The Boring, Plain Vanilla Retirement Strategy With AWESOME Results (No High Paying Job Needed!)

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So, here’s the deal. You’re young, have a great job, are payin’ the bills, have found yourself a superb husband or wife, and are enjoying life. Thing is, you realize you’ll likely never pull down six figures each per year, so how do you invest for your retirement?
You’re married, pretty soon there’s a kid or three, and before ya know it, there’s a minivan in the garage. At some point, it makes sense for Mom to stay home ’cause the childcare bills are stoopid high, so why work, right? Meanwhile, Hubby’s been slowly but surely rising up the ladder at work, getting raises and the occasional bonus. He’s up to around $60,000 a year before taxes. He had to change jobs to get there, but that decision paid off.

You bought a home after the first kid using FHA financing. You stayed inside your budget for sure, but still, with one job and a couple kids, two cars, and, well, just livin’ life, you’re not exactly saving impressive dollars. When your second kid hits first grade, it’s decided that Mom can work a part time job while they’re both in school. She nets out around $1,000 a month, which takes off the pressure. Between them, they figure out they can each put just $250 monthly into self-directed Roth IRAs. Not much, but better than a kick in the head.


Median household income lately has hovered around $52,000/year, give or take. Add a spouse and maybe some kids as in the above example, and we can easily discern how building your real estate investment property empire might be a bit of a stretch. This explains the DIY trend, as conventional ways of acquiring income property are closed to so many these days. Zero money down, “other people’s money,” blah blah, yadda yadda. I’ve been doin’ this since forever, and I can say with the clarity of first hand experience and observation: For every investor you hear of who’s wildly succeeding in “creative” acquisition of real estate, there are 20 who’ve lost what little money they had. Think about it. If it was so dang easy, why isn’t everyone and their Aunt Fannie doin’ it?

Related: The Average Retirement Account Has Less Than $100k: Here’s How Real Estate Can Help

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Here’s What’s Absolutely Doable

First thing, stop contributing to your work related retirement plan. In my experience, it’s a waste of time. The 401k concept at work has now been around for over 30 years and is the poster example of what profound failure looks like. Don’t believe that? Ask your parents about theirs. It will be eye-opening to say the least.

Open up a completely self-directed Roth IRA — your spouse too if you’re married. We’re gonna use the above described couple as an example of what’s possible with real-life financial limitations. Married for 13 years now, Hubby’s only with his second employer and loves working there. The balance on the former employer’s 401k wasn’t much after all those years, just $25,000. They decide to roll that over into a separate pre-tax, self-directed IRA. Rolling it all into his Roth IRA would simply be too expensive at this point. Since he’s just 35 years old at this point, what’s the rush? He has ’til he’s retired, surely no sooner than 59.5, to get that cash into his Roth slowly but surely.

The Million Dollar Question: In What Will You Invest?

Discounted notes, either directly or indirectly. By indirectly, I mean into some sorta group investment vehicle. But let’s not get bogged down on that. My experience with discounted notes/land contracts investing goes back just over 40 years. Bought my first on in May of 1976 when Ford was in office. I was 24. Since then, I can say this from my own experience:

The next performing note/land contract I buy that from day one to last day yields less than 10%/yr will be the first. Period. No exceptions. No waffling. Real life. Does that include notes on which I had to foreclose? Of course it does. You simply can’t invest in discounted notes for that long without foreclosing every now and then. Anyone telling you different is either hopelessly ignorant, or they think you are. Bad things happen to good people.

How Does it All Turn Out?

To review: Hubby has rolled over the $25,000 from his previous employer to a self-directed IRA. Between the both of ’em, they’ll be putting $500 monthly into their respective self-directed Roth IRAs. All three of those accounts will be invested into discounted notes secured by real estate, all in first position. This all starts at age 35, continuing ’til Hubby retires at 65. For the fun of it, let’s also take a look at the scenario of his retirement at 60.

  • Age 65: They have built their Roth IRAs up to a value of, rounded down a bit, $1.4 million.
  • Monthly payments based upon just 8% cash on cash: Over $9,300. At 10% cash on cash: Over $11,500.
  • Age 60: At that point, they’ll have reached a balance of around $860,000.
  • Monthly payments based upon just 8% cash on cash: Over $5,700. At 10% cash on cash: Over $7,100.


Related: Want to Retire Early? Sorry, But Much of Your Net Worth May Not Help

NOTE: Remember now, all this was done inside a Roth wrapper. Over time, they rolled over the $25,000 from the pretax IRA to Roth. What’s the point? Simple…

All that income will be tax free!

