What Should I Do With My Down Payment Money?

by | Sep 9, 2021 | Blog, Videos

You saved up enough for a down payment and found the perfect house. Unfortunately, in this real estate market, things don’t always work out.

So now what do you do with the money that was earmarked for a down payment? Do you put it into the stock market? Or just leave it in cash? What about CD’s?

Tom breaks it all down in this week’s video!

Show Notes

Where to Stash Your Down Payment if You Didn’t Buy a House This Year? – Wall Street Journal

Don’t Get Caught Chasing Yield – Mullooly Asset Management

What Should I Do With My Down Payment Money? – Full Transcript

Tom Mullooly: In Episode 262, we talk about where to stash that down payment cash. Stick around.

Tom Mullooly:
Welcome to the Mullooly Asset Show. I’m your host, Tom Mullooly. And this is episode 262. Thanks for tuning in. So where do you stash all that down payment cash that you’ve been socking away.

If you didn’t buy a house yet, you’re probably aware that home prices have exploded in your neighborhood, in our neighborhood. It seems everywhere, home prices are going in just one direction.

They’re going up. And I mean, a lot higher than I think a lot of people expected. But what if you’ve been involved in these bidding wars? The price goes beyond the listed sale price so you’re involved in these bidding wars. We know of some folks who have been involved in 12, 15.

We know one group in particular that’s been involved in 20 different bidding wars, and they’ve lost. What do you do with all of that cash? You’ve got cash that’s been basically stockpiled for this down payment. Where should that money go, until you’re going to need it? And here’s the thing, you’re going to need it immediately, so it’s got to be in something liquid.

Tom Mullooly:
You can’t wait for CDs to mature, you can’t wait for a bond to come due. Even if you have your money in the market, you still have to sell your stocks, sell your mutual funds, or sell your ETFs. It’s still going to take a little bit of time for you to actually get your hands on the money. Now, there are some folks we’ve had conversations with who say, “I just can’t stomach the idea that my money is going to be sitting in a bank, earning nothing.”

To those folks, I say this, “Please understand that you cannot afford to have that principal at risk in this kind of situation. That’s so important.” You don’t want to be bidding on a home where you’re going to live and still have to worry about what the stock market is doing that day or that week.

There was an article in The Wall Street Journal recently, we’ll link to it in the show notes, several thoughts from advisors, some of whom we’re pretty friendly with, that had different ideas on what to do with the cash.

Tom Mullooly:
Some of them were saying, “Just leave it in cash.” Some people were saying, “Invest it.” Other people were saying, “Hey, it’s okay to have this money at risk.” To those folks we say, “No, that’s not how we would do it.”

So of course the comments section of The Wall Street Journal article are what you should really zoom in on because the comments are hilarious. And there was even a guy in there who recommended a particular preferred stock. What are you talking about? That’s just reckless. So look, money that’s earmarked for buying a home should be in something that’s super liquid and relatively safe.

And hopefully, in a separate account, not in your Robinhood Day Trading account, not in your regular brokerage account, it should be a segregated account away from any temptation that you may have.

Tom Mullooly: So if markets, if stock markets drop, if the stock market drops, and a lot of times, when stock markets drop, real estate drops too, you want to be in a position to do something with this down payment money. It would be a real shame to see your down payment money going down the drain in the stock market just when you need it most.

That’s so, so important. And so we really stress to clients, when they tell us that they’ve got a particular cash need that’s going to be coming up, they’re buying a car, they’re using this money for a down payment on a house, we want that out of a 100% risk, we want it into something that’s going to be very liquid and relatively safe. That’s the message for Episode 262. Thanks again for tuning in.

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