The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Mustache ride on November 02, 2020, 08:03:12 AM
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I need help deciding what vehicle I should save money in for a rental property. I've been looking at getting in to RE for the last 6 months and have identified a couple areas close to me that might work for buy and hold cash flow properties. I'm in a HCOL area and looking at properties between $150K-300K. Currently have $70K cash in the EF and want to keep around $30K in it for actual emergencies.
Now for my dilemma. I just found out I have access to a megabackdoor roth IRA. We max out all tax advantaged space and my original plan was to start holding the excess in cash for RE rather than adding it to the taxable brokerage account. Now that I have an extra ~$30K of space, I'm considering putting my money there. My main question is, does it make sense to store the down payment in the Roth 401K instead of having it sit in cash? I hate having so much cash doing nothing for me, but I also want to be ready to purchase a property if the opportunity presents itself. It's pretty much the generic should I invest the money short-term knowing market swings will affect my purchasing power, but adding a minor tweak.
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Well, we're not supposed to time the market here right?
You can emotionally break that rule to feel better about holding cash. Markets are pretty high and you never know if a sudden downturn is coming.
Now I'll get downright heretical.
If I were you I'd hold cash and buy into any major dip in the nasdaq, which is likely to pop back up quicker than other indices.
Now I'll get fully insane.
I'd buy the triple leveraged nasdaq on a major downturn.
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I keep part of my down payment stash in the market. It did not go well for me this year when I wanted to access those funds in April.
If you have some equity in your primary home, you can get a HELOC and use that for cash in the short term. Then you have time to let any market funds recover to repay the loan.
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After re-reading my question it does seem like I'm asking a market timing question, but that was not my intent. I guess what I'm looking for is validation that my though process is correct and I'm not missing something. I'm a firm believer that you shouldn't pull money from retirement accounts, but this situation isn't one where I'm raiding the account so I can afford it, I'm just choosing to store the money there. I'm new to RE and the 1% rule is very hard to find by me. It could be years before I find a property that make sense to invest in, and I'd hate to be sitting on a large cash pile with a real possibility that my plan never materializes.
HELOC is a good idea, but I just purchased a primary residence and don't have any meaningful equity in it yet.
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If it's a very long term/long shot plan, just invest as normal. You can always sell some stock for DP cash.
-W