Furthermore, even after retirement and contributions from them into the plans cease, and the notes continue to pay off early and at random. No taxes will be owed on the profits. They’ll rinse ‘n repeat into oblivion. The results of that process will be to get random tax-free raises in retirement and until they’re long gone. Beat that with a stick!

Anyone can do this as long as they know a seasoned pro. It doesn’t hafta be me. There are all kinds of pros out there with my experience and moxie. Trust me when I say I ain’t the Lone Ranger. Find a pro, and figure out if you wish to buy notes directly or through an investment group or fund. The best thing about this simple plan is that it IS so simple. It’s also boring, mundane, and like plain vanilla ice cream in a bowl, no chocolate sauce.

But the tax-free retirement income is definitely not boring or mundane. It’s more like the best banana split ever.

Any questions about the above strategy? How are you planning to fund your retirement?

Leave your comments below!

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Sandy Uhlmann

    Very inspirational! I assume that you are purchasing performing firsts at a discount? It is amazing to me that well educated individuals still continue to believe that if investments yield in the double digits and their financial advisor didn’t recommend it to them then it must be a scam. It is also amazing to me that many so-called financial advisors have no knowledge of what a self directed IRA is.

    • Jeff Brown

      Hey Sandy — Most of the time financial advisors don’t talk about discounted notes secured by real estate in first position cuz they can’t make money on ’em. It’s as simple as that. They also know all too well about self-directed IRAs. They also know they usually get cut out of the deal on those too. 🙂

      Yes, I’m buying first position notes.

    • Jeff Brown

      That’s a tough question, Dan. Are there sites selling notes? You bet, lots of ’em. I’ve check ’em out. My take was that the huge majority of the site owners were straightforward, honest and highly knowledgeable folks. My problem was that it required note buyers to either rely on the individual note seller’s info, or worse, do their own research to ascertain the viability of the note. That’s why when lookin’ for a model myself, the note funds and note groups made more sense to me.

      I had a couple hurdles to clear. First, and most practical was that brokering notes is a giant time suck. I didn’t and don’t have that time, so quality control became goal one. The other problem arose due to the accredited/non-accredited issue came up. Only accredited investors can invest in my note fund.

      This was the main reason I’ve now opened private note investment ‘groups’. Bottom line is that only those with an expert level of expertise and knowledge should be investing in notes on their own, without pro assistance. Make sense?

      • John Humphries

        Hi Jeff, another interesting note article. I’d definitely like to explore the note possibility more, especially note funds, but I have run into the problem of not qualifying as an accredited investor. Is there a way around this? Can you expand on your private note investment ‘groups’?

        • Jeff Brown

          John and Alexandria — You can get around the need to be accredited by knowing a guy like me. I’m not the Lone Ranger, as there are lotsa guys that can help you. They’re just not all that easy to find. If you’d like to connect, feel free to reach out, and I’ll show you how it’s done, makin’ it a safe trip.

  2. Sean Marron

    “First thing, stop contributing to your work related retirement plan. In my experience, it’s a waste of time. The 401k concept at work has now been around for over 30 years and is the poster example of what profound failure looks like”

    I’m sorry but this is probably the worst advice I’ve seen on this site. You’re completely ignoring the fact that many companies match a certain percentage of your contributions to the 401K which equates to essentially free money. Even if you don’t believe in the 401K system, you’d have to be financially illiterate to pass that up.

    • Jeff Brown

      Thanks so much for your wisdom, Sean. 🙂 No, I haven’t ‘forgotten’ about the matches. It’s just that, EMPIRICAL evidence has shown that after over three decades, those matches have been all but useless, at least if you’re interested in, you know, real life results. Forbes recently showed what’s happening to the Boomers hitting 65 and retiring, or at least trying to retire.

      Every single day 10,000 Boomers have been turning 65 years old. This will continue through 2030. Most have in the neighborhood of $100,000 or less in their vaunted 401k plans. Funny thing, most of ’em had the magical matches. I speak with 45-65 people monthly about investing for retirement, Sean, and precious few of ’em will even approach sniffing distance to $1 million in their 401k’s. Dalbar Corp. does a 20 year look-back every year to see what the average annual yield gained by Americans in their work sponsored 401k’s was. Very rarely does it ever exceed 4%. In fact, earlier this year for the first time ever, they did a 30 year look-back from 1985 to 2015. The numbers didn’t change.

