Over the years, I’ve run into countless individuals searching for funds to kickstart their investment journey, unaware that the solution was right at their fingertips. They didn’t realize that the establishment allows you to borrow from your 401(k) to invest in real estate.
It’s true; you can take a loan out against your 401(k) funds without taking a hit in penalties. Utilizing your retirement funds to invest in a rental property is a wise strategy that will take your money out of a risky investment vehicle and place it into a stable and lucrative asset.
Using a 401(k) Loan as Capital for Rental Real Estate
Securing a 401(k) loan to buy an investment property is a wise strategy, no matter how you look at it. This approach enables investors to leverage their retirement savings to acquire tangible assets that provide incredible tax advantages and generate a steady income stream.
Borrowing from your retirement funds can place a valuable asset in your hands that’s safe from economic turmoil. Also, because real estate appreciates, the equity can be utilized to purchase additional properties. I put together a whole article on this topic and think it’s worth diving into – Harnessing the Power of Home Equity to Buy a Rental Property.
Now, let’s look at some information on taking out a 401(k) loan so you’re well-informed and able to determine if this is the right strategy for you.
Preserving Your 401(k) vs Redirecting it to a Rental Property Investment
I realize many of you may be a bit uneasy about touching your retirement funds because society tells us it’s the wrong thing to do. They tell us the money should be left alone until retirement years are reached. Then, and only then, should you tap into those funds.
However, those who do even a little research on the subject will realize that it’s actually unwise to leave your 401(k) funds untouched, where they become a sitting duck, at the mercy of the volatile stock market.
Think about it, what happened to all the 401(k) accounts when Wall Street was hit by the pandemic? Many people lost half their savings. What if they were set to retire during that time; they would most likely have to continue working.
You see, placing your money into a hard asset that’s shielded from the economy and Wall Street is a smart strategy, and so borrowing from your 401(k) to make that happen is perfectly justified. If you’re still unsure about tapping into your retirement funds, then read over the following article that will paint a clear picture for you – Why the 401(k) is a Bad Investment Vehicle to Retire On.
Who Should Consider Borrowing From Their 401(k) to Buy Investment Properties?
Investors often roll over their 401(k) into a self directed IRA where all their retirement funds can then be used to buy a rental property. However, this is generally done by individuals who don’t have a 401(k) attached to a current employer. Why? Because policies often prohibit rollovers from accounts associated with an individual’s workplace.
That said, the best candidates for taking a loan out on their retirement savings would be individuals with a 401(k) linked to their employer, because borrowing is allowed while you’re employed.
The Simple Process of Taking Out a 401(k) Loan
Accessing the funds from your retirement is a simple process – just head over to the loan area on the website associated with your account and enter the desired loan amount. There should be information on the page that will walk you through everything. However, if it’s unclear, you can always call the provider to speak with a real person who will answer any questions you may have.
You’re generally limited to borrowing up to $50,000, and it’s typically paid back through automatic deductions from your paycheck over a five-year period. While interest charges may be a concern for some, know that they’re not a loss. The interest is actually paid directly back to your account and, therefore, boosts your savings, potentially helping you legally surpass the annual contribution limit.
Morris Invest has worked with many clients who have borrowed against their retirement accounts to fund a rental property. With that in mind, we can help you sort out how to gain access to your funds through a loan. So, feel free to reach out and schedule a complimentary phone call if you need some guidance.
Best Use of Borrowed 401(k) Funds – Down Payment on a Rental Property
Because the loan limit is $50,000, most investors apply it towards the down payment of an investment property. When it comes to the down payment, your tenant will pay this back for you when your rental income starts flowing in like clockwork each month.
A typical downpayment on our properties ranges from $50,000 to $60,000. So, as you can see, taking out a loan such as this will enable you to purchase a piece of real estate through us.
If a 401(k) loan is just a small part of your strategy, and you’re looking for additional funds to come up with the down payment for several properties, then you’ll want to dive into the following articles I put together below:
Locating an Income-Producing Investment Property
Ok, so you have your 401(k) funds in hand, but you’re not exactly sure what the next step is to make a real estate purchase happen. Or, maybe you don’t have the resources or the knowledge on how to locate a cash flowing property – this is where Morris Invest comes in and makes it all happen for you.
Our full-service real estate company builds new construction rental properties from the ground up, in prosperous locations that have been watched closely for years. If you’re not familiar with how advantageous build-to-rent properties are, then see our article on the topic – The Benefits of Investing in New Construction Rental Properties.
Our properties deliver an 18%+ IRR and sport built-in financing. Additionally, because of the high demand in the areas we build in, there’s often a tenant waiting list, which ensures a low vacancy rate. On top of all this, we take care of every detail, even placing a reliable tenant in your property for you so your rental cash flows from the start.
We’re currently building in Texas and encourage you to read our article on what makes Texas so profitable for real estate investors. If you’d like to hear about the specifics of our properties in Lubbock, TX, reach out to one of our team members; we would be happy to fill you in on all the details.
Power Resources for Real Estate Investors
- The Financial Freedom Academy
- Freedom Number Cheat Sheet
- 90-Day Financial Empowerment Bootcamp
- Morris Invest & SDIRA Program Overview
Transform Your 401(k) Funds into Real Estate Wealth
If you plan to borrow from your 401(k) to invest in real estate, and would like to purchase a cash flowing property in a location that’s proven to yield high returns, then don’t hesitate to contact us. Morris Invest helps individuals achieve their dream of owning income-generating properties, and we can certainly do this for you also.
The key to making it all happen is to take the first step by scheduling a free 30-minute call – we would love to speak with you about your investment goals and look forward to providing you with a cash flowing property that can help you reach financial independence.
If you’re concerned about your retirement savings, you’re not alone – watch the following video for some eye-opening details on this:
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