New investor just starting out; help me determine the best path!

[Lucas Mills]

Hi -

My goal is to replace the income from my w4 job (about 3k/month after taxes) with "passive" income from rental properties. If I cash flowed $150 per property, this would mean that I would need 20 properties to meet my goal.

In my town, it seems that I'll need about 20k - 30k per property (down payment, rehab costs, etc.). This will of course vary, but that seems to be the "sweet spot" for properties of a certain price range that cash flow in my city (usually less than 50k if single-family home, or less than 100k if duplex).

I'm looking at a hypothetical property right now which essentially meets this criteria, and would require $20,600 upfront. I have almost exactly 20k in my bank right now. Granted, I have some tied up in the stock market, but I'm considering that as money that doesn't exist to me for this purpose because I'm not ready to sell my shares.

So, I have 20k. Obviously, I cannot (or should not) empty my entire checking account to purchase a property. This is unwise for several reasons, including

1. Not having any extra cash to cover unexpected costs associated with the property

2. Not having any extra cash to cover unexpected costs associated with my life (car needs repair, lose my job, etc.)

That said, I feel that I need to save up to approximately $40,000 before making this kind of a purchase. Doing so will give me the following:

* $20,000 for property acquisition

* $5,000 for unexpected expenses related to the property acquisition

* $10,000 for emergency fund (approximately 6 months of living expenses)

* $5,000 for liquid spending, bills, etc.

In other words, at least 15k would remain in my bank account after the property acquisition.

Here are my questions:

1. Is 40k a reasonable amount to amass given my goals? Is it too much or too little?

2. While I am saving up to 40k (or whatever amount I determine to be appropriate), what should I do with my money? As I said, I currently have 20k just sitting in my checking account -- should I be investing this with a short-term strategy that will get me better returns as compared to the interest from my bank? What about being a lendor through an online service such as Propser? Any other suggestions?

3. Should I be pursuing other forms of investing, such as maxing out a Roth IRA each year? The only other thing I'm doing is matching my work's 401K for that free money, but otherwise, that's about it. Maxing out a Roth IRA each year means that would be $5,500 less that I would be able to put towards property acquisition, which is a fairly substantial amount. And in the beginning, due to compounding principles, it seems that getting a fast start is desirable. So does it make more sense to pour my efforts into real estate investing for the first few years, and then transition into a more diversified form of investing such as a Roth IRA or something similar after I've acquired a few properties, or is this unwise?