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Two separate and very different questions:
1) cash out 401K to invest in a business
2) going into the landlording business
I really don't like either idea for YOU (at this time)...
unless I'm mistaken and you do have some genuine experience dealing with
applicants and tenants and tradespeople and appraisers and bankers.
But cashing out a 401K is never a good idea.
This^^^
The job of the above is to take money out of your pocket and put into theirs
Most 401ks have a company match which is an instant return giving that up for the possibility of “feeling I could do better” investment in RE is typically folly. My brother did that and is now devoid of any retirement savings. He will likely work until he dies. There is a reason that most people allow the compounding of a tax deferred investment plan with a guaranteed ROI W/company match to provide an egg that generates income in retirement vs rentals. The smarter thing would be to leave your 401k in place and just contribute enough to get the match, and then take the remaining funds that were going there and saving out of fund to eventually get a down payment on a rental that had the rent paying the new mortgage. Then after a year or two you will find out if it is really for you. My parents were builders, and retired in their early 50s down to FL on the proceeds from a hot RE market in the NE. They bought (mortgages) a number of RE properties in a nice area on the east coast, NOT vacation rentals, but more “local service People rentals” for the same reason: generate income before SS and then cash in on the appreciation and equity of the rentals when SS came in when the timing was good. They made it to about 60 before throwing in the towel when the the local economy tanked for a few years, and between not being able to evict non paying tenents and dead beat and damaging renters, despite selective checking of them, they sold everything at a small profit (thanks to RE fees). They would have made about the same income as the 4% rule, with none of the work, and for sure would have had more et savings after the debacle had they just invested in indexed funds.
A friend of mine has around five rental homes. He's turned them over to a property manager, who takes somewhere like 8%-10% of gross rent. This guy has around 400 properties, and has his own staff. If repairs are needed, my friend gets them from the property manager at a substantial discount from what the guy on the street could get from a regular contractor. My friend doesn't even know who is in some of the units.
I have been thinking about cashing out my 401k to buy rentals. I am aware of the tax penalty but I feel like in the long run I can make more money being a landlord than just holding onto my 401k until I can cash it out with no penalty. I am 35 now so that makes for a lot of years of income I can collect on. Does anyone think this is a good idea and does anyone have experience doing this? I want to do what would best benefit me for retirement.
A very, very bad idea.
A 401(K) plan is the BEST instrument out there for retirement savings. If you have enough funds in there to buy property, then you are doing well. Keep stacking money in there, don't touch it, and you will be very, very happy upon retirement.
Not to mention the 401(K) is an account for retirement savings, not to save in order to buy property. That is what savings accounts and mortgages are for.
I have no experience in doing what you are proposing as I am not reckless or crazy. However, a friend of mind did indeed do a variation of this.
He had to declare bankruptcy and get on meds. He will now work until he drops as his retirement is gone. He is lucky that his family stuck by him and helped him keep his house.
Just a few things to clarify:
I am quitting my job very soon
I am moving to a different state (I do not like the area I live in now)
My husband has a lot of experience with rentals....he used to have some and also has been a property manager before (he works for a company now not related to that field)
I plan to work when I move but not for long because I do not want to work for someone else
I think the prospect of getting income each month sounds much better than waiting 25 years to cash out my 401k with no penalty
I have no interest in working 40 hours a week for 40 years just to retire and be too old, sick, and burnt out to enjoy it
I want to look into different streams of income and this one just kept popping into my mind
All the points made are something to seriously consider....there is a lot of risk in cashing out for sure
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by teaolive3
Just a few things to clarify:
I am quitting my job very soon
I am moving to a different state (I do not like the area I live in now)
My husband has a lot of experience with rentals.......
I think the prospect of getting income each month sounds much better than waiting 25 years to cash out my 401k with no penalty
I have no interest in working 40 hours a week for 40 years just to retire and be too old, sick, and burnt out to enjoy it I want to look into different streams of income and this one just kept popping into my mind
All the points made are something to seriously consider....there is a lot of risk in cashing out for sure
If you want income TODAY... this is not a good plan, but a possible one.
It is FAR ezr to buy an 'owner finance' income property with minimal PERSONAL funds (Not retirement funds)
Not working,?
Like additional income?
Can do homes?
Don't mind moving every few yrs?
