Using retirement to buy condo

[Jennifer Allen]

Hi. I'm from Phoenix Az and I am 34 old.  I'm tired of living paycheck to paycheck.  I know I will pay lots of money in taxes if I take out my $43,000 retirement early, but it is my only way to come up with the money to put as a down payment on real estate.  I would like to buy a condo in a very great location near Arizona State University. I am very familiar with those condos since my mother has lived there the past 5 years. They are newer and beautiful and rent out quickly. I feel confident this would be a good investment. The condo is $87,500.  I would have enough money to put down.  Also the rent would be cheap enough for me to pay if someone does not rent it that month...around $500. Does anybody have any advice to give me? Any words will be helpful to me....Jennifer

[Chris T.]

@Jennifer Allen - Are you looking to make this purchase so that you can supplement your income with the cash flow (i.e. "tired of living paycheck to paycheck")?  If so you will really want to make sure that you will be getting the cash flow that you need from the investment.  Condos will have high monthly association fees and you want to make sure you are accounting for insurance, vacancies, repairs, etc.  Once you have calculated what your actual monthly cash flow will be, ask yourself if it is worth paying the taxes and penalties for cashing out your retirement fund.  Is it worth it for an extra $50, $100, $200 a month?

If you are not going to be doing this for the immediate cash flow, then you might want to look into converting your retirement fund into a self directed IRA if you believe real estate will be a better investment than what you currently have. You will not have to pay the penalty nor taxes, but you will not be able to collect/spend the cash flow. Just be aware that your retirement "fund" will now be much more active and will have new risks.

I too am 34 (grew up in Tempe in fact) and believe in the long term pay out rather than the short term gain.  I am using rental properties as part of my retirement strategy so I too see the benefit.  $43K in retirement is a good start and if left for retirement will have ample time to grow (30+ years).  Just make sure that what you would lose in pulling out your retirement savings is worth it in the long run.