3 Reasons Investing in Real Estate is Not As Reliable As a 401(k)

According to the Pension Rights Center, more than half of U.S. workers have some retirement savings plan , with most opting for a company-sponsored 401(k) or similar plan. However, many Americans also invest their money into real estate to earn retirement income.

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As of 2022, about 10% of U.S. households with someone 65 or older earned rental income from real estate holdings, the Wall Street Journal reported, citing data from the Federal Reserve and Boston College Center for Retirement Research. That compares to 7% of households of people under 65.

It’s understandable that many retirees look to real estate to boost their nest eggs . As the Wealth Enhancement Group noted in a recent blog, historically, real estate has produced average annual returns favorable to equities. Moreover, stocks are “inherently more volatile” than real estate, according to the blog.

Because stocks make up a big portion of 401(k) plans , those findings might make you reconsider how much you want to put into a 401(k). But before you buy real estate, you need to be aware of its risks. Here are three reasons investing in real estate might not be as reliable as a 401(k).

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Real Estate Markets Are Vulnerable to a Wider Range of Factors

Economic downturns and other macro factors can hurt real estate and stock/retirement plan investments . However, at the local level, real estate investments can turn south in a hurry of negative events that don’t affect 401(k)s.

For example, a powerful storm or natural disaster such as a hurricane, tornado or earthquake can destroy your property in minutes. Even if insurance covers most damage and replacement costs, you might go months or years without rental income.

Similarly, if a large local employer closes down or relocates elsewhere – taking jobs and investments with it – your real estate’s value could take a major hit.

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You Need Tenants or Buyers

If you intend to invest in real estate as a steady income producer, you’ll need to keep the property occupied with tenants. Depending on the type of property and lease, this means you could be looking for tenants at least once a year – and there’s no guarantee you’ll find one. Every month your property sits empty, you are stuck with the costs of the property but no income.

If your strategy is to buy up property and then flip it at a profit , you’ll need to find a ready buyer. Again, this is no sure thing. In contrast, a 401(k) is not dependent on tenants or buyers.

You Don’t Get Free Money

One of the biggest advantages of a 401(k) is that many companies match employee contributions, and that match amounts to free money for your plan every pay cycle for decades. Real estate might bring robust returns over time, but none of those returns are provided free by someone else.

This article originally appeared on GOBankingRates.com : 3 Reasons Investing in Real Estate is Not As Reliable As a 401(k)