Which is better to invest in?
If we look at the average growth of a 401k over the last five years, the average has been 10.2%, which is fantastic. This, of course, depends on how aggressive you are when picking your individual portfolio.
Real estate has had a total of a 46% increase over that same span, with some years as high as 13% and others as low as 6%, so depending on the year you bought your property, you could have made a better return with a 401k.
With real estate, however, you can force appreciation. For example, I purchased a home two years ago that was run down and renovated it to bring it back to market value. That gave us a 32% increase in value over a 12 month period, something that would be impossible to do with a 401k.
I also love real estate because the barrier to entry is low. As a first time home buyer, you don’t have to put any money down- and if it’s your second home, you can purchase it for as little 3.5% down. This means it costs you very little out of pocket to begin investing in real estate and to begin seeing returns in value on your investment.
A 401k, however, often has an employer match, which is like free money just for investing in your retirement!
So, in pitting a 401k against real estate, there are many differences and I personally find it best to hedge bets. I invest in a 401k AND real estate, in hopes to gain the benefits of both, though I prefer to put much more money into real estate because of its potential for return.
If you’re considering real estate investing and have questions, give me a shout!