401k vs Real Estate – What Does Mark Cuban Say?


Mark Cuban says that the 401k is a
no-brainer and I want to challenge that a little bit. I want to
scrutinize that, look at the pros and cons of that here on Limitless TV. Alright, everybody. We’re back here
talking about 401ks and you know, we’re talking about it because it’s the only
real retirement plan that Americans are really taught. Sure your tax advisor will
mention IRA this or hey, someone will tell you should invest in the stock
market but at the end of the day, we’re really told, go get a job after you get
your degree and put your money into a 401k and recently, Mark Cuban, a man that
I admire, I love watching him on Shark Tank, this is what he said though that
was kind of surprising, he was comparing the 401k to savings accounts and he said,
“If you have a 401k match and you’re not forcing yourself to put in as much as
possible, you’re an idiot.” Now those are really
strong words and I got to tell you right now that on one hand, I totally agree
with Mark, on another hand I completely disagree. If you’re comparing Americans
who just as a whole are not really good at saving then yeah, I agree with Mark.
Putting money in a 401k is a really smart choice. Why? Because if we’re not
putting in money in a 401k, we’re likely also not saving our money and as a
result, what does that mean? It would be better to put money in a 401k than
nothing. Why? Because hopefully you’re averaging a few percent on your money
probably doing better than you are on your bank but what I want to also talk
about today is where I disagree with mark because the reality is, if you’re
putting money in a 401k, it means that you really don’t have a retirement plan.
Let me break it down for you. I want to talk about the difference
between projected returns and actual returns. I’m going to debunk right now the
number one flaw in 401k thinking that you don’t get told because everyone’s
going to say for example, oh, hey let’s talk about your projected return and
then we’re going to compare it versus your actual return and out there, let’s just
say, you know, we all have been through the ups and downs or your parents were,
where they were losing a 50% of their money in that in their 401k’s all in one
swoop, in one moment and then it took years to build it back up. Right now 401k’s
are actually on the higher end of the cycle and what a lot of people
don’t realize is, we’re still just catching up from our losses from yours
earlier but this is what we’re told, hey let’s put money in a 401k and let me
just kind of give you a feel for the way that the numbers get misrepresented. If I
have a thousand dollars in my 401k and then all of a sudden that
next year, I double my money, now this doesn’t really happen but let’s just say
I make a hundred percent return, look at the percentages in the math. If I make a
hundred percent return then that $1,000 turned into what? It
turned into $2,000 and by the way, if you doubled your money in
anything, you probably be pretty happy but guess what happens the year next
year? The market really takes a dump and it goes down 50% which what’s 50%
$2,000? Well, that’s $1,000. Now hold the phone, I started with a
thousand and now I’m back at a thousand but guess what they’re going to say I
return if you want to take a 100% up and 50% down, they’re
going to say that you are averaging 50% on your 401k between the two
years. Now look at that for a minute, remove for a moment the fact that
someone’s earning fees whether you make or lose money and someone else is
charging you for managing your money in this manner. Look at the fact that
they’re claiming a 50% return on your money when the reality is,
you’re at the same dollar that you started with but they’re claiming it as
a 50% return, these numbers get grossly misrepresented on a regular
basis and so what ends up happening is, hey, I had a great year in the stock
market last year, I had a great year in my 401k’s, I made 20% and I’m thinking,
great. What does that really mean? What is that 20% and what does it mean when you
actually take into account your losses and when you average that out? If you do
the real math, if you do the actual math, this isn’t 50%,
it’s you’ve made money and you’ve lost money and there are no gains, you’re not
up but someone else did get rich or someone else did make money. So Mark
Cuban, this idea of if you have a 401k match, if it’s your only savings plan or
for those of you that like Dave Ramsey out there, yes, have some type of savings
plan and if you don’t have a plan then a 401k is a really great default. For
those you however that have been watching my channel for a while and
you’re saying, okay, Kris. Well I know that you’re into this thing called real
estate, let’s just do a real quick 401k analysis and compare it to what would
happen if we put it into something like real.
First of all, the 401k sustainably tied to the market, you have no control over
it. So I’ve got a really big problem at the
end of the day with this idea that on the 401k map, I don’t have control but
over my real estate, I also don’t have total control but I have a lot of
control so let’s just talk about 401k’s for a moment and let’s compare it to the
beautiful world of real estate. Just closed on a couple of properties, made a
nice little grundle of money and I want to just talk for a moment about the
differences. So I’ve never put money in a 401k. When I first got married, my wife, I
think had up to I think $1,000 in a 401k and as soon as we could take it out once
we started seeing what the real estate was doing, we did. It already right now
seem to me like, well Kris, you don’t diversify. No, diversification is for
