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Where do you put money intended for a real estate deal?

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  • Where do you put money intended for a real estate deal?

    Curious to hear other's approach -

    My investment plan says I should have 10% in real estate.

    I've bought into two small (ish) syndications in the past and am looking to do a third. My question is this - where should I hold the money that is earmarked for the next deal? In the past I've just put away some money every paycheck into a high yield savings account and invest when I get to the magic number...but it takes a while to accumulate the requisite funds, and the higher inflation is, the less attractive it feels to have some relatively large chunk of money just being nibbled away.

    I know the standard line - money that you will need in the short term shouldn't go into the stock market or other volatile investments.

    Does anybody do anything other than a high yield saving's account for this purpose? If so, please share your approach!

    Thanks


  • #2
    The concept of putting money you’ll need in the short term in a very low risk product doesn’t change.

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    • #3
      Short term - same; Near term - depends - CD ladders/Tbills -- ultrashort bond funds if you don't mind possible erosion/loss risk

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      • #4
        VGSH or similar.

        Assuming it’s not a disaster in the off-chance you lose a tiny bit of principal.

        Treasuries are a good option if you have a hard date for the capital call or know with decent accuracy how long it will take you to accumulate.

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        • #5
          Ally bank. 2.25%

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          • #6
            Def not the stock market - either money market or t-bills in brokerage account.

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            • #7
              CIT bank - 2.7% right now

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              • #8
                Cash if it will be a short period of time. Vanguard REIT Index Fund if a long period of time.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                • #9
                  Originally posted by The White Coat Investor View Post
                  Cash if it will be a short period of time. Vanguard REIT Index Fund if a long period of time.
                  Curious about the REIT recommendation: I see them as having price risk and I’d appreciate understanding your thought process on this.

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                  • #10
                    Originally posted by Larry Ragman View Post

                    Curious about the REIT recommendation: I see them as having price risk and I’d appreciate understanding your thought process on this.
                    Assuming his rationale is to have the money in the same asset class (RE) until it gets redistributed to a different investment (e.g., private fund) within that asset class, and for some reason it's known that this won't occur until several years into the future, then I actually agree with this.

                    Sure you risk the principal, but for such an extended period of time (relatively) I would rather be invested more or less according to my plan (RE) than holding a side stash for years waiting to deploy it into that plan.

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                    • #11
                      I am starting to invest in some syndications. I was wondering if you guys know of any forums where individuals discuss deals such as the ones posted on Crowdstreet?

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                      • #12
                        Originally posted by Larry Ragman View Post

                        Curious about the REIT recommendation: I see them as having price risk and I’d appreciate understanding your thought process on this.
                        For sure there's price risk. That's why I said a long period of time. If it's a long time, I'd run that risk in hopes of actually getting real estate like returns in the mean time. That way, you're getting it invested in real estate right away and it's just a matter of changing from one type of real estate to another when you make the change.
                        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                        • #13
                          I am getting 2.5% with sofi and direct deposit. It is totally liquid and can be used immediately. If I could wait 3 mo, 6 mo, 1 yr etc. then I would probably consider short term treasuries and I would hold until term.

                          I you need liquidity, you need safety and you cannot have high returns without high risk.

                          For long term (>5 year) investments I buy stock index funds and ETFs = VTI & VXUS etc.

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                          • #14
                            Waiting to accumulate enough $ for a RE deal can be a pain...I personally don't like having a pile of growing cash sitting on the sidelines while waiting (beyond the emergency fund). One thing that I did a year ago in the summer of '21 was I obtained a cash out refinance (after I had just paid off the mortgage a few months earlier) - the rate was 2.5% and I was able to obtain and invest $250k in one fell swoop. The fund has easily way outperformed the interest rate on the refinance, so I am pleased with that, and this solved the problem of waiting for cash to accumulate over time before investing, at least for this particular deal. Of course with interest rates having significantly gone up since then, this would not be as attractive an option currently (even if you had enough equity in a home to do it).

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                            • #15
                              Originally posted by deanyar View Post
                              Waiting to accumulate enough $ for a RE deal can be a pain...I personally don't like having a pile of growing cash sitting on the sidelines while waiting (beyond the emergency fund). One thing that I did a year ago in the summer of '21 was I obtained a cash out refinance (after I had just paid off the mortgage a few months earlier) - the rate was 2.5% and I was able to obtain and invest $250k in one fell swoop. The fund has easily way outperformed the interest rate on the refinance, so I am pleased with that, and this solved the problem of waiting for cash to accumulate over time before investing, at least for this particular deal. Of course with interest rates having significantly gone up since then, this would not be as attractive an option currently (even if you had enough equity in a home to do it).
                              I did similar in the past. Was able to negotiate with Schwab where I have my taxable brokerage and for a pledged asset line of credit for SOFR + 1.5%. Last year that was about a 1.6% interest rate. It’s 4.67% today so certainly less attractive. I saved up about half of what was needed for the investment and then committed, got into the deal a bit earlier and then was able to pay off the remaining over 3-4 months. It did add a bit of stress and I don’t know if I would do it again for more than 1 month advanced cash flow. I just really hate debt.

                              I’m also less bullish on real estate these days. It’s been a fantastic asset with a big run up rewarding investors over the last few years and hasn’t had the hard fall of stocks or bonds. However I feel like it’s only a matter of time until valuations fall a bit and as real estate has gone up and stocks down my asset allocation is out of wack. Im planning substantial contributions to stocks for the next 12-18 months and then back to more balanced stocks/real estate contributions from there.

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