I've seen a lot of posts about how RE is soooo much better in the long haul than just putting pretax $$in a 401k and assuming about an 7% return.
But what are some scenarios that the 401k is the better option? (Putting aside ludicrous scenarios). I have scoured the web and cannot find any articles to this point (401k slanted) - can anyone point me to some?
The key advantage of the 401k is the tax benefits it provides. You are contributing pre-tax dollars, so you are effectively getting a match from the government in the amount of your combined federal and state income tax rates. This allows you to amass more investment capital, which can produce more returns. If you have an employer match, that is a bonus.
Comparing real estate investing to stock investing has been done many times on BP and for the most part if you execute well on your real estate strategy, you will amass more long term wealth. Stocks - if well played - can sometimes have more aggressive returns, but the consistency is not there. Real estate provides that consistency, and an asset that is secured by something real, not digital.
Where you can really maximize both angles is with a self directed IRA or 401k. If you are engaging in real estate in an active fashion and generating earned income as opposed to passive capital gains, then you can set aside some of this income into your own IRA or 401k and reduce your taxes on that income (that government match I mentioned above). With a self directed plan, you then have the ability to put that tax-sheltered savings to work in real estate and invest in what you know.
Of course, diversification is always a good thing, so having a mix of real estate and other investments, as well as a mix of investments inside and outside of a tax-sheltered retirement plan is the best overall strategy. Sometimes it takes a while to get there, so you need to start with a focus in one or two areas, and then build forward for the long haul.
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