My wife and I will soon be collecting net proceeds from a home sale in the 5 figure range. Our plan is to sit on the money for ruffly 6 months while we deal with some other financial things before re-investing into a new property around April. I am seeking advice on a smart place to park the money while we wait so we can gain more interest then the standard 0.1% a normal savings account can offer. Thank you in advance for any and all advise!
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Trowe price offers (in md anyway) a md tax free bond fund paying 4 % return with relatively little risk
maybe lend it to a fellow local RE investor on a fix and flip and get 10+% on your money?
Thanks everyone for the advice so far! Mitchell L. I would be tempted to do this but it seems rather risky. I will need every bit of it for the next investment property, not sure I want to risk that much... 10% is nice but is the risk really worth it?
@Chris Pelley run the numbers of .75% in a savings account vs whatever expected return you think you can get. Over 6 months it's likely to be minuscule and not worth the gamble.
This doesn't quite go to the point of your question, but if you haven't already factored this in, you should look into doing a 1031 exchange to defer paying taxes on your sale. This only applies if the property you are selling and the one you are buying are both investment property and you have to find and buy the new property within a certain time frame (I think three or six months), but it can save you quite a bit on taxes if it works for you.
Otherwise, I'd recommend parking your money in an index fund if you want a relatively safe investment. I'd recommend looking into Vanguard. Fidelity is another commonly recommended investment company, though I wouldn't know what type of investments to recommend for them.
@Brandon Hopkins thanks for the quick analysis. We wouldn't have done anything that risky, but your input affirms that thought.
@Karl Dowden I talked to my CPA about the 1031. I was originally planning on doing that but after running the numbers it's not worth it, we would only save about $1000 and have the added hassle of doing one. We have a couple things working for us to help avoid taxes. First is we lived in the house for 2 years before renting it the last year. From what he tells me that helps keep taxes down. The other thing is our taxable income is very low. I'm in the military and half of my pay is tax free and when you add in depreciation from the property to our taxable income, it is in the lowest percentage. Because of this we do not have to pay capital gains taxes on the income. Our federal return remains the same but our state return is about $1000 lower than normal because CA doesn't have capital gains and it is taxed as normal income. With this strategy we can wait as long as we need to buy our next property, and we are able to pocket some of our gains with no strings or extra filings. I feel confident we are going the right way. Our CPA is a seasoned real estate investor and is very well versed. Thanks for the suggestions, I know 1031's are still a mystery to a lot of people.
for that short of a period just an insured saving account is the way to go,,you want the flexibility to get to it anytime, and no risk of loss. For 6 months your just not going to make much money in anything that isn't fairly risky.
@Andy Collins thank you for the input as well. From what I am gathering from everyone, it seems like the safe bet is a money market or higher end insured savings account. Liquidity is going to be semi important. We are sitting on the money while we sort a couple things out which will allow us to get our budget higher to our desired range for the next property, but I like having the option to buy at any time because the money can be withdrawn when needed. Like I mentioned above, we aren't trying to find a get rich type thing, just a better spot to keep our funds while things come together.
Originally posted by @Chris Pelley:
Karl Dowden I talked to my CPA about the 1031. I was originally planning on doing that but after running the numbers it's not worth it, we would only save about $1000 and have the added hassle of doing one. We have a couple things working for us to help avoid taxes. First is we lived in the house for 2 years before renting it the last year. ...
No need for a 1031 exchange when you are able to use the Section 121 exclusion.
Online savings accounts are paying up to about 1%. PM me for more info if that's of interest to you.
Just like @Steve Babiak said, you can take the section 121 exclusion. If your CPA didn't mention that immediately, it might be time to free them up to help others instead of you.
Unless you made more than 500,000 in profit, you are exempt from paying the taxes on the gains because you are married and lived in the property for 2 of the last 5 years. If the military made you move away, you can extend the period 10 extra years.
Chris, I'm a real estate investor on the side. By day, I'm a Certified Financial Planner practitioner. If you came to my office asking this I could only advise you to park it in a money market account where you won't risk losing it, namely because you've said in other posts you'll need every bit of it and you'll need it in about 6 months. If I disclosed that on your account paperwork and was truthful about your intent for the money, I doubt our compliance officers would even allow us to do anything with your money but that. Don't worry about getting a return larger than what a money market will yield for money you need in the short term.
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