Real Estate Vs Other Investments

10 Replies

Curious on what investments people have out there. I'm heavily involved in index fund investing in like 401k and Roth IRA.

Is real estate your favorite type of investing? Why or why not? Why would you prefer it against the other types of investment?

I can't think of a single benefit to the 401k. Someone convinces you to separate yourself from your money, you then give it to someone who charges you a fee to manage the money, but the only managing that's done is sticking it in a "diversified" fund of some sort. If you're "lucky" your employer matches up to a set percentage, but all that money is eaten by fees, so it's kind of a bummer. Then over the course of however long, people try to make you feel good about your investment by using fake numbers like average rate of return. Smoke and mirrors.

When it comes time to withdraw the money, someone gets to tell you how much, when, and at what future tax rate. Deferred taxes guarantees you pay more to the government than you would have. That leaves Roth IRAs, but they cap how much you can invest, and you still are forced to part with your money for decades.

I'd far rather put as much of my money in an appropriately designed, high cash value, whole life insurance policy, borrow out from the policy and buy real estate. I treat the policy as a bank account and repay it through my real estate rent. The policy grows tax freenot deferred, for the entirety of its existence. I have access to the cash to invest it from day one. If I die unexpectedly, my family is taken care of.

Retirement accounts were meant to replace company pensions by reducing employee income during employee working years to save businesses money. Sorry. I won't play that game. Last year, I grew my net worth over $300,000, but when I file my taxes, I'll show a loss. If I liquidated my assets, that "loss" would be worth $300,000. If I'd invested like a good employee in a 401k, I couldn't have touched that kind of growth. Seems like a no-brainer to me.

I have a solo Roth 401k that I am using to invest in real estate deals.

I also have overfunded permanent life insurance policies that I am using as collateral for loans that I am reinvesting in real estate. In my case I am using Index Universal Life instead of Whole Life as I believe that in the long run they outperform Whole Life, but the concept is the same.

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@Nader Hachem

As you can likely see, many on this real estate focused forum have a negative bias against retirement accounts. This is because the vast majority of retirement accounts are restricted to the types of assets you are holding, and they do not allow for real estate investing. As a result, there is a common theme of real estate vs. 401k that pops up quite often. The good news is that they do not have to be mutually exclusive. The 401k is not an asset like real estate, It is a tool that allows you to hold assets with certain tax benefits. If you have the right 401k or IRA, you can combine those tax benefits with the power of real estate investing. I will let others provide more info on the benefits of real estate investing as they are numerous. Just know that if you want to diversify away from traditional funds, a self-directed IRA or Solo 401k can be used to invest into alternative assets such as real estate.

@Jody Sperling I get the point on 401k restricting your investments, in a situation like mine where the company offers a ridiculously good match (10% on 8% investment), it's hard to say no to an automatic 125% ROI.

As far as the Roth, I actually invest into that, but if I was to come up with a real estate deal- I wouldn't mind reaching into that and using some of that money for real estate! Not disagreeing on your points though. Id love for RE to be my main focus of investments

@Justin Windham great point! I follow that same logic - retirement accounts/stock investment and real estate. It's not one or the other, it could be both. I know there's situations where you could use your Roth to purchase properties (don't know much about it). But it's great to diversity.

The only difficult part I see with doing both (as a beginner) is funding, the more you invest in your 401k and Roth IRA, the less you have for those down payments and ways of financing

@Nader Hachem

I invest in both real estate and the stock market.

The 401k is nice because of its tax status. If you're a high earner, a traditional 401k will lower your tax status. If you have a lot of time until retirement, a Roth 401k let's your earnings grow tax free. (cough cough Peter Thiel's untaxable $5billion IRA). I've gotten good returns on the stock market and plan to continue to invest it.

Real estate is nice because it's less volatile then the stock market. I haven't seen my money grow as fast as my stake in $SQ ($33/share to $230/share), but I have still gotten good returns. I do like that Real Estate is easier to analyze than stocks. It's a lot easier to invest in a legitimate good deal than to engage in speculation. I also plan to continue to invest in real estate.

The key takeaway is that it's important to diversify. Don't put all your eggs in one basket.

Disclaimer: Not tax or financial advice. Please seek a professional

Originally posted by @Jeff He:

@Nader Hachem

I invest in both real estate and the stock market.

The 401k is nice because of its tax status. If you're a high earner, a traditional 401k will lower your tax status. If you have a lot of time until retirement, a Roth 401k let's your earnings grow tax free. (cough cough Peter Thiel's untaxable $5billion IRA). I've gotten good returns on the stock market and plan to continue to invest it.

Real estate is nice because it's less volatile then the stock market. I haven't seen my money grow as fast as my stake in $SQ ($33/share to $230/share), but I have still gotten good returns. I do like that Real Estate is easier to analyze than stocks. It's a lot easier to invest in a legitimate good deal than to engage in speculation. I also plan to continue to invest in real estate.

The key takeaway is that it's important to diversify. Don't put all your eggs in one basket.

Disclaimer: Not tax or financial advice. Please seek a professional

 Definitely think each has their own advantages. Also, i believe real estate would have much better tax benefits over time!

Originally posted by @Nader Hachem:

@Justin Windham great point! I follow that same logic - retirement accounts/stock investment and real estate. It's not one or the other, it could be both. I know there's situations where you could use your Roth to purchase properties (don't know much about it). But it's great to diversity.

The only difficult part I see with doing both (as a beginner) is funding, the more you invest in your 401k and Roth IRA, the less you have for those down payments and ways of financing

I agree. When you're just starting, access to funding is a common challenge. Most of the folks we see self-directing their retirement assets have significant balances from years of contributions and (one would hope) earnings on those contributions. There are exceptions, though, especially for higher earners. Some people are able to contribute large amounts to a Solo 401k and grow a new account pretty quickly. If I was starting from scratch and did not have enough money to both contribute to a 401k and invest in RE, it might be a tough decision. If employed without an employer match (or after contributing enough to maximize the match), I'd likely favor RE. Investing into high ROI assets both inside and outside of retirement accounts is the ideal situation, in my opinion. If you have to focus on one before you implement the other, you'll still be following the path of many successful investors.

Definitely also interested in the stock market. Lately taken a big interest in options trading (loving LEAPS) to add a bit more leverage/risky investments to the otherwise traditional stock portfolio (index funds, stocks). 

I invest heavily into index funds, it makes up about 80% of my portfolio. 10-15% is individual stocks. The remainder is split 70/30 bitcoin and ethereum. Stocks never really interested me too much, so I decided to put most of my money into index funds because at least it's better than the bank. I really want to get into investing in small multi family because of the tax advantages, equity, home appreciation, and most importantly leverage. You can scale a lot higher and faster with real estate than with stocks.

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