In the first part of this article, I show you the analysis I performed comparing what your annual returns would need to be as a 25-year-old taking out your 401k to start investing in real estate.You will see that at first glance, it may seem to make sense to liquidate the 401k, but be sure to keep reading, as there are better options.The most optimal way to use your 401k is to either move it into a self-directed IRA/solo 401k or to take a loan out against the funds to help you invest in real estate.
The one limiting factor is that you cannot get a conventional recourse loan with your 401k.
That means that the low-down payment, owner-occupied loans are not available. You can give yourself a loan from your 401k for the lesser of ,000 or 50% of your 401k’s balance.
Depending on the balance of your 401k, this will free up to ,000 for you, which will be more than enough to get started on a house hack.
Americans work hard to sock away money for retirement.
Taking a loan out against your 401k does reduce the amount of your reserves and therefore may impact your ability to get financing.
First off, I need to disclose again that I am neither an accredited financial advisor nor a CPA. While I am sure there are many ways to creatively use your retirement funds, I am sharing with you what I have learned and what seems to me are the most plausible scenarios.
Rather than having your 401k held with a financial advisor and being diversified amongst asset classes that return ~7% annually, you can move it to a self-directed IRA or a solo 401k to manage yourself.
With these self-directed accounts, you can invest in anything.
This is certainly not the best use of your 401k money, but if you do not care much about the balance of your 401k and are looking to invest in real estate to achieve early financial freedom, this may make sense.
So, rather than going ahead and liquidating the 401k, use it to your advantage.
There is a high probability that this will either prevent you from taking out a conventional loan or at the least increase the cost significantly. Fortunately, there is a way for you to invest in these same high-yielding assets (i.e.