Another option is to partner alongside your 401k to invest in real estate, but certain rules mus be followed, such as the following.

We did have a bit of a hiccup first couple of months after signing where the tenant refused to pay rent.

If, by chance,  the tenant decides to you this hiccup in a court of law, the tenant will prevail in Chicago.

If a little water hiccup scares you dont buy a distressed property.

Chris, while you're right that with another tenant you won't really know for sure what you're getting until they're in, I would argue that the same is true in option 2, with your MIL staying and renting alongside 2 new strangers.

Construction costs are through the roof right now, you need special financing for new construction that can be difficult and expensive, and your taking on a certain amount of risk of delays and bureaucratic hiccups. 

The problem is that relatively small hiccups in the price of a million dollar home can kill you.

We learned so much and having the security of the loan helped some hiccups along the way not turn into disasters.

The dumpster was placed on the side of the property that is alongside an alleyway.

I know there are deals out there, but I've not taken the time to find them as the deals in Michigan are jumping out and hitting me along side the head!