@Jasmine Benford
It may be worth it, but here's the ugly truth relative to "cashing out" a 401K...versus rolling it over to a SD IRA.
Any withdraw (or cash out) from a former 401K, will typically require a 20% tax withhold, so right away you are only going to receive $9600. This in addition to the 10% penalty.
Then comes time to file your taxes for that year...that $12000 is considered additional income, so you are possibly entering into a higher bracket. That 20% that was withheld will help with the tax liability, as it will be included with 'taxes paid' for the year. Then comes the 10% penalty ($1200), which is tacked onto the end of your tax bill. So effectively you're coming away with only $8400 of your $12K. It cost you $3600 to get access to $8400...which sucks!
I would consider rolling that 401 into a Self Directed IRA, which will be the entire $12000. Then think about adding to it for investing purposes, if that meets your ideas and plans.
But I understand your thinking...take the hit and get the 8 grand to invest, in which I would pursue something 'outside' of a SD IRA. You will typically need about 20% for down payment on investment property, you can do the math and realize $8K will be a little shy for a decent property. So these are my thoughts, and they come from experience in withdrawing from tax deferred accounts, which leaves a bad taste!
Good Luck!
