401K v. Real Estate

Property taxes?????

Did you calculate that $20,000 in a 401k is not the same as $20,000 after taxes in real estate? Or does that fall under the "taxes" caveat? You could of course correct it by subtracting some arbitrary amount from the real estate starting funds

I'm probably missing something here on your chart, but how do you go from year 1 earnings of $3780, to total earnings after year 1 @ $3,912.

It makes me really not trust your excel spreadsheet formulas.

Why did you use 59 years? No one person will invest for that long of a period.
Considering that the average person starts working in their 20s and retires in their 60s ,I would only use a 40 year time frame.
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Secondly, when you "invest" in your 401k, typically companies match you at a certain %.
For example, for my 6%, my company adds an additional 4.5%. That's a huge ROI immediately.

There's so much you're leaving out including refinancing house one when paid off and turning that one into 5 additional $20k down payments, rinse, and repeat....

You are overstating the reliability of tenets over that long of a time frame, down playing the cost of repairs over that long of a time frame when you factor in renovation overhauls to keep up demand, and assuming the reliability of purchases both in term of availability at price point, and in output.


On paper, it looks nice. But in practice, it is probably best to wave off after a handful of houses. Your risk exposure far exceeds the returns at the higher values.

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Why did you use 59 years? No one person will invest for that long of a period.

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If you want to stop after 40 years, you can just compare the charts at the 40 year mark. It doesn't take any time to drag the spreadsheet out to any number of years, so I just ran it to 59 for no good reason. I'm also 28, so I figured I probably won't live past 90 or so.

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Secondly, when you "invest" in your 401k, typically companies match you at a certain %.

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I agree. I always take advantage of the free money my employer gives me. But this scenario is just a comparison of finding $20k on the street. Basically, you inherit $20k or you win a lawsuit. I just wanted to see if a mutual fund or market could beat real estate.

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There's so much you're leaving out including refinancing house one when paid off and turning that one into 5 additional $20k down payments, rinse, and repeat....

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I hadn't even thought of that for the spreadsheet. I had considered it for buying a distressed property and refinancing after a couple of years, but hadn't thought about doing it after you own the property. I ran the numbers and the spreadsheet is below. I don't think it gains you that much, because I just refinanced my first house on the spreadsheet. After I own the second one, I already owned 20 houses and didn't want to compare spreadsheets with a different amount of house ownership.

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remember we are not talking about ANY appreciation whatsoever in RE. I am only using MY positive cash flow returns as evidence. It beats the market even if you let the market compound capital gains plus dividends. Look at the history. Now if you only use RE appreciation (not cash flow) long term versus the stock market the stock market probably wins barely due to housing crashes, etc. But we are not using that. I do not buy properties for appreciation. I buy for cash flow. You need cash flow to retire. A housing crash doesn't stop my properties from getting positive cash flow. Do you want to draw down a TIRA or RIRA or 401k? I do not. To me it defeats the purpose of busting your arse for decades to put that money away to work for you. Sure, drawing down is better than having nothing but that is not how i operate.

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Absolutely. I didn't factor in appreciation at all. Typically, houses always go up in value, but it is extremely hard to factor into a spreadsheet. I just wanted to keep it simple.

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You are overstating the reliability of tenets over that long of a time frame, down playing the cost of repairs over that long of a time frame when you factor in renovation overhauls to keep up demand, and assuming the reliability of purchases both in term of availability at price point, and in output.

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I've factored in 10% for vacancies and 10% for repairs. From everything I've read, this is the proper amount to hold back. That should cover the down months and cover the repairs as needed. A lot of people run their properties with less set backs for repairs and vacancies. All depends on the property, I guess.

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True. But the 6 percent is also a very conservative average as it is.

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I ran your numbers at 11% compound interest. Real estate still does better until you get to the 50ish year mark of 11% compounded annually.

Year 401K
0 $20,000.00
1 $22,200.00
2 $24,642.00
3 $27,352.62
4 $30,361.41
5 $33,701.16
6 $37,408.29
7 $41,523.20
8 $46,090.76
9 $51,160.74
10 $56,788.42
11 $63,035.15
12 $69,969.01
13 $77,665.60
14 $86,208.82
15 $95,691.79
16 $106,217.89
17 $117,901.85
18 $130,871.06
19 $145,266.87
20 $161,246.23
21 $178,983.32
22 $198,671.48
23 $220,525.34
24 $244,783.13
25 $271,709.28
26 $301,597.30
27 $334,773.00
28 $371,598.03
29 $412,473.81
30 $457,845.93
31 $508,208.98
32 $564,111.97
33 $626,164.29
34 $695,042.36
35 $771,497.02
36 $856,361.69
37 $950,561.48
38 $1,055,123.24
39 $1,171,186.80
40 $1,300,017.35
41 $1,443,019.25
42 $1,601,751.37
43 $1,777,944.02
44 $1,973,517.87
45 $2,190,604.83
46 $2,431,571.36
47 $2,699,044.21
48 $2,995,939.08
49 $3,325,492.37
50 $3,691,296.53
51 $4,097,339.15
52 $4,548,046.46
53 $5,048,331.57
54 $5,603,648.04
55 $6,220,049.33
56 $6,904,254.76
57 $7,663,722.78
58 $8,506,732.28
59 $9,442,472.83



I really do appreciate all of the insight. There are a couple of things I'm still trying to figure out how to put into the spreadsheet- Taxes, etc. Once I figure out a fair way to calculate those, I'll make another spreadsheet and post it.