Help!! - Cash out my wife 401k for Duplex?

[Sam Gergley]

Hello,

Here is my idea, is it a good one?

My wife is starting a new job and we are discussing options in regards to what to do with her current 401k that is worth $16,000.

Our plan is to use whats left after income tax and early withdrawal penalty to move into a duplex and rent out our current property. 

I have about 20% of my current income diversified in my 401k and a Indexed Mutual Fund so I have a plan for retirement regardless of my wife's 401k.

Is it a good idea to cash out a 401k early to fund a rental property?

The potential numbers are below:

Renting our current place:

Rent for $1900

Monthly Cash Flow: $200 (Accounting for expenses using SFH Rental Property Calculator)

Move into duplex (FHA Loan) :

Rent one side for : $1400

Live in one side : $0 

Total Cost : -$800  (Mortgage +Expenses - Rental Income for other side)

Total Savings by Moving into Duplex:

Current Mortgage Cost - Future Net Cash Flow with both properties

$1400  - ( -800+200) = $800 in income per month

So we will go from spending $1400 a month in mortgages to actually making $800 a month.

Thoughts? 

Thanks!!!

Sam