Stock Market While Saving For Down Payment?

71 Replies

I am currently saving for my first down payment on a buy and hold real estate property. I'm using Barclays with their really high 1.5% APY savings account. A lot of people will argue that if you are saving for a down payment you shouldn't put your money in something risky like the stock market. But if you are saving for an investment property, why not double down and invest my savings for a down payment in the stock market to potentially capitalize on higher gains and try and make my money work harder for me until I pull it out and invest it in real estate? Arguments for or against this idea?

@Brent Coombs I had plenty of Crypto a few years ago and while really crazy gains are a huge possibility, I feel like really crazy loses are also a equally huge possibility even with smart Crypto investing. I don't know that is really my game anymore even though I still follow it closely.

@James Krahula you can invest in stocks or in real estate with less $. For example you can buy a partial note (set amount of payments) and have yields 4-6x higher than Barclays returns

Originally posted by @James Krahula :

@Brent Coombs I had plenty of Crypto a few years ago and while really crazy gains are a huge possibility, I feel like really crazy loses are also a equally huge possibility even with smart Crypto investing. I don't know that is really my game anymore even though I still follow it closely.

Yeah, but, I reckon entering the stock market now (at record highs*), could be even riskier...

* Edit: CNBC - "The 30-stock index also posted its biggest percentage decline since May"...

Originally posted by @Brent Coombs :
Originally posted by @James Krahula:

@Brent Coombs I had plenty of Crypto a few years ago and while really crazy gains are a huge possibility, I feel like really crazy loses are also a equally huge possibility even with smart Crypto investing. I don't know that is really my game anymore even though I still follow it closely.

Yeah, but, I reckon entering the stock market now (at record highs), could be even riskier...

 Haha, oh I'm watching the market right now, doesn't mean I'm planning on entering tomorrow. I'm talking more of a general strategy.

@James Krahula - if you want access to your $ immediately then real estate will be out as most real estate investing including notes has 60-90 day exit

@Chris Seveney a quick exit isn't at all my goal with real estate, just getting my money out of my temporary investment to then invest that in real estate.

Money you'll need in the short to medium term, say less than 5 years, should probably not be invested in the stock market.  

I think the advice here to stay out of the current market is sound. If you want a little better rate but are willing to lose some flexibility, consider something like a good quality bond, or even buying some consumer debt with Lending Club (which does have a 3 or 5 year commitment on each loan). Probably better to be patient now than risk your ability to enter real estate later, if that is what you really want to do.

The stock market if properly done is a long term play.  There's no guarantee that on a short time horizon the stock market appreciates and when you need the money for your downpayment, you may have less than what you started with.

That said, I did that before I bought my first house.  I had some money invested in a few stocks in 2007-2009 and then took it out to buy my first house.  I think I lost like 25% of what I put in, and ended up taking out 401k money at the time to meet the downpayment.

I did this before bought my first property and made around 1k in gains but looking back this was luck and not wise.

You don’t want to be timing the market. If you’re simply saving money over a year or so to buy a property, keep it in a high interest account, not the stock market

Originally posted by @Caleb Heimsoth :

I did this before bought my first property and made around 1k in gains but looking back this was luck and not wise.

You don’t want to be timing the market. If you’re simply saving money over a year or so to buy a property, keep it in a high interest account, not the stock market

Another way the OP could have phrased the thread Title is: Where can you find Caleb Heimsoth's alleged (no stock market risk) "high interest accounts" while waiting to buy?... 

@Brent Coombs I don’t personally use any high interest accounts, but it you want to look for those I’ve heard ally bank is a good place to start

The obvious point here is the stock market can go down and now you have less money then you started with.

@James Krahula my Lockheed Martin stock is up 1.8% from yesterday and my Eli Lily stock is down 4.59%. In other words, single day gains or losses can easily outpace your yearly savings account. It comes down to risk. We are going to have some runs down and runs up. 

There is no right or wrong answer.

It simply depends on your tolerance for risk.

The stock market will have swings and thereby more risk, whereas your Barclay account has zero risk and a fixed yield.

Follow your own tolerance for risk, not others.

I know that the stock market goes up and goes down. For the most part, the stock market trends upwards and people use it as an investment tool just like real estate. My question is why not do both at the same time knowing that the stock market has ups and downs but long term will usually end up higher.
Here is another way to look at it. Right now I save half of my income and that will be used to invest and build wealth. Why not invest in the stock market until I'm ready to transfer that investment into a real estate investment? Long term both trend upwards, so just weather the storms and get through the dips.

@James Krahula You can do anything you want, the question is should you. @Gino Barbaro gave great basic investing advice: Don't invest what you can't afford to lose. Since you want to buy RE your goal should be to get an acceptable return  while preserving capital. 

The fundamental issue with all equities in this situation is volatility. You are correct that over time they trend to rise. However, they do not do that in the short term. The short term is less than a year. You could be put in a position where you need to take a lose on your stocks to buy RE or you can't purchase a deal you want because your equities have lost to much value. 

Can you mitigate this? Yes, through indexing, Trailing limit orders and other ways. Do you have the knowledge, skills, and abilities to do this?

But does a way exist that gives you better returns than a savings account without the volatility of equities. Yes, bond funds. You can get 2-4% with lower volatility.

Good luck

Because the stock market is a long-term growth strategy... not short term. Unless you have some information that might make a difference in which stock is best for you purchase. Even then, you don't know from one day to the next how much you will gain/lose. And unless you're glued to the Financial News, watching the ticker, you might want to go through a broker. In which case, you'll be paying them as well whether you gain or lose. I would seriously listen to the above advice .

On the other hand, you might want to calculate a rough estimate of what it's costing you to wait for a year (or however long it's going to take) to accumulate the $ down. There are several options available on solid income producing commercial properties and you'll need to come up with at least a 3rd of the $ down. Plus, you'll have to buy us out at some point. 

But I'd be glad to help you with that if you don't already know someone  you can call.

@James Krahula I like the thinking, as right now it kills me I have $15K just sitting in the bank, not doing jack for me from an interest rate, growth standpoint. 

That said, that money is earmarked for me as a cushion, just as your money is earmarked for real estate. If your horizon for buying real estate is long enough, the market does make some sense (especially if you're investing in a dividend stock). If you're holding that money with the idea that you'll jump on a great deal as soon as it comes, the stock market is an evil siren that'll steer you into the rocks. 

You know what you want to use your money for, so just keep it at that. 

Well this thread really had a lot of thoughtful insights, but the general consensus seems that for short term, it does not make sense, and saving for a down payment is around the same time frame which does not make this a viable option. Cool thoughts everyone!

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