I am just starting out in real estate and want to buy my first investment property this year. I'm looking into out-of-state multifamily unit that'll provide a positive cash flow. I've begun my research but had a couple of questions that I can't find good answers on. Was hoping to gain insight from all of you.
1. Can I use my 401K account to fund my first property? (not a loan but pull that money out and pay the 10% fee associated with it.) What are some advantages to doing so? Has anyone else used this same approach?
2. As an out-of-state investor, is there usually a minimum down payment of 20%? Are there other fees I need to be aware of? I'm mostly curious about this so that I can start looking into markets that I can afford rather than looking all over.
If anyone has other insights and has gone through a similar process, I'd love to connect and learn more.
Hi @Radhika Paliwal !
Disclosure: This should not be considered financial, tax or legal advice. Please consult financial, tax and legal professionals.
1.) I have not done anything like this myself. However, it might benefit you to research Self-directed IRAs and see if you might be able to transfer money into them instead of taking a 10% penalty for withdrawing money.
2) Investment financing from a bank usually requires 20-25% down payment plus closing costs. Closing costs can vary by lender, state, etc. and include things like appraisal, title insurance, processing fees, etc.
I invested out of state in Kansas City, MO. I had to put 20% down payment based on my lender and the property I was buying. More details about my investment are in the link below.
Feel free to ask me any specific questions you may have about my experience.
Thank you Joseph! This is definitely really helpful. Just checked out your post and it sounds a lot similar to what I'm looking for. Is there a reason why you didn't look at multifamily homes out of state? Also, how did you decide on KC? Would love to sync up too if that'd be easier
I wanted to get started with investing, but I did not have substantial capital. The Single family purchase I made was in my budget and allowed me to start investing. I will definitely consider Multi family as my portfolio grows.
Kansas City has population growth, cash flow, some appreciation, diverse industry, good rent to income, etc.. Those factors made me feel comfortable making an investment there.
Feel free to reach out with any more questions you may have. I would be happy to connect and discuss more and do anything I can to help. I like to share and hear experiences with others!
Never focus on the number of doors as a goal. Instead, focus on the number of dollars. If you focus on the number of doors, and you are getting close to your deadline, you will make a bad deal.
1. I am not entirely sure on this one, but I remember with the covid relief you could take out up to 100K from your 401K interest free if you replace the money after 3 years
2. Yes with a typical mortgage you will need 20%. If it is an investment mortgage and a multifamily you will need 25% down
Thank you! this definitely helps narrow down the markets I want to look at - working within my budget