Parking an 18 month capital reserve for a roof and unit turns: savings account or mortgage REIT
A live allocation question worth working through. Say 62,000 is earmarked for a roof replacement and two unit turns on a small multifamily building, with the work roughly 18 months out because in-place tenant leases run that long. Sitting in a business savings account, that reserve earns something like 4 percent. The alternative sometimes suggested is a mortgage REIT for the higher yield, on the logic that shares trade like stocks and settle in a couple of days, so the money stays liquid. The liquidity claim is true. The rest needs more scrutiny. Mortgage REITs own mortgage debt rather than physical buildings, and they typically borrow short to lend long, so the share price moves with interest rates and with the spread between short-term borrowing costs and long-term asset yields. That means the price could plausibly sit 10 to 15 percent lower on the exact week a contractor needs a deposit, which is a real risk for capital earmarked for a fixed near-term expense. For money with a known use date within a couple of years, the relevant question is not whether it can be sold quickly, but whether selling quickly at a bad price actually solves the problem it was meant to cover. A reserve for a defined near-term expense generally belongs in principal-stable, liquid instruments, not in an interest-rate-sensitive equity, even at a meaningfully lower yield.
