Love Your 401k? Read This…

Check out the FULL LIST of pros & cons to investing in 401k’s in comparison to multifamily real estate on my latest episode of the podcast above :)! 

 Today we are going to talk a little about why investing passively in multifamily real estate OBLITERATES your 401k when it comes to building wealth… Keep in mind I am not a CPA/Licensed Tax Advisor, but I am an investor who eats, sleeps, and breathes wealth creation and loves to share my thoughts! Enjoy!

What is Good About Your 401k…

1. Employer Match: This one is one that is pretty fortunate for most W2 employees. Typically companies offer a match up to a certain % of contributions into your 401k. In a sense it is “free money” that is thrown into the pot with the actual contributions that are removed from your paycheck every week/every other week to put towards your retirement.

2. Very Passive: This is a big one. 99% of W2 employees DO NOT want to deal with active management of their retirement funds. This is understandable, especially if you are not in any part of the financial industry. However, you will find below that this wealth creation vehicle isn’t the only one that allows you to grow passively ;)!

3. Very Low Barrier to Entry: This is one of the most (if not the actual most) low barrier entry ways to invest. Most folks do this and rely on this ONE vehicle to rely on in their post W2 retirement world…

What is NOT Good About Your 401k…

1. You Are at the Mercy of the Markets: I feel like this one becomes more dangerous the more that you think about it. You are literally leaving your financial future in the hands of politics, the government, black swan world events, etc. In my opinion this is a very volatile and risky way to build a solid financial future… What if you are about to retire and there is a massive equities market collapse? Now what? Get another damn job? 

2. This is an Insanely Slow Game: Just wait until you see what I have to see about multifamily below… The S&P 500 has a long history of annual returns of 10% BEFORE INFLATION is accounted for. Cmon man!  

3. You Only Benefit From Appreciation & Dividends (maybe) : Keep this one in mind. You only benefit from appreciation and MAYBE dividend distribution from the equities markets. This is only 1 or 2 ways that can aid your total return at the same time. Some industries out there do not pay dividends, with the purpose being to keep that capital internal to grow at a much more accelerated rate.

4. You Have Nearly 0 Control of Your Destiny: You don’t get much choice where your funds are actually being allocated down on a granular level… Do you actually know what your money is going into?

5. Insider Trading is HIGHLY FREAKIN ILLEGAL: This one may not necessarily be relatable to many of you guys, but you never know! You hear about insider trading all the time on the news with politicians and different folks etc. People go to JAIL for working with insider information. Make a mental note about this to reflect on in the next section! 

What is GREAT About Multifamily…

1. You Benefit From 4 Different Ways Simultaneously: As many of you folks may know, real estate has INCREDIBLE ways to benefit its investors in multiple different ways in the same time. These being: “debt paydown” (tenants paying your mortgage and it not coming out of your pocket), “cashflow” (the next profit after the debt and all expenses are paid), “appreciation” (natural and/or forced increase in valuation of the property based on market or property value growth, and last but not least the awesome “tax benefits” that come from it all!

2. You Can Be Active OR Passive: This one is something that many people don’t know! You don’t JUST need to be a landlord. You can be if you want, but that is not the only option, and I am not talking about simply hiring a property manager… There are many folks that invest passively in our deals and make out BETTER THAN WE DO! (If you want to learn more, click the button at the bottom of the page 😉 !)

3. Insider Trading is HIGHLY ENCOURAGED: Remember how I asked you to keep the insider trading comment above in mind? Well here is why. You can VERY EASILY research a ton of information about the market and it’s economic drivers, biggest employers, the path of progress that the city is taking and what areas they are focusing on improving, population demographic data, etc. It is mostly public data, so you can have a really good understanding of what you might be getting into…

4. Even in a Market Correction, People Still Need to Live: This one is a major one. The equities markets might tank, but people still need a place to live. The strength of how resilient the property can be all depends on if it was purchased properly. If you are using fixed debt and bought at a solid discount, you can weather some big storms as an investment vehicle!

5. Higher Unit Counts Decrease Your Risk: This one might be an eye opener to many investors out there… The more incomes coming in from higher quantities of tenants, the more crazy situations that need to go horribly wrong to put the entire property in a dangerous situation of foreclosure. Think about a 50 unit building VS a duplex. It would take many of those units in the 50 unit to not be able to pay the debt. If you invest in a duplex, if you lose one the income from only one unit, now you have instant problems. As long as you have a great operator, the chances that many of these items going wrong are slim, and the gross incomes will be leaps above the breakeven occupancy!

6. Leverage the Experience of the Pro’s: The multifamily investing industry (especially commercial multifamily w/ 5+ units) has many different roles that work together to properly execute the business plan when stabilizing multifamily assets. There is not one person trying to do it all.

7. Freedom of Choice: You have something here that you really do not have with your 401k. You have FREEDOM OF CHOICE to be very well versed in a particular opportunity, team, etc. and make a very educated decision about if it is a project that you believe in. If you do not believe in it, you simply don’t have to invest and can wait for the next project to come up to see if it aligns with your interests more :)!

What is Not So Great About Multifamily…

1. It can Take Time to Research: I only have one “con” for multifamily. It is an asset that should be thoroughly researched before any action is taken. BUT lucky for you my friends, that is why I am here! I have a passion for educating our investors through these newsletters, my Facebook group, my 3 episode a week podcast, and through other resources! I also work alongside multiple partners that are experts in different sectors in the large multifamily arena. If you desire to invest passively and don’t want to take TONS of time to learn everything about multifamily, I have a few ways we can work together! Shoot me a reply to this email ;)!