      But let’s take a quick look at those who’re fortunate to arrive at retirement with a million bucks in their 401k who then continue following the wonderful advice of those who got them there. What they’ve been tellin’ ’em for who knows how many years now, is that since they’re incredibly risk intolerant, the most they could safely generate as a yield would be 4%. I doubt they’d even get that today, given the 10 year Treasury Bond is at 1.6% as of yesterday. But, for the sake of this discussion, let’s assume they do generate 4% in retirement on their handsome balance of a million bucks.

      That’s a whole $40,000 a year — wait for it — BEFORE taxes. I’m sure they used massive self-discipline and sacrificed who knows how much in order to live the life of non-stop travel and partying on $30-something thousand bucks a year.

      NOTE: These are the same geniuses who, when asked, “What about income taxes in retirement?”, glibly reply, “Don’t worry, you’ll be in a lower income tax bracket anyway, so it won’t be an issue.” Wanna know why they’ll be earning so much less in retirement? Cuz they listened to that advice for 25-40 years. 🙂

      Meanwhile, the couple across the street with just half that amount of money in a Roth IRA is making more income tax free than the above couple is before taxes, via discounted notes. But wait, there’s more.

      As virtually all discounted notes do, they get paid off early. Inside the Roth they’re not taxed. The retiree then simply rinses ‘n repeats, buying a slightly larger note with a bit larger monthly payments. Wait a second! I think that might mean they’re gonna be getting raises from retirement ’til they croak. Who knew?!

      Financially illiterate, indeed.

      • Tyler Herman

        My issue with your idea is picking notes is even more risky than picking individual stocks and needs to be managed closely. You’re dealing with people’s retirement…

        Most people don’t have large sums in their 401k because they’ve been contributing the minimum and have made poor investment choices, getting eat alive be fees. If you’re smart and put your money in index funds only and maximize your contributions, you’ll do just fine.

        If you only have $250 a month in savings you’ve made some terrible life choices that are making you poor, and investing in notes is the last thing you should do.

        • Jeff Brown

          That’s not been even close to my experience since I bought my first one in May of 1976, Tyler. It’s only risky if the investor is an amateur.

      • Jeff, you are wrong, wrong, wrong and spreading ignorance to the masses. There are many, many people that have been investing in 401Ks with 50% employer matches that are now in their 60s sitting on balances of 3 to 5 million dollars or more. The stock market has gone up and down and up and down, but now is at an all time high! Mitt Romney, god love him, has $100 million in his IRA! Probably more by now.

        I have been a full time real estate investor for 13 years, and before that spent 25 years in corporate America. When I left corporate America, I had been in 4 different 401 K plans for 18 years. When I left my balance was $350,000 . I contributed to the IRA for 18 years and had 18 years of employer matches. I rolled the IRA from one job to another 4 times. It is very simple to do. I never made the big bucks; I just socked away the money and never missed it. Usually, I invested 6% and the employer matched 50 cents on the dollar, so a total of 9% of my salary and bonus went into the IRA. That is a 50 PERCENT RETURN before dividends and stock market appreciation. I know everybody on this site thinks they are so clever, but a 50% return is pretty darn good. I put the money in an index fund. The market went up, down, sideways but mostly up from 1984 until 2002 when I left my job. When I left, I had a nice little nest egg which I then rolled into a self directed IRA with Equity Trust Company in Ohio. This IRA now owns 7 real estate properties free and clear. I had 4 crappy years from 2008 to 2012. Had nice little tax losses. Guess what, I converted the taxable IRA to a Roth IRA basically tax free. When you have lemons, make lemonade! I also have a few bucks in the IRA and I flip a house now and then. I will have around $2 million in the IRA when I decide to sell the houses and relax. The cash flow from the rentals is about 75 grand per year, so maybe I will just milk the rentals and let my daughter inherit the IRA and the rentals. So many tough choices!

        I think real estate is a terrific investment vehicle, but to advise people not to invest in an IRA with an employer match is terrible, terrible advice. As a general rule, you will never miss the money that you cannot spend and when your plans change or they fire you when you turn 50, you can have a nice nest egg to invest in real estate. If you are really smart, you will grab the employer match AND do the self directed Roth option.

        I like rentals, instead of notes, but I understand where you are coming from. America is mostly financially illiterate and the 401K is the only thing that is there to help middle managers and working folks survive. It is sad that more folks don’t take advantage of it.

    • Tim Puffer

      Sean the “free money” is only used as a means to keep people at the same company for 30-40 years and be stuck in the world’s longest running race – the Rat Race. Most employers stipulate that you have to wait 3 years before that “free money” is vested. Nowadays most people are not staying at one employer long enough to reach the vested period. Until the money is in my hand – it does not exist!

