South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
I am a newbie and within the past year have closed on 4 units that are cash flowing very well. My ultimate goal is to retire at a very early age and live off of the cash flow of my properties. My unit count goal for properties is in the 15-20 range for now. I am 30 years old and since i graduated college at 22, I have always attempted to max my 401k and roth ira. Since i plan on using my rental properties for my early retirement, i am having a tough time understanding why I should be investing in 401k and roth that is not accessible until a later age without penalties. The additional cash would really help for down payments on new acquisitions. I would love to hear fellow bloggers' opinions on this matter.
Investor · Davenport, FL · Member since 2013 · 73 posts · 22 votes
11y
Hi Devang, I think it's safer to be diversified and have real estate and stocks (401k/IRA)...especially if your company matches. Sometimes you can borrow against your 401k as well.
South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
11y
Thanks Charlie. I see your point in diversification and have thought about the same thing. However, it seems that this would stop me and slow me down on my current goal of retiring early. I guess this ends up being a personal decision on risk and preference. However, my current employer does not match for 401k. Any more thoughts on this?
I agree with Charlie on this one. Sounds like you are doing great with 4 properties and having previously maxed your Roth. I would continue to invest in the Roth and not dedicate all of your funds to real estate though.
Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votes
11y
If your employer doesn't match I would not contribute . I think maxing your ROTH which is only is only around $5,500 a year and then the saving the rest for real estate investing is a good strategy. At least some element of diversification in your mix is prudent.
I have talked to many financial advisers about where to allocate money. There is really no one answer. The key takeaway is that you are saving and investing for the future which puts you ahead of most people. Same goes for the question should I pay down debt or save for additional down payment for new properties.
At the end of the day, it's your money. Go with what you feel comfortable with. If you want to go 100% real estate and you have the energy and right mind set to pull it off, by all means go for it. The advice here applies to general population which means you have a few winners, losers, and lots of average out there.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
11y
It sounds like you are doing an awesome job. Diversification is a must. I hold me rentals outside of my retirement accounts and do HML inside my retirement accounts. If you put rentals into your retirement account you lose HUGE tax advantages but I am sure you are already aware of them having rentals. Talk to your tax advisor about different scenarios to help determine what is best for you. It sounds like you will be in great shape within the next 10-15 years. Very smart!
Rental Property Investor · Snohomish, WA · Member since 2015 · 25 posts · 7 votes
11y
@Devang Patel I just recently ended up finding this site as a side effect of having maxed out my 401k and no longer being eligible for roth. I was looking for additional retirement investment vehicles.
The tax deferred growth in the 401k is great and additionally it will likely be taxed - at withdrawal - in a lower tax bracket. I don't personally see any reason to invest in the stock market beyond the 401k and IRA maximums.
My overall plan for real estate is very much still evolving. As of right now I'm planning on deferring any potential income from future real estate investments to continue building a portfolio. Then, as I age slowly reducing the amount of leveraged investments. More or less in the same manner one would re-balance their portfolio to less risky assets as they near retirement.
I'm forced to move slowly in real estate by the fact that I max the 401k. I'm thinking this might be a good thing, since I'm still not entirely clear on how to find properties where the value is there from day one. Still in education mode. :)
In the past I have maxed out my 401k to the IRS limit. Once I got serious about real estate reduced my contribution company match so I don't leave free money on the table. With my recent SFH investment I withdrew money from an IRA to finance the deal. Now many people will frown at this and say it is stupid because of the tax penalty along with having to pay income taxes on the withdrawal amount. Wells Fargo has a early withdrawal calculater and will show you how much your money will be worth in 30 years if you left it in the market vs pulling the money out. Everytime I made more on real estate investments vs leaving my money in an IRA. Now, I do believe you should diversfy your retirement portfolio with real estate, stocks, mutual funds, and etc.
For me, I like the idea of cash flow from rentals and not relying on the 4% retirement experts say you should pull out of your 401k/IRA each year during retirement. Markets can change drastically, but people will always need a place to stay no matter how bad the stock market is.