. Analysis paralysis makes me hesitant at this time with interest rates what they are and anticipating a recession. I don’t want to be too speculative of how the recession will impact the real estate market, but IF there’s more inventory available and IF there are more buying opportunities to find deals (or even time the market for stock investments) I want to be ready.

So how do I prepare my finances?

When saving cash, we hear about inflation and losing value in cash. Part of me wants to turn to my brokerage accounts but that’s essentially a gamble.

How are others preparing their money for potential purchases to come? What finance vehicles or methods are you using?

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James DainardPro Member

Real Estate Broker · Bellevue, WA · Member since 2015 · 415 posts · 1k+ votes

Hey Alex,

This is a great question and really depends on your timeline.

If you think you're unsure to the point where you'll sit our for a while you'll probably want to put your money safer, longer-term investments.

If you're thinking about jumping in soon you might want to keep that cash on hand or in assets that can easily be liquidated to be able to make the move when the time comes.

You can consider some higher risk/reward investments based on your comfort but I'd recommend minimizing the percentage of your portfolio you expose to those asset classes.

Best of luck!

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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
4y
I put my cash to use. RE is a hedge against inflation so I don’t have much in savings. Once it builds up a little, I use it as a 20% down payment for my next property. I don’t see inflation going less than 6 or 7% for a couple years the way our govt keeps printing money. So I’ll keep buying RE. Especially if I can get loans with interest rates below inflation.
1 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
Invest! It's blood on the streets out here
1 Reply
Jonathan Hankins
Rental Property Investor · Member since 2022 · 37 posts · 28 votes
4y
I think Short Term Rentals are currently the way to go, and here is why: Location, Location, Location.

I mean, let's face it. At the end of the day, what choice do you really have? We don't know what is going to happen. The market can either go up, down, or stay the same. That's it. There are no other options. Everybody has an idea, and we won't know who the genius is until 10 years from now. It seems to me though, like people who own well located properties ALWAYS seem to come out on top over time. I can't imagine finding a property 5, 10, 15, or 20 years ago that was in high demand - and being sorry to own it today. I assume that the trend will continue for longer than I will be alive.

There are plenty of properties out there right now with 25% gross incomes. I would find one, buy it, and give it to my kids in 30 years along with a little story about how life has ups and downs and we shouldn't let that push us into a fear induced state of inactivity.

Or just buy bitcoin... I hear that is going to the moon any day now :)
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Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
@Alex Wise
Money you put into a bank does not build you any wealth. An average interest-earning bank account will pay between 0.01% and 0.50% interest, which is less than the current rate of inflation, which was 6% in 2021.

Inflation outpaced what a savings account pays. You are actually losing money by leaving it in a savings account.
When you deposit your hard-earned money in a bank, you are simply lending it to the bank so that they can utilize it for their purposes until you require it.

Of course, putting your money in the bank is also low risk — you can pretty much count on your money still being there no matter what happens in the market. And there are good reasons to have liquid funds, such as an emergency fund.
If you need your funds to be liquid for a rainy day or a considerable upcoming expense, Washington said, keeping the money in the bank could be the best thing.

However, any funds you have available beyond an emergency fund are worth investing in real estate to grow your money over time.
I am not a financial advisor. Do not take anything above as financial advice, ever. Do your own research. Consult a professional.
Good Luck!
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Joshuam R.
Rental Property Investor · FL · Member since 2016 · 271 posts · 92 votes
4y
Do a mix of Dave Ramsey to master your lifestyle expense and budgeting, start saving the cash (which you already are), then Grand Cardone all your choices moving forward (emotionally)
Other than that run the numbers, then run the numbers and prospective scenarios of few properties you are interested in with BP forum base to filter your overview.
And to battle the final leg of your paralysis beat your self,
speak to your self out loud "Just Do It!, Yesterday You Said Tomorrow!, Yesterday You Said Tomorrow!," <-----Say them, stronger and let them overpower you.

Best wishes , good luck.

1 Reply
Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
4y
Invest invest invest! Cash is dead $!
1 Reply
Paul Vail
The Triangle, NC · Member since 2021 · 193 posts · 117 votes
4y
Quote from @Joe Garretson:

@Alex Wise,...
Also, a great nugget I heard on the BP podcast this week (I'm working my way through all 600+ episodes and currently in the mid 200's) regarding analysis: we get hung up on numbers like CoC returns, cap rates, 1% rule etc and look at those as absolutes. However, all markets are totally different and getting big CoC returns in your market might not be possible. Run the numbers on a number properties and establish what average returns are in your hood; then you can use that as a benchmark for your deals and help you with the analysis paralysis.
Love this -- I'm on episode 199 from #1, going chronological as well (listen to one a day). Kind of weird to here the trepidation and predictions that 2016 was the height of the real estate and stock markets, maybe bubbly. Looking backward six years really reinforces how little our prognostications actually come to pass. The talking heads in stock investing were doom/gloom (regardless of who would win 2016), claiming it might be time to take ones earnings and winnings off the table. Some real estate pundits claiming the same. My father would say 'ignore the news, it isn't the future, buy-n-hold quality until you need otherwise'. So I stayed the course, not timing the market, steadily allowing the investments to work for me. My stock market investments have nearly doubled since then. Real estate pricing in my area similarly has skyrocketed in the same time. Not saying the S&P500 or the real estate is really worth or valued properly presently (I am even more convinced equities and property is grossly inflated and skewed inappropriately, but it is what it is). So back to the near historical 'predictions' and advice tacitly offered in the BP and other investing/financial podcasts of late 2016.

