Why Real Estate Can Beat Your 401k | 196

MORI 196 | Real Estate


What debate do I get from so many employees? How is it possible, OR EVEN LIKELY, that real estate investing can beat your 401k, even WITH an employer match? I’m going to settle this debate once and for all! Tune in now!

Chris Miles Bio:

Chris Miles, the “Cash Flow Expert,” is a leading authority on how to quickly free up and create cashflow for thousands of his clients, entrepreneurs, and others internationally! He’s an author, speaker, and radio host that has been featured in US News, CNN Money, Bankrate, Entrepreneur on Fire, and has spoken to thousands getting them fast financial results.

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Why Real Estate Can Beat Your 401k

Thank you for reading and sharing our show. The numbers keep going up. There’s more and more of you reading. I love that I have the ability to impact people’s lives. Quick reminder, check out our website MoneyRipples.com. If you haven’t checked out our eBook, Beyond Rice & Beans: 7 Seekers to Free Up Cash Today, go get that.

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In this episode, I want to talk about something that comes up all the time and finally, I decided to spend quite a bit of time crunching numbers for you. I did a little number crunching but as a reminder, this show is about helping you, especially those of you that make great money but wonder where it’s all going or you want to be able to get your money working for you so you don’t have to keep working for money and have a life of freedom now, not waiting for 30 or 40 years for this possible retirement.

I wanted to bring this up because even with people that understand that you can create more by doing alternative investments like real estate, oil and gas or other types of funds like AHP and things like that, people still come back to you and say, “What about that 401(k) that I have at work or my friends or family have at work? You can’t beat that 100% match,” if they get the 100% match. A hundred percent match is becoming less common but let’s dig in.


I have crunched way more numbers than you probably will be able to retain in this but I want you to know the thought and look at two different people’s lives here as we compare this. I want to compare somebody who has a 401(k) getting a 100% match compared to someone who is using the same money that doesn’t get a match. Let’s maybe use real estate as an example. I’m going to go conservative on the real estate numbers and pretty aggressive on the 401(k) numbers to play devil’s advocate and put the 401(k) a little bit of an edge.

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I’m going to assume with a 401(k) that you make $100,000 a year. You put in 5% a year and get a 5% match. You make $100,000 a year so you are putting in $5,000 a year. Plus, they match a $5,000 year for a total of $10,000 a year. I’m even going to assume that after the fees of the 401(k), you are still going to earn an average of 6%. We all know that can be different because most people’s 401(k) is in the last several years. Since 2000, it has been more like 3%. That’s even with the huge upswing of the market and everything else in between. We get that 6% and a 100% match.

I want to dispel one myth right off the bat. A lot of people will think, “If I get 6% of the market plus 100% match, that’s 106% return. That’s free money. That’s a given.” You are accurate for the first little bit. That’s true. When you first start your 401(k) and get a 100% match, it’s a great return. The problem is the longer you keep it in the 401(k) and the longer you are contributing, the less the return becomes. For example, if you are putting in $5,000 a year for 5 years, at 6%, you earned almost $30,000.

Here’s the crazy thing. With the 5% match, guess what it is. It was almost $60,000. Whenever you get the match, whatever the matches, it’s double whatever you would have had. If you would have saved up to the point you would have had $100,000 on your own with the match, no matter what year it is, it would have been $200,000.

Based on compound interest and how the interest works, that’s not a 100% rate of return every year. Here’s the thing. I’ll use that example after 5 years of putting in $5,000 a year and then you get the match, you’d have almost $60,000. If you got a 106% rate of return every year for 5 years, you wouldn’t have almost $60,000. You would have over $350,000. If you got a 106% rate of return, putting in your $5,000 a year, after 30 years, you would have $25.3 trillion.

