Hi BP Community,

This year in June I purchased my first buy and hold property - a duplex. I know that it is important to have cash reserves set aside for unexpected issues that may arise with the property. However, should I just be sitting this money in the bank account that I have set up for it or investing it in some type of investment account so that it grows faster? If so, what type of investment account? Is that what the self-directed IRA accounts are for? I am wondering if there is something that I am not doing that I should be doing besides just saving it in the property savings account that I have. Right now all I do is collect the rents from the property management company each month and have the mortgage payment coming out just the same. Thanks for your advice!

@Nina Granberry

Buy another property.

Keep investing.

Every investment should be evaluated on its own economic merits, if you can find one that fully satisfies your criteria, (e.g., risk, return, liquidity, etc.) then fine. If not then don't just throw your funds into something just because you want it "working for you", that's a sure way to solve your excess cash problem you won't have it for very long.

Interest rates are admittedly very low so too much idle cash is an issue, but you certainly won't solve it by haphazardly putting money into to the first "high yielding opportunity" you run into for expediency sake.

Excercise a degree of patience and don't compromise well thought out selection criteria.

@Christopher Smith thanks for the insight. I’m not haphazardly doing anything here. I was just asking if there were other vehicles of savings funds that have potential to grow the money at a higher rate and that I have easy access to when I am ready to invest in more real estate.

@Ashleigh Leach ok. Obviously that is the goal. Doesn’t really offer any insight to the question I asked though.

@Nina Granberry I would have about 6 months or expenses sitting in a capex account for the property and then use any other money to buy more properties. 

@Nina Granberry I personally keep 6 months of reserves in the account and sweep the rest into a high yield savings account. Rates aren’t great now but you can at least earn 2-3% and it’s still liquid. I know others that put it into an ETF fund and grow it that was but I’m a little conservative.

@Nina Granberry I’m sorry I meant keep 6 months in high yield, I sweep the rest

@Nina Granberry what @Kwame Amoako said: 6 mos reserves first. Then save up for the next one

Originally posted by @Nina Granberry :

@Christopher Smith thanks for the insight. I’m not haphazardly doing anything here. I was just asking if there were other vehicles of savings funds that have potential to grow the money at a higher rate and that I have easy access to when I am ready to invest in more real estate.

A higher rate always implies higher risk and/or a compromise with your liquidity. For example I invest in mReits, very high current rates earned (greater than 10% in many cases). Very liquid as well, but very volatile too. When Covid hit my principal balance on an mReit dropped 70% almost instantly, it's coming back day by day and I have no immediate need for cash so I can easily wait out the recovery. In fact I may actually benefit as I can add more at lower prices, but had I needed the cash liquidity at that very instant I would have gotten absolutely killed.

So no free lunch, if you stretch for yield you potentially pay one way or another for it, as long as you understand what can happen and are good with the risk return trade off - well enough.

I have a couple strategies, I have a heloc on my house that I am using to fund additional rentals and the rate is 3.75 right now.  I primarily just pay off extra principal in the heloc and once I get it low enough I rinse and repeat on another property and see these extra payments as having a rate of return of 3.75% because that is what I would be paying on the debt.  I also have some in a brokerage account where I am investing in stocks.  This is much riskier with the possibility of a higher return but for me it is worth it to try to grow the money faster to buy more houses.  If I get into an emergency I have plenty of cash in the bank but I also fund most maintenance from the heloc.  I would say the bank generally speaking is the worst place to park money, at the minimum look into a high interest savings account, there are plenty out there or consider brokerage.  Right now the moneymarkets are garbage but once the fed raises rates they are decent depending on the brokerage firm you are looking at.  

@James L. What savings account is yielding 2-3%?

Originally posted by @Matthew M. :

@James L. What savings account is yielding 2-3%?

 Nothing that is risk free. Online banks are paying less than 1%,  30 year treasury rates are 1.73%, and 7 year CD's are around 1.3%. 

This is just typical BP, even if unintentional, misinformation.

To the OP, what to do with your cash flow is buy more cashflowing assets, if you are able to find them at prices that make sense. 

@Matthew M. That was before the current COVID. You can always find an online bank with better rates. Now it’s only like .8%

@Nina Granberry If you don’t have at least 8 hours per day to dedicate working/learning the stock market, avoid picking stocks and timing the market. Research an ETF called VOO and see how you like it. Low expenses, very diverse. Setup a weekly recurring buy. Set it and forget it kinda thing. Keep that weekly buy on cruise control whether the market is up or down. Avoid at all cost to pay attention to the noise and the news about stocks.

This is all the principle I’m following from that good ol’ fella, Mr. Warren Buffet.

Though I’m not expert, I’m more susceptible listening and learning from those who are successful.

@Nina Granberry

Man your question takes me back to right after I got my first place! (That happend to be a duplex as well) I was so hungry for growth I wanted every penne working as hard as possible!

Almost 30 deals later I have realized that cash reserves do an epic job at what they do best... Provide insurance.

Looking back I now realize that spending metal capital to try and find a few more dollars to max out my return by getting 1 or 2% on my savings is just a distraction from getting a 1000% rate of return in real estate.

