Reducing 401(k) Contribution to Fund Real Estate Business?

[Christopher Dru]

I have been reading a ton of material (including Bigger Pockets books!) on real estate investing to educate myself before purchasing my first property.

I've been scanning the MLS and been in contact with my agent for the past two months looking for a small multifamily or single family home to house hack.

Based on my local market, it's looking like a single family home will be the most realistic first purchase.

My strategy is to put down about 10% (or lower) using a conventional or FHA loan, make value-add minor rehabs to the property where needed while living in the property (live-in-flip), and then move into a different property and place a tenant in the first (and repeat over several years to acquire multiple properties).

I know there are creative methods to finance real estate deals rather than using your own cash. However, for at least my first couple of deals, I want to use my own cash to learn the process from the inside-out (and pursue other financing methods later on).

To increase my cash savings rate in the short term to cover my future down payment(s) and rehab cost, I've considered lowering my 401(k) contribution to an amount that would meet my company's match but no more. This would provide me the capital necessary to fund my real estate business and get it off the ground and also provide a conservative reserve for unknown expenses.

Effectively, I'd be making the decision that I can actively manage my real estate portfolio in a way that will generate a return better than the stock market (index funds via 401(k)).

I've been a passive index fund investor for years and the thought of decreasing my retirement account contribution is painful. However, long-term real estate investing makes sense to me and I can see the value in actively working the business as an investor over a 20+ year period.

I can always increase my 401(k) contribution back to its original rate in the future once I feel solidified with my real estate portfolio foundation.

Has anyone else taken a similar approach when starting their real estate investment journey? Thoughts on deferring traditional retirement account capital to utilize it in the real estate market long-term?

Thank you all so much for being willing to share your expertise. I love BiggerPockets!

[Tim Johnson]

@Christopher Dru yes.... on sticking with your 401k to employer-match level. Don't miss out on that.....and emphatic yes.....on moving all other excess and available cash to REI. While feeling scary or painful - at the very least it would represent a better balance and more stability in your investment portfolio. Your plan seems cogent to me.