What Role Does Your 401k Play - Long Term Rentals

8 Replies

Hey everybody

I am wanting to know what role does your 401k play when it comes to investing. 

Do you use it as reserves when getting a loan? Do you still contribute to it?

What benefits does it give when buying rentals? 

Would you recommend a young investor if contributing to 401k or wait till a decent amount of property is bought.

Im 24 and have a couple thousand in 401k nothing much, will it be beneficial to keep adding to it, my employer matches every dollar I put it in up to 8% 

or save the money instead and build cash reserves?

@Senad Salihovic

If your employer provides matching you should contribute up to that amount. This is free money and it would be financially foolish give that up.

You can not buy real estate with conventional retirement account - you need a self-directed IRA or 401k. There is plenty of info about that on this forum, do some search and it'll keep you busy reading for hours and hours.

Because of your younger age - consider post-tax contributions into Roth. While you don't get any tax benefits now, you have long term for your money to grow tax-free which will surpass missed tax deduction now (this is general advice, I don't know your personal financial/tax situation and I'm not a CPA). 

Hope this helps.

@Senad Salihovic

It may be best to continue contributing to your existing employer 401k for two reasons: 

1. The fact that your employer matches at 8%; and

2. the fact that you are still building up your 401k.

Rentals: None! I would never put RE into a retirement account. I am a strong proponent of using my retirement account for RE investing in the form of mortgage loans. I have gotten excellent returns without the hassles of broken toilets and replacing roofs. I do contribute yearly into my 401K. I hold my rentals outside of my 401K and will continue to do so.

@Senad Salihovic

Keep contributing!!  That 8% match is great.

Here is a good article that covers the basic ups and downs of 401k loans.


A couple things to look out for:

1. Make sure your 401k provider actually allows the loans

2. Check that all the interest "penalty" is actually going back to your account, not the 401k provider

3. That your job is fairly stable.  If you lose it you need to be ready to pay the loan back in 60 days.  MAKE SURE you have a contingency for this in place.

Definitely keep contributing to your 401k so long as your employer is giving you a match, 8% is great! I don't know where you stand financially but the goal for a lot of investors is to have multiple streams of income. By diversifying yourself early on you'll benefit from growth in the stock market and bonds as well as real estate.

Would having a 401k help you get a conventional loan for let's say the 5th or the 10th house or do the banks not look at that at all when you have that many rentals

Would having a 401k help you get a conventional loan for let's say the 5th or the 10th house or do the banks not look at that at all when you get to that point. 

Would not having a 401k affect your barowing power in away - barowing from banks?

@Senad Salihovic

do you realize you give up LOTS of tax advantages putting rentals into a retirement account? Before you do, talk to a good tax advisor. I believe you lose a lot more than you gain. You cannot get depreciation, you cannot write off taxes, insurance, or maintenance. You don't have to claim rental income, but the loss of the tax advantages far outweighs deferring the rental income gains. As long as you hold RE outside of a retirement fund, you can still get tax free gains via appreciation until you sell. If and when you do sell, you can still 1031 out and defer all profits on the sale.

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