All Forum Posts by: Brady Hoffpauir

@Brandon Vukelich Thanks for the shout out.  @Jeffrey Donis I look forward to connecting.   Shoot me a message so we can chat. 

@Carl Fischer thanks for the detailed insights.  Before I saw your post I took a long journey today with my friends (Excel and Google) and compared the returns from the 3 scenarios... I wanted to see the numbers.  Made reasonable assumptions and accounted for taxes, penalties, depreciation, recapture, cap gains.  Long story short, while there’s always a chance for error, I’m glad to see what I came up with matches your experience - It’s nice when math supports reality.  I have to say though, I did not expect to see the solo-401k on top, but as your said... apparently not paying taxes is better than paying taxes with depreciation and recapture.   

For people that cannot take the solo-401k route, and under the assumptions I made, it does still seem better to take an early withdraw from your employer 401k and pay the penalty and re-invest in multi-family RE, as others above have recommended, and assuming your 401k in the long term is matching the typical stock market returns.  

The clear looser, as suspected, was the employer 401k - excluding the amount your employer matches... to which I say take the free money.  

Granted there are a great deal of assumptions in the crystal ball is used to do the analysis.  As you pointed out @Eric Johnson, you can never underestimate the value of an experienced operator/syndicator and good fundamentals on the investment property.  

One final consideration for others following along here is the value of liquid capital. This is where at least one of my investor discussions landed recently and is also intertwined in the original question of the 3 scenarios above. This may come down to personal preference/needs/tolerance for risk/ or the need for freedom in investing. Tying money up in a s-401k may not be for everyone in the long term, especially if people are considering investing in their own deal - which if I understand correctly, the s-401k (or even SD-IRA) does not allow you to do this. The numbers do seem to at least support that pulling money out of a retirement account and re-investing in RE, may be a better option for some - assuming of course you have a worthwhile investment. You should always do your own sanity check and be comfortable with the risk vs. potential reward.

Thank you all again for the insights and experiences above.  If others have additional thoughts I would love to here them.  

FYI... if you are wondering what I used for the assumptions of my own sanity check: 401k=7% AAR; RE investment: 8% COC, 15% AAR, I also assumed a 5yr hold on the property, and the higher end of all associated taxes.

Thank you all for the feedback.  

Question from an investor:  They would like to use their retirement account to invest in RE.   From a long term investment perspective (10-20 yrs), has anyone evaluated the financial comparison of the following: 

1. 1) Keep money in their current employer 401k (5-8% average annual return over long term)
2. 2) Roll over ~100k to a self-directed account and invest in a syndication as a passive investor
3. 3) Early withdraw ~100k from their employer 401k, pay the 10% penalty + taxes, and invest in a syndication as a passive investor.  

Of course the intent would be to continue the re-investment of the funds in RE from that point forward.  

Curious if anyone has done the math to show how the long term financial comparison plays out, considering taxes, fees, how the tax benefits (depreciation) of real property outside of a retirement account offsets the penalties of withdrawing money early, etc.  

Would love to get the BiggerPockets community's feedback - especially if you have a case study or example.

Disclaimer to those following along... Always talk with your CPA before taking action on advice from the posts below.