It sounds like a better option for my purposes would be to roll into a traditional account that allows loans without a penalty for early payoff, thereby avoiding tax withholding and penalties. 

Any traditional product or commercial loan is going to want to see income.I own properties in that range and you can get financing.

The primary hurtle right now is permits aren't allowed in traditional residential zoning.

I am considering creating an s corp or llc for the property to utilize the limited liability and tax benefits, but I'm not sure if that would be better than a traditional house hack.I've been researching various options for a couple months and gathering information from the above sources but I wanted to get another opinion on my options.Any insight would be greatly appreciated.Thank you,Monty B.

In full disclosure, I have no intention of charging my partners interest since the 401(k) interest will be paid back to us ourselves only (no need to justify charging interest to counter the bank interest we’d be paying had it been a traditional bank loan).

Not to mention how well the stock market has been doing lately: The S&P 500 surged 29% in 2019, its best return since 2013.In previous discussions on here, I've noticed that some people can be quite opposed to anything other than investing real estate (specifically the stock market, traditional retirement accounts, etc).

(I am assuming 20%/25% down and a traditional 30 year mortgage at investor rates.)We are at such a low point in inventory that anything - turn key or run down - that is priced anywhere close to value frequently gets bid up above value.Could you find an off market deal where a seller is desperate to sell? 

@Joe Villeneuve just to follow up with the comment about it being a dead end, I come to realize a lot of people seem to think that way because of after buying the magic number of 10 properties traditionally it seems like a dead end but at that point shouldn’t you be looking at portfolio/commercial loans to keep pushing ahead?

@Mary AnnI have seen programs before for commercial/mixed-use properties that are no income (no doc) loans but they require 30%-35% in equity/down payment and the rate is normally 4% higher than a traditional 30 year residential loan.

These are usually safe investments as that's entry level home and has traditionally been not impacted by markets.