401k loan for Down payment and contingency fund.

[Joel DeLuca]

I have a 401k with a previous employer that will allow me to take a loan against. The company is a large multinational that is unlikely to change plans suddenly or be bought out.

I would be looking for conventional financing. I would not expect the property to cash flow during the payback period of the 401k loan, (guessing 3 years of a 5 year loan). I would take out excess funds so that I would have an contingency fund of sort for short-term vacancy and maintanence.

Has anyone here used 401k loans to get seed money to get started in invested in SF? Any advice or cautions?

[Mark H.]

Cash is fungible.

If you have $20k in savings today, borrow another $20k tomorrow, pay $20k in assorted other bills over a few months... then put 20k down on a loan, did you borrow the downpayment, or did you borrow the $20k to pay your other bills?

Another example... Ive got 5k in my business account. I collect $2k in rent from my tenants, then stop by my bank, deposit that $2k, then write two $1k checks to cover the mortgage payments on those rentals.. did the tenants just pay *my* mortgage payments?

According to the rules of accounting, they did not.

But they did to most people...

401k "loans" that arent paid back arent treated like normal consumer loans. The irs might send you a bill, but no one is going to drag you into a debtors hearing and order you to empty your pockets in front of a judge.