      • Hi Jeff, I said my rentals WILL be worth approx. 2 million when and if I decide to cash out ( about 15 years from now) They might be worth 1.5, they might be worth 2.5. The $75,000 is cash flow today. They don’t have mortgages, but I am deducting property taxes, insurance, repairs, etc. from the rent. Sorry, I was not as clear as I should have been.

        Tim, you are living in guru fairy land. You own post contradicts itself. You said vesting begins at 3 years and then you say you have to stay 30 to 40 years at the same company. Make up your mind, Bucky! Most plans vest 20% a year, so you get some immediate return and are fully vested at 5 years. Nobody is making you work 40 years to get your vested 401K.

        If you change jobs every 5 to seven years ( as is more the norm), you can take your fully vested 401K with you and roll it over into the next plan. If you decide to abandon the rat race altogether, you can roll over your 401K plan into a self directed IRA into real estate, stocks, sugar beet futures or what ever your heart desires. Make sure you know what you are talking about before you post.

        • Tim Puffer

          Wow Gary – please re-read the post. The 30-40 years was a reference to the fact that employers use the “free money” to get employees to stay longer as they will feel they can’t give that up if they leave. 30-40 years isn’t an absolute – it could be 10-15 years. But it is a means to get someone to stay longer.
          There are plans that have no % vesting per year – such as at my current job. 0% until 3 years then 100%. I do agree that most do have a 20% each year vesting – again another tactic to get people to stay longer.
          I used my Roth I had from a prior employer to purchase a duplex and am fully aware of all the options you are able to invest in a SDIRA or else I wouldn’t have posted anything.



        • Jeff Brown

          Hey Gary — Sorry for the tardy reply, as the last week or so has had my plate full. First off, major congrats on what you’ve accomplished. Regardless of what the end game balance might be down the road. you’ve clearly been disciplined consistently. This sets you apart, big time.

          I’m not gonna defend my stance on 401k plans, as I’m having one of my team’s experts on the subject chime in when I’m done. Fact is if work sponsored 401’s were so effective for the masses as a rule, we wouldn’t be having this chat. It’s a failure on such a large, all encompassing scale, it’s become a cultural punchline.

          Let’s assume you keep the rentals and retire on the tax free Roth cash flow. Let’s further assume it went from $75,000 to $100,000/yr. Also, I freely accept your rough estimate of a total $2 million value at that point.

          Though FAR superior to literally 99% of retiring Americans’ retirement investing results, it’s the poster example of what I’ve been preaching for decades as woefully falling short of what could have been.

          For over 40 years I’ve seen and produced for people results that make that income appear to be pocket money, and on half the capital. Here’s the most recent example, a real life person, with real life quandaries.

          Her son, a client, came to me earlier this month wondering what I’d have his mom do with roughly $900,000 she had, which was over and above a very generous six figure cash reserve account. She lives very frugally, needing just $36k/yr to live very comfortably.

          There’s no need for her to get real estate for cash, as the returns on very well located rentals isn’t up to par with some of the alternatives on her menu. We just kept it vanilla simple. Roughly half will go into my note fund, for accredited investors only. She’ll never buy a note there. She’ll opt to just hang out and receive the 12% preferred return. Each month the fund will electronically deposit $4,500 into her bank account. Since she’s living on about $3,000 cash monthly, this will work.

          The other half will be in a private note investment group I manage. The quarterly distributions to her, annualized, will range from a low of 8% up to 15%, sometimes higher. Let’s just use the minimum 8% for this illustration. That means she’ll be getting another four deposits per year of about $9,000 each. In reality they’ll likely be closer to at least $11,250/quarter.

          This gives her a very reliable monthly income, unfortunately all of which is taxable, of $7,500-8,250. That’s a yearly take of $90,000 to $99,000. Experience says she’ll likely never have a year under six figures.

          Now, let’s assume the cash flow from your plan’s rentals rises from $75,000/yr to $100,000/yr in the next 15 years. Never mind that if your rentals are like what most folks opt to buy, they were fairly old when you acquired ’em. Hope I’m mistaken. In 15 years they’ll be that much older, and we know for sure what’s in store for ya then when it comes to repair/maintenance, not to mention the potential drop in tenant quality.

          At a total value of $2 million that $100,000 represents a whopping 5% return. Wow, let’s party!! 🙂

          Summarizing, this woman will be equalling your income with just 45% of your investment capital. Granted, it’s gonna get taxed, but that was the reality I was handed.

