Down Payment Advice: Roll 401K into IRA into Down Payment

[Greg N.]

Hey All,

I plan on purchasing my first property by the end of the year and I'm thinking about how to most effectively use my funds/savings for a down payment (about 20-25K).

I amassed a small 401K balance with my previous employer (around 10K), and rather than rolling it into my new employers' 401K, I figured I could get a better return by using the money towards a down payment.  

From my initial googling-around, it seems like rolling the 401K into a self-directed traditional IRA and using that towards the down payment would be my best bet (will be taxed, but won't have to pay 10% penalty if I just pulled money out of the 401K).

Has anyone ever done this before, or planning on doing it? Would appreciate your thoughts on whether or not this is a great/terrible idea. 

P.S. Going forward, I do plan on saving up some money in my new employers' 401K program to take advantage of their profit sharing model. But, I won't be contributing the max amount as I want to funnel most of my cash towards real estate.