Where to save for a down payment?

OP

Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes

9y

Thanks @Dan Rudolph for the specific example, im going to look into that!

@JD Martin thank you for your input as well! Im not looking for huge returns, just something not as terrible as my savings account, knowing how useless it is. What would you consider a Safe investment, where my principle is safe, but wont be just sitting there like in my savings?

David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

9y

@Blake King,

While you're working and saving, also be learning how to attract and engage private lenders. You'll have all the funding for your deals you can ever use, and then some.

My $0.02 ...

OP

Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes

9y

Thanks @David Dachtera great advice! Any ideas as to where even to begin such a process? I have yet to do a deal, but am working with a wholesaler in my area to try and Co-Wholesale a couple properites with him to get some experience, but my first goal besides this, is to buy a duplex-4 plex i can house hack!

Edmund Ricker

Gorham, ME · Member since 2016 · 224 posts · 116 votes

9y

@Blake King

For a short term goal such as your savings goal, you want safety and liquidity over return. As much as it pains me to say it, I would recommend a savings account of some sort. If you must get yield, you can try one of the online banks. They typically pay a much higher yield on savings than a local bank, yet it is still FDIC insured.

Good luck and I hope this helps.

Ed

Dave Hoeller

Marietta, GA · Member since 2017 · 9 posts · 5 votes

9y

Goldman Sach has a free savings account that is paying around 1.0%. Best I could find for an online savings account.

OP

Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes

9y

Thanks @Edmund Ricker i really appreciate it! I think the safety is key, but i for whatever reason never thought to look for another savings account...

And thanks @Dave Hoeller i appreciate that!

Vernalene Perez

Municipality Of Concepcion, MIMAROPA · Member since 2016 · 57 posts · 4 votes

9y

I keep my funds in UITF and just make top ups every now and then.

Rob Roy

Agent Sales Representative at BiggerPockets · Fort Collins, CO · Member since 2017 · 51 posts · 38 votes

9y

@Dan Rudolph I would have to agree 100% with choosing a Vanguard ETF. I specifically chose TD Ameritrade because of their commission-free ETFs and their 5 star reviews as a great online broker. I think VCSH is a great choice too. Before deciding to stop my Roth IRA contributions, I was putting all of my money into VBR and VUG (aggressive accounts for the long haul). But I had the same question as @Blake King recently and definitely think a Vanguard ETF is the way to go.

Which leads me to another question, is it true that I can pull out my contributions from my Roth IRA penalty free (as I already paid taxes on them), as long as I don't touch the gains? Even if they have been in <5 years? Doing this would give me about $20K that I should have put into a real estate investing account initially, but was none the wiser at the time.

Samir Shahani

Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes

9y

Sorry, I'm a bit confused.

You suggested you're paying off student loans while also saving. Which one are you focusing on?

As a lifelong student of personal finance, I suggest figuring out what you want to do ... use the money to pay off loans? Or use the money to invest / house hack / buy a property?

When you figure out what you want to focus on, do it!!

Regarding how to save your cash for a short duration (1 yr), I'd strongly suggest not investing it in the market (even ETF's, bonds, etc). The interest/capital gains you stand to earn is negligible, and you may end up risking your hard earned money if there is a downturn etc.

[If you have 30 years to invest, that's a different story for a different forum.]

Keep the money you are saving in a savings account and when it builds to the amount you need it to be - use it.

Also, remember, using the resources on BP, you can figure out how to buy a house with little or no money out of pocket!!! That way can you can pay off your loans and buy a house, that's the optimal outcome, right? :)

James McCard

Investor · New Hartford, CT · Member since 2016 · 282 posts · 104 votes

9y

It have been using an interesting strategy. Netspend which is a prepaid credit card has a free savings account that is attached to it you can earn 5% interest on paid quarterly (on up to $1000 above that and the interest rate drops). I think you are allowed to get three different accounts so that is up to 3,000 right there.

If that interests you here is a code that will get each of us $20 dollars you just need to enter the code:

8972889963

OP

Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes

9y

very interesting @James McCard . Will this effect credit at all, having these accounts / card?

