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tigersfan1989
LSU Fan
Louisiana
Member since Oct 2018
362 posts

Real estate vs 401k
Anyone thought out the approach or actually acted on this approach? I got to thinking from the beginning of getting the first job if I would of put the money I was putting toward 401k and iras into rental properties instead. If someone would be able to retire faster this way under this approach compared to the traditional way with 401ks. Like if you would just purchase a property every time you saved enough for a down payment and kept snowballing that cash flow into new properties. Anyone feel this would be a faster retirement approach? I’d like to hear thoughts on this. You wouldn’t be faced with the age limit requirements for retirement accounts if you’re living off rental income
This post was edited on 5/12 at 12:36 pm


reds on reds on reds
Mandeville
Member since Sep 2013
2912 posts

re: Real estate vs 401k
Sounds like a good way to become over-leveraged and be screwed at times like now when can't find tenants/tenants can't pay rent.


jimbeam
USA Fan
University of LSU
Member since Oct 2011
62062 posts
 Online 

re: Real estate vs 401k
Like anything, you can have good and bad 401k investments and good and bad real estate investments.

For lots of people, a real estate investment portfolio is simply a job that they have created. A 401k is a hands off investment. Not all RE is hands off.

The answer to your question is not a simple, cut and dry one.
This post was edited on 5/12 at 12:57 pm


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80
Fat Bastard
Boston College Fan
Member since Mar 2009
47762 posts

re: Real estate vs 401k
quote:

Sounds like a good way to become over-leveraged and be screwed at times like now


and how many pandemics have we went through since 1918? that is why you keep reserves. 6 months minimum. per property. You also get as many lines of credit as you can/need. personal. HELOCS, etc.

i have had no major issues with my renters. only 1 was late. no leasing issues either with even new leases per my PM. was prepared with reserves and applied for more through EIDL loan just in case. Now,

he could choose to pay off half his properties with the 50% equity strategy. then get helocs on them in case he does not want dead equity and can choose to use for more properties later IF DESIRED. having mortgages is not necessarily over leveraged depending on DP amount. when you borrow for DP's also plus mortgages then you better have a good plan to pay back DP money fast. that is OVER leveraged and can bite you. All depends on risk tolerance. leverage can help him explode his business and COC returns.
This post was edited on 5/12 at 2:28 pm


Fat Bastard
Boston College Fan
Member since Mar 2009
47762 posts

re: Real estate vs 401k
why not both? diversify.

but technically you are correct. the minute your passive income equals your monthly bills you are technically retired.

I do taxable RE and i do RE in my solo401k non taxable (for now). like you said, you cannot touch cash flow/capital in it until 59.5.

quote:

Like if you would just purchase a property every time you saved enough for a down payment and kept snowballing that cash flow into new properties.


many have used this strategy including myself in the past.


old threads you may want to read

LINK

LINK
This post was edited on 5/12 at 1:35 pm


TorchtheFlyingTiger
North Carolina St. Fan
It's Germans
Member since Jan 2008
836 posts
 Online 

re: Real estate vs 401k
I wouldn't pass up 100% instant return on company match.
You'd miss out on current tax benefit of traditional 401k or future tax free growth in Roth 401k.
There are ways to access 401k before 59 1/2. (72t rule Substantially Equal Partial Payments or OF A roll over and Roth conversion)
Real Estate comes with expenses for upkeep/maintenance, property mgmt, insurance & property tax and more stress/headaches than mutual funds.

Why not both? It's good to have diverse assets.
This post was edited on 5/12 at 3:15 pm


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60
Paul Allen
Notre Dame Fan
Montauk, NY
Member since Nov 2007
62456 posts
 Online 

re: Real estate vs 401k
quote:

HELOCS


Are you recommending a heloc for each investment property? For example, if I own 4 rentals, I should have 4 separate helocs on each one?


Jag_Warrior
Virginia Fan
Virginia
Member since May 2015
1638 posts

re: Real estate vs 401k
quote:

why not both? diversify.




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Fat Bastard
Boston College Fan
Member since Mar 2009
47762 posts

re: Real estate vs 401k
quote:

Are you recommending a heloc for each investment property? For example, if I own 4 rentals, I should have 4 separate helocs on each one?




no, not at all. but i'd have a couple should you want to draw on them for whatever reason. lines of credit give you great leverage and money you can access whereas you cannot access extra money spent paying down principal on a mortgage. If your goal is get mortgages paid off you surely do not want a cash out refi before paying it off or another mortgage once it is paid off to get your hands on some cash. velocity banking using a line of credit is a great strategy.