So with that said. Keep your hunger for growth alive but don't get distracted on the small things.

Most of all have fun along the way!

@David A. Take a look at your local community bank for a high interest checking account. I have my reserves parked in an account earning 2% at sound community bank. I have to post 15 transactions to the account in a month to earn the interest for the period which is a bit annoying, but it at least keeps my reserves for the property keeping up roughly with inflation.

I’ve seen other community banks out there with similar 2-3% APY, albeit all with some hoops to jump through (monthly transaction requirements, ach transfers or direct deposit requirements, etc)

@Nina Granberry we have betterment investment accounts to save up for capeX and repairs,. After saving for those, I also transfer a percentage of profit each month into our household checking account to spend on family stuff, kids, etc.

I also recently read the book profit first, that was very insightful with how to handle cash flow going forward. We have young kids right now and so we are choosing to supplement our income from W2 jobs with some of the money we earn from our rental business; we’re not rolling all money into new properties. Profit First was a really insightful book. 

Originally posted by @Seabelle McFarlane :

With cash flow use it to buy  more properties in real estate. Or put them into stocks, like etf funds. If you ever need funding for your deals I’ll be more than happy to provide. I do buy and holds.

Thank you, Seabelle. I have investment accounts that I have set up outside of my w-2 career (Acorns, Fundrise, and a ROTH IRA w/TD Ameritrade). So maybe I could put monies into those, anything that is above the 6 months reserve amount. And, I would like to talk more about funding possibilities as I am beginning to invest in properties in Phila.

Originally posted by @James L. :

@Nina Granberry I personally keep 6 months of reserves in the account and sweep the rest into a high yield savings account. Rates aren’t great now but you can at least earn 2-3% and it’s still liquid. I know others that put it into an ETF fund and grow it that was but I’m a little conservative.

Ok. I recently opened a high yield savings account with navy federal credit union and I have another high yield savings account with another credit union too. So, once I reach that 6 months reserves target, I would do that. Thank you.

Originally posted by @Christopher Smith :

Originally posted by @Nina Granberry:

@Christopher Smith thanks for the insight. I’m not haphazardly doing anything here. I was just asking if there were other vehicles of savings funds that have potential to grow the money at a higher rate and that I have easy access to when I am ready to invest in more real estate.

A higher rate always implies higher risk and/or a compromise with your liquidity. For example I invest in mReits, very high current rates earned (greater than 10% in many cases). Very liquid as well, but very volatile too. When Covid hit my principal balance on an mReit dropped 70% almost instantly, it's coming back day by day and I have no immediate need for cash so I can easily wait out the recovery. In fact I may actually benefit as I can add more at lower prices, but had I needed the cash liquidity at that very instant I would have gotten absolutely killed.

So no free lunch, if you stretch for yield you potentially pay one way or another for it, as long as you understand what can happen and are good with the risk return trade off - well enough.

That makes a lot of sense. And, since I am not experienced in investing in stocks on my own, I think putting the extra cash flow into my high yield savings accounts or the recreational investment accounts that I have (i.e. Acorns, Fundrise, TD Ameritrade) are my best bet.  

Originally posted by @Adam Martin :

I have a couple strategies, I have a heloc on my house that I am using to fund additional rentals and the rate is 3.75 right now.  I primarily just pay off extra principal in the heloc and once I get it low enough I rinse and repeat on another property and see these extra payments as having a rate of return of 3.75% because that is what I would be paying on the debt.  I also have some in a brokerage account where I am investing in stocks.  This is much riskier with the possibility of a higher return but for me it is worth it to try to grow the money faster to buy more houses.  If I get into an emergency I have plenty of cash in the bank but I also fund most maintenance from the heloc.  I would say the bank generally speaking is the worst place to park money, at the minimum look into a high interest savings account, there are plenty out there or consider brokerage.  Right now the moneymarkets are garbage but once the fed raises rates they are decent depending on the brokerage firm you are looking at.  

Thank you for the specifics! Very helpful. Unfortunately, I do not have the option of getting a HELOC yet. But I am looking forward to when I can get one.

Originally posted by @Kelsey Folger :

@Nina Granberry we have betterment investment accounts to save up for capeX and repairs,. After saving for those, I also transfer a percentage of profit each month into our household checking account to spend on family stuff, kids, etc.

I also recently read the book profit first, that was very insightful with how to handle cash flow going forward. We have young kids right now and so we are choosing to supplement our income from W2 jobs with some of the money we earn from our rental business; we’re not rolling all money into new properties. Profit First was a really insightful book. 

Thank you, Kelsey! I will look into betterment - i have not heard of it. And I'll definitely look into the book recommendation too. 

Originally posted by @David A. :

Originally posted by @Matthew M.:

@James L. What savings account is yielding 2-3%?

 Nothing that is risk free. Online banks are paying less than 1%,  30 year treasury rates are 1.73%, and 7 year CD's are around 1.3%. 

This is just typical BP, even if unintentional, misinformation.

To the OP, what to do with your cash flow is buy more cashflowing assets, if you are able to find them at prices that make sense. 

 Buy other cash-flowing assets such as? What are some other assets that you invest your cash flow in?