I have a sizeable 401k but my Bay Area rent is putting a damper on my ability to save quickly. I'd like to buy here and potentially house hack, but it seems as if I'll be saving for years if I rely on only my savings, whereas I could use my 401k to get over that huge hurdle. It really feels like the down payment is the barrier to entry, not the monthly payments.
Nothing is 100% sure, but it seems most likely that the stock market (and thus 401k) will take a sizeable dip soon whereas SF real estate will be minimally impacted - therefore this problem will be drawn out for many more years if I don't act soon.
For someone who is very financially stable but simply unable to get past that barrier to entry - is it a good idea to borrow from one's 401k to get into the market?
Fellow Bay Area resident and REI investor here. Run through the home affordability calculators online. After a down payment, consider your monthly payments: will you have enough savings to cover 6 months of PITI?
Your max 401K loan is limited to $50K or 50% of your 401K, whichever is less. That's nothing towards a down payment for a Bay Area home.
My suggestion would be to hunker down, reduce spending where you can, find roommates, or move to a cheaper place. But if you locked in a decent rental rate, rent control will work in your favor as a renter.
Consider this: buying a home, in the long run is cheaper, assuming you don't move for a long time. If that's you, great, but consider this: the average American moves every 7 years, and home buying calculators usually tell me its cheaper to rent... (Assuming you invest your savings well)
I would make the decision regardless of how you feel about the market. Those that try to time the market generally get destroyed...dollar cost average going in, stay in.
you really have to decide on the opportunity cost for yourself. will the stock market continue to appreciate as it had the last couple of years? will the CA RE market continue to trend the same as it had? Do not make an emotional investment decision. If you want a place of your own and don't care about speculating on appreciation or what the RE market will do in the future, then, by all means, go ahead and get yourself a place you can call home. Obviously, try to get a place that's under-valued, but that might be tougher in your market. Use the $50k from your 401, then quickly pay it back (since you appear to have the means), if you are worried about missing it on the stock market gains.