Can I Get A Better Return in Real Estate Investing or 401(k)?
Table of Contents
While investing in retirement plans can have its benefits, it can potentially push out your retirement, mainly because you have to wait a specific age before you can reap its benefits. This is why some investors believe that it is more beneficial to invest in securities that have tax advantages, such as real estate investments.
Real estate investing and 401(k) investing are often compared because both are forms of long-term investment that can provide a stable source of income and appreciate in value over time.
Just like a 401(k) retirement account, real estate can be a powerful tool for building wealth over the long term. Both investments require patience and a commitment to long-term growth, as well as an understanding of the risks and potential rewards involved.
Another similarity is that both forms of investment offer various tax advantages. In some cases, rental income from real estate can be tax-free, while the contributions made to a 401(k) are tax-deductible.
It is important to understand the differences between real estate investing and 401(k) plans so that you can make the right decision for your long-term financial goals.
What is a 401(k) Plan?
A 401(k) plan is a type of retirement savings plan that allows employees to contribute a portion of their pre-tax income to a tax-deferred investment account. The funds in the account are then invested in a variety of assets such as stocks, bonds, and mutual funds, with the goal of growing the account balance over time. 
401(k) plans are offered by employers to their employees as a benefit and often include a matching contribution from the employer. The contributions and earnings in the account are not taxed until they are withdrawn, typically at retirement age. However, there are penalties for withdrawing funds before the age of 59 and a half.
According to the US Internal Revenue Service: “distributions, including earnings, are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).”
On the other hand, elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals).
401(k) plans offer a convenient and tax-advantaged way for individuals to save for retirement, with the potential for long-term growth through investment returns. It is important for individuals to carefully consider their investment options and contribution levels to maximize the benefits of their 401(k) plan.
With 401(k) plans, contributions are automatically withdrawn from employee paychecks and then invested in funds of the employee’s choosing. The employee can select from a list of available offerings. These accounts have an annual contribution limit of $22,500 in 2023. For those who are age 50 or older, the contribution limit is $30,000. 
One of the biggest benefits of a 401(k) is that it automates your retirement savings. Unfortunately, the investment choices in 401(k) plans are somewhat limited. In fact, not all employers even offer a 401(k) plan.
Because of this, some employees who are interested in investing may look into other investment opportunities, such as the real estate market.
What is Real Estate Investing?
Real estate investing involves the purchase, ownership, management, rental, or sale of real estate for the purpose of generating a profit rather than for use as a primary residence. Real estate refers to any land, building, infrastructure and other tangible property which is usually immovable but transferable. 
Real estate can refer to various types of properties, including residential properties (such as single-family homes, apartments, townhouses, and other rental real estate), commercial properties (such as office buildings, shopping centers, and warehouses), and industrial properties (such as factories and manufacturing plants). 
Real estate investing can take several forms, such as buying and holding properties for rental income, flipping properties for a quick profit, or investing in real estate investment trusts (REITs) or real estate mutual funds.
Real estate investing can be a lucrative way to build wealth, but it also comes with risks and challenges. Successful real estate investors need to have knowledge of the market, financial analysis skills, and a solid understanding of the legal and regulatory environment surrounding real estate transactions.
Can I Get A Better Return with Real Estate Investments or 401(k)?
Just like most retirement accounts, you have to wait until you reach the age of 59 ½ to enjoy the benefits of a 401(k). This limits your access to the money, which can be a problem if you are thinking about retiring early. 
On the other hand, owning real estate can help accelerate your retirement by helping you achieve financial freedom. As you invest in rental properties, you may begin to focus on creating an investment plan that will bring you more passive income. A 401(k) may not be able to help you reach that goal.
Another disadvantage of a 401(k) plan is that it is limited in terms of what you can invest in. Because of this limitation, you may not be able to hit the returns that real estate investments are known for. 
With that in mind, a lot of investors invest in their 401(k) along with their other investments. With lower returns, your progress towards financial freedom will be even slower.
As for tax advantages, 401(k) and real estate investing also have their differences. With a 401(k) plan, the contributions made to your retirement accounts are tax-deferred, which means that the money is deducted from your taxable income.
This influences the way you pay taxes because it reduces your current tax bill and allows your contributions to grow tax-deferred until you withdraw the funds during retirement.
On the other hand, real estate investors can take advantage of depreciation, which is a tax deduction that allows investors to deduct a portion of the cost of their investment property each year.
They also benefit from capital gains tax. When you sell a property for more than you paid for it, you will be subject to capital gains tax. However, if you hold the property for more than a year, the tax rate is typically lower than the rate for short-term gains.
Finally, real estate investors can also take advantage of a 1031 exchange. This allows them to defer paying capital gains tax on the sale of a property if they reinvest the proceeds into a similar property within a certain timeframe.
