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401k vs. Investing in a House

401k vs. Investing in a House. EGR 403 Team 3 James Coats – Summarizer Melanie Marin - Techie Chris Mui - Organizer. Type of project. Personal Investment Find future worth Fixed Input. Scenario. 25-year old engineer Single his entire life Beginning Salary: $52,000

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401k vs. Investing in a House

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  1. 401k vs. Investing in a House EGR 403 Team 3 James Coats – Summarizer Melanie Marin - Techie Chris Mui - Organizer

  2. Type of project • Personal Investment • Find future worth • Fixed Input

  3. Scenario • 25-year old engineer • Single his entire life • Beginning Salary: $52,000 • 4% Avg. yearly increase • Owns his current house and wants to know what is a better investment

  4. Personal Investing • Option 1: invest in a secondary house to rent out • Option 2: invest in a 401k vs

  5. Option 1: invest in a secondary house to rent out • Initial cost of house: $530,000 • Location: Phillips Ranch Pomona • Monthly rent: $1,900 • Increase at half of inflation rate • Assume 3% inflation

  6. Option 2: invest in a 401k • Money invested is equal to the amount invested in the house yearly • Down payment was split by 30 years and invested in the 401K yearly • Assume a constant 401K rate

  7. Summary • Option 2: Investing in the 401K is the better investment • 401K: $4,300,000 • House: $879,000

  8. Sensitivity Analysis • 401K balance equals the house balance $878,757.77 when 401K yearly rate is 0.003% • House balance equals the 401K balance $4,345,194.19 when the house appreciation is at 7.9%

  9. URL’s • rentals.realtor.com/rentals • eloan.com • payscale.com

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