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Originally Posted by Halfcan
So he puts his $50 in a 401k great if that helps him save. But if that same person is paying $700 a month in rent-what is the point? When you figure in inflation and fees-a majority of 401 ks will not outperform RE.
There is something called leverage-you use other peoples money to secure a property, not only do you get a tax break on the interest, you benefit with appreciation. Instead of rent you are paying down a mortgage that will someday be paid off leaving an asset that will continue to increase.
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Why does it have to be either-or? People dont save enough even counting the mortgage, and putting all your money into a home, spending the rest is not very well diversified and could leave you short in retirement. The capital gains exemption is awesome when you sell for a gain, but what happens if your now living in the next Florida when you need to get money out of the house and your value is stagnating or decreasing? It would be nice to have a huge IRA to supplement your income.
Given that most 401k's have options with microscopic fees, the market has historically returned as well or better than real estate. *Recently* that has not been the case obviously, but the real estate market is cooling down now and will likely enter a period of slow appreciation.