What is wrong with taking $500k income tax FREE every 24 months?
Many ways to skin that cat via personal primary residence resell.
A few friends do it different than I do and are very successful. Talked to (3) last week, they usually buy 20 - 30 acres and split acreage up and build and sell a new house every 24 months... repeat as necessary. Build one property with a shop and apartment to store your supplies and to live while building. Adjacent props make this very ez.
(I buy derelict residential props in the way of progress, set up a mailbox in the driveway and register my DL and voting at that addy, then rezone into commercial prop (takes a couple yrs) go on a BIG vacation, but declare the property as your primary residence. When your 24 months are up... sell it to a developer (actually do this much earlier than 24 months, but DO NOT CLOSE early!) Take the $500k and invest a little bit into your next 'project'.
To your original point... Cashing out 401k for rentals
very possible, very good returns possible, no penalties possible. (if held as a IRA)
If you want current income...(from 'qualified funds' ) options limited, but still possible. (EZr if over age 59.5)
Location: Formerly Pleasanton Ca, now in Marietta Ga
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So much depends on the area you move to .if your husband was successful as a property manager then that is a big help,but mostly if you get ret rentals where you live. But if you live in coastal California you won't see that cash flow for a long time because it's so expensive.
Alotof people have tried and failed with real estate and you will see them post here on what a bad idea rentals are. Yet many wealthy individuals are that way because of real estate.
For me and a few investor friends it has led to early retirement. Two are in their 30s and just traveling the world living on the cash flow their rentals provide. It took them about 3 years each to reach a point of financial independence and never having to work again. Since both have properties in the us and have been on the other side of the world traveling obviously the tenant issues have been resolved. A third is a home body and got so bored not working she went into consulting part time.
It's not easy, but it can be done. I only wish I figured it out when I was as young as they are.
What don't you like about Chattanooga and where are you moving?
So much depends on the area you move to .if your husband was successful as a property manager then that is a big help,but mostly if you get ret rentals where you live. But if you live in coastal California you won't see that cash flow for a long time because it's so expensive.
Alotof people have tried and failed with real estate and you will see them post here on what a bad idea rentals are. Yet many wealthy individuals are that way because of real estate.
For me and a few investor friends it has led to early retirement. Two are in their 30s and just traveling the world living on the cash flow their rentals provide. It took them about 3 years each to reach a point of financial independence and never having to work again. Since both have properties in the us and have been on the other side of the world traveling obviously the tenant issues have been resolved. A third is a home body and got so bored not working she went into consulting part time.
It's not easy, but it can be done. I only wish I figured it out when I was as young as they are.
What don't you like about Chattanooga and where are you moving?
I don’t like the growth of Chattanooga with no real thought by the city about improving the infrastructure. The traffic has gotten awful (and I am totally aware coming from a city outside of Atlanta that seems laughable...I have been to Atlanta many times and having to live there would just be unfathomable for me) and there are many other reasons but I don’t want to bore you with a novel about it. We will make a good profit off of selling our house when we move so that is a positive thing to look forward to. We are looking into Yancey county, NC or Rockbridge county, VA to move to. We are going to buy a large tract of land to live on (either raw and build a house or with one already on it just depends on what we can find).
Just a few things to clarify:
I am quitting my job very soon
I am moving to a different state (I do not like the area I live in now)
My husband has a lot of experience with rentals....he used to have some and also has been a property manager before (he works for a company now not related to that field)
I plan to work when I move but not for long because I do not want to work for someone else
I think the prospect of getting income each month sounds much better than waiting 25 years to cash out my 401k with no penalty
I have no interest in working 40 hours a week for 40 years just to retire and be too old, sick, and burnt out to enjoy it
I want to look into different streams of income and this one just kept popping into my mind
All the points made are something to seriously consider....there is a lot of risk in cashing out for sure
Well if you want to "seriously consider" it, I suggest you go to a CPA and a CFP, pay them an hourly fee, and present your plan, as much as you have one, which you really do not. They will run through the numbers based on several scenarios and basically give you a more detailed answer. Better than consulting a bunch of strangers- myself included- on the internet.
If you are going to be too old, sick, and burnt out when you retire (How do you Know That?), then how are you going to manage rental properties? Sell them? How you know what you will get for them?
Bad plan.
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