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Updated about 10 years ago on . Most recent reply

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126
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Ashly B.
  • Real Estate Investor
  • Des Moines, IA
24
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126
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Would you borrow short term from 401k to keep more liquidity?

Ashly B.
  • Real Estate Investor
  • Des Moines, IA
Posted

Came across what appears to be a really great deal on 3 new SFUs from a single seller. These will be rentals #s 3-5 for me so I know what I'm getting into. Currently thinking I'm going to finance via 2 traditional mortgages and one though HELOC on my primary. I have the cash for the down payment and have the assets to cover the 6 months expenses but its going to spread me pretty thin. I know its generally discouraged to borrow from your 401k but I have a relatively stable job, we live on 50% of our household income and I could repay the loan within 10 months or less, it would just give me a little more breathing room. I'd be giving up about $300 in interest to make an additional $34k/year.

If its relevant, I'm 29, have about 1.5x my annual income in my 401k and want to build my real estate portfolio to supplement retirement since I plan to retire well before I'm able to draw on my 401k. 

If I don't borrow from the 401k, I might just take 2 properties, which would decrease the annual income to $24k -- still not bad but much less exciting!

Most Popular Reply

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Jesse T.
  • Herndon, VA
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Jesse T.
  • Herndon, VA
Replied
Originally posted by @George P.:
Originally posted by @Jesse T.:

A 401k loan is a lot like an upscale "pawn shop".  Usually it is a bad idea, however with a short-term money crunch it can be a very important option.  Your situation does sound like a good use of a 401k loan.

 a pawn shop at 3.25% interest that you pay yourself??

i borowed 50k last year and am very glad i did that. i'd do it again in a heart beat.

It is definitely much better terms than a pawn shop.  The main similarity is it should really only be used as short-term sources of money.  If you have a 5 year plus time frame, the money taken out of the 401K can have a significantly impact on your retirement savings.  The other big risk is leaving your company, which will increase with the longer time frame.

I think the "double tax" aspect of the 401K loans is overstated since it only impacts the interest portion of the payments.

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