          So, you ask, knowing that I, a BiggerPockets author, am like the rest of BP folks, and think I’m so clever, what’s the downside for her? Great question!

          Any investment into notes, either directly or indirectly has a ‘Plan B’ built into it from Day 1. The loan balance from the start is 75% LTV or lower, usually lower. This makes the investor’s capital at even a lower actual LTV. If a note goes bad — and a small percentage will, that’s a lock — the note holder now owns a free ‘n clear rental worth $X,000 in which they have invested roughly 55-65¢ of the value.

          They still have a hard asset that has rental value. Many times the cash flow from the rents, based on the ever so clever 50% rule, is often as much or more than the payments they’d been receiving. I’ve found this to be true sometimes even when the market problem also impacted rents in the area negatively.

          If this nice lady had figured out the whole Roth thing early on, as you did, Gary, she’d really be in the chips. But I think you see my point. She’s outperforming your scenario with less than half the money while remaining what I call, ‘Grandma safe’. 🙂

          Different strokes, etc., I get it. But my advice on the work related 401k is spot on. I’ll leave that part of it to my own expert, who’ll jump on here as he has time.

          Again, Gary, you’ve done better than the vast majority of your peers. You deserve kudos for that. Just know you could’ve done much mo betta.

    • Jonathan Deroko

      I agree, I felt that was very bad advice.

      While I don’t believe 401K are the end all be all in retirement preparation, I don’t understand how you could say they are such failures. Essentially what you just pointed out was re-directing your savings to a “Roth” vehicle, which are available within 401K’s, so let me ask, what would be the difference between doing what you just pointed out and contributing the same amount in a Roth 401K that was invested in a good old boring total stock market index? My guess very little difference..just slightly… and I mean slightly because they are essentially the same thing…The point I make is that you start this post by saying 401K’s are failure when exactly what you just pointed out..the “Roth” are available with in. Well intended I’m sure, but a little of the mark.

      With respect,

      • Tim Puffer

        With investing in the “Roth” self directed account you are able to use it to purchase the discounted notes. You aren’t afforded this within a company 401k. You are limited to whatever funds are made available to you by the trusty servicing company. Oh,and they will be sure to get their high fees from you too.
        The self directed Roth investing in real estate ties a tangible asset to the account that typically goes up in value with inflation, puts off cash flow, and can give you a nice boost once the asset is sold.

        • HI Tim/Bucky,

          Thanks for your sense of humor. I don’t think our philosophy is that far apart. Like I said, I got fed up with the BS of corporate America 14 years ago and I have been investing in real estate within and outside of my IRA for most of those years. I survived the downturn and am still adding to my portfolio each and every year.

          For those still waiting to start out on their own AND for those with a decent company 401K match, participation in a 401K is an excellent way to save and build a nest egg. Every plan is different, every person has different goals. But for most people, a 401K with an employer match is a really good deal. To argue that people should not take advantage of these programs is just not responsible.

          I am done. Peace Out. Happy Investing! Appreciate the different viewpoints.


        • Tim Puffer

          I do agree with you that the employer is a really good deal for most people. Mostly because it is essentially a set and forget thing for them. If that is the only investing they do then it is better than nothing.

          Fir those that take the time to educate themselves on other options then not investing in the company 401k maybe an ok option for them.

          Good debate back and forth!


      • Jeff asked me to respond to this discussion. I have had this discussion many times before. The one question I always ask of myself is what is the best way to evaluate the success [or failure] of any financial strategy. In my opinion it is NOT popularity, nor anecdotal data, or even what so called “experts” say. It is actual results. The 401K/IRA strategy is now into its second generation of existence and has actual results that can be accessed.

        But first, I must digress a little. The 401K part of the tax code was not designed to create a stand alone retirement income strategy for the masses. It was designed to create a tax efficient avenue for corporations to bonus their executives. The #1 item that was of concern to these high income executives was current tax obligations. So, the 401K wrapper was legislated into existence. It probably took a government accountant about 42 seconds to realize that this was tax accretive to the government as giving a tax break on the initial value and taxing the value some point in the far future when the asset had appreciated was a big winner for the government. Initially, the bonus was mostly company stock. But as corporate executives looked at the risk of their defined benefit pensions, they quickly realized that it could a way to reduce corporate risk by shedding DB pensions. They quickly enlisted Wall Street into helping them build the financial/marketing infrastructure [who has made billions off of the 401K scheme] and got the government to help them with the propaganda. In short order this was the de-facto “ultimate” retirement income scheme. No where did anyone from the government to the corporations to Wall Street look or even think about the potential results and take that into consideration.

