401k Loans as Capital for Investing

[Devin Woods]

I was wondering if anyone has had experience using a 401k loan for capital towards buying an investment property?

Most company 401k plans (including mine) allow you to take out a loan of up to $50k (or the lesser of 50% of the balance). My thought is to use this as a means to acquire properties at a quicker rate. Obviously I'd have to factor in the repayment of the loan into the equation when analyzing a specific deal, and this will drastically cut into any cash flows during the repayment period, or add into holding costs for a flip.

I wanted to see if anyone actually has had experience in doing this, and if so what guidance they could offer. I've used my 401k balance prior as a proof of contingency funds when buying properties, but never actually as a down payment. By the way, in this scenario, I would still be financing, most likely commercial for 4+ multifamily properties. Any insight would be greatly appreciated.

-Devin

[Tom S.]

@Devin Woods  Biggest drawback is if you suddenly lose your job, you have to repay the loan in full or it's taxable income. I wrote about this recently in another post, I knew someone who did a $30k loan for a rehab, lost his job, and therefore couldn't pay the loan back (or refinance the rehab), then owed $10k to the IRS.  

So it can be a useful tool, but you have to understand the risk involved.  

- Tom