When should your 401k be used for investment down payments

[Desmond Etheridge]

I am interested in buying a multifamily unit in Louisville, KY to begin my real estate journey. I currently own the condo unit I live in, so living in part of the property I look to invest in is not an option. I have been told by lenders that to buy an investment property with multi units will need a 25% down payment. I am considering tapping into my 401k to use for the down payment and maybe having the property put into an IRA. I am looking for advice on when it would make since to use retirement savings for Real Estate.

I understand the power of compounding interest and am concerned that using 20k from the 401k to move towards owning a rental property could be a high risk, high reward scenario. Any financial advisors, experienced investors and investors that have taken similar approches to fund a rental property, please provide insight. The current property I am looking at has details listed below:

Duplex, 2000k sqft.: Both Units 3bd 1ba

Price: 86k

Includes off street parking, separate laundry rooms per unit, separate meters

[Glen Nash]

I would assume this is not a Self Directed 401K and is with your employer. If that is true, your IRA can not own the Duplex.

If you have more then 40K in the 401K you could take a loan for 20K (50% max balance) loan from the 401K and pay your self back the interest. The money will need to be paid back in 5 years so make sure you put that in your numbers.

I would talk with your CPA and lawyer to verify everything is in order but if the numbers work I would absolutely (and am) use my 401k to fund my deals.