Retirement vs. rental property down payment money allocation

4 Replies

Hello:

Question:

I wanted to ask for help and advice around money allocation. Should I put less in my 401k so that I have more money in my savings that I can use for a down payment on a rental property?

Would like to hear others inputs on how to split between 401k and saving for a down payment.

Goal:

My goal is to both save for retirement and start investing in real estate using BRRRR to earn passive income on the side. I was thinking to invest out of state or out of local area (somewhere where I wouldn't be able to drive to) since I live in the Bay area and rental income to home price is not very appealing.

Background:

Currently, I am making monthly deposits to max out my 401k and Roth IRA.

I have a new Jan 2019 condo rental that has an appraisal value of $455k with $200k left in loan. If I assume I can refinance at 80% of value at the end of the year, my understanding is that can get $164k out for other properties. However, would I be paying more per month on my current condo mortgage?

I don't have any extra liquid cash (other than my emergency fund).

Invest in 401(k) only enough to get the employer match, then you can max fund Roths or save for down payment or both.

With a Roth you can always take out the amount you put in tax and penalty free so this could be part of your down payment savings as well.  It is just the gains that would be subject to tax and a penalty if you withdraw that much.

Originally posted by @Eric Tom :

Hello:

Question:

I wanted to ask for help and advice around money allocation. Should I put less in my 401k so that I have more money in my savings that I can use for a down payment on a rental property?

Would like to hear others inputs on how to split between 401k and saving for a down payment.

Goal:

My goal is to both save for retirement and start investing in real estate using BRRRR to earn passive income on the side. I was thinking to invest out of state or out of local area (somewhere where I wouldn't be able to drive to) since I live in the Bay area and rental income to home price is not very appealing.

Background:

Currently, I am making monthly deposits to max out my 401k and Roth IRA.

I have a new Jan 2019 condo rental that has an appraisal value of $455k with $200k left in loan. If I assume I can refinance at 80% of value at the end of the year, my understanding is that can get $164k out for other properties. However, would I be paying more per month on my current condo mortgage?

I don't have any extra liquid cash (other than my emergency fund).

Eric,

Contribute to 401k up to the amount your company matches.

After that, save that for real estate. You can actually have a SELF DIRECTED ROTH IRA that you can use to buy real estate but you can't touch the profit until you're 59 1/2 without paying the taxes and 10% penalty.

And the answer to your question about your condo is it depends. You have to have a mortgage broker do the math for you or do it yourself. Google "mortgage calculator" and put in the new mortgage balance, the number of years the loan is to be amortized (i.e., 15 year mortgage or 20 years or 30 years?) and the interest rate. The mortgage calculator will give you the new mortgage payment every month.

Thanks for the input! I'll move forward with the 401k match limit for now. Not too comfortable on the specifics to utilize my Roth IRA funds. I linked an article as an FYI for anybody who is interested in this approach.

https://www.thebalance.com/how-to-invest-in-real-estate-with-a-self-directed-ira-4057066

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