Where should I put my money while saving for Real Estate

Question

I’m 20 years old I want to buy a rental property by age 25 I’m saving right now but I’m wondering if I should put this money into a mutual fund while I’m saving.￼ or keep it in a savings account I feel like I’m losing with inflation. If you guys have any tips on what I should do as in investing accounts or anything else thanks￼￼

Candyce Chen · Answer

Hi @Tommy Mckeown

It's so awesome that you are thinking about your future investing decisions and realized about the inflation in such a young age. Time is on your side.

IMO, you should definitely put your money into mutual funds. You will lose money value by putting your money into a saving account as bank's interest is only 0.01% nowadays. If you must put money into a saving account, maybe look into a high-yield saving account or a money market account to temporary park your money before purchasing a property.

1. Financial Education: You can take some personal financing planning, personal investing, real estate investing classes in college. Those are very helpful.

2. 401K match/Roth IRA: some companies such as Starbucks offers a good 401K match programs with an educational or tuition reimbursement. I will suggest save as much as you can and max out your annual 401K or Roth IRA.

3. Stocks: You can use Nerdwallet.com to calculate how much money you would have in five years from your investment.bogleheads.org and humbledollar.com offers good advices too. FinancingLife Academy has free classes such as “Where should I put money?” and “Common Sense Investing”

4. Risk tolerance: This will help you decide % on stocks/bonds/cash reserve. You might have a higher risk tolerance due to you are far away from a retirement age. You can invest in low-cost total market index funds.

5. Self-direct IRA: you can also roll over your 401(k) into a self-direct IRA by choosing the real estate as your investing option. You will need to find a reputable self-directed IRA custodian and a trusted lawyer.

6. Other Items: Improve your credit score to over 760 if it is possible, avoid paying PMI with at least 20% down payment, make sure your DTI is low by paying off student & car loans, budget extra money for closing cost, and have a stable income. Those will help you use OPM and secure a mortgage with a good interest rate.

7.Mentorship: Partnering with seasoned investors and offering your sweat equity. Learn by doing is the best way IMO to understand the market you plan to invest in.

Those are items I wish I would have known at your age if I were saving up to buy my first real estate investment. Hope it helps. Please do consult with professionals before any investment. Best luck on your RE journey & Happy Investing!

John Morgan · Answer

@Tommy Mckeown

I threw all my extra $ into our Roth IRAs while I was saving cash. I bought aggressive stocks with the $ to let it multiply. Then I took out 92k years later to buy RE. You can take all the principal out years later tax free. That got me in the RE game and was so easy to do. Good luck.

Riley Banks · Answer

I am in a similar situation. I would also look into investing at least some of it in Crypto if you are willing to take on some risk. That's what I have done to boost my savings toward a down payment and It has worked out pretty well for me thus far. Because the Crypto market is so volatile, you can make some pretty good returns with little money.

Ryan Brown · Answer

I love Betterment. Check it out. I have buckets of money for investing in the next few months and betterment auto allocates accordingly, in this case something like 10% stock/90% bonds.

For money I want to use within a year or more, I set my horizon and betterment gives me a more aggressive allocation.

I have long term buckets with 20+ year horizons that are set at 90% stock.

It’s a great service.

Anibal Mijangos · Answer

All depends on your risk tolerance. The safest bet would be to put the money towards educating yourself in real estate investing. Books, courses, events, etc. If you got a good lump sum and you're okay with high risk, I recommend crypto. ETFs and index funds are usually new investor go tos too. Mutual funds are typically lined with fees and their returns aren't the best in the world. I'd stay away from them.

Where should I put my money while saving for Real Estate

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