The debate on the efficacy of REI investing over a 401(k) has raged for a long time on BiggerPockets. Thanks to a message from @Christopher Throop, I revisited the topic when he let me know a file I used during an earlier discussion wasn't working. (Link to the file below).

Well, I took the file and went a little nutty with it. And it turns out a 401(k), even with a 100% match, won't touch prudent, leveraged real estate investing over the long-term.

My assumptions:

• You can initially save $200 per month.
• You currently have nothing in savings.
• The purchase price per door is $50,000 today and you only buy SFH as soon as you have enough saved.
• Inflation causes everything to go up by 4.02% per year (average for last 30 years). This is also the "rate" you get while you are saving for your down payment.
• Mortgage requires 25% down, 20 year note, 8.47% interest (avg for last 30 years)
• Goal is $100/door cash flow to start so CAP rate is 10.2%
• S&P 500 Compounded Annual Growth Rate is 11.4% (avg for last 30 years) and you don't pay any fees.
• You get a 75% match of your savings in the 401(k)
• All rental cash flow is plowed back into the business (just like reinvesting the dividends/gains received in the 401(k)) to make this an apples-to-apples comparison.

After 10 years:

• The 401(k) would supply you with $843 of monthly income
• Rentals only give you $371 of monthly income

After 20 years:

• The 401(k) would supply you with $3,886 of monthly income
• Rentals supply you with $4,209 of monthly income

After 30 years:

• The 401(k) would supply you with $13,963 of monthly income
• Rentals supply you with $34,426 of monthly income

What's really cool is the Net Worth of the investor. A conservative estimate (because the math was too difficult in a single-tabbed, dynamic spreadsheet without doing some programming) puts the rental investor at $3.0M in equity. The 401(k) owner has $1.5M in their account.

Change up the numbers a bit in the spreadsheet to see different scenarios. Change the parameters so you start with $50K in savings, $400/m savings, buying only 4-plex or more at $40K per door. At the 20 year mark, you'll be making $27K per month with rentals versus $12K per month with the 401(k). And check out the net worth (again, very conservative for the RE investor).

Obviously, this is only a scenario. There are risks associated with REI and their are risks associated with the S&P 500. But the numbers don't lie. If you buy prudently, if you manage correctly, you can build a better income over the long-run with real estate than you can with the stock market.

Conversation? A couple of starters...

• Diversification is important and buying only rentals is probably not what you would do over your whole career
• You'll have some "pigs" (as @Ben Leybovich likes to call them) from time-to-time that won't work out. Just ask @Engelo Rumora.
• You'll probably have a lawsuit or two that will reach into your assets (just ask @Brian Burke)
• I assume you'll hold these properties into infinity. You should probably rebalance your portfolio over time, selling some to buy others, etc. Most of the time, that should end up with you owning better, more profitable property but I couldn't account for it in an easy spreadsheet.

What other issues do you see with the spreadsheet or my logic? I'm all for a healthy debate and/or you telling me I fouled up on the calculations.

Check out the file located at https://www.biggerpockets.com/files/1049/download. You can use LibreOffice or OpenOffice to open it. I couldn't save as Excel because some of the calculations are from Excel 2007 or later and LibreOffice won't save beyond Excel 2003. Look at the "Details" tab for all of the nitty-gritty math and stuff.