Updated over 5 years ago on . Most recent reply
Borrowing from my 401k
I am very new to Real Estate investing and I am looking into borrowing from my 401k to buy my first rental property. Is it a wise idea to borrow from my 401k if I can take a HELOC out from my current home I live in? Any advice or suggestions would really help.
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Bernard Reisz
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- CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg
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@Account Closed There are multiple approaches to leveraging 401k-plans and other tax-sheltered accounts for real estate investing.
@Yonah Weiss has pointed out (Thanks for the mention!) that accounts can be established for direct real estate investment, such that property is owned by the IRA/401k/QRP - rather than taking a loan or distribution to invest.
Regarding your specific question:
- Payment terms for plan-loans are governed by the IRS, plus your employer and plan admin. Banks may offer you more, or less, favorable terms. For example, the plan-loan must be amortizing.
- You may be able to leverage a lot more and get greater flexibility with a HELOC.
- HELOC doesn't become due if you change your job.
- HELOC does, theoretically, expose your home to some risk.
- HELOC interest will be tax deductible if used for investment.