people that don’t know what they’re doing. I will not put some money in the
IRA, the stock market or the 401k, right. I’m pretty biased because I found a
strategy that works for me and the reality is, I do not have any friends
that put money in a 401k and become wealthy, none. So why put your money in
anything that’s guaranteed not to work? With a 401k, you have no control with a
real, with real estate, you have some control. I may not be able to control
what the market does when it goes up and down but I do own this asset and I can
choose the strategy of what I’m doing with it so if you’ve watched some of my
videos on short-term buy and holds on single-family homes,
I’ll take you into the very best markets around the nation where you can be
earning 15%, 20% plus, those are really aggressive returns. You do that
for ten years and compound it and grow that, you can build a nice little fortune,
a nice little retirement income for yourself. So for some of you, if you really explode
it, you can build a fantastic level of financial freedom with that model. So
I’ve got no control here, I have some control over here. The next thing is, I
want to talk about speculation. My 401k, it pays me no cashflow. Now this is a
violation of one of my investment rules, if I put money into it, it should pay me
and I’m not talking about just some day, I wanted to pay me now. There’s no cash
flow that comes in on my 401k, there are some exceptions to this rule because I
will take money and invest it in business and some
businesses don’t immediately pay cash flow but ultimately you’re going to see me
always investing in either real estate or business because those are the two
things with ROI’s big enough to give you a chance for retirement so while I
don’t get a cash flow over here, guess what real estate does. Real estate pays
me and in most cases, it pays me monthly. Now that’s really important to me
because if I’m actually getting paid then I’m getting freedom dollars coming
into my bank account on a monthly basis. This is a really big deal for you
because you buy a property and you have a $300 month cash flow, that’s not life
changing but $300 might cover your car payment so you do three four
more deals and now the sudden, guess what. Your mortgage is taken care of, your
biggest expense for the average person when you’re making $1,000 a month cash
flow or $2,000 a month cash flow in real estate, you can’t retire but you know
what? That’s now socking away one to two thousand dollars a month that you can
snowball into your next deal and fast forward several years and guess what
that snowball turns into, bigger and bigger and bigger and bigger and bigger.
Cash flow is a big part of what makes that happen and real estate is a
business, it also means that when it has its downs, it’ll pay for itself with that
cash flow. When a 401k has downs, you may never recover from it or you’ll have to
be dedicated for years to step into any kind of recovery. The next thing is that
401k for me, it has no equity which means it can grow with time and it can expand
and it can become more but real estate, I can purchase it with equity, that’s like
saying I could buy a stock for $1 but now on this side of the fence, I have the
ability to buy that stock for a 20% discount or for 80% of its value and I
think about that for just a minute, that equity that you walk into creates what I
call a margin of safety so if the market tanks with a 401k, even one dollar, you’re
out. With real estate, if it goes down a dollar, you’re not out, you actually have
some built in protection and so that’s another big difference of why I love
real estate compared to a 401k model. There’s another thing that I love about
real estate, is that I have the ability to multiply my assets, it’s just not
applicable here on the 401k side of the offense. What I
mean by this is as my real estate portfolio grows, I can make my real
estate make babies and I’m going to stud out my real estate and I’m
going to remove some of the equity or I’m going to sell off a property and I’m going to
put it into additional property so that it can expand and so that it can grow
and so that it can become more. Friends, these are just some of the reasons why
at the end of the day Mark Cuban’s says 401k, you’d be an idiot not to
participate and I would say if that’s your only strategy for getting where you
want to go in life but if you’ve been subscribing to my channel which you have
done correct, subscribe, ring the bell. If you’re subscriber and you’ve been
watching some of these videos, I hope that I’m waking you up to a call to go
back to our original roots, the family farm, the United States Constitution
where we were taking care of when we have real estate, it’s written to benefit
the individuals that do. Get back to that model because it wasn’t broken, it does
work, I don’t know how to do it with a get-rich-quick sustainable model but I
will tell you that if you’ll be in it for a 10-year period of time, you can
create a great deal of freedom in your life with it so at the end of the day,
friends, weigh these out and no, I would not have both in your life. I would pull
out of your 401k, I would go into real estate because I believe that it’s going
to give you so much more than your 401k everyone and that’s putting your
financial freedom and your financial future into your hands. This is a pretty
polarizing opinion and some of you might agree with you, some of you don’t, you
know what though? Go ahead and comment below, share your thoughts, share your
ideas and share your point of view and then make sure you subscribe and ring
the bell and we’ll see on one of our next videos.