This means you would be roughly about 400 times richer than the richest man in the world in 30 years with your little $5,000 year and a $5,000 match from your company. Do you think you are going to be a trillionaire? No. Even in 20 years, you’d have $18.4 billion. It’s not even close. You do not get a 100% rate of return. The only time it’s 100%, isn’t that the first few paychecks for the first year? I want to dispel that right off the bat. That is false.

MORI 196 | Real Estate
Real Estate: When it comes to selling and leveraging the cash and creating more cash, it’s hard to beat real estate.


Let’s get that out of the way. You do not get a 100% rate of return. The longer you have it, the less the return is. With those same results, if you did that for 30 years and you earned 6% per year, you’d have about $838,000 after 30 years. That’s only a 9.6% return. That match only gave you an extra 3.5% rate of return after 30 years, not a 100%. I’m not saying that’s horrible. Even after 5 years, that’s a 30% rate of return. That’s pretty good. It’s decent.


Here’s the problem. You can’t touch your 401(k) and get to it. If even somebody else is throwing in free money for you, wonderful but you can’t touch it. What if you are a business owner? You are like, “I want to pay my match.” Cool. You get that little tax break temporarily because then you have to pay taxes later. That’s not a big deal. If you are paying your match, that’s nothing. That’s not giving you any advantage. You are throwing all your money in. You can’t touch that money until you are 59.5%. If you are working for the company, you can’t. You have to borrow from your money or quit or change jobs to get to it and then you’ll get hit with this 10% penalty in taxes. We are not going to talk about taxes.

Let’s use this assumption though. Person A has $25,000 in their 401(k) and they want to do that 5% contribution. They are contributing $5,000 per year, plus get the $5,000 match from the company. They are getting a 100% match and a 6% return on their money. After five years, what does that look like? If you are getting that company match and you start with $25,000 and throw in $5,000 of your money plus $5,000 company’s money so $10,000 a year, after 5 years, you have $93,000 in change. After 20 years, you have $470,000 and then after 30 years, $981,000.

We would assume that pretty much in the 31st year, you would finally become a millionaire with your 401(k), assuming that you get a net return of 6%, which may or may not happen. That’s with 100% contribution, which most companies aren’t doing. Some still pay 100% but some are starting to back off to 50% and things like that. We don’t know if this will change the future but let’s assume that nothing changes.

You have almost $1 million. Cashflow-wise, what does that mean? When you have $1 million, financial advisors will tell you not to pull out too much because they don’t want you to run out of money. Use the new number. If somebody is telling you that you can pull off 4% or 5%, that’s an old number. Nobody uses that anymore, even the decent financial advisors out there. I don’t even like to be considered a financial advisor. I’m the anti-financial advisor. Most of them will say 2% or 3%.

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Social Security

Let’s say it’s 3%. That means if you have $1 million, you could pull off $30,000 a year or $2,500 a month. Isn’t that impressive for being a millionaire, is it? You became a millionaire to then retire below the poverty line. This is why people are banking on Social Security. They are like, “If I pull out more, I could run out of money before I die. What if the returns in the markets in the different funds I’m in don’t return that much, especially with inflation?”

That’s the biggest reason why they do it 3% because if inflation is going up at least 4% or 5% plus a year, the real rate of inflation, not the one that government tells you, that’s going up at least 5% a year. You got to make sure you are pulling off less because eventually, you’ll have to pull off more. Your standard of living has to keep going up because things get more expensive every year. That’s your cashflow. That’s if person A. Person A would have after 30 years almost $1 million. That’s almost $30,000 a year you can live on.

Real Estate

Let’s compare that to somebody who did that in real estate. Let’s say they said, “I’m going to reject the whole idea of a 401(k). I’m going to do real estate.” They start with $25,000 like the person with the 401(k). They got $25,000. They keep it in savings instead or in their supercharged savings account using life insurance. I will be teaching a webinar on that here in the near future. With that $25,000, they put a down payment on a $125,000 property. If you buy a rental property, you have to put 20% down. For a $125,000 property, $25,000 is what you have to put down.

