Best method to save money to invest in real estate later on

10 Replies

Hi my name is Michael and I'm 16 years old and am currently looking to build some capital (20k+) to invest later on in real estate. I'm not sure if I should invest in something else in the meantime and hold it (stocks, cryptocurrencies, mutual funds, flipping items for profit, etc.), just save money (savings account, Roth/Traditional IRA, etc.), or just do a mixture of both.

I am currently working as a lifeguard over the summer and am making a decent amount of money which I hope could help with allocating my money in different areas. I am really just looking for the best way for me to build money and find some ways for long term growth (>10 years) and some to take out when I’d like to invest shorter term(~5 years). All suggestions are welcome as I am looking for a way to save some money as well as have some diversified investments.

I am also working on building a credit history by having my first credit card set up as an authorized user on my parents credit card account. If there’s ant other suggestions you guys have for credit building at my age as well please let me know!

If there’s anything you need for me to clear up as well let me know and I will try and clarify by editing/updating this post if it’s possible. Anyways, I would like to thank everyone in advance for the help!

@Michael Kantar  

I give you a lot of credit for starting to think about real estate investing so early in life! You're doing all the right things. 

I suggest you read "The richest man in Babylon" and also if you haven't "Rich dad, poor day". Aside from the books, think of ways you can generate either completely passive or somewhat passive income.

Reach out if you have any questions, happy to help. 

@Michael Kantar I'll let others recommend specific vehicles for storing your cash, but I just want to tell you what I wish someone would have told me at 16. Income and lifestyle will put you so far ahead of your peers you will be killing it later on! Make as much money as you can and keep your lifestyle as low as possible. Let your friends buy the brand new cars, cool clothes, and go out all the time. You live like you are broke and stash cash and you will be wealthy before you know it! Awesome that you are already thinking about this! 

Michael,

way to go on having the right mindset, building up the savings account to start investing can be set up in different ways. do you have an emergency fund in place? if not, I would suggest to start there. if things hit the fan you have liquid capital to use to pay for those mergencies. 

  1. build-up to at least $1,000 for emergencies.
  2. set up a small Roth IRA that will allow you to take out the money tax free after 59 and a half and the account will coumpiunt tax free as well.
  3. set up a CD to save the capital for the Real Estate, at least will yield some returns instead of zero and will lock in the capital for couple of years that way you won't be able to touch the money.

Hey Michael,

Orlando is right. You always want to have cash for emergencies. He is also right to put it in something that has some sort of yield. However, I would ask yourself if you really want to contribute to an IRA. I understand IRAs can be advantageous for tax reasons, but it is locked up and you cannot use it for real estate unless it is set up properly with companies like EquityTrust. I don't know what the fees are for their services, but I've read about people being charged thousands for converting into the right type of IRA for real estate. No offense to Orlando, but financial advisors will always tell you retirement accounts are the best because they can make more money when your money is locked up for decades.

I would encourage you to do more research before locking up your money until you are 59 1/2. If you withdraw before that age (and it doesn't fall under one of the exemptions, like first time home purchase in which intend to live in, education expenses, etc.), then the government will automatically charge you a 10% penalty. So be careful with retirement accounts. They can be beneficial, but you have to make sure it will benefit your specific situation.

DO NOT put it in the stock market. I work with idiots that gamble in the market as my full-time job, and I've seen people do some crazy stuff and lose piles of money in days. Just look at December: that is a 23% drop from where we are now. Do you really want to potentially lose over 20% of your money in a matter of weeks? If you are going to look into the markets for an investment, I would recommend short-term debt instruments, like Treasury bills or CDs from creditworthy banks, like Orlando was saying.

Also, CRYPTO IS A SCAM. There is no value in it being a currency, and it's just a repeat of Tulipmania type groupthink and everyone spreading their crypto-propaganda will end up holding the bag.

Feel free to reach out if you have any other questions or concerns.

Open a simple brokerage account. Fidelity, Vanguard, or Robinhood. If you are trying to save money long term then definitely buy stocks, bonds, etf, reit, etc. Don't be foolish. A simple brokerage account is great for several reasons. 1.) The money is available to you right away. 2.) It can serve as both an emergency fund and a long-term investing account. 3.) There are no stupid rules like there are with an IRA. If you need the money you can just withdraw it. For money you plan on using to invest in the short term meaning less than two years then I would just put it into a high yield savings account. You will make at least something and it's FDIC insured. Just google highest yielding savings. Personally I would advise you to save for a down payment and buy a multi-family with an FHA loan. Try to get at least a 3-4 unit MFH. Live in one unit rent the others out. You can even rent out bedrooms in your unit for added cash flow. I have tried time and again to get young members of my family to house hack. They are too lazy which is a shame. Good luck. P.S. A lot of brokerage accounts have a check book and ATM card tied to them, so the account acts just like a checking account. Cash balances are also typically FDIC insured. Personally I got burned on a ROTH IRA a few years ago. I didn't realize I wasn't eligible to contribute to one, so I had to take all of my contributions back and pay a 7% penalty. Not worth it with how little you can put into them, and then all the rules. I just opened a simple brokerage account and have stocks, bonds, reit, etf, etc held in that.

@Dylan Barnard thank you for your help, I greatly appreciate it! I have a quick question since you wouldn’t recommend an ira, what would you recommend I use to keep my money in then? Would you recommend a high yielding savings account? Just in general, what would you recommend I take as my path then?

@Michael Kantar as of right now I would recommend your short term goal to fund the emergency fund. Once that is funded to a comfortable amount based on your monthly obligations, your medium goal is to save up the capital to invest in RE, When it comes to long term that's when we start looking at IRA's, stock and bonds and things like that. Crypto is too volatile, apps like Robinhood those that allow you to buy individual stocks would not align with your goal right now so I would not focus too much on those.

Originally posted by @Michael Kantar :

@Dylan Barnard thank you for your help, I greatly appreciate it! I have a quick question since you wouldn’t recommend an ira, what would you recommend I use to keep my money in then? Would you recommend a high yielding savings account? Just in general, what would you recommend I take as my path then?

I would get in touch with your bank or even shop around with different banks and see who can offer you good rates. However, be careful if rates look too good to be true. If a bank is offering you 5% on a savings account or a CD, that means that they need to offer exorbitant rates to attract capital (that actually means it is much riskier than other banks, risk = reward). But that won't really be much of a concern to you because if it is FDIC insured, you will be insured up to $250k. Don't listen to the other people on this thread who think the stockmarket is a good investment right now. It is eye-wateringly expensive for most stocks and that's all in the face of a massive trade war our country is waging with the rest of the world. There is a lot more risk than people think. Just my take on it anyways.