59 thoughts on “401k vs Real Estate – What Does Mark Cuban Say?

  • Mark has said a number of things that go against what he does, so look at his actions vs his words when it comes to mark.

    Great video, I had my TSP while in the military then when I got out I stared a 401k, it's pretty terrible you get hit with many fees. If you get that match it's good to have to build up until you can use as a down payment as there are no penalties for using against first home.

  • dear limitless i am a 16 year old male who has $10k When I turn 21 i am looking at where I should start to invest in reality, how to invest it and how to capitalize please help

  • I believe the topic is most people have no clue about real estate. So they rely on a more simple "safety net" like 401k & roth IRA which can make people very wealthy when its time to retire. Pensions are a myth & Social Security will probably be gone when I retire. For 100 years when the markets take a dive it always come back up. Its during this dive is when the smart people make the right moves to protect their assets. Im sorry man, I am not as wealthy as you so its really hard for me to turn down my companies 6% match & my vanguard IRA is doing amazing

  • Hey chris!!need some quick advice so i got a 4% mortgage with down payment assistance thats at 1.5% smh.. got my home for $225,000 and as of now its worth around $260,000.should i just sell it?i owe $195,000

  • That's something about Mark. I often find myself disagreeing on a lot of his standpoints. Good work Limitless TV!
    Edit: Glad to see Kris enjoys Shark Tank! I've always wondered how spectacular it would be to have HIM as one of the Sharks for an episode!

  • Realestate and a 401k are both idiotic… Stock market investing is the way! No crappy tenants, your AC never goes out… I'm jk, I know real estate has made you millions. I agree 401k's are for the average joe's that don't know how to make more money from their money.

  • Appreciate the argument but this is apples to oranges. If I am putting in considerable time and effort into real estate, I BETTER be expecting a much higher return vs a 401k investment where literally no effort is put in. Active vs passive.

    You must take into account the positive effect of dollar cost averaging on stock returns. Market crashes lower the price of entry.

    In terms of cashflow, don’t stock dividends count?

    My argument is not that the stock market necessarily yields greater riches, but that it is a solid tool for those who wish to invest with zero effort and little knowledge.
    Cheers

  • Yes but a 401k can be started with no money upfront, then just put in a little bit constantly. How do you invest in real estate with a small amount of money to start?

  • I can't believe I wasted 10 minutes of my life on a guy who can't read, and/or doesn't understand what "match" means.

  • But if it’s a “match” then if I put $100 and the company puts $100. That’s 100% plus whatever you make in terms of a return. You should DEFINITELY invest at least what your company will match. Perhaps not any more but at least that much.
    Real estate is also great.

  • YOUR NOT GOING TO LIVE FOREVER! Remember that when you're investing. You need cash flow in your life, it's the reason we all go to work. Rental properties produce cash flow. 401K's don't. Plus the value of your dollar goes down, not up. So that $250K in not going to be worth as much in 40 years as it is now.

  • I agree with the majority of what Kris is saying, but he doesn’t mention ANYTHING about 401k matching. At my employer, if I contribute 6%, they’ll match an additional 9%, for a total of 15%. In this day and age, that’s unheard of with most employers. On this one, I have to agree with Mark on. You’d be an idiot not to take advantage of free money.

    Now, to Kris’ credit — I’m not going to sink any additional money into my 401k above the matching. I think it’s much better to place your money into my fluid assets. I think real estate is great, and extra income should absolutely be placed here.

