Liquidating and Mortgaging to Purchase/Buying Cash or Financing??

Milwaukee, Wisconsin
Starting Out
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Liquidating and Mortgaging to Purchase/Buying Cash or Financing??

Jenna Cawlfield
Member since 2023 · 7 posts · 1 vote

Hi All…

So I have been working with my husband working on a way to get started with PI and we keep finding properties and then my Husband finds some reason to back off “for now.” I am much more the get started and figure it out at you go type person and he is the plan until it dies type.

Anyway, I have found a great property. Good price point, well kept neighborhood, excellent rent return. (We are planning to buy and hold) 

Anyway… as we are just starting out we don’t really have any liquid funds right now. So we will have to pull from 401K or from the equity on our primary residence. So we have 2 options with this property that I see. Mind you, we have about $110K equity in our home.

#1. We pull the down payment from our home as a HELOC and finance the rental and deal with the BS interest rates.

#2. We liquidate my smaller 401K and take the remainder out as a second mortgage and buy the rental outright as a cash deal.

Does anyone have any thoughts or opinions? Ideas? 

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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
2y

Can you get a loan from your 401k? This might be better than pulling from it. The HELOC will come in handy if you need to finance any rehab. You don't need to pull from the HELOC to open one, and if you do decide to pull from it, you only pay interest on the amount drawn.

I would look into doing both to have that extra cushion. There are many variables when it comes to buying a rental property. Having that extra cushion will come a long way. 

[email protected]818-269-7983
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  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    2y
    Quote from @Jenna Cawlfield:

    Hi All…

    So I have been working with my husband working on a way to get started with PI and we keep finding properties and then my Husband finds some reason to back off “for now.” I am much more the get started and figure it out at you go type person and he is the plan until it dies type.

    Anyway, I have found a great property. Good price point, well kept neighborhood, excellent rent return. (We are planning to buy and hold) 

    Anyway… as we are just starting out we don’t really have any liquid funds right now. So we will have to pull from 401K or from the equity on our primary residence. So we have 2 options with this property that I see. Mind you, we have about $110K equity in our home.

    #1. We pull the down payment from our home as a HELOC and finance the rental and deal with the BS interest rates.

    #2. We liquidate my smaller 401K and take the remainder out as a second mortgage and buy the rental outright as a cash deal.

    Does anyone have any thoughts or opinions? Ideas? 

    With the right setup in your 401(k) you can borrow against it to buy real estate. There are rules, so check with your 401(k) provider to see if that applies.
    1Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y

    Can you get a loan from your 401k? This might be better than pulling from it. The HELOC will come in handy if you need to finance any rehab. You don't need to pull from the HELOC to open one, and if you do decide to pull from it, you only pay interest on the amount drawn.

    I would look into doing both to have that extra cushion. There are many variables when it comes to buying a rental property. Having that extra cushion will come a long way. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
    WebsiteView Page
    1Reply
  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    2y

    I don't know if either option is a good one. The pests wait and see approach is a losing approach. And the liquidate the 401k or get a HELOC may not be a good approach either.

    The answer is that the deal is all about the numbers. With interest rates so high, using the HELOC as a down payment may create negative cash flow. So you would need to know estimated rents, repair costs, taxes, insurance, ect., before doing the deal.

    So, if you would like good advice, then give us more info about the deal. Also, just because you have $110k in equity in your home, that doesn’t mean that you can access all that equity. 

    480-206-1209Podcast Guest on Show #287
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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Jenna Cawlfield:

    Hi All…

    So I have been working with my husband working on a way to get started with PI and we keep finding properties and then my Husband finds some reason to back off “for now.” I am much more the get started and figure it out at you go type person and he is the plan until it dies type.

    Anyway, I have found a great property. Good price point, well kept neighborhood, excellent rent return. (We are planning to buy and hold) 

    Anyway… as we are just starting out we don’t really have any liquid funds right now. So we will have to pull from 401K or from the equity on our primary residence. So we have 2 options with this property that I see. Mind you, we have about $110K equity in our home.

    #1. We pull the down payment from our home as a HELOC and finance the rental and deal with the BS interest rates.

    #2. We liquidate my smaller 401K and take the remainder out as a second mortgage and buy the rental outright as a cash deal.

    Does anyone have any thoughts or opinions? Ideas? 


     Get loan from 401k , max is 50k 5% rate, been doing that over two decades

    1Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    2y

    In the same position, we borrowed against our TSP (gov't retirement account) and we got a HELOC for an emergency backup. Sometimes it is reasonable for us to sell and take some money off the table, and sometimes it is better to refinance.

    Either way, I don't prefer holding forever, because we have money sunk into our properties that we can't get out.  I like to renovate and rent, harden the properties for longevity and modernity.  And then, ideally, sell before the roof and A/C system or kitchen need to be replaced again. I buy A and B properties, btw.

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