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Hello All,
I wanted to pose a question on how to hold liquid reserves. If a Real Estate investor/landlord has a decent size rental portfolio I am guessing most would agree they should keep sufficient cash or other liquid reserves. This provides “staying power” and the ability to carefully choose tenants without being rushed to take a less than perfect candidate, peace of mind, etc, etc. However, from an investment perspective cash is terrible. As we know it loses value daily. So if an investor has a lump sum of cash on hand for reserves are there any suggestions for getting some sort of return on it while still keeping it safe and liquid? The best savings accounts offered online pay about 1% interest.
I’ve heard buying CDs may be better, but you would have to understand the fees that may be incurred by an early withdrawal and determine if it made sense. Or if the reserves were very high, taking half of them and investing in a stock brokerage account. That brokerage account if held for the long term could then be used to take a margin loan if the urgent need for liquidity ever arose. I understand this may sound risky but with healthy reserves along with more stable investments I think it may be less risky than losing ground by holding depreciating cash.
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And with the recent run up in the stock market one would likely benefit from this strategy after a correction or during a market downturn, which is certainly not the case for the time being. But just food for thought and looking for other strategies for prudently holding liquid reserves for a rental portfolio.Thanks!
Traditional thinking is to have 6 months of reserves in cash. True that it is not earning anything but it is a safety net if yu have a vacancy or a major repair. Liquid means it is readily available.
So, let’s say 10 properties each paying $1000 a month in rent. 1000 x 6 =$6000 x 10 properties = $60,000 in reserve
Even though the dollars may be losing value daily, hopefully your real estate is a hedge against that loss. That’s why real estate is an excellent investment.
I would not put the money in the stock market, you could lose it overnight. A CD is not liquid assets.
BTW – In Panama, I get 2.5-8% on my saving accounts. No CD. No long term commitment. You could open an offshore bank account to earn a higher interest rate and diversify
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