401k loan request for investment property

[Alejandro Lee]

Hello everybody!

Just purchased my first investment property which leaves me low in cash. My agent sent me another duplex property that has potential but i am currently low on liquid cash. I was planning of getting a 401k loan ($15k) for a downpayment. Is it a good idea? What do you guys think for this situation? Thank you in advance! 

[Michael Garofalo]

Alejandro,

I have done this before to come up with cash for a down payment. It's a great option so long as you aren't planning to leave your job anytime soon. If you were to take out a loan for 15k and then leave your employer, you'd likely be responsible for paying off the loan within a short period of time (60-90 days is probably standard). Also consider the tax implications, as you'll be repaying that loan with post-tax dollars, and then you'll get taxed again once you are eligible for withdrawals. 

All that being said, I think it's a fantastic option. Doing this would also protect you in the event of a stock market downturn (your portfolio would feel less of an effect since the total holdings are lower).