Wholesaler · Green Brook, NJ · Member since 2016 · 15 posts · 1 vote
Hello Everyone,
I am in my mid fifties and thinking of how to best prepare for retirement. I have about $70,000 in a 401K and wondering if it would be wise take this money and invest it in a rental/cash flow property. I realize that Uncle Sam will be taking a good part of the 401K if I withdrew it before retirement. Your thoughts would be greatly appreciated!
I'm not an accountant so take my advice with a grain of salt, but I would avoid paying such a huge chunk in penalty and taxes by doing the early withdrawal. One option you may want to explore is taking out a loan from your 401k. Depending on the company that services your account, you can borrow up to 50% of your vested balance up to $50,000. You make loan payments back to your 401k account from your payroll check at generally 1-2 points above the prime rate. It's a pretty cool option that I took advantage of to get started. I would talk to whomever services your 401k to see what your options are.
@Kitty Jedra I prefer real estate over the stock market but I don't think it is good advice to tell someone in their 50's to take out their retirement savings, pay a penalty and invest in real estate. M advice is to start saving much more of your salary. I would keep the 401K and if you want to get into real estate, save up money on the side.
If you take out all your retirement savings, invest in real estate and it goes wrong, you could end up filing bankruptcy. You would lose everything. Money held in a 401K cannot be taken during bankruptcy because it is a protected asset. For that reason I think everyone should have some money tucked away in a 401K and honestly $70K isn't near enough for your age.
The other thing people are not addressing is that real estate is not for everyone. You could end up struggling and hate it after taking a huge tax penalty. It is better to get your feet wet in a more secure manner. Save up $20K from your salary and buy a small starter rental property. If it goes great and you are successful, then MAYBE consider tapping into the 401K.
I think success is more of a mindset than a goal or destination. There are many investors I look up to who have achieved impressive goals that I aspire to achieve. My journey is just beginning. If you don't give up, you will succeed in accomplishing your goals. It's only a matter of effort and time.
It's really that simple, so never give up and you'll accomplish anything you want in life!
Also, to make the journey meaningful, you must enjoy it. So, if you don't enjoy working in real estate, pursue your passion in whatever field it might be. Trust me, you'll have the most success doing that!
The people I look up to ALL share the views above. I don't believe that's a coincidence.
A question also is how much experience do you have finding deals for a rental property. A lot of people get into real estate with knowing what they are doing.
1) Knowledge is power. I consistently pick up ten 1% rule + properties a year with no money out of pocket using the BRRRR method and a combination of my own rule 506(c) fund of money and gap funding.
2) Watch out for fees. Double check the self-directed IRA custodian fees if you go this route. I have reviewed many custodian where the investor thought they only were paying $600 fee and the math showed they were paying $18,000 in fees over 5 years. If you qualify, you will find much fees in a self-directed solo 401(k).
3) You always get wealthy through arbitrage. Get money at a low cost of capital and invest at a higher return on capital. If you take a loan, make sure you have a good arbitrage.
Hi, I'm 38 and my wife and I have invested in Memphis real estate. We emptied my pension and my wifes 401k to get started. We can buy low income properties with tenants in place for under 30k in most cases and collect 600 to 800 in rent. Granted I live in Memphis and started managing myself to boost my ROI. But we still have built a respectable $5,500 a month investment income in 4 short years. Granted out of state investors have to sub out maintenance and management. But there is still a good spread. I say pull the money and find a good property manager and real estate agent in Memphis. Just my opinion.