401k vs. Investing in a House

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
URLs

• rentals.realtor.com/rentals
• eloan.com
• payscale.com