Real estate purchase using 401k

[Henri Meli]

I learned something recently about 401ks that I didn't know before and it really threw me off. Now I'm scrambling for alternatives.

I have been working a corporate job for the last decade. During that time I have invested in my 401k and following the advice of lots of financial Gurus, I have contributed the max allowed by law every single year. Simultaneously, I have also been purchasing real estate... I own 4 properties and I'm always looking to add to my real estate portfolio.

Recently, I found a property I'm interested in purchasing. My plan was to move into that property and rent my current primary. After talking to lenders, I was told that I'm carrying too much debt and that I needed a very big down payment to keep my mortgage payments low and within manageable range.

Because I didn't have that much cash available, I called my 401k provider and asked if I could make an out-and-out withdrawal from my 401k and use the money for my down payment. I'm very far away from 59. I'm well aware of the 10% penalty for early withdrawals and the fact that I will be taxed at my current income tax bracket. I'm comfortable with those things.

But my 401k provided told me that I couldn't take money out of my 401k, unless I could prove "hardship". Under hardship they cited things like High Medical Bills, Burial/Funerals, Education, ... etc. Basically, I couldn't claim hardship for purchasing another home.

I wasn't aware that I can't even take out my own money from my 401k, whenever I wanted to, even if I was willing to take financial hits that come with it. Taking out a loan against my 401k could be an option. I have been using the loans for a while to finance some of my properties. But 401k loans have a limit of $50k or so. I need way more than that.

Needless to say that I have stopped the 401k contributions (only contributing up to my employees match).

Given the fact that I do have money, but I can't cash it. Based on your experience, how can I find people willing to lend me money? Can private lenders accept the balance in my 401k as proof that I'm financially capable?

Henri