I Have $60,000, Owe $6,000 in Student Loans and Want To Invest in Real Estate. What Should I Do?
Oh, to be young with a bank account full of money and four decades to go before retirement age.
That's the situation a listener of the Clark Howard Podcast recently found himself in.
This person wants to invest in real estate but is not ready to settle down and commit to a mortgage. Let’s take a look at his circumstances as well as Clark’s advice for him.
What Should I Do With My $60,000 if I Want To Invest in Real Estate?
I want to invest in real estate without buying a house. What should I do? That's the question a listener posed to Clark on the Jan. 31 podcast episode.
Asked Lee in Wisconsin: "I'm 25, single, and sitting on $60,000 of savings. This does not include my retirement accounts. I have $6,000 in student loans to pay off. I would like to invest in real estate but, being young and single, I would like to relocate to a different state at least one more time before truly settling down.
"What's the best real estate investment for my situation? I've considered syndications, 'househacking' a small multi-family home for one year and others options. I do not want all this to sit in a savings account any longer!"
Investing in real estate is a fun idea. But it’s not the first priority for Lee, according to Clark’s advice.
Here are the steps Clark suggests in order.
- Pay off your $6,000 in student loans. "You may not be doing it hoping there will be some kind of federal forgiveness," Clark says. "Who knows what's ever going to happen with that?" Pay it off and know that it's out of your life.
- Open a Roth IRA. You can still contribute $6,000 of your 2022 earnings if you haven't filed your 2022 tax return yet. And the 2023 contribution limits for IRAs increased to $6,500. "It allows you to put money aside now and have it grow the next 40 years tax-free and be spent tax-free," Clark says.
- Set aside an emergency fund. Following Clark's advice leaves Lee with $41,500 of his initial $60,000. Clark didn't specify an amount. But he reiterated that Lee should keep at least some cash in savings as an emergency fund. He typically recommends aiming for three to six months of expenses. "You still want to have, though, a decent amount of savings. There's nothing wrong with and a lot right with you having a large amount of savings," Clark says.
- Invest in a REIT. A REIT ETF or index fund is Clark's favorite real estate-specific investment avenue. Most of the new, tech-focused options are great at marketing but levy huge fees. REITs are liquid, well diversified and low cost.
Final Thoughts
It’s possible to invest in real estate without a mortgage, crowdfunding or anything else that’s complicated.
A REIT ETF or index fund is Clark’s favorite real estate investment because of the low cost, diversification and the ability to exit your position almost any time.
However, Clark always reminds would-be investors to think about their debt obligations, secure an emergency fund and make sure they’re on track for retirement before venturing out too far from the core strategies.
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