401K loan as partial down payment?

[Eric Rohver]

I just found out that I can borrow up to $10,000 @ 3.25% from my 401K, but it gets paid back via payroll deductions. The only way to make larger payment on the loan is by paying the balance in full.

I'm an owner/occupant in a duplex with zero equity, my wife and I bought it as our primary residence using my VA eligibility with no money down. It's cheaper than our previous rent was by $400 mo. plus we can write off mortgage interest, so I'm trying not to beat myself up over it.

I'd like to buy another property that we can use as a 'stepping stone' towards growing a real estate portfolio, but our lack of equity is making it tricky. What would you do in this situation if you had 10k in savings and another 10k available at 3.25%?