Bill F.

Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes

9y

@Blake King I keep most of my short to medium term savings in a GMNA Bond Fund.

This bond fund specializes in government mortgage-backed securities. The fund primarily invests in GNMA securities, which are backed by the full faith and credit of the U.S. government and typically offer a higher yield than U.S. Treasuries. Most Brokerages have one and mine has no fee to purchase shares. You get better yields (2.3%) than a money market with negligible decrease in liquidity. Even during 2008-2009 I think the per-share price went down about 2-3% at most over a week and picked back up, so volatility isn't that large of a concern.

Account Closed

Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes

9y

For one year spend time-frame, I would do one of two things....

Put it in a savings account (safest bet)

or

If you currently work at a place that has a 401(k) with a match, then max out the 401(k) contributions. You can contribute $18,000 in 2017, and then another $18,000 in 2018. With an employer match, you'll end up with about $40,000. When you're ready to use the money, take out a loan from the 401(k) - usually loans are maxed out at 50% of the value of the 401(k)...giving you your $20k to play with. This will reduce your taxable W2 income (401(k) contributions offset your taxable income) and you are paying yourself the interest on the loan while preserving the ability to build up your retirement funds.

3 Reply

James McCard

Investor · New Hartford, CT · Member since 2016 · 282 posts · 104 votes

9y

@Blake King it did not affect my credit at all as they are prepaid cards - It is a good strategy for me to have my emergency fund both easily on hand and earning interest.

OP

Investor · Seattle, WA · Member since 2016 · 156 posts · 34 votes

9y

Hello @Account Closed ! sorry i am just now seeing this, thank you for the input, very cool! Can this be done with a Roth 401k and a traditional 401k?

Account Closed

Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes

9y

Originally posted by @Blake King:

Hello @Account Closed ! sorry i am just now seeing this, thank you for the input, very cool! Can this be done with a Roth 401k and a traditional 401k?

It can be done with whatever 401(k) plan your employer offers. I have done this myself and my employer offers both Roth and Traditional options through their plan.

Caleb Heimsoth

Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

9y

I keep all my money in stocks and bonds with betterment. I wouldn't say it's negligible, I earned about a grand in a year and now I'm ready to use it as a DP

Steve Bracero

Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes

9y

@Blake King

I use index funds thru vanguard... keep $ in there then I will take it out when I want to invest it- I have a 3 fund portfolio, a checking account is not best choice, since there is no interest. Keep what you need to live in your checking and rest in index funds.

Eric James

Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes

9y

You're paying off student loan debt (at what interest rate?) and will then take out a hard money loan (at what rate?) to purchase real estate? That doesn't sound like the best strategy to me.

https://eligibility.sc.egov.usda.gov/eligibility/w...

Charlie MacPherson

China, ME · Member since 2014 · 3k+ posts · 4k+ votes

9y

Here's an idea. How about getting a USDA $0 down loan? That lets you skip the whole exercise of saving before you can buy.

Between price appreciation (at least here in MA) and rising interest rates, it's going to be hard to make any meaningful dent in your monthly mortgage payment with savings.

So if you're buying in a USDA-eligible area and use that loan, you'll just need to cover closing costs. In my market, we aim for $5,000, but often get some contribution from the seller.

Look at this site to see if you can find an eligible area that you would live in.

Stephen Watt

San Diego, CA · Member since 2017 · 26 posts · 10 votes

9y

Hi @Account Closed!

With your suggestion of taking a loan from a 401k for a down payment, aren't there taxes that will have to be paid? Since you're leveraging the 401k funds before retirement, I would think there are significant tax penalties.

I'm curious to hear about how you repaid your 401k and how much you were taxed on the loan.

Regards,
Steve

David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

9y

@Stephen Watt,

401(k) Loans are not taxed. If you fail to pay them back, THEN they can become "distributions" and both taxes and penalties (for early withdrawal) can be assessed.

Borrowed money is not taxable otherwise.