Go Curry Cracker has shown how he can use $100,000 in Income from Stocks and paying 0 in Taxes during Retirement.
If you make $100,000 in Rental Income after all Expenses, you get around $88,000 after paying Fed. Taxes. I know there is Depreciation but it doesn't help much in the later years because the Rental Income will be much higher in years 15-27.
Okay, ignoring depreciation.
What if to get 100k in ER from stocks at the 4% rule you'd need 2.5MM invested, but to get 100k from rentals (say, 130k gross, the same 100k net after taxes) you only needed 1.3MM invested?
To me, at the end of the day what matters most is time to FIRE (aka amount of freedom) and stability of ER (i.e. chance of having to go back).
Rentals minimize both of those.
Sure, you pay taxes. But you still FIRE
so much earlier, even with paying them.
If I could theoretically FIRE in, say, 10 years on 1.3MM of real estate and net 100k after paying 30k in taxes or FIRE on 2.5MM of stocks and net 100k after paying $0 in taxes taxes, in, say, 20 years, I'd take the first scenario every time.
The point is, you're looking at the two situations and saying that the one you pay taxes and the other you don't, so the no tax scenario must be better, but that's not the case, since the tax scenario nets you much more on an apples-to-apples basis.
Or, in other words, choose between these scenarios:
2.5MM in stocks, you pull out 100k (4% rule), pay $0 taxes.
2.5MM in real estate, you gross 250k, net 187.5k after 25% taxes.
Which would you choose?
I'll take more money, and pay some in taxes than less overall money in my pocket, but none goes to taxes.
:)
Disclaimers:
1) This is all assuming good rentals. A bad rental, obviously, takes away from FIRE plans.
2) All numbers in this post are theoretical. Please don't nitpick them as realistic, or not. I just used a standard 10% cash on cash return. I don't care if that's not feasible in your area, or you live outside the US, or whatever. It is a common metric that is absolutely possible.
3) Real estate is more work. Mostly up front. A lot more work.
4) Real estate may have more risk. It may be mitigated, but you must be aware of it.
5) This post was meant to be illustrative of why, even if you're paying taxes, you could come out ahead. The tax comparison isn't the bottom line.