Is this a good investment idea?

Question

We put our house on the market but no one is even looking at it right now. We want to move to a bigger house and real estate is selling for a pretty good price right now in the area where we want to live. The problem is we can't sell our house to buy a new one. We are going to cash out our 401K to put a down payment on a new house. The house we live in right now can be rented for about $500 more than we pay on it right now. Also when I set up the 401K's I set them up so they were taken out after taxes because at the time we made very little money and I was pretty sure we would have to dip into them at some point and I didn't want us to get highly penalized. I can't think of a reason why this is not a good idea but it is scary to cash out our 401K. I figured our old house will be like our retirement investment.

Answer 1

Can you borrow against the 401K? Even if there are no taxes or penalties involved, cashing them in now would be untimely with the market down 20% this year.

Borrowing will force you to repay the downpayment over time and protect your retirement funds. You can use that $500 positive cash flow to repay the loan.

Sounds like a plan otherwise.

Answer 2

If you have done your research on rentals in your area and are ready to be a landlord I would say yes.  Make sure you have money in reserve to handle time when the home is vacant or to cover the payments in case of a bad tenant.  Also be prepared to do maintains on the house, renters will not care for the home the way you will.

If you can make $500 a month after you pay your mortgage that is a good cash flow.  Keep in mind that you should go into this as a long term investment, not as a income producer.

Answer 3

I would call Suzie Orman right away!  I am pretty sure she will faint at once.....and then she will chastise you for dipping into your 401K..

check her web site. I am sure there you will find some enlightenment

Answer 4

yes. um- i think!