Under normal circumstances, NO.
BUT, I'm looking at an abandoned house in a great neighborhood in DC for 250k. Complete rebuild so another 100k. The house next door is worth 400k. Price on it has been dropping since 2021 so a buyers' market? Regardless, the value of the abandoned house should go up immediately.
I have $1M in 401K and I am a retired fed with a $6K a month pension (so not actually a 401k but a TSP). I could buy the house outright, fix it up, and collect rent with the TSP withdrawl.
Thoughts?
Posted by feverdoggomemr
9 Comments
Do what you want. But rent on one home rarely does better than the stock market.
Are you doing the work yourself? Because otherwise you aren’t doing a gut and remodel for 100k.
I don’t know where you’re getting $100k for a full rebuild. A kitchen alone can easilly cost $40-50k if you’re hiring it out.
The world is full of investors all looking for a great deal that they can make a profit on. If this house has been sitting and the price continues to drop it’s because all of those professional investors/flippers have all ran the numbers and decided that the cost of the house + the cost of renovating will end up being less than what the house will be worth after renovating.
You’re retired. You’re going to pay $350k+(probably much more than that) get hammered in taxes, and then make what, $20-30k/year renting it out? It will take you 10-20 years just to break even.
You’d probably earn more just leaving everything in your 401k.
Makes no sense to do this
Go for it. You just missed a golden opportunity to withdraw the max up to next tax bracket!
Hard to avoid prohibited transactions for the 401k money. If you do engage in a prohibited transaction, that will cause all monies distributed from the 401k to be taxed, which is likely a bad outcome for you. So there are a host of ways to create a prohibited transaction but most have to do with doing work on an Ira investment. You should google extensively self directed Ira investments.
Doable but hard and lots of Regulations to fall afoul of.
Eventually everything depends on your risk tolerance and return. Given where you are, I don’t think the risk is worth the reward.
>Complete rebuild so another 100k
Maybe in 2008. Not today. Don’t forget selling expenses (6%-8%) at $400K is another $30K plus the lost time-value of money of $350K+ at a given interest rate of market appreciation. I’m a RE broker and RE investor that cashed out my 401K in 2010 to invest in RE. Don’t do it with your 401K money. Do it with 25% down and leverage if you want to do it.
Yoooo do a construction loan
401k is good for that $10k hardship withdrawal or a repayment, but don’t take a massive withdrawal penalty for this