When it comes to acquiring more cash flowing rental properties many of my current and new investors call me and say, “Sean, help! I want to pickup another one of your properties because the return is so amazing, but I only have my 401k, what can I do?”
Well, I personally have a 401k, and that’s why I know a super secret way to do this.
Now, I will say this, it does somewhat depend on your provider. Every provider I find may differ slightly. However for the most part this will work with just about any 401k plan.
You can’t “remove” money from your 401k, HOWEVER, you can borrow against the 401k, and typically you can borrow about $50,000 from it. Again, that’s what I’ve found is the standard with most providers.
Here’s the best part. You are borrowing your own money. Typically you need to pay it back within 12 to 24 months. Most of the time this entire transaction can literally be done online. I remember the first time I ever did this. I logged onto my account, clicked the amount I wanted to borrow along with the time frame I wanted to borrow it for and within a few hours I believe that money was sitting in my bank account.
Now here’s where the real power comes in. You have a few options. Once you purchase a property you can do a cash out refi to pull the equity out of the property. Typically most lenders will go 70 to 80% on an investment property. You can also take out a Home Equity Line of Credit. So now you a leveraging your money to make even more money.
The best part of borrowing against the 401k ? Again, you are borrowing your own money, but the interest you are paying on it is YOUR interest. You’re paying yourself interest, so you are earning even more money. One catch with borrowing from your 401k is that you can only borrow one loan at a time. So make sure to borrow the maximum amount you know you’re going to need. Another option of paying back the 401k loan is to simply use the rent you are getting from your tenants to pay back the loan over a few years. Bottom line, you have significant leverage.
At Thrive Real Estate Investing our investors very typically see returns of 15 to 20% on their rental properties, I can guarantee you that you aren’t seeing even nearly that with a 401k, so leverage your money, and build legacy wealth for you and your family.
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