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Short Term / Long Term Vision
529 plan has a narrow vision focused only on education. It serves its purpose well, but rental investment is a long term vision, which may serve several generation if handled strategically. Rental investment could provide passive income which grows along with inflation.
Tax Benefits
Both 529 and rental investment are made with post tax dollars. The 529 earnings are tax free and is used for qualified education expenses. Rental investment provides tax benefits due to depreciation write off, interest, repairs, etc...
Flexibility
529 funds can only be used for qualified education expenses. You may incur state taxes if you study out of state and your state as residency requirement. If you have excess left over after education you may incur taxes and penalty on the earnings. Rental investment on the other hand provides the greatest flexibility and the cash flow can be used for anything including college.
Withdrawal
529 withdrawal are tax free for qualified education expense based on the rules set by IRS. Rental investment provides steady cash flow monthly.
Financial Freedom
Once you pay off your mortgage, only your property tax, repairs & maintenance remains. The biggest benefit of financial freedom is time. No amount of money can buy you time. Reverse mortgage is another great option to live off your equity. So you are one step closer to your financial freedom.
Leverage
Leverage is using borrowed money. Leverage is always a double edged sword. Real estate is a relatively stable market to consider leverage if you have time in your hand. The home value rebounds even from the worst crisis given adequate time. In most of the cases, there is 20% down payment and 80% financed with mortgage. In this case, the leverage is 1:4 ratio. If the home appreciates by 3%, your real growth will be 15% instead. If this level of appreciation happens over several decades, the returns will be exponential due to the power of compounding. 529 plans doesn't allow leverage. You can circumvent by buying leveraged ETF, but the risk reward ratio is not optimal.
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