So in this light - find one's balance in how comfortable you are with your investments, but stop letting fear/greed of the future spread by pundits continue to stop you from doing something you want to do. Build the habits that are healthy for you, dump the toxic, have your safety net, but don't live or cower in the shadow of that net. Step out and try your dreams.

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Remington LymanBusiness Member
Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
4y
Quote from @Alex Wise:

What do you recommend for short term savings?
I’ve been a bit timid with purchasing my first investment property. Analysis paralysis makes me hesitant at this time with interest rates what they are and anticipating a recession. I don’t want to be too speculative of how the recession will impact the real estate market, but IF there’s more inventory available and IF there are more buying opportunities to find deals (or even time the market for stock investments) I want to be ready.
So how do I prepare my finances?
When saving cash, we hear about inflation and losing value in cash. Part of me wants to turn to my brokerage accounts but that’s essentially a gamble.
How are others preparing their money for potential purchases to come? What finance vehicles or methods are you using?

I just have cash sitting in a bank account that I use to buy properties cash, then do delayed financing. On larger deals I get a commercial loan.
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Austin McClainBusiness Member
Real Estate Agent · OH · Member since 2021 · 348 posts · 602 votes
4y
I'm not anxious about a recession personally. Even if it hits, you can hold your assets for 7+ years as long as the rents are covering your mortgage and expenses.
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Michael Deering
Rental Property Investor · Lehigh Valley, PA · Member since 2017 · 200 posts · 191 votes
4y
If you're first-time buyer- buy now or but never. Can't time the market.
This year my highest returns have been investing back into the portfolio to capture these higher rents to increase value and NOIs for 2023 refi.
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Alex BreshearsBusiness Member
Lender · Springfield, MO · Member since 2020 · 354 posts · 504 votes
4y
Hi Alex!
Great question and I'm sure this is on the mind of a lot of other investors. Have you thought about private lending? Putting that cash to work for you for a short period of time. You could potentially lend that out for 6 months to a year for an active investor to use, meanwhile you are getting cash flow without the overhead of a mortgage, property taxes, insurance payments, tenant issues, repairs and maintenance. If the market softens going into 2023, you would be getting the capital back in time to make a purchase on the dip, and you have made some monthly cash flow in the process.
There is a book on BiggerPockets about private lending that Beth Johnson and I co-authored, so this happens to be my preferred strategy. We actually do a bonus content video about risk mitigation in lending when you purchase the book through BiggerPockets. No matter what style of investing you choose to use, there is always going to be some element of risk, even the opportunity cost associated with tying up capital in anything (CD's, stocks, a loan etc). It's really a conversation of WHEN will you need this capital, WHAT is your ultimate goal as an investor, and WHAT do you enjoy doing?
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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
4y

I like to be direct in these types of threads since a lot of people say they have "analysis paralysis" when what they mean is that they don't have any money.

So... do you have a down payment + reserves for an investment property? If not... save up more.

@Alex Wise

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
4y
@Alex Breshears
your posts are usually really good but I do not see how a new investor has any business being a private lender.
the same things preventing them from getting started (lack of knowledge, lack of savings, lack of network) will likely preclude them from being able to find a reputable person or company to invest in.
thoughts?
1 Reply
Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
4y
Agreed with @Nicholas L. comment. If someone is a novice investor they shouldn't be considering lending money. Makes no sense.

I'd put that MONEY TO WORK and BUY. If you're looking for cash-flow you can't be on the sidelines. If you're looking for a flip opportunity be CONCRETE on your numbers and rehab budget. If it's coming in over $$$ be prepared to watch YouTube and swing some hammers to save on labor. Flipping is a risky strategy right now.
1 Reply
Alex BreshearsBusiness Member
Lender · Springfield, MO · Member since 2020 · 354 posts · 504 votes
4y
Quote from @Nicholas L.:

@Alex Breshears
your posts are usually really good but I do not see how a new investor has any business being a private lender.
the same things preventing them from getting started (lack of knowledge, lack of savings, lack of network) will likely preclude them from being able to find a reputable person or company to invest in.
thoughts?

