Job Change - Roll Over 401k or Invest in Existing Rental Property

[Andrew Reid]

I also posted this on Reddit Personal Finance subreddit

I would like to get feedback on my current situation and trying to make a final decision. I have money in a 401k from a previous job and also a rental property that is not cashing flowing at all. I was living in it but no longer doing so and therefore I need it to cash flow. I cannot sell it now since I would incur a lose. It is a 2-family.

Below are two scenarios, feel free to check my math. I believe it makes more sense to invest the dollars in the rental property and start putting 6-10% into my new company 401k. My company matches at 6%.

TL-DR: Scenario 1 results in $593,490.00 and Scenario 2 results in $692,791 after 32 years. The latter assumes sale at 32nd year. If not sold, annual cash flow is approximately $24,536 after expenses. I should note, the cash flow swing on the rental property is $662.30 this year.

Scenario 1 - Roll over in 401k or leave in existing 401k (either way I do not pay fees according to both companies)

401k Balance $49,822

Link: http://www.bankrate.com/calculators/retirement/401...

Assumptions

Annual Rate of Return - 8.05% - this is the annualized rate of return since initial purchase

Current Age 33

Retirement Age 65

New Annual Salary $112,500

Percent to contribute - 10%

Retirement Balance (before Taxes)

$3,947,497 with rollover

$3,354,007 without roll-over

Delta

$3,947,497 - $3,354,007 = $593,490.00

I believe this is the number to compare against.

Scenario 2 - Withdrawal and pay 20% tax and 10% penalty on 2017 return and invest in rental property

Link: http://www.calculator.net/rental-property-calculat...

Current 30 year FHA mortgage @ 4.75% with PMI. Withdraw and pay mortgage down to 78/22 LTV to remove PMI and invest the rest to gain higher rental income. Checked with Realtor and can achieve said rents after investment.

22.5-year @ 4.75% (Result after one time payment on mortgage - via loan servicer amortization schedule calculator)

One-Time Cost (invest rental units) - $12,300

Purchase Price (Current Balance) - $241,769.13

Down Payment (Amount to Pay Down to 78/22 LTV) - 11.6016176% of above Purchase Price

Assumptions

Property Tax & Annual Increase: $9050 & 3%

Insurance & Annual Increase: $1,110 & 3%

Maintenance & Annual Increase: $1000 & 3%

Monthly Rent & Annual Increase (Conservative?): 2%

Vacancy Rate: 5%

Management Fee (self managed): 0%

Value Appreciation (conservative?): 2% per year

Holding Length: 32 years (until age 65)

Sell Cost: 9% (Closing Cost, Fees, agent fees, etc.)

Based on calculator

IRR per year: 12.92%

Return on Cash Invested Total Years: 1716.99%

Cap Rate: 12.41%

Total Cash Flow @ 32years (if sold): $692,791