how bad can it get and what am i missing

Question

what am i missing?

i'm a planner and admittedly sometime too much planning too far into the future.  So here is my plan, withdraw as much $ from the 401k as needed (pay the penalty and taxes) to pay off the MF rentals that we currently own.  in my simple mind, the worst case is that the global economy collapses (assume worse than '08) so it might be hard to maintain rents at current levels but with no mortgage to cover, the break-even rent has to be fairly low (i.e. the rent needed to cover ALL monthly expenses) and its unlikely we couldn't find someone to rent it at the break-even if needed.  Assuming the last point is true (is that a fair assumption?), i don't see how i could lose the buildings/starve/be on the streets, right??????

Thomas S. · Answer

What is your return on your money at present and what do you calculate the return on equity if you pay off your mortgages.

If your money is in equity in properties and the market drops, as it did in 2008-9 are you prepared to lose all your equity. What then happens if your personal life/job etc. takes a dump and you are forced to sell or walk away.

Your irrational fear is suggesting you make decisions that have a far worse potential outcome than would presently exist if you did nothing going forward. With the present senerio you risk losing the properties, with your suggested plan you lose the properties and all your money ???????

There is no logic in preparing for the end of the world.

Bryan O. · Answer

Why not shift your 401k investments into cash funds and wait? You are talking about forcing huge losses because you think there might be losses in the future. If everything goes to crap like you're talking about, then it won't matter if you've paid down those properties.

LuAnn Vigen · Answer

Mike, I have had the same conversation with my husband. We have our home that is paid for and we also wonder if it would be a good idea, to have all our SFR paid for, so if/when the economy crashes and/or the dollar collapses, we could lower our rents to keep them full and still cover our property taxes on the SFR.

If you want to use your 401k, I would recommend paying of your home first, to make sure you have a place to live if times do get rough. You will have the penalty to pay, but I'm pretty sure if the economy tanks again, you will lose your money in the 401k anyway.

I just heard that 40% of all collage loans are in some form of default. That's a lot of people, that owe a lot of money to some banks,(not sure how the banks will survive this hit) they are not the next generation of home buyers. If they get their act together they might be our next tenants.

Mike R. · Answer

all the current props are cash flow positive so that isn't the problem.  I am trying to avoid being placed in a difficult situation.  I think the only way I get into a difficult situation is if the global economy crashes,  mass unemployment and at that point the the 401k is down significantly so why not use it  (the 401k) now to pay off the mortgages.  So IF we have another '08 I don't care that I may have to cut the rent significantly (because of mass unemployment there would be significant competition for renters with jobs that can pay rent)  because the monthly expense is very low.   Make sense?

David Stone · Answer

Maybe you could pay off one rental to collect full rent/increase cashflow and use the rest of the 401(k) money to invest in more real estate? Assuming your properties are performing well and you are trying to minimize risk as a worse case scenario.

Jake Thomas · Answer

Before I cashed out retirement accounts to pay off mortgages I may look and see what the bigger problem is. Are they cash flowing now? Maybe sell the property with the most equity now to pay down the others rather than loosing 50% of your 401K value by withdrawing it early. If the whole world economy collapsed we all have bigger issues than worrying about collecting rents and retirements accounts.

Jay Hinrichs · Answer

what has you so spooked.. you go from owning RE having enough in your 401k to starving on the street... think positive !!!

Jonna Weber · Answer

Are you not at least breaking even now?  If not, maybe it is time to exchange the property for something that makes money.   I would do that way before I dumped the 401k.

how bad can it get and what am i missing

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