Where do you park your free cash?

Real Estate Broker · Malone, NY · Member since 2013 · 345 posts · 70 votes

Hey, everyone! I'm in the process of buying my second property, which would give me 5 apartments total. This would give me roughly $1000/month in cash flow between both properties. I want to keep about $10,000 in cash liquid in case of an emergency with one of the properties, but what should I start doing with anything above and beyond that? My goal is to keep saving money to buy more multi unit properties, so I would need to be able to access it without too much hassle or penalty to buy more deals in the near future. Thanks in advance!

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Scott TrenchPro Member

Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes

10y

I keep a nominal amount of free cash in a personal checking account, and about $15K in a checking account for business and real estate related expenses. This $15K will increase now that I have another property and want even more of a cash cushion.

Every dollar over that is invested in index funds (my favorite is VOO). Sure, I risk losing all or part of it in the event of a market downturn, but historically, long-term investors have seen about 10-12% annualized returns in index funds like these.

My theory is that even if I lose (I lost a few thousand over the last year or so), I'm fine with that because I believe I'm taking the statistically correct approach over the long term. Sometimes, I'll cash out at the wrong times in the market cycle while buying a next investment property, and sometimes, I'll get lucky.

I think that this is a much better mathematical, long-term approach than parking dollars over and above those needed to stably maintain your life and real estate business in low interest savings accounts. That said, if you don't have the stomach to just stick with it through the tough times, it may be frustrating for you.

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Justin R.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y
@Chris Soignier 80%, typically, if your portfolio is high quality munis. The arbitrage is narrow, but it works because of the high leverage.
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Justin R.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y
Originally posted by @Craig Garrow:

I LOVE the sound of that! Who does those? Companies like Fidelity?
Find an investment bank that has a bond desk - I know Morgan Stanley does. You can search for a local MS financial advisor and talk to them about the details. There are details to understand.
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Craig Garrow
OP
Real Estate Broker · Malone, NY · Member since 2013 · 345 posts · 70 votes
10y
I did some research last night - I think I will call one of those companies and get more details. I also just realized you can do tax liens in your IRA as well.
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Ryan Inman
Financial Planner · Las Vegas, NV · Member since 2015 · 66 posts · 19 votes
10y
Most of the advice here concerning stocks should not be considered investing but speculation. If that is how you want your savings invested, be prepared for volatility and be willing to except large losses. The muni fund idea isn't bad, and prob the best idea mentioned for short term money.
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Ronald Thompson
Yorktown, VA · Member since 2015 · 11 posts · 2 votes
10y
Originally posted by @John D.:

Appreciate the reply @Steve Sapowsky, I was curious as to your advice as to a stop-loss on an index fund. I know the stop-loss is a core tool for most professional traders, I am curious as to how those of us investing in index funds might use it.
You can not use stop-loss on mutual funds.
To my knowledge, stop-loss can only be used on individual stocks and ETF's.
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