I could really use some good advice.

[Keith29]

Hello,

I'm really interested as to what you guys think I should do with my investments. I'm 25 years old, work full-time, have no debt and currently have about $28,000 in a savings account. I try to add a couple hundred dollars as month to my savings and pretend I don't even have that money. However, the interest rate for a savings account is so low that it really discourages me that that money is just sitting there and I can't make it grow. And the interest rate on a CD is not any better.

I'm really interested in real estate but ideally I'd like to invest in rental properties with no money down if I can. Like I said, I just like to pretend that the money I have in my savings is not there. I can continue to add to it and 30 years from now I have a nice little nest-egg and still remain completely debt free.

What's the best thing to do with this money? Should I just pump it into rental properties? Just leave it in a savings account with a terrible interest rate? What's the best advice here?

Thanks for your time.

[NJDebbie]

Do you have an emergency fund or is this the only liquid money you have?

[jIM_Ohio]

I doubt you can purchase real estate with no money down. If you can, you need to find someone to explain it to me... as everyone would do it then.

with the 28k in savings, you need to focus on 3-4 key risks. Each risk has a reward associated with it, focus on which risks you are comfortable with... then make decisions. It's OK to mix and match and do a little of each.

Risk 1 is return risk. The risk that you invest in investment A and investment B has a higher return over 30 years (don't focus on 1 year returns, focus on 30 year returns). FWIW stocks have a 10-12% 30 year return.

Risk 2 is liquidity risk. If you invest money, can you get money back immediately? For stocks and cash, this risk is "0"- if you need money, you can get it within 24 hours most of the time. For real estate, if you put 28k into a property today, the probability you can get money out next week is slim to none.

Risk 3 is cash flow. The single best asset you have is your ability to earn money. If you have limited cash flow, investing in the stock market is tough to do, where as real estate is the extreme opposite (real estate can generate a monthly cash flow for you). Most people which invest in real estate see this as the biggest benefit. It is how you invest this cash flow which determines how successful you are.

Risk 4 is inflation risk. The cost of items goes up over time, you want any investment to exceed inflation. Savings accounts do not beat inflation. Real estate usually matches inflation. Stocks (over 30 years) usually (always??) have beat inflation. I think there was a 5-10 year period which included the 1970s when stocks did not beat inflation, other than that, they "always" have had 30 year returns which exceeded inflation.

[Scanner]

Philosophically, if you are interested in real estate, you may want to consider investing in a REIT - a real estate investment trust.

They are kind of the "mutual funds" of the real estate world. You send your money to a trustee who invests in certain kinds of real estate (apartments, healthcare facilities, commercial, etc.).

But I agree with JimOhio - you kind of have to start with 2 things:

1. Understanding your own risk tolerance (know thyself)

and

2. Establish what the goal of the 28K is.

Then any of us can help advise you appropriately.

[Slug]

The advice above is really all you need. I would ask that you full fund your Roth long before you consider rental properties. Additionally, in the current market no money down is definitely not an option and would likely be cashflow negative anyway.

[Scanner]

Actually, I can answer to the downpayment question a bit.

I am currently applying for a primary mortgage, that is - a house I will live in, and I mentioned I was interested in the future of applying for a rental property.

20% down seemed to be the minimum for this.

For a primary property, you may be able to get by with 10%. Whether you should or not is another topic for debate but for a rental, they seem to want 20% down.

Now. . .are there exceptions? Yes, I am sure. . .maybe an experienced investor or someone who had a lot of investments to underwrite the loan but I am just giving you the rule.

A partner and I are going to come up with the 20% down and form a LLC.

[krantcents]

Nothing down real estate investment is crazy! I owned two apartment buildings (10 & 24 unit), shopping center (11,500 sq ft) and a rental home. When you have no equity the numbers do not make sense, You would be probably be running at a loss. I am not against real estate, but being conservative kept me out of trouble in this volatile economy. You can find cheap properties and they will generate low rental income. With $28,000, I would look at at mutual funds with a diversified portfolio.