woman investment consultant analyzing company annual financial report balance sheet statement working with documents graphs. Stock market, office, tax, education concept. Hands with charts papers.jpegGuest Post By Slickbucks.com editor-in-chief Andrew Altman

Real estate remains one of the smartest investments you can make--after all, the one thing they'll never make more of is land.

Unfortunately, consistently high housing prices prevent many from investing in real estate at all. What's the answer?

With a median down payment on a house averaging at least $20,000, how can beginning investors save up the money they need for real estate.

Some think that mutual funds are a good way to save the money you'll need to invest in real estate. Let's examine some of the benefits and drawbacks of using mutual fund investments to make money. Later, we'll examine a few alternatives to see which investment method suits your needs. Let's get started. 

Mutual Funds 101

We'll assume that you know a little bit about mutual funds since you're reading this article, but let's do a quick brush-up to make sure we're on the same page.

At their simplest, mutual funds are really just companies that collect investors' money to invest them in various securities (including, but not limited to, stocks, bonds, or short-term debt). The shares you buy represent your partial ownership of the fund.

Because mutual funds are managed by professionals, you're assured of a greater level of diversity. You also won't need to pick individual stocks in which to invest--the securities have already been chosen.

They're relatively stable over the long term, because their diversity lowers the damage to the portfolio in the event one or more companies fail. And, with a lower introductory cost, mutual funds are a relatively good idea for future real estate investments on a long enough timeline. It's also easy to redeem the shares you hold, but it's a better strategy to hold on to mutual fund investments for a longer time.

Many financial experts, including CNN Money, recommend using mutual fund investments to save for real estate investments that you plan on purchasing in 10 years or so.

Don't get ahead of yourself--impatience leads to hasty, and often poor, financial decisions.

The Best Types of Mutual Funds for Beginners

If you decide to try investing in mutual funds to save money for future real estate investments, there are a few things you should know (and a few types of mutual funds you should probably avoid).

We recommend low-risk money market funds for beginners. If you're not a seasoned investor yet, these funds take some of the guess-work out of the equation. They're strictly regulated, so money market funds only invest in stable corporations. 

A close second choice would be stock funds, in which the portfolio is a collection of various corporate stock.

Until you gain a thorough understanding of mutual funds, we'd advise you to shy away from bond funds. Bond funds have a notoriously high risk compared to other mutual funds; even though they may yield higher dividends, they're recommended only for people with an advanced level of risk tolerance. 

Getting Started


It's important to be realistic with your goals--although people with high-risk strategies sometimes "win big" by lucking into a great investment opportunity, this is never something you should bank on.

Talk with a financial adviser to assess your "risk tolerance"--the amount of money you could comfortably lose, essentially.

Although optimism and positive thinking are good maxims for your everyday life, it's important to be harsh and realistic about your financial situation.

Other Options to Save Money For Real Estate Investment


If you're looking at shorter-term investments to save money for real estate, there are some other options you should consider. Index funds and ETFs are similar to mutual funds.

For the financially savvy, one option is to invest in individual stocks and bonds (bonds are safer and less volatile). Stocks present a higher risk, but with the proper balance of roughly 50% stocks and 50% short- and long-term bonds, you can mitigate some of the risks. Keep in mind, however, that a bond's value falls when its interest rates rise.

The safest ways to start earning interest on your money (albeit, not very much) is to invest in a 3-year Certificate of Deposit. At the time of writing, the average interest rate for a 3-year CD was around 1.5%. 

Those looking to buy a house within a year should keep as much of their cash liquid as possible. While not technically an "investment", there are savings accounts (notably, the online-only variety) that offer decent interest rates. 
 

We wish you the best of luck saving the money you'll need to invest in real estate. Whether you choose mutual funds or another investment method, remember to assess your risk tolerance, be patient, and be willing to make tough and realistic decisions!

Andrew Altman

Andrew Altman is the editor-in-chief of a website SlickBucks.com. Via his site, Andrew hopes to inspire people to take action and invest for a better future and to do that, he shares helpful articles and reviews so everyone could achieve the type of wealth they dream of.