Overall, both 401(k) plans and real estate investing offer tax benefits, but they are different in nature.
Based on your adjusted gross income, you may be able to take advantage of certain tax benefits from both a 401(k) plan and a real estate investment.
Real estate investors should take note that this investment strategy comes with a potentially higher return on investment, however, it also comes with higher risk and requires more active management. Rental real estate can generate cash flow through rental income and can appreciate in value over time, but they also require a significant upfront investment, have ongoing expenses, and can be affected by factors such as changes in interest rates, local real estate markets, and economic conditions. 
On the other hand, a 401(k) is a retirement savings account that offers a more passive investment approach.
At the end of the day, the best investment strategy depends on an individual’s financial goals and circumstances.
Best Way to Invest in Rental Property: Multifamily Real Estate Syndication
The good news for accredited investors is that there is a way to enjoy the cash flow of real estate and the passive approach of a 401(k) plan.
The best way to invest in real estate if you are an accredited investor is through multifamily syndication. This is an investment strategy that involves pooling your resources together with other investors.
A syndicator, also known as the general partner, puts the deal together and locates passive investors who will act as limited partners and provide most of the capital needed to purchase the real estate property. Multifamily syndication deals are usually structured as a limited liability company (LLC) or a limited partnership (LP). 
All syndication deals are different. The investors usually share in the profits and losses of the investment and, depending on the deal structure, a share of the capital appreciation upon resale.
Although this type of deal can be done with any type of real estate, multifamily syndication is the most popular among investors given the advantages that come with this property type. Multifamily real estate investments are large properties with multiple units such as apartment complexes and condominiums. Therefore they can produce a strong and reliable cash flow through monthly rent. In fact, multifamily syndication has the potential for higher returns than traditional investments like stocks and bonds. 
Multifamily properties are also expensive, so they are usually difficult to obtain for a lone investor. This makes multifamily syndication a good solution. With a syndication deal, investors can participate without having to spend as much money than they otherwise would if they were to take on this investment alone.
In addition to these benefits, real estate syndicators also take on the responsibility of property management. This means investors do not have to play the role of landlord or take on any additional responsibilities. If you were to purchase an apartment building, you would have to collect rent, handle tenant emergencies, manage repairs and renovations, etc. This can be a huge responsibility especially for someone with no experience.
Multifamily syndication is a truly passive investment and a reliable source of income. It is worth noting that these deals are usually exclusive to accredited investors.
Accredited investors should work with BAM Capital to enjoy all the benefits of multifamily syndication without the hassle of managing an entire apartment complex.
Work with BAM Capital for Multifamily Syndication
A 401(k) can be a decent investment if you are looking to retire at 60. But if you want to reach your financial freedom earlier than that, you have to make some wise investment decisions. That includes working with a reliable multifamily syndicator like BAM Capital.
BAM Capital is an Indianapolis-based real estate syndicator that has a strong Midwest focus. Prioritizing real estate properties that are Class A, A-, and B++, BAM Capital can create forced appreciation while mitigating investor risk. It also helps its investors grow their wealth using its award-winning investment strategy that focuses on the best multifamily real estate properties with in-place cash flow and proven upside potential. 
BAM Capital can guide you every step of the way. This syndicator is vertically integrated, which means they can handle each step of the syndication deal from construction to management. BAM Capital understands every aspect of putting a real estate syndication deal together. They will negotiate the purchasing of high quality multifamily real estate, and they will also handle property management. 
If you are an accredited investor looking for a good source of passive income in real estate, work with BAM Capital. They have a consistent track record that investors love. In fact, they now have over $700 million AUM and 5,000+ units. BAM Capital is still one of the most reliable syndicators out there.
No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.
For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, look no further than BAM Capital. Schedule a call with BAM Capital and invest today.
BAM Multifamily Growth & Income Fund IV
The BAM Multifamily Growth & Income Fund IV, a private real estate fund, seeks to balance cash flow stability, capital preservation, and long-term capital appreciation while providing superior risk-adjusted returns to investors.
Benefits of Multifamily Investing:
- INFLATION HEDGE: ability to raise rents on short-term leases to mitigate rising costs
- TANGIBLE ASSETS WITH CASH FLOW STABILITY: a consistent income stream that is not impacted by the ups and downs of the stock market
- ACCELERATED TAX BENEFITS: performing a cost segregation analysis and accelerating the allowable depreciation can lead to major tax savings
- SUPPLY & DEMAND IMBALANCE: there is not enough housing supply in most US markets to keep up with the demand
- CAPITAL PRESERVATION & APPRECIATION: typically low-risk investments that should produce optimal risk-adjusted returns
The above link will take you to the free Investor Portal to view all current offerings. If you do not have an account already, please create one to view the information.