Another property or 401k?

Question

I am a young (26) investor, I’m confused on what to do next. I have had my first house hack for a couple years now. In that time I’ve been trying to pay down debt and have been piling money into my 401k. I want another rental property but am unsure of how much to have in savings before purchasing another, or all in all what to do next. What advice could you guys offer? Any input helps

Aaron Zimmerman · Answer

A couple thoughts:

1. does your company allow a 401(k) loan? If yes, you can withdraw up to 50% of the account balance or $50k, whichever is less.

2. What is the company match? If you're not maxing it out, then you could be leaving the easiest guaranteed return!

3. What does your debt consist of? If it's high interest credit card debt, paying that down makes sense (and ideally doing a balance transfer). If it's student loans at relatively low interest rates, then probably okay to let it ride.

4. how much do you have to save? It's important to not over leverage yourself. Depending on property size, I feel comfortable with $5-10k in reserves per property. Then, you'll need a down payment for your next property. Are you able to come up with that down payment?

Kyle Vogeler · Answer

Keaton,

I had a similar thought process a few years back when I first got into my finance career. Not saying you have to follow the same path, but this is what I did:

- I maxed out my 401(k) and stock account because I KNEW saving was important... I wanted to get into real estate, but I realized that I didn't know enough yet to be successful.

- I started absorbing as much real estate information as I could. Listening to multiple podcasts a day, reading books, and analyzing properties online.

- I started small and grew. Once I felt confident that I could successfully complete a real estate deal, I started small because I knew I was going to make mistakes and its better to make mistakes on a small scale first. I used my stock account funds to buy my first property.

- Then I dove fully in. I continued learning and analyzing like crazy and prepared to scale. Once the opportunity to scale came, I jumped on the deal, used my funds that I've saved over the years to fund the properties and have been following a steady growth plan ever since.

Moral of the story - always prepare before investing. Time spent learning is still progress being made. When you aren't investing in real estate, direct as much money as you can to stocks/IRA's/and 401(k)s - that way when the time comes, you will have money for your next deal!

Kyle Vogeler · Answer

In my scenario, I sold my stocks. I didn't want to leverage myself that aggressively incase there was a market downturn in either the housing or stock market.

Keaton Vols · Answer

And doesn’t borrowing against your 401k effect what it earns?

Keaton Vols · Answer

So you think max out 401k and then look at rentals?

Tre Fowler · Answer

This is super helpful, thank you!

Quick question, did you borrow against your stocks or sell shares?

Another property or 401k?

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