Welcome to the board, Perd.
What would you suggest then if not looking at the housing market as an option? I have $2000-$2500 sitting around each month. What would you suggest doing with this?
First, park your bucks in the nearest money-market account and back away slowly with both hands in the air.
At the risk of preaching to the choir, I'll assume that you haven't yet completed the below steps. If you're partway through the process then just ignore the steps you've already taken care of and carry on from your present location.
After you temporarily stash your savings, begin by educating yourself and making a long-term investment plan. If you haven't already read them then I'd recommend starting with Bernstein's "Four Pillars" and "The Boglehead's Guide". There are a number of other books recommended in this thread:
http://www.early-retirement.org/forums/f28/fire-recommended-reading-list-22300.html but start with those two. We'll get back to the list in a bit.
When you're reading about asset allocation and investment risks, think about your tolerance. You're young and your portfolio can recover from the worst bear markets, let alone from this one. However you also have to find a level of volatility that lets you sleep comfortably at night, or else you'll bail whenever the market burps. Everyone has their own comfort level, so try to find yours as you read those books. Maybe you'll be the landlord from hell, but you want to avoid being the landlord in hell.
Read more books from the above-mentioned list until you feel you have a handle on asset allocation and on selecting low-expense funds. Pick your asset allocation (perhaps 60% stocks, 10% bonds, 10% cash, 20% real estate) and decide what low-expense funds you want to use (index mutual funds or ETFs). Don't agonize too much over the perfect portfolio design or the ultimate fund, but you'll also get a number of suggestions from the board's other posters. Maybe you want to allocate a percentage of your current savings for a down payment on a personal residence in addition to your investment home(s).
If you haven't already, then set aside a few thousand bucks in a CD or a money market for an emergency fund-- whatever's the barebones minimum you need to live on for 3-6 months of a job search. Pick your 401(k) asset allocation, your IRA allocation, and the allocation of your taxable funds. Max out your 401(k) (at least to the employer match if not to the limit) and your IRA, then put the rest into your taxable funds.
Once you have your portfolio plan up and running, go back and read Bob Clyatt's "Work Less, Live More" and decide what type of ER goal you want to set. Maybe landlord fits well with your lifestyle, but maybe you'll decide you want to travel the world too.
If after completing all of the above steps you're still interested in landlording, then I'd recommend reading (1) Investing in Real Estate, 4th edition or later, by Andrew McLean & Gary W. Eldred (who's taken over the new editions) and (2) Landlording by Leigh Robinson (7th edition or later).
The current real estate downturn will give you at least another year of great bargains, but I suspect that in most areas of the country you'll have up to 10 years to take advantage of ever-lower prices. I've been through one of those decades in Hawaii and IMO hardly any area is immune. Very few areas have reverted to their long-term average prices, let alone sunk into bargain territory. Your challenge is cash flow-- very few real estate books cover surviving the new tenant who becomes an unemployed squatter trashing the place, or the glut of rental homes that just don't rent during a recession. Or the highways that don't get built because the city/county is facing bankruptcy from lower tax revenues, underfunded pension plans, and soaring civil-service retiree healthcare expenses. Not that this necessarily applies to the Phoenix area. Not yet anyway.
Please keep in mind that this is the sort of advice that will set you up for the maximum employer's contributions to your accounts along with the compounding of your tax-deferred savings. If you get wiped out by a real-estate meteor then you'll be able to fall back on this safety net. But if you feel that you can't afford to invest the time in education, planning, and safety nets then I'm not going to try to change your mind. The board has plenty of experienced landlords (and some not-so-experienced ones, too). Hopefully you'll find their advice-- and their caution-- to be of use to your own career.