Hi Nicholas! I get this question a lot. The process to learn how to lend in reality is a process on learning how to underwrite different deals. For example, if you want to lend on small multifamily in your local market - then you need to understand how to underwrite that, learn what the exit strategies are, other lends that a borrower could refinance into, etc etc. Just the underwriting practice alone will help connect a potential new investor to their local community in ways that some active investors don't get to do. For example, finding a great hazard insurance broker. Have a conversation with them, ask them about ACV vs RCV in your market. What would qualify a property for one over the other.
And another common misconception is that you have to have a ton of money to start lending. You really don't. For example the first loan I ever did was about $32,000. I've met private lenders that actually do a lot of brokering of capital, so they will underwrite the deals, source the leads, connect the capital partner to a borrower, and there's none of their own money tied up in the deal - they collect origination points or point spread for their time and energy doing the underwriting. There's a ton of really cool opportunities for learning on the lending side even if your interest is purely active investor.
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Alex BreshearsBusiness Member
Lender · Springfield, MO · Member since 2020 · 354 posts · 504 votes
4y
Quote from @Jaron Walling:

Agreed with comment. If someone is a novice investor they shouldn't be considering lending money. Makes no sense.

I'd put that MONEY TO WORK and BUY. If you're looking for cash-flow you can't be on the sidelines. If you're looking for a flip opportunity be CONCRETE on your numbers and rehab budget. If it's coming in over $$$ be prepared to watch YouTube and swing some hammers to save on labor. Flipping is a risky strategy right now.
I will never tell anyone you MUST do one method of investing or the other. It is a very personal choice and their own unique path. I just think this avenue doesn't get talked about enough - especially to newer investors. I'm not saying go give $50k to the first active real estate investor you meet at a local REIA, but the idea that this could be a viable way to enter investing. It's actually how I got started in real estate in general. I ended up working for a private money lender, so I literally learned active investing underwriting as a private money lender. I was going out to the job sites to look at the scope of work or see if the renovations they had claimed were complete actually were so I could send out their draw. I was talking to title companies about things that showed up on a title report and how we could remedy those. I spoke to hazard and flood insurance agents making sure we had the coverage we needed for the lender I worked for. I did all of that just starting out. When I then went to buy my first fix and flip, since I had those connections in place, it was literally one phone call to a title company to open escrow and another to my insurance agent to get that process started. I knew contractors in my area from walking job sites that the company had lent on. I knew finishers and tilers and roofers because I processed the draws. That was quite literally the foundation to real estate, and I got paid to do it! It's a very similar example with wholesaling. People will tell new investors to start with wholesaling because you learn the business by running the numbers over and over again, and as a lender - that is the same thing - only you get the added benefit of finding those other vendors in your market to help out. Private lending is for sure not for everyone, just like being a landlord isn't for everyone. I'm just suggesting a method of that involves a lot of learning, which can be really valuable upfront to a new investor.
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B.R. Marshall
Member since 2022 · 9 posts · 2 votes
4y
@Alex Wise
Invest. Think of it this way, with current inflation rate, your cash will have lost 8 -9% in value by this time next year. On the flip side, your investment will likely return at leat 5% conservatively speaking. That's a 14% difference.
1 Reply
Tracy Keffer
Real Estate Agent · Columbus, OH · Member since 2019 · 35 posts · 41 votes
4y
Not sure if this motivates you or scares you but I always bought properties with my last pennies in the bank lol because cash is bad for me but tenants will send checks to me after closing. I remember buying the very first condo at $22K and sold it for $100k in 5 years and collected the rent during that time. People told me dont buy that one. Save more money etc. I totally could have saved it after 2 years and rolled into another property but tenant was too nice I could not do it. Fear or Faith. You choose.
Now, someone up here was right about making random offer to 1) try the market 2) to feel warm a fuzzy with the process to get that anxiety out of you. But you need statistics to back you up. Research, Comps etc from an agent should make you feel confident with your move too. Go to some investment events, get to know people. A ton in Columbus you can go to. Hang out with like minded people will motivate you. I'm a Realtor/Investor in Columbus and take my clients to those events once a while. Let me know if you want me to send you info about those. Good luck!
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Alex Wise
OP
Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes
4y
@Jonathan Hankins haha waiting for it to go to the moon! 🚀
I like your thought process!
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Alex Wise
OP
Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes
4y
@Wale Lawal thanks Wale!
Yeah it’s a balance here of keeping it liquid for real estate when I’m ready.
Otherwise, surplus’s will go into the stock market.
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Alex Wise
OP
Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes
4y
@Joshuam R. I know it will get easier after the first time! But you’re right, just gotta do it!
And above someone said that a house in-demand 20 years ago is likely still a great investment today.
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Alex Wise
OP
Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes
4y
@Remington Lyman hey buddy! Yeah maybe this is my matured approach with delayed financing.
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Alex Wise
OP
Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes
4y
@Michael Deering smart! Yeah I think I've been trying to find something I can add value too. Sorta BRRRR but then I'm always uncertain of multi-family vs single family.
0 Reply
Alex Wise
OP
Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes
4y
@Alex Breshears hi Alex! Kudos on the book and NO I’ve not considered that. I’ve thought about that but have no idea where to get started.
I might have to check that book out!
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Alex Wise
OP
Rental Property Investor · Columbus, OH (columbus oh) · Member since 2020 · 65 posts · 71 votes
4y
@Nicholas L. I do. So my consideration is buying 1 with the goal of buying more. It’s not about money for down payment+remodel+reserves, it’s more about overthinking about the choice of direction.
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