150K in savings...what do I do?

[savemachine]

Hello all, it's been a long time since I posted on this forum. I'm back again with another question. Oh and I hope you are all doing okay.

So just as the title stated, I have 150K cold hard cash sitting in my savings account and I need to find a way to make it earn as much as it can. I have an additional 10K in stocks (that 10k also seems to be doing nothing but fluctuate along with the market as well. I have about 100k in 401K and ROTHS.

I'm currently 30 years old and I am taking out a loan for my MBA (100k education over 3 years and I have 2 more years to go). I have about 20K in Credit Card debt + Car loans (credit card on 0% APR and car loan is on a 3.99%).

The first thing I thought of is spending about 25k and buy an investment property in somewhere like Phoenix or outer Souther California town and another 25k for other avenues of investing. The problem is, I have no idea if my approach to this whole investing thing is correct. Any suggestions or a well thought out plans of attack are welcome!

Thank you!

[LMA]

As an active real estate investor myself I would caution you about using that $100k for real estate investing while on the other hand having the debt you have and plan on accumulating. As much as I love real estate and would love to see that money go towards a solid real estate investment since now could be a great time to buy on the other hand you have a lot of consumer debt.

Why are you not considering using that money to pay your debt? It looks like you could easily cash flow your MBA. How long does that credit card stay at 0% APR?

I also see that your car loans are at a low interest rate. So it is very possible that you can get a higher return on your cash than what you are paying in interest. However with real estate that return could vary by a lot for two main reasons. First, this real estate market is still a yo-yo and NO ONE knows what is going to happen. The only real estate I would recommend would be a long term one, at least 5 years. Think about it, what if in two years, when you are done with the MBA, the property is worth less or the same as what you paid for it now?

The other thing that catches my attention is that you are looking for property in Cali or Arizona which leads me to believe you don't line in either one. I am not a believer in long distance real estate investing and much less if this is your first investment. RE investing is anything but passive. How will you know you are making a good investment if you don't know the area that you are investing in. Just food for thought...

I would suggest to pay off the credit cards and cars with your cash and maybe invest the rest in a conservative mix of stocks and bonds so that in 2 years when you are done with the MBA your money has hopefully grown and you can pay off at least a big chunk of your loans.

If you want to know why I say RE investing is not passive follow the link in my profile to my website and you will see detailed accounts of why I say that. Also, it just does not make sense to invest when you have that much personal debt.

[cschin4]

First, strong work! Congrats. At this point, I think you need to sit tight. Focus on working your MBA. And, why take out loans for that if you don't need to. Right now, I would pay off the CC in its entirety and make sure you do not ever run CC debt. ALWAYS pay off CC in full at the end of each and every month. You could invest some of this money into a mutual fund but other than that i wouldn't not be getting into investment property at this point.

[snshijuptr]

I'm guessing you are not paying off your debt to leverage your money. If so, fine. My recommendation is to put enough money aside in a safe savings vehicle to pay off your CC and student loans BEFORE they start to earn interest. If the 100K is your entire cost of MBA, then you have 30K leftover to invest in whatever you want.

I can tell you that So Cal is not really in recovery mode yet, maybe in a few years, so depending on when you want to get your money back, investing here may not be the best idea. I say go with what you know when it comes to investing.

[savemachine]

Thank you all for the response. I guess I should really be more clear on my situation.

@cschin4 and @snshijuptr
Credit card debt: 0% APR until middle of 2012, so I think I'm fine there.

School Loans: It is separated into a subsidized and unsubsidized portion. The unsubsidized portion's interest rate is 6.8%. I am trying my hardest to dilligently pay that off each quarter. The subsidized portion is untouched and will start accruing interest 6 months after my graduation.

Car Loan: Perhaps I really should look into paying this off right away? 3.99% is low but it's still higher that 0.06xx whatever that I'm earning in my savings accounts.

@LMA: I do live in Southern California, and I am mainly looking at investment properties in term of rental/passive income. I'm only throwing out those places because houses can be had for cheap. Of course I don't know about the rental markets in that area but I was planning on putting 25k down and hopefully earn a nice little cashflow. Please let me know if I'm not making sense though.

Much appreciated!

[SteveBlissLaw]

It all depends. So muc to do with money investment involves timing as much as anything.

[LMA]

It does make sense. The only thing I will caution you is just because a property is cheap does not mean it is a good investment. When considering a rentaly make sure you study the area and make sure you arrive at a realistic expectation of what it can rent for. Then make sure that the rent provides you a good cash flow. Plus make sure you have reserves to make repairs because houses break and tenants break them.
The second part you want to consider is appreciation. I lived in Cali for a while and i know the crazy appreciation that the state once saw. It might not want to be like that in the future but make sure that the house you would be buying can be bought at a large enough discount so that if the market in general does not see appreciation you would still be able to sell it for more than what you paid for it because you bought it at a good discount. Make sense?

[sternchen]

invest your money

don't put all your eggs in one basket

or better yet

just keep in the bank

the interest will give you more money

[Frugal]

I don't honestly know a lot about this area, but I personally would be hesitant to invest that much money in the stock market. If I had a lot of money, I might put it in property. I was just taught that traditionally property is one of the best forms of wealth. It is work-intensive, however.

Maybe you could talk to a professional about what to do with so much? I don't think most of us here could give you the best advice, since you have saved up apparently such a large amount.

[thefrugaltoad]

My first question to you is what do you know about the market in Phoenix? I can tell you it is a great market if you are buying but absolutely terrible if you are selling. You would be lucky to see 5% appreciation in real estate value, not to mention your expenses for rental property. I would advise against rental property in a market you do not know.

Given that it would be doubtful you would have a return of 5% on rental property and the interest rate on your student loan would probably be higher than 5% it does not make sense to take out a loan when you have $100K in cash.

Paul - The Frugal Toad

[97guns]

i WOULD NOT invest in an area that you are not close by, i tried that and got nickled and dimed to death, went through 3 managers in 3 years. they will take advantage of you knowing you arn't in town.

look in california, there are many areas that can turn positive cash flows. i bought in los banos, i was sitting on 250K cold cash and picked up 4 houses. im renting them all out and retired 2 years ago at 39.

you should make 10-12% return on your money no problem, this translates to your full investment returned to you in 8 years.