What to do with your down payment?

[a.g]

I'd asked this earlier in another forum, but think this is a better place to post it. So basically, my retirement plans revolves heavily around me purchasing multiple units to rent out (think 5-10 over the next few years). Each homes down payment will take me between 6-12 months to save up for, and I hate the idea of leaving thousands of dollars in a 'savings' account losing money. Anyone have a better idea of where to cheaply/easily sit this cash until I'm ready to purchase? Thanks!

[arebelspy]

I'd asked this earlier in another forum, but think this is a better place to post it. So basically, my retirement plans revolves heavily around me purchasing multiple units to rent out (think 5-10 over the next few years). Each homes down payment will take me between 6-12 months to save up for, and I hate the idea of leaving thousands of dollars in a 'savings' account losing money. Anyone have a better idea of where to cheaply/easily sit this cash until I'm ready to purchase? Thanks!

Are you purchasing in cash, or you getting a mortgage?

[a.g]

I'm not sure yet. I'd love to be able to get a mortgage, but the homes I'm looking at will be in the sub $50k price range, which I've heard is very difficult to find lenders for. Having to pay cash will delay my plans quite a bit, so this is something I'm going to have to look into as well.

[arebelspy]

I'm not sure yet. I'd love to be able to get a mortgage, but the homes I'm looking at will be in the sub $50k price range, which I've heard is very difficult to find lenders for. Having to pay cash will delay my plans quite a bit, so this is something I'm going to have to look into as well.

Ah.

Well that will probably affect how and where you keep the money, especially if it's on a longer time frame.  A smaller credit union or local bank may be willing to work with you on the lower amount if that is the norm in your area.  Definitely something to look into now.

[a.g]

Does buying the house in cash or with a down payment affect where I should store my money now? What does everyone else do with their money while they wait to buy? I'm just confused

[birdman2003]

Does buying the house in cash or with a down payment affect where I should store my money now? What does everyone else do with their money while they wait to buy? I'm just confused

Depending on your risk tolerance and timeline, you can have a couple options:

(1) Keep it in a savings account.

• Good if you're going to make your purchase within 1-5 years
• You will not earn any interest but that's not your goal if you're planning on buying a house soon

(2) Put it into a low cost index fund

• Good if you're going to save up money over a longer period of time such as 10 years
• You will hopefully keep pace with inflation and maybe exceed it

Personally, I wouldn't wait more than 5-6 years to save up for a down payment on a house.  In the United States, if you have to save for more than 5 years to put a down payment on a house, you should probably either (1) jack up your savings rate by cutting expenses or raising your income, (2) move to a part of the country that has more affordable housing, or (3) be satisfied with knowing that if you want to stay in this expensive area, you should probably rent instead of own.

[arebelspy]

Wow birdman, great post!

I my steal that for the FAQ.

a.g.: it can matter, as lenders will want to see the source of the funds, so you'll have to source where they came from for at least the last few months before you get the loan.  Shouldn't be a big deal, but something to keep in mind.

[a.g]

Thanks guys :) Guess I'll just keep the funds in my savings and try to keep the grumbling to a minimum! I know keeping a few thousand there for a few months won't kill me, I just hate not having my money working for as hard as possible. I'm a tough employer I guess