401K for Real Estate Investing?

Question

Hi BP mates!

I've been hearing a lot about a possible Recession and to be honest, I'm not that surprised, if you know everything negative that's happening in this country...thankfully, we still have some positive things going on.

I'm wondering if anyone else is debating what to do with their 401K. During the last recession (I was still too young to have a significant amount on my 401), but my father did lose a good chunk of his money. Due to this affecting our family, I am very cautious with what can happen with mine, now that I have a good amount saved up.

Does anyone recommend taking it out and investing in real estate? Yes, I will pay all penalties, but in my opinion, it might be less than what I would lose keeping it in stocks and bonds. I may be looking into investing on my second property, if possible...yes, I'm still a newbie! First property is actually my own home, which I rent out.

Keep it in there and pray nothing happens?

Transfer to a Bank Savings Account until the the panic stops?

Any other options out there?

Your opinion will help me tremendously and may help me understand the reason why we have a 401K anyway...instead of just investing every penny.

Account Closed · Answer

@Melody Kushi

I think you should keep the money in your 401k and work on your asset allocation between stocks and bonds.  Then, rebalance as necessary.  I assume you do not need this money for decades.  Why would a recession be bad for you?  It would be a great buying opportunity.  Imagine loading up on equities in ~ 2008.  What would your return be today?  How passive would all of those gains be?

Carl Fischer · Answer

@Melody Kushi

I am a fan of retirement accounts, but I like to have more control over the things I invest in. Have you heard of a self-directed IRA? This type of account allows you to keep the 401(k) monies you have saved in a qualified retirement account, and allow you to invest in things like real estate or as @Brian S. mentioned a real estate fund. What that means is you do not have to take a tax hit and pay the early distribution penalty, but you can get your funds out of the stock market.  Are you eligible to rollover your 401(k)?

There are some rules for things and people you can not invest in or with. Your personal home that you rent out would not be a qualified investment for your self-directed IRA (SDIRA). If you are interested to learn more, there are many forum posts here about SDIRA's, and you can also ask me any questions you may have.

Brian S. · Answer

@Melody Kushi I was in a similar position with my 401k. Long story short, I took another position in my company that put me abroad for a few years. Since it was technically illegal for me to receive US dollars from my company, including my 401k, I had to figure something out.

I left the money in the 401k for about a year then finally decided to use it for RE investing. I found the IRA rules are too strict to buy property with the money but I did find a RE hedge fund to put the money into. I shopped around for an IRA to move the money and eventually found a company with reasonable rates. After the money went to the IRA, I invested with a reputable RE hedge fund with a nice rate of return. I don't think its gets any more passive than that. This is great for me since 1, I am still out of the country and 2, this is my retirement fund and prefer to hands off anyways.

Brian

Anthony W. · Answer

@Melody Kushi link up with a Real Estate agent first. The real estate agent will put you with a great contractor that they trust and that is how you build the core for that David Greene speaks about.

Melody Kushi · Answer

@Anthony Ward - thank you so much for your input! I've definitely been leaning more towards taking it out, bite the bullet for now, but make some smart investments with it. I've been lucky enough (with hard work of course) to have perfect credit and my interest rate is 3.25% on my own home. I'm waiting for a lower rate to re-finance lol...hoping it gets lowered in the next few months or years.

I'm definitely looking to connect with contractors who can help me flip some deals in the NJ area. I already have my eyes on some great properties, but do not have the connection to move forward yet. Hoping this community can help us "newbies" out to be as successful as they are.

Anthony W. · Answer

@Melody Kushi I completely understand where you are coming from and i agree with you. I personally am taking all my money and moving it to real estate. Having your money parked somewhere that is a bit more stable is the smart decision in my opinion. Just a course of action and of course this is just my opinion I would refi your house (get that equity since interest rates are low), take that money from your 401K and park it in some type of multifamily that cash flows. Since the debt is so cheap you having low interest rates that are locked in will keep your rates low as well as allowing you to still cash flow through the recession. If you buy a great deal then a recession will not really matter much. I hope this makes sense to you and i truly hope my opinion helped im also an newbie and we need to stick together lol.