Borrow from 401k for 9.5% Return on Rental?
Attorney · Louisville, KY · Member since 2023 · 30 posts · 8 votes
Borrow from 401k for 9.5% Return on Rental?
Most Popular Reply
Melissa JusticeBusiness Member
Rental Property Investor · Phoenix, AZ · Member since 2024 · 518 posts · 1k+ votes@Felix Sharpe hey!
Congrats on being so close to Door No. 2 — that’s a big step forward! Based on what you’ve shared, a few thoughts:
A 7%–9.5% cash-on-cash return on new construction is quite solid, especially in today’s interest rate environment. New builds generally mean:
Lower maintenance costs
Fewer surprises
Attracts quality tenants
Better depreciation/tax benefits (especially if cost segregation is done early)
So from a deal standpoint, it sounds like you’ve found something worth considering — particularly if it’s in a landlord-friendly, high-demand market.
On Borrowing from the 401(k)- This can be a smart short-term play if you’re disciplined.
Pros:
You’re paying yourself back with interest.
You avoid taking on high-interest debt from banks.
You’re leveraging money that might otherwise be idle or underperforming.
If you repay within the timeline, there’s no tax hit or early withdrawal penalty.
Cons:
You’re taking that money out of the market temporarily (opportunity cost).
If you leave your W-2 job for any reason, that loan may become due faster.
It's important to factor in the repayment plan and ensure the rental cash flow doesn’t get too tight.
If this property is through a turnkey provider that includes property management, rehab, and tenant placement — like us at Rent To Retirement — you’re mitigating a lot of the risk of surprises. That adds a safety net when using funds like your 401(k).
Since you plan to repay the loan in a year, and the property cash flows with a strong return, I’d personally lean toward yes — as long as you're confident in the stability of your W-2 and the market fundamentals of where you're investing.
Wishing you much success!
Melissa Justice
Investment Strategist
10 Replies
- 1yJaycee GreenePro MemberReal Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
Quote from @Felix Sharpe:
Hello,
I am a relatively new investor looking to get Door No. 2 under my belt.
I am considering a SF new construction (3/2) that would produce a cash on cash return between 7%-9.5% with 20% down.
I have 50% of the down payment. I could theoretically borrow the other 50% from my 401k, which I could pay back in a year.
Thoughts? Would you do this deal and borrow 50% from your retirement?
Thanks for any input!
-Felix
Hey @Felix Sharpe! I'm curious what lead you to decide to do new construction for your 2nd property rather than buying a turnkey or a light value add property?
- Attorney · Louisville, KY · Member since 2023 · 30 posts · 8 votes1y
Quote from @Jaycee Greene:
Quote from @Felix Sharpe:
Hello,
I am a relatively new investor looking to get Door No. 2 under my belt.
I am considering a SF new construction (3/2) that would produce a cash on cash return between 7%-9.5% with 20% down.
I have 50% of the down payment. I could theoretically borrow the other 50% from my 401k, which I could pay back in a year.
Thoughts? Would you do this deal and borrow 50% from your retirement?
Thanks for any input!
-Felix
Hey @Felix Sharpe! I'm curious what lead you to decide to do new construction for your 2nd property rather than buying a turnkey or a light value add property?
Hi Jaycee - I wasn’t choosing new construction per se, but this deal just happened to be in my buy box as far as price range, square footage bed/baths.
I did a full gut rehab with my first purchase, and I’m sure I’ll do more in the future. But I like the idea of something that’s move in ready where I don’t have to consider a bunch of capital expenditures.
- 1yJaycee GreenePro MemberReal Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
Quote from @Felix Sharpe:
Quote from @Jaycee Greene:
Quote from @Felix Sharpe:
Hello,
I am a relatively new investor looking to get Door No. 2 under my belt.
I am considering a SF new construction (3/2) that would produce a cash on cash return between 7%-9.5% with 20% down.
I have 50% of the down payment. I could theoretically borrow the other 50% from my 401k, which I could pay back in a year.
Thoughts? Would you do this deal and borrow 50% from your retirement?
Thanks for any input!
-Felix
Hey @Felix Sharpe! I'm curious what lead you to decide to do new construction for your 2nd property rather than buying a turnkey or a light value add property?
Hi Jaycee - I wasn’t choosing new construction per se, but this deal just happened to be in my buy box as far as price range, square footage bed/baths.
I did a full gut rehab with my first purchase, and I’m sure I’ll do more in the future. But I like the idea of something that’s move in ready where I don’t have to consider a bunch of capital expenditures.
@Felix Sharpe Got it. If you've got 50% of the funds (I'm assuming you're talking about cash), I'd lean towards the rest of it coming from a traditional loan rather than from your 401k. If the deal goes south, they can take your 401k and you'll pretty much lose everything in it. So, my recommendation is based on asset protection rather than cost of capital. Just my 3 cents!
