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401k vs. Investing in a HouseEGR 403Team 3James Coats – Summarizer Melanie Marin - TechieChris 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 4% Avg. yearly increase Owns his current house and wants
to know what is a better investment
Personal Investing
Option 1: invest in a secondary house to rent out
Option 2: invest in a 401k
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
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
Summary
Option 2: Investing in the 401K is the
better investment 401K: $4,300,000 House: $879,000
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%
URL’s
rentals.realtor.com/rentals eloan.com payscale.com