Down Payment from 401k

5 Replies

Hey BP, I'm completely new to Real Estate Investing and I want to get in the game NOW. I have an LLC established, opening my business account soon here, and want to know about my first down payment. I don't have an IRA, I am currently employed, and want to withdraw from my 401k and use that capital as my down payment on my first rental property. As far as my 401k withdrawal, what is the smartest smartest way to get my capital, And what would be my penalty, if any, when doing so? I am ready to hit the ground running ASAP! Thank you for your feedback!

I wouldn't touch my 401k unless there is a way where you can pay it back and not take a big hit. If you just go and pull the money they will whack you hard for it. Huge losses, not a way to start out. I would JV with someone or save up the money before I pulled my 401k.

Originally posted by @Coreyell Lincoln :

Hey BP, I'm completely new to Real Estate Investing and I want to get in the game NOW. I have an LLC established, opening my business account soon here, and want to know about my first down payment. I don't have an IRA, I am currently employed, and want to withdraw from my 401k and use that capital as my down payment on my first rental property. As far as my 401k withdrawal, what is the smartest smartest way to get my capital, And what would be my penalty, if any, when doing so? I am ready to hit the ground running ASAP! Thank you for your feedback!

Please dont withdraw the 401k. Just take out a loan from 401k (1/2 of the vested balance up to 50k- I think). Rates are very cheap and you are paying yourself interest. 

Make sure your DTI is not over the threshold with the loan.

 

I believe if you take a 401K loan it needs to be paid back in 60 months.  If you take it for the down payment on your personal home I believe you can get a longer term.  

I bought my first home in 1984.  When I told the loan officer it was going to be a rental she told me it would be better if it was a personal home.  Then she nudged me and said " If you plan on it being your personal home and the day after closing your situation changes you may need to turn it into a rental"

2 years ago I got sniped on a HUD home that went to an owner occupied bidder. The bidder was an out of state real estate agent. She let the house sit for 6 months, then renovated it for a flip. When I asked a friend that is connected to HUD about it ( I was pissed off that the woman committed fraud in my mind ) my friend said " If she planned on it being her personal home and the day after closing her situation changed she can flip it no problem"


You Mileage may vary, but make sure you know your options for the 401K loan.  For sure it is better than getting hit with a 10% penelty and taxes if you rip the money out of your retirement.