        So after almost 50 years what are the results? The longest running series looking at this is the Employee Benefit Research Group which just published its 26th annual report. [The Federal Reserve Board published one every 3 years also that gives a little more detail]. 69% of current workers save for retirement. What they found was that the employee median retirement savings of those 69% has between $22K and $25K. 14% have more than $250K, while another 12% have more than $100K. Looking at actual retirees; median is around $21K-$23K, 19% have over $250K and another 10% have over $100K. The federal Reserve Board tri-annual study gives similar numbers.

        Another series, the Dalbar, Inc. series looks at actual performance of those who invest in mutual funds, stocks and bonds. I will report on the mutual funds since that is what most people fund their 401K/IRA with. The average return for those who invest in equity funds over the last 30 years is 3.66%, for those in Asset Allocation Funds it is 1.65% and for those in bond funds .59%. These match up to proprietary studies done by mutual fund companies. The S&P 500 rate of return over those 30 years was 10.35%

        The reason that the return or 1/3rd of the index return is simply human behavior. Given the way our brains work, the tendency is to buy high and sell low. But, that is hardly an excuse to keep on pushing the current strategy.

        So, I will leave you with this question. If the actual results are so damning, then why do people still think that this strategy works? And why would anyone want to risk themselves in a strategy that is a proven failure?

        People get caught up in the THEORY of a strategy or the minutiae like matching and forget to see the big picture. By the way, that corporate matching is not guaranteed as many companies stop the match during recent bad spells in their performance. Once again a buy high strategy where the match comes on in the good times when the stock prices are high. But that is a quibble at best. My issue is the overall failure of the strategy to the employees and what that means to our country going forward????

  3. James Folsom

    Your article fails to discuss a lot of the variables that go into WHY the average retiree’s 401k balances are less-than-stellar. It is so easy for financial ‘experts’ to bash the 401k by using the average balance stat, but lets think about WHY the average balance stat may be so low:

    – Many investors take loans against 401ks, which takes their previous contributions out of the market for a certain time period and misses any market growth. The Employee Benefits Research Institute (EBRI) estimates 20% of 401k’s have outstanding loans against their plans. Yes you pay interest to yourself, but it is with after-tax dollars and you are then contributing that into an account where you pay taxes again. You pay taxes on a dollar twice. That inherently puts your total portfolio potential behind, both from missing growth and also double taxation.

    – Many investors are often invested in terrible funds within their plans that make-up this 4% average return stat. My 401k plan has target retirement year funds, and those funds have terrible return. It also has bonds and other junk I can invest in that have subpar performance as well. And the sad thing is that many blind, uninformed investors spread money among these funds, only to achieve returns that hardly match inflation. I am invested 100% in stocks within my 401k – mostly in index funds, and in another fund that is an actively managed fund. The fees are low for the index funds, and returns are much better than an average of 4% as you quote. Yes there are some flat and down years, but stocks always outperform bonds or some junk target retirement year fund.

    – Another big reason is that, for years, people have bought into the lie that the 401k is the only plan you should contribute savings to. They put 100% of their savings into 401k’s and at the end of the day think “I am doing good because I am saving for my future”. Meanwhile, they have relatively no emergency fund or immediately accessible money. When life happens and they need access to cash, they either take a 401k loan, or gasp, an early withdrawal – killing their 401k balances and throwing money down the drain.

    Its not that 401k plans are bad in themselves. People just need to know how to use them wisely. They are a very effective tool in a portfolio, but should not be the only vehicle for savings. It should be treated as money that sits for decades and is not touched. Since it would sit this long – invest it in stocks. So what if it has bad years? The good years will far surpass the bad ones, and if you aren’t immediately dependent on that money, it shouldn’t matter if a bad year happens.

    And yes, the company match is the first thing you should take advantage of with investing. You are passing-up free income from your company if you do not participate. Telling people to not take advantage of this is very narrow-minded and incredibly unwise.

    • James Folsom

      One more thing to add – yes you pay full taxation in retirement, but the advantage is that the tax dollars you would have otherwise paid throughout your life are growing for all of those years. You are earning interest on the government’s money.

      I am all for other investment vehicles outside of the 401k. My current portfolio consists of a 401k, Roth IRA, and Whole Life Insurance Cash Value. I started saving earlier this year for my first rental property with the goal of buying a duplex in 2017, which is why I joined BP. But the 401k is still a good tool in my portfolio!

