Cash Reserves for Real Estate: How much? Where?
Hi All-
I'm preparing to buy my second SFH in the next 6 months or so, provided the right deal is there. I really need some help regarding the best way to posture my finances in the meantime so I'm ready to take advantage of a deal when I find one.
I want to be able to fire off cash offers, and, since most sellers won't accept brokerage investment account statements as proof of funds (and because I've gotten burned using stock to buy a house with cash before!), I want to start holding a modest cash reserve in order to buy real estate with, when the time comes.
SFHs in my market generally go between $85k and $125k. My goal is to hold $50,000 as a cash reserve, and rely on a 401(k) loan to cover the rest.
Is this too much to just be "sitting there"?
I'm strung up right now because most of the (non REI) guidance I've found is to only hold 3-6 months of living expenses as a cash reserve. In my case that'd be ~$10,000, not nearly enough to actually using up front on a real estate purchase. Not to mention, I'm not planning on having this as a "rainy day fund", which is how most traditional financial advice will see a cash reserve.
How would you hold this cash?
I've seen conflicting advice regarding putting this money in a high yield savings account vs. a money management account, but I'm leaning towards the savings account because of the higher APY, and I won't be affected by transaction limits or ATM accessibility. Are there any better options for holding cash?
Part of the reason that I'm confused here is that I've competed with investors for higher price point properties (>$200k) and have been outbid by cash offers. Do some individuals really just have $200k cash sitting in an account somewhere waiting to be spent? Or do they have some other highly liquid financial instrument they can use in these situations?
Thanks for any and all insight here. Looking forward to the discussion.
Eric