It's worth pointing out that OP originally mentioned investing in 401(k) which would mean interest, dividends and capital gains are deferred until the money is withdrawn (usually after 59.5) And then, any withdrawal is taxed at ordinary income.

Although no single factor is determinative, the combination of several factors supporting a particular result is sufficient for a court to decide whether a taxpayer held property for sale to customers in the ordinary course of a trade or business.

So the tax would be at ordinary income rate.  

This will be taxed as your ordinary rate and be subject to self-employment tax. 

@Ty GlendenningWhy would you sell a house on owner financing if somebody would pay cash for it.While a lot of people think, seller financing is a great idea, the risk involved to collect the payments that then get taxed ordinary income are equivalent to investing it currently in a treasury bill, which has zero risk.

Are they the same from a Tax perspective, Ordinary income versus long-term capital gain rates?

Lesson learned - It makes much more sense to design something unique that you would love instead of something mundane and ordinary.

Treated as ordinary loss another great perk of real estate  ....

You do not, however, appear to want to wait for ordinary market appreciation.You are left with buying properties under market price.

Just a few comments - if he withdraws or takes the distribution from the 401k it is taxable as ordinary income and not sure what impact that would have on his tax situation.