I'm looking forward to ideas on this site on what my next step should be (save, index funds, or real estate).

It appears we are getting late in the cycle (nationally, the HBA Index hit 70, just like 2005) and my primary income is highly correlated to the Phoenix market. 

You are better off putting your money in an index fund and getting 8-10% with little work or effort.You want really about 12-15% and if you can't get it locally you may have to look to areas like Indianapolis where it is a lot easier to get those kind of returns. 

Liquid emergency reserves are a cost of doing business in real estate and there is no way to have them keep pace with inflation at low risk of volatility. 3) for long term yield and diversification I like two asset classes:- Stock market index funds are a good stalwart, and now may be a good time (it’s certainly better than at the start of the year to buy)- If you are willing to be entrepreneurial, small businesses might be a good option.

Louis, Kansas City, Indy, or any other city for that matter that has a high Gross metro product, high metro statistical area, a low housing affordability index, and stable job markets with preferably multiple diversified industries (kinda like Memphis).Thanks everybody for the great advice, and the kind words.  

This is your true economic return, but the Cash ROI is more important in KEEPING YOU AFLOAT should bad things happen.Fully Indexed Cash Flow – if you’re using bank ARM loans, recompute Net Cash Flow assuming the highest possible rate on your Adjustable Rate loan (ARMs, see below), generally 6% higher than the initial note rate for most ARMs.

The big difference is that CA averages 5-8% a year.The housing price index below shows what prices have done since 2000.

By purchasing a VA foreclosure from the list of Veterans Administration foreclosures found on USHUD.com you can preceed with the loan as though you are a Veteran and buy many of these properties with no money down and without mortgage insurance.Source: http://ushud.com/index/US/i/ushud/h/ushud/p/aboutva/pages.html

What index do you use for the adjustable/floating rate?

The closest thing that I know of is a no-load mutual fund or index fund in U.S. stocks with a long track record of performance, which is above 10% over a long holding period.