401K for first real estate investment

[Liam Martin]

Hey BP,

I am in the process of buying my first rental property. I live just outside of Boston, MA and plan to buy a property within 30 minutes of my current residence using FHA financing. I found a couple of deals that could make sense and have confirmed my analysis with a fellow investor to ensure my numbers are correct. This area is loaded with rental properties, but most are on the expensive side.

I have a good amount of cash saved up for the down payment, however, some properties that are just slightly out of my price range have even better potential for ROI.

I wanted to hear some thoughts on taking an early withdrawal from ones 401k to fund part of a real estate investment. Since I am 24, live with my parents, and have very few expenses, I’ve contributed rather aggressively to my 401k for the past 1.5 years and have plenty of money in it. I am aware of the penalties and taxes associated with an early withdrawal but feel that leveraging this money to contribute to a buy and hold rental is worth it in the long run.

Based on the above, does this sound like a reasonable decision or is it short sighted? All responses are greatly appreciated!!!

[Aaron Montague]

@Liam Martin

Don't do an early withdrawal, take a loan:

https://www.investopedia.com/a...

As long as you don't plan on leaving your job soon, the 401k loan is a solid way to add a bit more cash to the deal.

Focus on paying the loan back so it isn't hanging over your head and then you will be back on track.