Hi guys -
Wanted to get your advice and/or personal experiences on how to properly save and grow your capital prior to making your first real estate investment. As a little background on me and my current financial position - I am a year out of college and have managed to save up a respectable amount that I intend to use to make my first REI. I work a well-paying job and am situated in the 25% or higher tax bracket. I am still a year out from making my first real estate investment by simple fact that I do not have the requisite # of credit lines to obtain a mortgage loan and also because I would like to save up as much as possible to account for emergency costs that I may face.
With that being said - how would you guys recommend a new to-be investor to best save and/or grow his money with an approximate one year time window prior to making a real estate investment? I have explored the option of investing in stocks, namely low or no-cost index funds/ETFs, that would provide a respectable annual return. However, I would incur a hefty capital gains tax when pulling out my money due to my tax bracket. Plus, stocks aren't really meant for short time-horizons like a year. There is also the obvious option of letting your capital sit in your bank account, but i'm aware of the importance of the time-value of your money. Would love to hear how members of the BP community best saved/grew their capital before making an REI.
How would you feel if the stock market took a dive in the next year? If you can't live with that, stay out of stocks. All of my own money is in safe, principal-protected investments offering great returns (for a debt investment). The real estate market is too hot for me right now. I'm sitting on the sidelines until it gets more attractive.
I don't think you understand the tax rules. Capital gains taxes are on capital gains. Income taxes are on income. But either way, if you make 10% or 2% on your investment, 20% is 20%. I personally would rather have 80% of 10% than 80% of 2%
I'd recommend switching your savings account to a high-yield savings account in an online bank. Online banks don't have to pay a lot of the costs that their brick-and-mortar counterparts have to, so they're able to pass a little more savings to their investors. Albeit the rates are still low as a whole, but if you're going to have a savings account, why not try to maximize interest? And though the rates are lower than the stock market average, at least your money is protected and it's still liquid. There aren't a lot of alternatives. I use GS Bank but there are a few others that you should definitely shop around for.
Hope this is helpful!
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you