I'm saving up to buy a rental property, it will take a few years.
I've been maxing out my 401k contributions at 18k per year plus employer match. I've got plenty in the fund to borrow from it to make a down payment on the property that I wish to purchase.
Downsides I can think of:
- If I lose my job, I will owe it back immediately.
- I'm only 25, and money taken out of 401k is no longer working for me by generating interest for my retirement nest-egg. (although you can argue a good rental property would generate more income)
Upsides I can think of:
- Better than another type of loan. Interest is being paid to myself.
- Allows purchasing the property sooner rather than waiting a few years. We are assuming it is a good rental property investment so in those few years I would have gained equity, property appreciation, and cash flow money.
My plan is to do a 1031 exchange and buy more/bigger properties down the road, so the sooner I can get in the game the better.
I've seen some arguments against this idea state that you are getting taxed twice (never can find a good explanation for it, though). The only time you will be taxed is upon withdrawal at retirement, right?