Best Investment Account for Real Estate

This blog post is a bit selfish of a post as it's primarily for my situation. As of now, I am a recent college graduate with a full-time job in NYC. Hopefully, whoever reading this could be in a similar situation to me and find this helpful. My goal is to begin placing offers for property in 2 years and owning one by then. However, there is one main hurdle I keep facing. Where do I keep my savings?? Prior to saving for a down payment I would contribute to a Roth IRA but ever since I decided to start saving for a house I decided to solely contribute to a savings account for a down payment. Because of this, I haven't been able to contribute to this Roth at all So, this blog is essentially going to be me figuring out what accounts will set me up most for a real estate property and take advantage of the interest rates out there.

After scouring the internet and asking around I found the three best accounts to put your money into while saving for a down payment on a property.

Individual Brokerage Account

Now this is one that I will personally use when saving for my house as I am a little more risky and enjoy the flexibility this one gives me. For this, I will be opening an individual account and picking individual high-dividend paying stocks. My criteria will be the stock needs to have a beta under 1.0 and a dividend of at least 7%. From there, I will have the flexibility to choose the best company I see fit.

Now, what the hell is Beta and what the hell is a dividend? Well I'm glad you asked because i'll mansplain it as best I can: a beta essentially tells you how volatile a stock is. For example, tesla may have a Beta of 1.49 while a more stable company like General Mills would have a Beta of .32. The higher the beta, the riskier the stock.

A dividend is essentially a company giving you a portion of their profits. For example, say you invest $100 into my lemonade stand that pays out a dividend of 7%. As a "thank you" for your investment, I would give you $7.00 or 7% of your investment every year so I can keep that initial investment you made.

Here are the top three stocks I would invest my money in that meet this criteria of a high dividend and a low beta:

Kraft: Beta: .73 Dividend yield: 4.04%
Altria: Beta: .66 Dividend yield: 7.97%
Verizon: Beta: .35 Dividend yield: 6.74%

High-Yield Savings Account

Now, being the safest option of these three I found that a high-yield savings account allows you to return between 3.5-3.75%. Further a high-yield savings account is FDIC insured up to $250,000 means that the even if the bank defaults on your cash the government will step in and insure you receive at least up to $250,000 of your savings. Now, if you want to find out what might be the best high-yield savings account for your situation check out this blog: 5 Best High-Yield Online Savings Accounts of February 2023.

You might be asking yourself, why isn't everyone just saving their money in a high-yield savings account if it's so damn easy?? The one downside is that the money in a high-yield savings account isn't as accessible as money in a traditional savings account. While in a traditional savings account you can access your money any time with an unlimited amount of withdrawals, whereas with a high-yield savings account you could face withdrawal fees after a maximum amount of withdrawals is reached or the transfer from a high-yield account could take anywhere between 24-48 hours. Bottom line though is that if you're saving for a down payment on a house you shouldn't be withdrawing frequently or needing that cash ASAP anyways so this is still a feasible option for you folks.

Money Market Account

Money market accounts are similar to a high-yield savings account and typically offer the same benefits with a few slight differences. Offering slightly lower interest rates at 3.0 - 3.75% return on your cash. However, with this tradeoff of a slightly lower interest rate you have way more flexibility with your money. A money market account offers the flexibility of writing checks or linking debit cards directly to the account. Also avoiding the potential 24-48 hr delays in receiving your money.

It's important to note with both a money market and high-yield savings account that the percent yield is variable to change per market conditions and is important to keep a watchful eye on those adjustable rates as when you were receiving 4.0% in 2020 you might be only seeing a 2.75% return in 2023.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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