Rental Property Investor · Brooklyn, NY · Member since 2016 · 84 posts · 139 votes
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!
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
5y
@NinaGranberry - have you considered becoming a Hard Money lender yourself? I don't know how much $ you have to work with, but it definitely offers you a higher yield potential than even the highest of "high yield" savings accounts. There are specific requirements you have to meet to be able to be a hard money lender, but there is no shortage of people looking to borrow money, even at hard money rates. For example, we regularly work with a HML to finance purchases of properties that will not qualify for conventional financing. Our niche is extremely dilapidated properties. We have an excellent relationship with our HML. We pay approx 10-11%, interest only for the life of the loan which is usually 12 months max, though we always try to be in a position to refi the property after 6 months (easier said than done lately). Because of our relationship, we 're able to close in 7-10 days, which makes us almost as competitive as cash buyers and that's very important in our market. A couple of REIs like us could keep your money growing swiftly. Best of luck to you!
Still makes no sense, because when you're older you have gained wealth and you can self insure and there's no need for life insurance anymore. The only insurance I'll be buying will be long-term care insurance. Oh and car insurance and investment property insurance and umbrella policies to protect my wealth. . And if I want to generate wealth I'll just continue to max out my Roth IRA‘s and make a killing that way, my 401(k)s and my cash flow from the rental properties. 
It made no sense to me also until I took the time to dig into it as I was reading so many bashing online. I am not saying that it is the best tool for everyone or even you. However I just want you to realize that it is a powerful strategy that can be, and is used by many investors successfully. So I take exception of your blanket statement that it is garbage. My only regret with maximum overfunded life insurances is that I didn't take the time to investigate it fully ten years earlier.
Personally I am also maxing out my Roth IRA and 401k, and everything over is going into the life insurance that has most of the same characteristics as a Roth QRP with some more advantages (no RMD, no maximum yearly limit, no penalty for early withdrawal, no limit on loans, no direct recognition on loan, steady returns and on top of it a 'free' life insurance).
Some people will even completely pass on the qualified retirement plans and only use life insurance instead as their primary savings/retirement/college fund account.
Rental Property Investor · Seminole, FL · Member since 2014 · 85 posts · 68 votes
5y
I would keep enough for deductibles and an additional 6 months expenses (mortgage, repairs, etc). Your return on emergency reserves could be huge in a downturn. Example: if the stock market goes down like it did during the beginning of COVID and you used an emergency fund, you just saved 30% on a loss if you had to pull that money from index funds.
Wickliffe, OH · Member since 2015 · 48 posts · 18 votes
5y
I keep 6mths of mortgage payments and an extra $2k for any unexpected repair in a savings account. Anything above that goes into my Vanguard account with the thought that the Vanguard money will be used to purchase another property.
Hi Nina, did you invest in nyc? i live in nyc and found it to be so expensive. just curious as to how you made it work? did you put 20% down flat out or use creative financing?
Rental Property Investor · Myrtle Beach, SC · Member since 2020 · 28 posts · 14 votes
5y
@Nina Granberry
Everyone has a different opinion and plan that works for them. It seems like a lot of people have shared some great ideas! If it was me, I would make sure to save up a 6 month reserve (this will give you great peace of mind) and once you’ve reached that, start using the cash flow to invest back into more property. I just wouldn’t recommend over extending yourself. You’d hate to buy more property and not have the reserve to take care of the property you already have. Some people don’t mind the risk- this all resorts back to you doing what you have the most peace of mind with. Congrats on the duplex and getting started! You’ve already accomplished the hardest part!
@Nina Granberry I re invest it in more rentals! I heard someone say the magic happens when you re invest your profits. This principle is also laid out beautifully in The Richest Man in Babylon.
Investor · Lavon TX · Member since 2018 · 3 posts · 3 votes
5y
I reinvest all my excess cash flow over my living expenses into more investment properties. Aside from a reserve amount account, assuming that is where it needs to be anything above that is recycled into more rental properties. Financially free by 32.
Rental Property Investor · Greenville, SC · Member since 2019 · 39 posts · 5 votes
5y
Rather than putting your idle cash in a high yield savings account and earning a nominal rate of interest, u might like putting that money in a brokerage account that offers some liquidity. Like a cash management account. U could hold your money in tax free municipal bonds etf, such as HYG. This way u earn more interest than in a high yield savings account, and get cash appreciation when the etf goes up, and it’s all tax free. Plus it’s liquid and comes with a debit card and sometimes a checkbook.
Wholesaler · USA · Member since 2019 · 42 posts · 32 votes
5y
@Nina Granberry
You can invest it in some of the different financial markets producing 3%-12% annually. I trade foreign exchange (risky) but my system nets me 21% annually on average.
Real Estate Consultant · Member since 2020 · 44 posts · 71 votes
5y
@Nina Granberry, welcome to the exciting world of real estate investing!
One of the absolute best advantages of investing in rental properties is that you can use the extra cash flow to grow your investment portfolio. Before you know it, you can own a few rental properties and be on your way to financial freedom.
I would strongly recommend setting aside a few hundred dollars of your rental income every month to save for a down payment on a new property. Of course, this is after you make your mortgage payment, cover other rental expenses, and save some cash for emergencies related to your duplex property. If you save let's save $500/month, within 2-3 years you will be able to put a down payment on a second investment property. Then you start doing the same by saving from the rental income of the two properties. The more properties you own, the easier and faster it becomes to add new ones to your investment portfolio.
By investing your extra cash flow into new properties, you will be making money both in the short term (through rental income) and the long term (through appreciation).
Accountant · Miami, FL · Member since 2020 · 89 posts · 57 votes
5y
@Nina Granberry
I wouldn't recommend moving your savings into an IRA. IRAs are designed to be retirement vehicles, not savings accounts. That said, you can incur penalties when the day comes that you need that invested money to satisfy some unexpected expense.
It’s ok to have some money set aside for emergencies; not every penny needs to be working. The key is finding the right balance. Usually, setting aside 3-6 months worth of expenses will be just right. Hope this helps.
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
5y
Live on it. Not lavishly, but I am trying to use my income from investments to "live off of" so a great majority is used up. It would be great to have like twenty more percent in assets, in which case I could answer your question with: "Save or reinvest it!"
Rental Property Investor · Member since 2020 · 3 posts · 0 votes
5y
@Nina Granberry
You could put the cash flow into what is called a sinking fund. This is a fund set aside to fix wear and tear, such as broken appliances, new roof etc.