  4. James, thank you for your wise, reasoned comments. The author and his friends are in the note business and I wish them great success. I have owned real estate notes with very mixed results. I have a house in Gary, IN that I received in lieu of repayment of a note ( long, long story). As I contemplate winding down my rental business over the next 10 to 15 years, I may very well invest some of my proceeds in discounted real estate notes with Jeff or someone else. I get the strategy, and I also get that it is NOT a strategy for everyone.
    Really quick, the reason most people have no money in their 401K has been documented on BP and other places for years: People cannot save, people do not save. The vast majority of people do not save within their IRA or outside of their IRA. The vast majority do not buy stocks, rental property, discounted real estate notes or any other vehicle. 62% of Americans have less than $1000 in savings ( source: BP). If they don’t have any savings, how are they going to add to their IRA? One would hope that most BP readers are not in that category and they are trying to take charge of their financial future.

    Discounted real estate notes is not a business for people that don’t know what they are doing. This is not a “rinse and repeat” business. “Go find a pro” is a simplistic dangerous recipe for financial disaster for the novice investor. The author is silent as to what happened to his business during the financial melt down. The banks are still selling houses on the south side of Chicago and in Cook County for 25 cents on the dollar. Wonder how many of those houses in those neighborhoods were financed “creatively”?

    It is really fun to pop large numbers into your financial calculator at 8% and 10% return. Dealing with a foreclosure two states away is not so much fun. The authors ignore the reason the notes were generated in the first place: A traditional bank would not loan on the property. Risk has a place in an investment portfolio. There is nothing wrong with risk, if an individual has appropriate assets, diversification and an appetite for said risk. Sadly, all that is missing from this article.

    I am disappointed that this article even made it past the Bigger Pockets editorial staff. While many of the BP posts are overly optimistic and simplistic, the better articles are very careful to educate potential investors and landlords about the hazards and pitfalls of a given strategy. I find many of the rehabbing, landlord and tenant screening articles to be very valuable.

    For this author and BP to advocate workaday investors to abandon their employer 401K match and invest in real estate notes while glossing over the downside is a disservice to the BP community.

  5. Jeff Brown

    Gary, your lack of knowledge is astounding. How did I do in the bad times? Let me tell ya. The first bad times were the terrifying years of the ’81 recession. My brokerage’s business went down to the wages of a part time cashier at Sears. My net worth and monthly income rose from 1981-1984. You either refuse to believe me, or don’t wish to face the reality that those into things other than what you deem appropriate are laughing at your results.

    Whenever I must foreclose, which is indeed more frequent in the economic downtimes, I end up not only not losing investment capital, but increasing my net worth. You completely dismiss my unequivocal statement that it’s a ‘rinse ‘n repeat’ business, not to mention your condescending response to ‘go find a pro’. Since I’ve been successfully rinsing ‘n repeating since Ford was in office, I’m not sure what you’re talkin’ about. In my world, words mean things, Gary. When I say to find a pro, that’s exactly what I mean. A pro in the literal sense of the word.

    Never mind that you’ve completely ignored the historical facts about the vaunted 401k concept as clearly demonstrated by the stats presented in this thread by a ‘pro’ Dave Shafer. But then clearly you’re smarter than the professionals anyway.

    As usual I’ll let my clients’ results, my own results, and my overall track record speak for itself. See Gary, I’ve actually done it, not just talked about it.

    • No Snark, Jeff this is serious. This is not a critique of you. This is a critique of your article, which mishes and mashes a pretty important topic that most people don’t even know exists. I never pretended to be a note buyer; I am a landlord and flipper. I have only lived through one downturn, but 95% of my peers went under. Please reread your article. The reader does not know your results, or your clients results or what happened in the downturns, because all that is glossed over in favor of a THEORETICAL case of what happens when you get 8% a year for 25 years. I love sitting around my backyard after dinner with a beer dreaming about my THEORETICAL equity in my rental houses and my THEORETICAL monthly cash flow. The next morning I have to get up and turn theory into reality with hard work.

      Jeff, I understand that YOU are a pro. You have made this your life’s work and you are good at it. I did not question your competence or results, I question the advice you provide. This is really not about 401ks or IRAs or company matches which is where your article gets off track. Any time an investor can get things done within an IRA ( hopefully Roth) it will be a win/win. This is really about an asset class of discounted real estate notes that 99% of the world does not understand. Honestly, I think you missed an opportunity to educate folks.

