401K loan to fund Brrrrr or down payment

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401K loan to fund Brrrrr or down payment

Gabriel Novotny
New to Real Estate · Spring, TX · Member since 2020 · 12 posts · 1 vote

Has anyone used the new 401K penalty free and up to $100K loans for any short term investing for Brrrr or short term loans paying  back during refi?  Curious as to how the process worked out for those who used it - pros/cons.

Would be GREAT to have this extra liquidity

Thanks in advance!

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  • Brian Beck
    Flipper/Rehabber · Fredericksburg, VA · Member since 2018 · 96 posts · 58 votes
    5y

    @Gabriel Novotny I know this touching 401K money blasphemy to some and other don't think any money should be stored in a 401k. That being said, I did utilize a 401K loan to fund my 1st flip, a little different exit strategy than a BRRRR but nonetheless. My 401K plan allows me to lend the funds to myself at anytime up to a certain amount, I took it out and structured the payments to begin as late as they'd allow (two months after withdraw in my case) and for the longest term allowed (5 years). This really limited the amount of the hit on my actual take-home pay from the W9 job. Upon sale of the property I used the proceeds to pay back the 401K loan in full.

    The remaining profit has been reinvested into my next flip allowing me to take a much smaller 401K loan out to fund the difference in the down payment. The rest of the flip/renovation was funded with a hard money loan. I have thought about the CARES act allowances too. I think as long as you are thinking it through and your real estate deal has large enough spread compared to what your funds would be earning in the market I think it's an idea worth exploring, especially on a BRRRR that'll allow you to pay the loan back and have a cash flowing asset than can also appreciate and provide tax benefits. Just my .02. Very interested in other's thoughts on this.

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  • Gabriel Novotny
    OP
    New to Real Estate · Spring, TX · Member since 2020 · 12 posts · 1 vote
    5y

    @Brian Beck Thanks for that run down and I agree.  On paper it makes sense that's why I was curious if anyone else has pursued this route for a down payment or even repairs.  Not much on this topic in the forums or podcasts that I can see.   I verified that my employer does provide the avenue of taking loans at of my 401K at a .0325 clip payable over the five years, and the interest goes back into the account once paid.  Not something I would do for a long term investment but seems like an easy way to fund a short term loan.  Maybe im missing something!

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5y

    @Gabriel Novotny

    You may be a little late on being able to utilize this. This was only eligible for 2020 retirement account distributions.

    [email protected]917-280-8544
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