I’m relatively conservative for the base. I will leave on the cashflow of properties I have been saying. It’s $250 a month. We are putting an offer on a property that makes almost $100 more than that a month with about the same down payment. $250, I feel pretty confident that that’s a decent pretty general rate of return for a property. $250 a month profit cashflow, that’s cashflow and cash. That’s 12% a year or 1% a month cash on cash return. That’s $3,000 a year.

Let’s say you get that money. You got to build up money to be able to buy your next property. We are trying to get up to that $25,000. If you are putting away $5,000 as you would have done your 401(k), plus making $3,000 a year from the property, that’s $8,000 a year. That’s going to take a few years. In year one, you buy that property. In years 2 and 3, you keep building up the cash. Finally in year four, a few months in, you have enough to buy the next property.

MORI 196 | Real Estate
Real Estate: It’s ridiculous to do a 401k when you see the truth. You should be able to control your money and be able to retire early.


You put another $25,000 down on another property. That’s cashflowing $250 a month. We are cashflowing $500 a month in year four and roughly you made about $4,500 in total profit by that month. I figured out which month it was like month 4 or 5 or something like that. You made about $4,500 in cash that year extra above and beyond after you bought this property. You are cash flowing $500 a month at this point.

Year five comes along. It is when the magic starts happening. In year five, that very first property you have, you’ve been having your renters pay down your mortgage for you. Let’s say the equity has been building. Not only put it 4% of growth a year on the property. That’s a little over 20% total growth over 5 years. Sometimes you can see 20% growth in 1 year or 2 with properties. I try to keep it relatively conservative. I don’t like the bank on appreciation too much. With appreciation and everything else in paying on your mortgage and the down payment you already put into it, you can sell your property and have roughly a little over $60,000 of equity in that property.

Here’s what’s happened beneath the surface. You get this cash and cash return. That’s pretty cool. It’s decent. Getting 12% a year is nothing to be ashamed of but remember, you are getting other rates of return too. We are going to be talking about the tax breaks. There are tax benefits too. I’m considering the tax benefits are offsetting some of the cashflow you have but what’s happening is you are building equity because you are paying down your mortgage. There’s a little of return there with appreciation.

With that $100,000 property, if it appreciates 5%, that’s $5,000. If you put down $20,000 on that and then it appreciates $5,000, that means your $20,000 made a 25% rate of return because $5,000 out of 20% is 1 quarter. You didn’t just make 5%. You made 5 times that which is 25% because of that leverage. You are using bank money as well and getting the mortgage for the rest. That’s what happens in this situation. It doesn’t just go up 20%. It’s doubling your money instead. If the market goes up 20%, you doubled your down payment in equity.

After you saw your house, you pay realtor fees. Let’s say you had about $55,000 leftover. That $55,000 plus some of the cashflow you had, you’ve put $60,000 down in year 6 to buy a duplex. You have 1 single-family home that’s paying you $250 a month and then a duplex. I went conservative on this duplex. I said that you were only cashflowing $500 a month. You are at $750. You bought this duplex.

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You also had enough money as well from the money you’ve been accumulating to buy another single-family home for another $25,000. This is towards later on in year six. You have enough money to do that. You bought another one for another $250 a month. You are cashflowing about $1,000 a month and then still contribute your $5,000 a year.

You are like, “Where’s all the money come from?” Remember, we are still contributing $5,000 a year this whole time as well. We are still doing $420 a month or $416 a month plus the cashflow from the properties so we are reinvesting this money. In year seven, you are accumulating and building up cash again. You’ve got a duplex in two single-family homes.

In year eight, you are like, “We got enough for the $25,000 to buy another single-family home.” You got 4 properties, 3 single-family homes all paying $250 a piece and your duplex paying you $500. You are making $1,250 a month in year 8. You are making roughly about $15,000 a year. This is pretty good. This means that every year and a half, you could go and buy another single-family home.