      It IS misleading to call this boring and plain vanilla. It IS misleading to downplay risk. Again, these notes exist because Chase and Bank of America and others would not make the loans. People don’t pay 8 or 10% on mortgages when there is 3.5% money available. No doubt you and I agree that banks are very stupid and their rules are stupid and their computers are stupid, and there are some terrific people get turned down for loans every day. I get that, but this strategy is not like buying a CD.

      People should not make investments into vehicles they don’t understand. I stand by that statement. It goes for stocks, it goes for rental properties, it goes for cattle futures and yes it goes for real estate note buying.

      Hopefully, we can at least agree that newbies should not be on Craigslist trying to buy discounted real estate notes. Either they buy books and tapes from some guru or the investor looks to finding an experienced note buyer/dealer such as yourself.

      Well Why Exactly? If newbies are out there looking for pros, what should they look for? How many years in the business? How many deals completed? Ratio of performing loans to bad loans? How have they handled downturns and what specifically happened? What criteria would you suggest? Should they invest locally or out of state or does it matter? If an investor is looking for a realtor, there are criteria that people follow. Ditto for an stock adviser or financial adviser. If Joe Smith is looking for a guy to buy discounted notes from, what should he be looking for? Are you that guy? Then tell us why!

      I am a landlord as I have stated before. When I read a BP piece on rental property, I am looking for something more specific than: buy a house, paint the house, rent the house, count your money. I don’t know if the editor gave you a word count or took out half the stuff you wrote, or told you to say something controversial to get a lot of comments. So maybe I will owe you an apology for things in your article not under your control.

      BP editors take note: discounted note buying is a wonderful opportunity to make money. There are risks involved. There are numerous factors to consider. Books have been written on this subject. Investing in real estate within your IRA is complicated. There are many rules to follow. Books have also been written on this subject. Combining these two complex subjects in a 9 paragraph article with some controversial ( bad) advice about employer 401K matches is an impossible task. I have actually learned far more from the back and forth comments than I did from the original article! Maybe that was your intention all along.

      So Jeff, I am not criticizing you or your performance. You may be the best note buyer in the world. I am criticizing your article which is like a lot of them on Bigger Pockets: long on hype, short on facts and specifics. I look forward to reading your next piece.

      • Jeff Brown

        The returns I’ve enjoyed from discounted notes for the last 40+ years, Gary, are not hype or theory. They’re empirical and historic facts. Again, forget 8%, I’ve never yielded less than 10%. Please stop, as you’re in an arena with which you’re clearly unfamiliar.

  6. Stefan Dickert


    This is probably a rookie question, so I apologize if it is blatantly obvious to everyone else. If you are not an accredited investor, funds are usually closed for you, so you have to purchase individual notes. This turns you into the bank that holds the mortgage debt on one specific house. If the couple in your example contributes $250 per month into one of their IRAs, how long would they need to save until they could purchase their first note in that account and what would they do with the money while they save up?

    • Jeff Brown

      It’s a very good question, Stefan. In the post’s example they had the luxury of having a previous employer 401k balance of $25k, which was rollable to a self-directed IRA. In the post EACH of ’em are putting in $250/mo. But in your case, you’d be marching in place ’til you saved enough to somehow acquire your first discounted note/land contract.

      You may wanna take the ‘group’ approach with some friends/family. Go in together on a purchase to get your foot in the door. It’s a crapshoot when guessing about how much it’ll take for that first buy. I’ve bought performing liens for under $10k many times. I’ve also seen times when it took much more than that. If you put together some capital as suggested, please contact me. I’ll ensure you get started without getting hosed. 🙂 It’ll be my pleasure, Stefan.

  7. John Veith

    Hi Jeff,

    I am interested in learning more about buying discount notes. Do have any references I can follow up on? Googling “discount notes” hasn’t gotten me too far. Anything on what they are, where to buy them, what ‘first position’ means, how to decide which note to buy, etc., would be very helpful. I would prefer to learn more and do it myself but may be willing to go with a ‘pro’. What are their fees, typically?



    • Jeff Brown

      Hey John — There are places to buy discounted notes on websites everywhere, though I don’t recommend them to the newbie or those with little experience. You need a high experienced pro to guide you. Many will disagree with that for sure, John. I know, cuz they often end up calling me to fix the mess.

      You need a guy like me. And make no mistake, I’m not the Lone Ranger by any measure. There are a buncha men and women experts in discounted notes. Find somebody you like, contact ’em, then listen intently. 🙂

      • Lisa C.

        Jeff you’ve answered this question several times above stating “there are a buncha men and women experts” … and “find somebody you like” .. but no additional info on how or where to find them … can you advise or do you just want us to reach out to you (the Lone Ranger)

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