How a Single Triplex Can Replace Your 401k
This is going to be a controversial post. I'm not telling you to skip your 401k. If your employer offers a match, take it. That's free money. But I want to challenge the assumption that the 401k is the primary vehicle for building retirement wealth. For most people, a single triplex purchased in their 20s or 30s will generate more retirement income than four decades of 401k contributions. Let me show you the math.
The 401k Path
Let's say you max your 401k contributions at $23,000 per year (the 2024 limit) for 40 years, from age 25 to 65. Assuming a 7% annual return after inflation (the historical average for a diversified stock portfolio), you'll have approximately $4.6 million at retirement.
That sounds fantastic until you calculate the retirement income. The standard safe withdrawal rate is 4%, which means you can pull $184,000 per year without depleting your nest egg over a 30-year retirement. Again, not bad. But here's the catch: you contributed $920,000 of your own money over those 40 years. The market quintupled your contributions. You had to be disciplined for four decades. You had to avoid panic selling during crashes. And you can't touch the money until 59½ without penalties.
The Triplex Path
Now let's compare that to buying a single triplex at age 25. You purchase a $400,000 triplex with 20% down ($80,000). Each unit rents for $1,200/month, generating $3,600/month gross. After operating expenses (taxes, insurance, maintenance, vacancy, CapEx reserves) of about 40%, you net $2,160/month or $25,920/year. Some investors use 50% as a rule of thumb, especially for older buildings or if you're paying a property manager. I use 37-40% for well-maintained small multifamily that I self-manage.
Your mortgage payment on a 30-year loan at 7% interest is about $2,130/mont. The property roughly breaks even or generates slight positive cash flow from day one. But here's where the magic happens.
The Leverage Multiplier
This is where leverage changes everything. Your $80,000 down payment controls a $400,000 asset. If that asset appreciates at just 3% annually (below the historical average), it gains $12,000 in value the first year. That's a 15% return on your $80,000 investment, just from appreciation. Meanwhile, your tenants are paying down your mortgage, adding another $8,000+ to your equity in the first year through principal reduction.
By year 30, when you're 55, the triplex is paid off. Your $80,000 investment is now worth approximately $970,000 (at 3% annual appreciation). You own it free and clear. And those rents that were $3,600/month in year one? With 3% annual rent growth, they're now $8,750/month. After expenses, you're netting over $5,000/month, or $60,000/year, from a single building.
The Retirement Comparison
At age 55, you have:
- A paid-off triplex worth ~$970,000
- Annual rental income of ~$60,000 after expenses
- No need to withdraw from principal
- An asset you can pass to your children with a stepped-up basis
Compare this to the 401k holder who's still 10 years away from penalty-free withdrawals and still needs to contribute another decade to reach their full nest egg.
Now add the tax advantages. Depreciation sheltered much of your rental income over the years. 1031 exchanges could have let you trade up to larger buildings tax-free. Cash-out refinances gave you access to equity without triggering taxes. The 401k holder pays income tax on every withdrawal.
What About the 401k Match?
I said at the beginning: take the match. If your employer matches 50% of contributions up to 6% of salary, that's a guaranteed 50% return on that portion. No investment beats guaranteed returns. Contribute enough to max the match, then redirect additional savings to real estate.
The mistake is contributing to a 401k beyond the match while ignoring real estate entirely. The conventional wisdom says "max your 401k first," but the math suggests otherwise.
The 9-Lens Comparison
Let's apply the 9-lens framework to compare these two options directly:
| Lens | Triplex (3 Units) | 401k |
|---|---|---|
| Appreciation | Medium* | High |
| Yield | High | Low-Medium |
| Liquidity | Medium | Poor** |
| Operating Costs | Medium-High | Very Low |
| Complexity | Medium-High | Very Low |
| Volatility | Low | Medium-High |
| Inflation | Strong | Medium |
| Tax Treatment | Excellent | Good*** |
| Leverage | Very High | None |
*3-5% appreciation, but 15%+ ROI with leverage.
**10% penalty + income taxes before 59.5 (~35-50% total loss); locked for decades*.
***Tax-deferred during accumulation, but taxed as ordinary income at withdrawal.
The table tells a nuanced story. The 401k wins on simplicity and low operating costs: it's truly set-and-forget. It also offers better raw appreciation (7-10% vs 3-5%). But the triplex dominates on the dimensions that matter most for wealth building.
Yield: The triplex generates spendable cash flow from day one. 401k dividends get reinvested automatically, and you can't touch them without penalties.
Liquidity: Counterintuitively, the triplex wins here. Yes, selling takes 3-6 months and costs 6-10% in transaction fees. But the 401k's 10% penalty plus income taxes means you'd lose 35-50% of your money if you need it before 59.5. And you can refinance a triplex to access equity tax-free.
Volatility: Triplex values move slowly. There's no ticker showing daily price swings. You won't panic-sell during a crash because you don't see it happening. The 401k holder watched their account drop 50% in 2008 and again in 2022.
Tax Treatment: The 401k defers taxes until withdrawal, then hits you with ordinary income rates. The triplex eliminates taxes through depreciation, 1031 exchanges, and stepped-up basis at death.
Leverage: This is the decisive advantage. Your 401k is 1:1. Every dollar invested works as one dollar. The triplex is 5:1 at purchase. That's why 3% appreciation becomes 15%+ returns on your down payment.
The Caveats
Real estate requires work. Finding deals, screening tenants, handling midnight maintenance calls. A 401k is truly passive: automatic deductions, automatic rebalancing, zero decisions. Not everyone wants to be a landlord, and that's valid.
Concentration risk is real. Your wealth sits in one asset, one location. A bad tenant, a flooded basement, or a declining neighborhood can hurt you in ways a diversified stock portfolio won't. The 401k spreads risk across thousands of companies.
You can't sell half a triplex in an emergency. But as I noted above, refinancing provides tax-free access to equity, which is more than the 401k offers before 59.5.
Recommended Approach
My recommendation:
- Contribute enough to your 401k to get the full employer match
- Build an emergency fund (6 months of expenses)
- Save aggressively for a down payment on a small multifamily property
- Buy a triplex or fourplex, ideally as a house-hack (live in one unit)
- Once the property stabilizes, you can continue buying more until you replace your salary
The triplex builds wealth through leverage, cash flow, and tax advantages. The 401k provides diversification and employer matching.
Why This Isn't Common Advice
Financial advisors can't help you buy real estate. They earn commissions on assets under management, and a triplex generates zero fees for them. The financial industry has every incentive to push 401ks, IRAs, and brokerage accounts. That doesn't make them wrong for passive investors, but it does explain why you've never heard this math from a financial planner.
A single triplex, purchased young and held for decades, can generate more retirement income than 40 years of maxing your 401k. That's not an opinion. That's arithmetic.
Disclaimer: This is educational content, not financial advice. The projections above use historical averages and simplified assumptions. Your results will vary based on market conditions, property selection, and execution. Consult with financial and real estate professionals before making investment decisions.