As I mentioned last week, investing in real estate takes time. It’s not going to happen over night, but it also doesn’t mean that I am not actively pursing real estate investing right now. In fact, one of the things that I am doing right now is saving a down-payment for a rental property. It may be a year or two before I have the down-payment to buy my first rental property, but that is decades ahead of many of my peers.
As I am actively engaged in increasing my side-income in order to save this down payment, I am faced with a serious question. Where should I save my money? There are several areas where I could put this money, while waiting to save up 20% (plus some extra for an emergency fund). Here are some of the places that I am considering:
Places to Save a Down Payment for Real Estate
Online Savings Account: Right now, my money is sitting in a high-interest savings account. This means that my money is safe there, free from any risk AND it is gaining about .8% interest rate. This means that it is working for me (a little bit at least) to earn more money without having to do anything with it. Risk free and not requiring an active attention. Two great assets. The only down side is that I am missing out on some quality investment opportunities with potential higher returns.
Dividend Stocks: Another option would be to invest in dividend-paying stocks. It would ensure a steady return and I could re-invest the dividends into building up the portfolio. This will almost certainly give me a better return, but there is a chance that I could make a mistake and lose money. This would mean a longer time until I can start investing in real estate. I’m just not sure it is worth the risk since I want to start investing in real estate now!
Roth IRA: With a Roth IRA, I have the benefit of passive investing. I can choose a mutual fund and not have to worry about what the allocation or diversification is. It would do it for me. One of the benefits of investing in a Roth IRA is that I could always opt to keep this for my retirement, which would be tax-free money in retirement. More importantly, the Roth IRA has a benefit of being able to extract as much principle invested and up to $10,000 earnings for a house purchase. Since I haven’t bought a home of my own, I would guess that this would qualify, but I need to verify this before I make my decision.
While I will continue to use my online savings account for the time being, I may consider more aggressive investment options if I am willing to take the risk. It’s never easy weighing your options and you should do so carefully, taking note of all the pro’s and con’s.
Have you saved money for a rental property before? Where did you save your money?