I’ve decided to stop investing in my company’s 401k plan. Since I started working full time in 2009, I’ve been putting in the maximum every year. It was supposedly the “smart” thing to do. My portfolio is now up about 12%, and I’ve been getting free money every year. Sounds like a really good deal, right?
So Close to the End Game!
By no means am I trying to knock the 401k, I just now believe that I know how to better invest the money. That is, I’d rather invest these bi-weekly 401k deductions into another vehicle. And as you might have guessed it, that vehicle is real estate.
I’m about to close on my third property in the last year, but I’m not satisfied. 😉 All along my goal has been to achieve early financial independence as EARLY as possible. After running the numbers for Rental Property #3, I can see just how close I really am to making this a reality. Truth is, if all goes to plan, I could probably retire next year with a minimum of $1500/month in passive income. The most optimistic outlook would project over $4000/month in passive income.
Why Real Estate Works
Granted, there’s a few unknowns and variables that may alter my returns (everything has to go to plan), but even with my conservative estimates, the numbers just simply work. Real estate works… and I can see that on a month to month basis. Let me tell you, there’s absolutely nothing I look forward to more than the 1st of the month. I used to dread it because it meant I had to pay rent. These days, I have two additional paychecks coming in, and soon to be three. I’m not going to lie, this has a huge psychological impact on your mind. Real estate has got to be the simplest thing in the world to grasp… and yet that’s where the returns are. Even in this appreciating market. As is often discussed, real estate combines 4 pillars which make investing in it a total no brainer:
- Monthly cash flow (just like your W-2 paycheck without the 40+ hour/week requirement.)
- Tax breaks + Depreciation (tax benefits help a lot come tax season.)
- Principal paydown (someone else is paying off your mortgage!)
- Appreciation (more speculative, but I’m seeing first hand how powerful this can be in a rising market.)
Not to mention being able to use other people’s money to make you rich. Leveraging is perhaps the greatest tool a real estate investor can use to build wealth. Especially in today’s low interest rate environment. This is another reason why I am so eager to max out my loans. I want to lock in these low rates!
Would I recommend someone else stop their 401k contributions? That’s difficult to answer, because it all depends on your own goals, timeframe, and comfort level with taking risks. For me, it makes sense because:
- I would rather invest funds into something that can benefit me now. Why wait until traditional retirement to access funds? Real estate will pay me NOW and TOMORROW!
- I’m not afraid of leverage and will go $1 million in debt if I have to. If I can earn 10% on that, well guess what? I’ll have $100k/year and be able to live a very, very comfortable life. The more the banks will offer me, the more I’m taking.
- I have $140k in my retirement accounts. To me, this is a sufficient base to allow compounding to work its magic over the next few decades.
- I want to be aggressive. I want to buy another property in the next 6-8 months.
- I would like to have additional funds to invest in Tesla Motors (TSLA). This is a speculative play, but one that could pay off huge returns over the long run. I’m sold and fully convinced Tesla is here to stay. Buy on the dips, and dollar cost average. I’m sufficiently allocated and “stable” in my other investments where I am comfortable taking this risk.