- MD/DC · Member since 2024 · 1k+ posts · 1k+ votes1y
I suspect I'm in the minority here but I'm not a fan of taking money out of retirement funds.
- 1yMelissa JusticeBusiness MemberRental Property Investor · Phoenix, AZ · Member since 2024 · 518 posts · 1k+ votes
@Felix Sharpe hey!
Congrats on being so close to Door No. 2 — that’s a big step forward! Based on what you’ve shared, a few thoughts:
A 7%–9.5% cash-on-cash return on new construction is quite solid, especially in today’s interest rate environment. New builds generally mean:
Lower maintenance costs
Fewer surprises
Attracts quality tenants
Better depreciation/tax benefits (especially if cost segregation is done early)
So from a deal standpoint, it sounds like you’ve found something worth considering — particularly if it’s in a landlord-friendly, high-demand market.On Borrowing from the 401(k)- This can be a smart short-term play if you’re disciplined.
Pros:
You’re paying yourself back with interest.
You avoid taking on high-interest debt from banks.
You’re leveraging money that might otherwise be idle or underperforming.
If you repay within the timeline, there’s no tax hit or early withdrawal penalty.
Cons:
You’re taking that money out of the market temporarily (opportunity cost).
If you leave your W-2 job for any reason, that loan may become due faster.
It's important to factor in the repayment plan and ensure the rental cash flow doesn’t get too tight.
If this property is through a turnkey provider that includes property management, rehab, and tenant placement — like us at Rent To Retirement — you’re mitigating a lot of the risk of surprises. That adds a safety net when using funds like your 401(k).
Since you plan to repay the loan in a year, and the property cash flows with a strong return, I’d personally lean toward yes — as long as you're confident in the stability of your W-2 and the market fundamentals of where you're investing.Wishing you much success!
Melissa Justice
Investment Strategist
- Attorney · Louisville, KY · Member since 2023 · 30 posts · 8 votes1y
Quote from @Melissa Justice:
@Felix Sharpe hey!
Congrats on being so close to Door No. 2 — that’s a big step forward! Based on what you’ve shared, a few thoughts:
A 7%–9.5% cash-on-cash return on new construction is quite solid, especially in today’s interest rate environment. New builds generally mean:
Lower maintenance costs
Fewer surprises
Attracts quality tenants
Better depreciation/tax benefits (especially if cost segregation is done early)
So from a deal standpoint, it sounds like you’ve found something worth considering — particularly if it’s in a landlord-friendly, high-demand market.On Borrowing from the 401(k)- This can be a smart short-term play if you’re disciplined.
Pros:
You’re paying yourself back with interest.
You avoid taking on high-interest debt from banks.
You’re leveraging money that might otherwise be idle or underperforming.
If you repay within the timeline, there’s no tax hit or early withdrawal penalty.
Cons:
You’re taking that money out of the market temporarily (opportunity cost).
If you leave your W-2 job for any reason, that loan may become due faster.
It's important to factor in the repayment plan and ensure the rental cash flow doesn’t get too tight.
If this property is through a turnkey provider that includes property management, rehab, and tenant placement — like us at Rent To Retirement — you’re mitigating a lot of the risk of surprises. That adds a safety net when using funds like your 401(k).
Since you plan to repay the loan in a year, and the property cash flows with a strong return, I’d personally lean toward yes — as long as you're confident in the stability of your W-2 and the market fundamentals of where you're investing.Wishing you much success!
Melissa Justice
Investment Strategist
Thanks so much for your feedback @Melissa Justice!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
How conservative were you in calculating that return? If it was aggressive just recognize that and if it's conservative then that's great but find it hard to see where new construction yields 9% CoC
7e investments53 Reviews- Attorney · Louisville, KY · Member since 2023 · 30 posts · 8 votes1y
Quote from @Chris Seveney:
How conservative were you in calculating that return? If it was aggressive just recognize that and if it's conservative then that's great but find it hard to see where new construction yields 9% CoC
@Chris Seveney thanks for your feedback. I double checked my numbers also to make sure. But i learned after posting my question that the home was a habitat home with income ceiling limitations and more purchase restrictions than usual. Anyway, I couldn't qualify for the purchase. So, I am back out looking everyday.
- 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
You may want to share the numbers behind your calculations, so experienced investors here can point out any flaws!
Logical Property Management4.9459 Reviews - Canton, MI · Member since 2016 · 113 posts · 47 votes1y
I'm curious, how much do you plan to borrow from your 401(k)? The maximum loan amount allowed is $50,000.
I understand the convenience of borrowing from your 401(k) since it doesn't require extra paperwork. However, have you considered some credit card offers that provide 0% interest for a year (with a 3% transaction fee)? This could be another option if you're confident you can repay the 401(k) loan within a year. It's something to think about.
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