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First off, I should be ashamed of myself. I am about to ask a question that I already know the answer to but I do want to know what others think about this.
I am 26 years old with a 401(k) balance of approx. $13k and I am investing mostly in Roth 401(k). I work full-time and I am getting to a point in my life where I need to generate additional income. Since I'll be leaving my company soon, therefore I can't really borrow against my 401(k) because my company will require me to pay back within 60 days, and if not, I'll be taxed at ordinary income with 10% penalty.
My question is, (I haven't done any discounted cash flow to this scenario, which I should), is it a good idea to liquidate the 401k, pay the taxes (about 30%) and use the cash as down payment towards a possible rental home? I am looking at homes b/w the prices of $80 - $120k in Houston, near University of Houston. I figured if I can get a 3 bed 2 bath home, I can stay in 1 of the rooms as a "tenant" and rent the other two rooms out and collect income. Since the home will be near a college campus, I don't see having a problem renting it out, as long as the price is right. Once I have accumulated enough income, credit back my 401(k)/IRA (I know I'm heavily penalized on it), live for pretty much FREE, keep accumulating income (work & rental), and eventually buy another home, and repeat. Too good to be true?
Is it worth looking into it? I figured it's a huge sacrifice to a greater potential maybe? Since the Houston market is BOOMING!
I am not "relying" on my "tenants" to pay the mortgage. I am trying to generate rental income.
Legitimate questions would be: Would you be able to afford the home if you never had a tenant? Are you familiar with laws/regulations re: landlord/tenant? Would you even qualify for a mortgage without employment history at next job?
Ok, so here's the deal! I have a good job (make $60k+/year). My next job will bring me base salary of $45k w/ bonuses up to another $20k - $30k / year.
If I buy a home under $130k, yes I can easily afford the payment by myself. HOWEVER, I am NOT really familiar with laws/regulations of landlord/tenants but I am sure I can brush that up in couple of days.
If you saying that you will make 60k+ Per year then instead of cash out 13K just to end up only have 8000$ left why don't you save 8000$ from your income plus bonus that you think going to get? Do you have at least 8 months emergency fund?
I don't! Cuz my gf (who I live with) bought us expensive things...and I/we are paying that off. She's going to get her own place in Missouri City (most likely) and I am trying to find something closer to work/a university. I'm going to let her keep all the stuff when she moves in to the new place.
I would rollover 401k, sell current house, move to apartment, pay off debt and start saving money for down payment.
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