Some lenders do not like second lien position HELOCS. they want first position aka property paid off on NOO rentals.
This post was edited on 5/12 at 2:26 pm


MrJimBeam
New Orleans Saints Fan
Member since Apr 2009
4131 posts

re: Real estate vs 401k
Plan on doing HELOCs eventually but are the rates a good bit higher? Never done one. I agree that it's probably good to have that to tap into in many situations. I think risk tolerance is an interesting discussion regarding rentals and how people approach the business.


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Fat Bastard
Boston College Fan
Member since Mar 2009
47762 posts

re: Real estate vs 401k
rates are not bad at all especially if you have exceptional credit and this being a secured line....... and not some personal unsecured line where you are paying much higher interest of 8% or 9%. remember the simple interest you pay on a LOC is nothing compared to the amortized interest you pay over the term of a mortgage.

If indeed you wish to pay off some properties using a HELOC using the velocity banking strategy.


MrJimBeam
New Orleans Saints Fan
Member since Apr 2009
4131 posts

re: Real estate vs 401k
Appreciate the response


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10
ItzMe1972
Member since Dec 2013
3623 posts

re: Real estate vs 401k
I did both and semi-retired before 50. Semi, because I still manage my rentals.

I would suggest as previous poster said, get you match from employer for instant 100% return.

I never paid retail for a property, but did do plenty of fixups myself (sweat-equity). Some I put on 10 or 15 year notes with NO cashflow, just break even. But the equity buildup was swift.

Glad you're thinking and planning ahead! Just make sure you take action and don't fear making mistakes. You'll be fine.


jimbeam
USA Fan
University of LSU
Member since Oct 2011
62062 posts
 Online 

re: Real estate vs 401k
quote:

never paid retail for a property, but did do plenty of fixups myself (sweat-equity)
out of curiosity, What discount of average were you buying at? And what as related to ARV?


truthbetold
Illinois Fan
Member since Aug 2008
6434 posts

re: Real estate vs 401k
I can definitely see a discussion around real estate vs equity investments for post-401k investment after you've maxed the latter out, but not sure I see an argument for real estate vs. 401k directly. Suppose it depends on your view but I will take free money / employee match over the effort required to manage rentals every time.


Fat Bastard
Boston College Fan
Member since Mar 2009
47762 posts

re: Real estate vs 401k
quote:

take free money / employee match


i am not sure anybody is against that.

what he is asking is cashflow NOW to help him retire faster. instead of waiting until later to access his money THEN buy rentals at much higher prices and/or a dividend paying portfolio to give him a couple forms of passive income.

quote:

over the effort required to manage rentals every time.




who said he has to manage rentals? Many use PM and yes it is priced into the PCF to make sure you buy right.


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kciDAtaE
Member since Apr 2017
6705 posts

re: Real estate vs 401k
Why not quit your job and become a landlord? Put your profits into a Roth account


AlexLSU
LSU Fan
Member since Jan 2005
25341 posts

re: Real estate vs 401k
quote:

Why not quit your job and become a landlord? Put your profits into a Roth account


He would likely need to buy a dozen properties or a nice multi-family to generate enough cash flow to offset his lost income, assuming he doesn’t have hundreds of thousands of dollars available directly or indirectly for down payments. A lot of investors use their W2 income to fund their passive income investments until they generate enough FCF to justify quitting. Unless I’m misunderstanding your question


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Fat Bastard
Boston College Fan
Member since Mar 2009
47762 posts

re: Real estate vs 401k
quote:

Why not quit your job and become a landlord?


because HITF do we know how many properties and PCF he needs to do that. How do you know he wants to LL? maybe he prefers less headache and use PM. Why not keep working and build his RE empire on the side so he will have it when he needs it or wants to shut it down? build wealth slowly.


quote:

Put your profits into a Roth account


how does putting profits in a ROTH get him more cash flow he wants now?

no, he will roll profits into the disposable income he has left to buy more properties. compounding. Sure, he can always have a roth on the side. absolutely.
This post was edited on 5/12 at 4:49 pm


tigersfan1989
LSU Fan
Louisiana
Member since Oct 2018
362 posts

re: Real estate vs 401k
Yea I don’t think I’d be able to make enough to walk away unless it was over 100k annual cash flow so that’s unlikely. Not to mention I’d have to get health insurance on the exchange which is pricey. I have around 50k that I would be able to start with if I were to go that route which isn’t anything that is life changing in the real estate world.
This post was edited on 5/12 at 5:08 pm


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