401k loan for real estate investing

[Eric Ferrer]

Happy new year to everyone! Would like some feedback and perspective on using a 401K loan for real estate investing purposes. Thoughts?

[Basit Siddiqi]

Originally posted by @Brian Schwarzkopf:

@Eric Ferrer, I'm of the opinion that REI can perform better than a 401k and I hate the fact that you have to pay a penalty fee for withdrawing 401k money early. For people that can't control themselves enough to keep from spending their retirement before they retire, they probably need those legal guard rails but I'd rather take my chances. So maybe before you cash-out your 401k, see if you can control yourself enough to save up half of the down payment. If you can do that you're probably safe to play with your money as you see fit. I've also heard of something called a "solo 401k" where you can decide how and where to invest the money. It might be worth investigating.

All that being said, I also think that you should have a diverse portfolio, so keep some money in your 401k (or other, non-real estate market) to hedge your bets against another real estate market downturn. 

Hope that helps!

Brian - Eric is talking about taking a loan against the 401K and not necessarily to withdraw the funds.
Taking a loan against the 401K is not subject to penalties.