    But to say they’re stupid, I disagree. The truth is, most people are not going to make it big on real estate. We may have some wins, we may have some losses, but in the end, I’d like to have just one more safety net for me and my family if things go south.

  • Kris thank you for all the great content and your awesome energy. Please know I love what you do and I mean no disrespect with this comment. Not everyone has a Father In-law to help them get started. I used a 401K when I was younger. Company match wherever I worked was 100% on the first 6% of my income. All of my friends had the same match wherever they worked as well. Since they were doubling my money everytime I contributed it grew quickly. I self managed my account and made sure I was always in good investments. When I reached enough to purchase my first property I cashed it all in. 1/2 at the end of December and the other half at the first of Jan. as to not get hit with the higher tax rate. I showed some of the income in one year and some in the next by doing this. I paid the 10% penalty for cashing in early and purchased my first property at a discount. I made back the 10% and much more after I fixed up the yard and painted. I repeated that same process two more times. If your employer offers this and you have to work until you can build the money then this is a great way to do this. The 401K was a great tool to grow some money quickly. P.S. Love the Greg Olsen print above the fireplace.

  • what a butch of crap this is! my employers match $ per $ up to 6%. i contribute 20% every payday. fees are low as hell. i can borrow from 401k, i can change my investments, i can add, & subtract my contributions. compound interest after compound interest. its grows year after year. and yes, you have total control of 401k. on real estate, its expensive to own, its not liquid, property taxes, closing cost, 6% realtor commissions, many other bullshit fees. 401k wins!

  • I agree with you that real estate is a better investment on average than a 401K, But saying stuff like, "Why put your money in something that's guaranteed not to work." when referring to 401Ks that have made enormous amounts of people able to retire, is reckless and unproductive.

  • How about Index Universal Life Insurance? Upside growth potential with downside protection>? tide up to and index. Or Index Annuities?

  • I just found your channel and I'm loving it I'm trying to learn as much as I can I'm in my early 20's and I don't want to work some one else I want to enjoy life and not be tied down for a 9 to 5

  • i have rental property's and a 401k the olny reason i took the 401k is for the match i do not trust the stock market or investment firms with my money i like having something tangible but could not pass up the match will cash out when i leave though or have a bad year and can lessen the tax burden of a cash out.

  • Sorry these are bogus numbers with wild misrepresentations. What about pre tax vs. post tax income? Most companies match contributions up to a certain percentage (3-4% on average). The stock market is probably due for a pullback soon but has had the best performance in history over the past ten years. I'm not saying pour all your money into a 401k and ignore real estate but having a balanced portfolio is a much better idea than throwing all your eggs into one basket. Telling people to ignore this financial tool is like throwing away free money. I understand these are promotional videos but don't discredit the trust your trying to build by using misleading information. In general though the education behind these videos is very helpful.

  • why can't you do both? my company matches 5-6% stupid not to take that free money.
    i still maximize 401ks it's only 15000 dollars a year lol. that's not that much money. im just putting aside some for the future. I still invest in real properties too.
    these real estate professionals really hate 401ks.

  • only idiots use this kind of return. actual compound returns have averaged 8-10% if you reinvest dividends

  • This guy sounds like SUCH a con-man!

    Yes, the US stock market seems like it's going to go down 40-50% in the next few years. But…over the past century or so it has risen an average of 7-8% a year. To me, this seems like a PRETTY DAMNED GOOD return on a very low-maintenance investment.

