Should I use my TSP for down payment on a property,

Question

I am currently just learning about real estate investing by listening to podcasts and reading books. I would like to take action and start investing by purchasing rental properties. I have no savings at this point, but thinking about borrowing from my TSP (almost like the 401k but for military and federal government employees) for a down payment. The rate is around 3%, but I haven't found a property yet.

I had some advice for me to build my savings up first to be able to cover any expense that may come up, but I really want to start doing something.

In the end the question is, should I borrow from my TSP for a down payment or continue to learn and save up before starting purchasing? Thanks everyone.

Nathan Gesner · Answer

You've worked hard and saved using TSP. I wouldn't jeopardize that to start something new that may fail. I recommend you save up and start investing in real estate separately. If you prove you can do it, then you can pull the TSP funds and redeploy them in a better-performing investment.

Gildas Dossa · Answer

@Nathan G. Really appreciated. That makes sense too, where it would be wise to save and invest separately for now. Thanks

Michael Barido · Answer

@Gildas Dossa I think it would be good to know if you are a civilian with a high W2 or military with access to VA. I am a veteran but currently have a high W2 with the federal government. I have a couple properties now and I'm currently thinking about tapping my tsp. If you are military you can do up to a 4 unit and house hack. Others here have great advice and it will mitigate some of the risk.

Doug Spence · Answer

@Gildas Dossa Fellow military guy here with a TSP. I would not borrow from your TSP to invest in real estate right now. You'd be better off teaming up with someone that has the capital, and you bring the elbow grease and the knowledge to take down that first property.

One concerning thing you mentioned is that you "have no savings at this point" but want to invest in real estate. You need to have a very solid personal finance foundation BEFORE you invest in real estate. What happens if that property you buy needs a new roof or a new HVAC system and you don't have any savings? Not a good situation to be in.

Continue to self-educate, network, and save up your money outside of your TSP to employ in real estate.

Nicholas Hyde · Answer

Hey my friend, I used a TSP loan (residential) for my first rental property (house hacked fourplex) and I’m very glad that I did. My rate was lower at the time than the rate you stated, but I would do it all again at that rate without question. I agree with the others that you need to thoroughly educate yourself prior to jumping in, but I’m glad I made the jump even though I had only been several months into educating myself at the time. I don’t want to recommend risking a large amount of money, but with all the benefits of real estate investing, I’m glad I got started. I have since taken out a second TSP loan (personal) in order to get additional funds for my next real estate purchase. But I definitely recommend listening to some of the BP books (I personally prefer the audiobooks through Audible for convenience) and listening to the BP YouTube videos. They definitely made me as comfortable as one could be when getting started in real estate investing. Best of luck to you!

Andrew Garcia · Answer

Hi @Gildas Dossa, I would wait until you have some savings prior to investing.

You can start by becoming a real estate agent or wholesaling as a way to get started in real estate.

Hope this helps! Let me know if I can be of any assistance.

Jared Prevost · Answer

@Gildas Dossa

I think this really depends on your financial position, income, and risk preference.

If you want to buy traditionally with a mortgage product, you should evaluate the worst-case scenario, the best-case scenario, and your most realistic outcome. If you can't stomach the worst-case scenario or don't have a strong enough financial position or income to get you through mistakes (likely to come early in an investing career), I might hold off for a while.

Honestly, my best recommendation is to start getting really active at in-person meetups. Tell everyone there you're looking for a mentor and you're willing to work for free in the evenings or on the weekend, ideally leveraging your real estate superpower (a lot of older investors could really benefit from some tech know-how or a deal finder). One thing I've found to be true is that older investors often want to pass on the torch and if you built a good relationship with someone, don't be surprised if they offer to sell you a property via seller finance or on a lease option.

Although this is a long-term approach, you will learn a lot via hands-on experience and you're very likely to build relationships that will lead to deals.

Hope this is helpful!

Aharon Najafi · Answer

I don’t agree with some of the replies that say not to use it. However, it really depends on how much you have there. I’m not military, so my comparison is a Roth 401k. I worked for 8 years and saved all that I could making avg of $70k. After 9 yes and a huge upswing during covid, it was looking very good.

I invested all of it and I made out very very well on my first deal. Primarily because I’m super conservative with my numbers.

I’d recommend the same to you. Be conservative with your numbers (+20% margin) and do it as a flip. And it will propel everything after that.

Grant P. · Answer

@Gildas Dossa I've done a TSP loan for both properties I've acquired since joining the federal service. I think it's a great way to accelerate having a down payment, but you might be best keeping it exclusively for something you'll use as your primary residence and house hack. Waiting to have some savings for maintenance and closing costs would also be a good idea. In general, I made sure that I had 5k-10k leftover from the loan combined with my savings to make sure I was prepared for any surprises.

Also make sure you're confident that you'll stick with federal service, as leaving will force repayment of the loan, and not paying will cost a lot in taxes and fees.

Gildas Dossa · Answer

@Nicholas Hyde thanks a lot. I think I will take a few more months of studying and start something after that. Thanks again.

Should I use my TSP for down payment on a property,

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