Rental Property Investor · Member since 2018 · 57 posts · 75 votes
Hey everyone, sorry if this has been asked many times before. I did a quick search, and found some people who said they had borrowed against their TSP for real estate investing purposes, but I was wondering if I could pool the hive mind for some more details on the process.
When borrowing from the TSP do you arrange it through the TSP or is it a 3rd party lender with the TSP as collateral?
I keep hearing that you pay yourself the interest. What is the amoritization time frame? How do you pay yourself back (is it a monthly or bimonthly payment, is it taken directly out of your check like a withholding? What kind of monthly payments were you looking at when borrowing the full 50k?
When the money is out of the TSP I am assuming it is no longer acquiring the gains/losses from sitting in its fund. Is that correct?
Can this process be repeated? As in, once you have paid yourself back, can you (and if so when can you) pull the money back out again?
@Kent Hall I've taken out a TSP loan to buy a property.
When borrowing from the TSP do you arrange it through the TSP or is it a 3rd party lender with the TSP as collateral? It is arranged through TSP. The money is withdrawn from the TSP and deposited right in your bank account.
What is the amoritization time frame? The time frame is up to 5 years. A lot of this info is on the TSP website. Here's a copy and paste directly from the site: There are two types of loans: general purpose and residential (for the purchase of your primary residence). The general purpose loan has a repayment period of 1 to 5 years; the residential loan has a repayment period of 1 to 15 years.
-You can have only one general purpose loan and one residential loan at a time.
-You must wait 60 days from the time a loan is repaid in full until you are eligible to apply for another loan of the same type.
-The TSP will deduct a $50 fee from the proceeds of each loan issued.
-Your loan will be disbursed pro rata (i.e., proportionately) from any traditional and Roth balances in your account.
-For complete rules, and to understand the potential impact of your loan on your retirement income, read the TSP booklet
How do you pay yourself back (is it a monthly or bimonthly payment, is it taken directly out of your check like a withholding? It is bi-monthly....or every pay period. It is automatically taken out of your paycheck.
What kind of monthly payments were you looking at when borrowing the full 50k? Not too sure about this but it would be about 385 per pay period plus whatever the interest comes out to be if you do the 5 year pay back. So, your monthly payback would be about 770 plus interest plus whatever you are contributing to your TSP. You can drop your contribution but you need to keep it at at least 5% for the matching. This is interesting because the max you can contribute without a loan is like $710 per pay period if you are maxing every pay period ($18,500 per year). So if you had a loan and could continue to contribute the max to your TSP you'd be dumping in like 2400 a pay period (the max contribution plus your loan payback).
Something I've kicked around is pulling another loan for a primary residence or the "residential loan". The repayment for that is 15 years. Then I would have a lot more money for a house hack situation. I would only do this if the deal was awesome and I could house hack it...so at least 2 units but preferably 4.
@Ryan E. Thanks a ton for taking the time. Sounds like a pretty solid way to “invest” in yourself. Kind of like a round about self directed retirement account.
Hey I know it’s been awhile so I’m not sure if this still applies to you, but I am in the process of going through this right now. You submit the application for the loan on the tsp.gov website, then you have to print out a two page form, fill it out with your bank info (for direct deposit), have it notarized, and then fax it in (of course because it’s the government they only accept snail mail or faxes). They told me it takes 10 days to process the application and then 2 days for the money to be deposited into your account (5+ days if you elect to have the check mailed to you). I am getting the general purpose loan, much less paperwork than the residential one. And as stated before, the payments are automatically deducted from your paycheck based on the amortization period you choose.
It is a great source of capital though. I am using this for the down payment on a four unit property; so I can live in one unit, claim that as my primary residence, and rent the other three. My TSP hasn't been doing so well as of late, so O believe I will actually have better returns investing that money into real estate. And then that money isn't in stocks when the market corrects so you won't be as exposed.