In year 9, you are like, “It’s been 5 years since I bought that other single-family home from year 4. Let’s go ahead and sell that off.” You sell that off. All the total cash you have between the money you’ve been saving plus that is $75,000 so you buy a duplex and it’s cashflowing $750 a month. You have 2 duplexes and 2 single-family homes. The money started building fast.

In the tenth year, halfway to the year, you buy another single-family home. You got that going. You got five properties at this point and cashflowing pretty good. Year eleven is where it’s awesome. In year eleven, you sell off the single-family home, the other single-family home and a duplex that you bought there in year six. You sell both of those. You then go buy a fourplex with $175,000 that you put down on that. Let’s put that as $1,700 a month. If you put together all the property you have, that’s about $2,950 a month in profit. That’s $35,400 a year.

MORI 196 | Real Estate
Real Estate: There’s a life of freedom that most people never get to achieve or attain because they don’t know how to make it work. And it’s completely possible.


Understand this. Remember, we talked about after 30 years of 401(k) that you might be able to live off of and this is before you pay taxes, even count that you live off of less than $30,000 a year. Here, you are living off of over 3$5,000 a year that you have in cashflow by year 11. That’s pretty awesome. You are already beating your $30,000 on the 401(k).

In year 11, on that same 401(k) with the same variables, you have about $206,000 saved up. If you could retire with that 401(k) living on 3%, you are living on a whopping $6,000 a year. What would you rather have after 11 years, $6,000 a year that you can live on or $35,000 a year? It accelerates from there. That’s the beautiful power of this and where it gets awesome.

I didn’t even want to project out for 30 years because it gets ridiculous and crazy what you could create. Why do I like real estate better than even a 401(k) with a 100% match? It’s because you can do way better. You can shorten those timeframes way better and that’s with $25,000. I talked about one of my other clients who in about that 10 to 11-year span who had $100,000 to start with could do that too.

Variables can come into play. Life can get in the way. Things can come up but that can happen with your 401(k) too. Anything could happen there. Something could happen with the real estate where it doesn’t return as well as you thought. Maybe that $250 ends up being $150 a month because something comes up but on the flip side, what if it’s $350 a month like the property we are buying? There are so many things that can happen, good or bad. You might be able to save way more than $5,000 a year. Remember, we are talking about saving $5,000 a year. That’s not too hard for a lot of you. Many of you who are my clients are trying to save more than that. You want to accelerate it more.

In those first four years or so, it’s slow going but so is the 401(k). A lot of times people are like, “401(k) did this. I’m getting the match. I’m making money.” With real estate, there are so many returns happening outside of what you normally see that it’s hard to see it but when it comes to selling, leveraging the cash and creating more cash with it, it’s hard to beat it. That’s why you are seeing 30% or 40% possible returns like when you average and it comes down to it, especially when you sell the property and buy more properties. That’s the key.

Freedom Now

You stopped doing your 401(k) and people at work say, “Why are you stopping your 401(k)?” Tell them, “Here’s why. Listen to what Chris says because it’s ridiculous to do a 401(k) when you see the truth.” I’m not against 401(k)’s 100% but the thing is I am against not having control of my money, not making money and not being able to retire early. If I want to retire after 60, 401(k) might be fine but if I want to create a life of freedom now, I’m going to do something that can give me the cashflow now.

If you are in a situation where you are like, “I want this possibility in my life,” if you are wanting to know how you can do it for yourself and you think maybe you are this person that I’m talking about or even got greater potential than the person I use as an example, then reach out to me. Shoot me an email at Chris@MoneyRipples.com and say, “How can I do this in my life? How can I make this work?” Let’s see what’s possible. I’m telling you, life is possible. There’s a life of freedom that most people never get to achieve or attain because they don’t know how to make it work. It’s possible. I’m living proof of it and you can be too. Make a great prosperous time. We’ll see you later.


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