Continue to invest in 401K or switch to real estate?

[Frizhand]

I'm hoping I can get some opinions on my situation. I don't think there is a 'right' answer to my question but if you have any input or thoughts I'd appreciate it.

About me:
43, married, 2 kids. no debt (including no mortgage)
Assets (wife and me)- primary residence is worth just under 500K. About 500K invested in retirement accounts.  Plus cash/emergency stache.

Not included in those numbers is a 1/3 share of a vacation house I own with 2 siblings that we inherited from my parents.
 
Long story short, I'm trying to decide if I should sell my share of the house to one of my siblings, and if I do, what to do with the money.  In order to avoid taxes, and to prepare for retirement,  I'd like to do a 1031 Exchange and roll that money into another property that my wife and I can retire to eventually (we want to move to a lower cost of living area when the kids get to college, @10 years). We would rent the new property (probably weekly, but not year round) until then to cover as much of the costs as possible.   We are thinking of getting a condo.

My question: in order to buy something appealing to us, while avoiding a (large) loan, I'll need to combine all of my cash/emergency savings with the income from the sale.  I don't have the income to contribute to 401K and build up cash reserves (or pay a loan) at the same time.  So, I'll need to stop contributing to my 401K (at least for a while) so that I can build up cash or pay a small loan for the new property (I don't think rentals will cover all expenses).

So, would you sell your share of the house, reinvest in real estate, and stop contributing to 401K? Would you sell and simply pay the taxes (yuck)? Would you stick with the share of the current house (there are reasons we'd prefer not to, which I won't bore you with here) so you can keep putting money into 401K/IRA, etc? 

With 50% of my net worth invested in the market, I think I could use the new property to diversify but I'm a little gun shy about having so much money tied up in equity with no cash safety net. I also know rental properties come with their own work and headaches....and I've been brainwashed into maxing out my 401K every year!

[not_a_trex]

I'll need to combine all of my cash/emergency savings with the income from the sale.

Your emergency savings are there for, well, emergencies. Don't use them for this.

To help answer better your question I would need more information.  What are your estimates for the costs/gains of the different options? For example, how much would a condo cost and how much money do you think you would receive for renting it out? Or what are your expected contributions to a 401K? Do you get a company match on your 401K? I would guess that match is worth more (in terms of ROI) than any of these other options. What are the expected gains/losses from keeping the equity in the vacation home.

And then maybe others that have experience in renting out on a weekly basis can chime in to say whether or not your renting expectations are realistic (I don't know, I've never done it).

But from what you've said so far, I would not do this. There are red flags (buying a rental that won't cashflow, using emergency funds) that would prevent me from doing this.

[Retire-Canada]

I wouldn't want more than 50% of my NW tied up in RE.

[Frizhand]

I'll need to combine all of my cash/emergency savings with the income from the sale.

Your emergency savings are there for, well, emergencies. Don't use them for this.

To help answer better your question I would need more information.  What are your estimates for the costs/gains of the different options? For example, how much would a condo cost and how much money do you think you would receive for renting it out? Or what are your expected contributions to a 401K? Do you get a company match on your 401K? I would guess that match is worth more (in terms of ROI) than any of these other options. What are the expected gains/losses from keeping the equity in the vacation home.

And then maybe others that have experience in renting out on a weekly basis can chime in to say whether or not your renting expectations are realistic (I don't know, I've never done it).

But from what you've said so far, I would not do this. There are red flags (buying a rental that won't cashflow, using emergency funds) that would prevent me from doing this.

Thanks. All good questions. This is a new development so I haven't been able to do all my research yet.

More specific to your questions:
-I haven't calculated rental income vs. expenses on a new place yet.  I'd need to know more before I can (insurance costs, property taxes, condo fees, etc). So, we are thinking of talking to a realtor to get an idea of what expenses would be.  I might be surprised to find I can cover all costs by renting..but I'm planning for worst case.

-I max out my 401K every year.  No 401K match.

-The main issue with the vacation home I share now is that it needs work. So we are talking about making a large investment to improve the property (this would come from my cash savings). My wife and I don't plan to own our share this house forever, however, one of my siblings wants to keep it ...So, if we were to invest money for improvement now it would help 'resale' value in the long run but the only 'resale' option is to sell to my sibling. So, rather than put money in now we think it would be best just to get out and plan for our future.

Now that I'm writing this up...that last bullet might be a key thing to point out...I'll need to make a cash investment either way.  probably should have mentioned that in my original post! sorry!