Is it worth pulling from 401k to buy first property?

Question

I don’t have a large amount of cash at hand, but I have a nice nest egg in my 401k. Can someone help me with pros and cons of withdrawing from my 401k (and the crazy tax hit) to buy a rental property (buy and hold)? What kind of cap rate would I need for this to meet the same return that this money would earn in my 401k?

Jonathan Taylor Smith · Answer

Hello @Kenny Hill - My first rental property purchase was funded with a loan from my wife's TSP account (Military 401K). Because it was a loan instead of a withdrawal, there was no tax hit. There was just the interest expense, essentially paid back to yourself, and whatever gain you might have made on those funds if they had remained invested. The loan was paid back over 24 months and I still own that property (and many others) 11 years later. I've since done the same thing several more times. TSP allows up to two simultaneous loans.

Is it worth pulling from 401k to buy first property?

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