I love that you are thinking outside of the box. So many people against this idea haven't thought it out completely and they don't realize that everybody's situation is very different. It's just switching out one retirement vehicle for another, and you have to do what's right for you. You pay taxes on 401k withdrawals whether you are 40 or 60, so the 10% penalty you get is what you have to factor in with your decision.
It's impossible to say whether stocks/bonds in your 401k or real estate that you acquire will do better over the long haul. If you hustle and you are passionate about real estate investing my gut tells me that you will have more wealth in the long run from real estate.
Have you considered only taking a portion of your 401k out? Most administrators will allow you to take out chunks at a time. "Chunking out" can be a good strategy to spread out your tax burden over several years.
Can you pull a line of credit on one of your properties to use as an emergency fund?
Best of luck to you!