  • Chris is right on this.  401k is a good deal for the government and taxes.  They have been around now for a while and we can see how they work.  There are four stages to a 401k.  Saving stage (when you and your employer match, puts it in), the accumulation stage, (where it grows over time) When you use it and take it out to retire on and if you don't use it all the pass it on to the next generation stage.  All of your financial planners want to talk about the first two stages and not the last two.  Because it sounds so exciting.  But you lock up that money until you are 59 and 1/2, yours and your employers match.  What people forget is this is pretaxed money.  It looks like it is growing so good, but just ask yourself 40 years ago where taxes more or less percentage wise of income?  Far less, not only has the tax rate gone up but now when you want to use it, because of inflation, you are in a higher tax bracket.  The actual dollars you take out for taxes is far higher, all your deduction are gone because the kids are raised, the house is paid off and the kicker is the Mandatory Distribution at 70 and 1/2, when you have to start taking it out.  Not as you want or need to but at a rate the force you to take it.  So you have all of this money coming in from pension plans, SS, maybe a little work on the side or like so many who have not retired yet even by then and a big chunk of money comes at you to add to your over all income and the higher tax bracket you are in just got higher, with a lump sum of money.  You are probably now in a 50% tax bracket, there goes the employer match.  Or lets say you need it before you turn 59 1/2 or you will not be able to pay for some big expense, maybe loose the house.  What are the consequences?  Most people are working and in a 35% tax bracket and the tax becomes due, with a 10% penalty, plus the lump sum that year could raise your tax bracket.  Again their goes the employer match as almost 50% goes out if you need it.  Maybe like Nancy Pelosi said " if you can afford to put money in a 401k, you make too much money and it is like found money, when you take it we should tax it at a higher rate, like 80%"  You see when you defer the tax on something they can change the rules on you any time they want, the government really doesn't see that money as your money until it is taxed.  Or when the market goes bad the 401k becomes a 201k because it is half the value.  Well if you are 70 and need it to retire on what do you do?  you can't wait for it to come back or the Mandatory Distribution is triggered, you won't have a chance for it to come back, or maybe you won't retire until you are 90 years old because now you can't afford it.  That control he is talking about is huge.  But the financial planners don't tell you about that.  Or the last stage lets say you want to pass it on to your children.  Then it really gets ugly, first it has to come out from under the 401k umbrella all at once in the same year and the tax has to be paid, that is a rate at 50%, but you still can't pass it on to the kids, no now their is an inheritance tax that has to be paid first at, you guessed it 50%.  What is left can be divided for the kids.  We now have seen people trying to use those dollars and the word is out, it never was a pension program it was at best a supplemental insurance program at best, and does not work like they said it would.  they even try to say that you will be making less in retirement so your tax bracket will be less, not true because of inflation and because medical costs have gone up so much and those costs eventually catch up to everyone.  Real estate is so much better, it is real and not just numbers on a paper.  A tangible asset.

  • About 90% of Money managers can't beat the S&P 500.  So if I invest in an ETF called SPY because it mirrors the S&P 500 I should be able to beat 90% of the managers.  I will never out perform or underperform the market.

  • When it comes to control of my investments  There are many things I don't control, but a few I certainly do.  I control what I buy, how much, where to set my stop loss, I control when I buy/sell.  I control what sector to buy and I can always go to cash if I'm not sure.

  • I understood that Real estate reach to our maximum profit than 401k pLan however in 401K Plan we do not need more money, i real estate we need more money for investment.

  • have only one word for this – rubbish! my 401k grew 26% just last year. Historically Real Estate has performed very poorly compared to equities, that is fact! Real Estate also drops 50%, I guess you were dozing off in 2008?

  • Folks, Nothing comes free. Real Estate rental requires your ongoing effort from you. 401k stock market requires much less ongoing efforts from you compare to real estate ongoing headache. I am having both 401k and real Estate rental. I am a happy investor.

  • i did the math. YOUR RIGHT
    401k match–> $10 @ 8% for 45 years is $320.

    real estate –> $5 @13% for 45 years is over $1,200

    wow… crazy… thats amazing

  • To everyone saying, "why not just do both?" The answer is.. Why would you do two things when one thing is better, and do the better thing twice as much.

  • Property taxes, insurance, and repair can destroy your income.
    401k start young and buy consistent. You be ok…

  • Interesting. The different is clear, the mind is the greatest asset indeed. Kris krohn You're the man

  • What I took from this is someone who “retired at 26” through real estate probably never had a 401k plan to contribute too and therefore never really understood how it works lol. There’s some major 401k advantages you missed on.

  • if your 401k provides no cashflow something is wrong. And depending on what it is in traditional/roth. You can even have tax free cashflow and tax free growth. And the .04 percent fee on etf is super low with fidelity offering commission free. What broker would work for free to find these great profits? I am not sure you can get that in real estate.I can see how real estate can be appealing but the cons of stocks are just over hyped

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