Should you pull money out of your 401k for real estate? Hmm.. Let me think about
it. This is a real estate channel and I believe in real estate, I don't know what
I'm really going to say but it's all coming your way right now.
Friends, today we are hoping to end the great debate on 401k's.
Should you use them to invest in real estate? Should you pull your money out?
How do you pull your money out and you know what? Honestly, it can be a little
complicated so we've brought our friend Mr. whiteboard today and of course,
Steven Michael Miller who's going to help lay down the law on exactly how this
goes. - Absolutely. - So get pumped and get excited. So today, Steven, 401k's,
first of all, can you invest in real estate by pulling money out of it and
can you invest it by not pulling your money out?
- Yeah, the reality is, I don't think that this is really a debate of should I
or shouldn't I, there are cases where you should and there are cases where you
shouldn't and we're going to talk about I think both of those right now and kind
of just get into some of the details of how your 401k can help you invest in
more real estate. - And you need to understand that yes, you can invest in
real estate with your 401k, you can also invest in real estate by pulling your
money out and the great debate of should you or shouldn't you really comes down
to one simple mathematical equation.. Can you do better in the real estate market
than you can do in the 401k market? And hands down on our last 3,500 homes,
nearly a billion dollars in real estate, the answer is definitively yes, you can
outpace the market because the 401k markets will go up and down and
sometimes you're winning you're up 20%, sometimes you're down 50% as we look at
the really big swings but over time, over 20 years, do you know what it really
averages out to? 3% to 4% so the question is, can real estate do better
than 3 or 4%, Steven? - Yeah, absolutely can. We've been talking about this for years
not only talking about it, we've been showing people exactly how to invest
their money that they currently have in a 401k in the proper real estate so
let's talk about first of all, the yes, right. When do we pull money
out of a 401k to invest in real estate? There are some great things that we
want to mention here. First of all, when you're pulling money out of a 401k, it's
probably because you don't have enough in there to buy a home outright. What
does that mean? - Well, you know, when you use a 401k, you can actually pull money
out and then you can either buy real estate with
loans or you can buy it paid off free and clear outright and so this whole
first option here, we're going to assume that you have $100,000 in a 401k, it's
just a round number. Your number will be higher or it will be lower but I think
you're going to understand the principle really well. So on this side, we're going
to assume that yeah, we're pulling money out and then we're going to come over here
later, I'm going to say, how would you invest in real estate without taking it
out of the 401k? So assuming $100,000 and you want to
pull it out, here are the first couple things that you need to be aware of.. Real estate,
we're going to show you on this side how you can make 20% a year on your money,
on this side, we're going to show you how you can make 10% while still leaving it
in the 401k and the reason why we're getting 20% over here is because we're
going to buy real estate with leverage, we're going to buy real estate with
taking the money out of the 401k, we're going to go to banks, we're going to put 20%
down and then we're going to make roughly 15% 20% or more percent a year on our
money and the two things that you need to be aware of is that when you pull
money out of a 401k, there's two things that are going to happen. - Right there. - Go
ahead. - Oh. They're going to smack your hand. They're going to do everything that
they can to make sure that you don't pull your money out of your 401k. Those
two things are first of all, penalties. You're going to get about a 10% penalty
when you pull your money out of your 401k, right. That penalty can hurt.
Most people don't like losing 10% of their portfolio. - But that's
one perception. I actually call it a cost of business because it's unavoidable.
What this hundred thousand now becomes $90,000 because $10,000
is going to go as a penalty and you know what? That's enough
for some people to say, lose $10,000?! What a bad mistake. Friends, don't
forget that we are stepping out of making 3% to 4% on our
money and stepping into making 10%, 15%, or 20% on our money
and let me ask you, Steven.. Is a 10% penalty worth it in order to
have your money growing at many times the pace. - Oh, absolutely. It's not just
worth it, it's something that you definitely should be doing. - By the way,
look forward to your penalty, be excited to finally get it out of the beasts
hands and get it into your hands where you are in control. The second thing that
you need to be aware of is that when you pull the
money out, it's a taxable event under this scenario and you're going to have to pay
taxes and if you're pulling out, now the $90,000, it's going to add
$90,000 to your income for the year, it's going to put you up into
a higher tax bracket. Our team will actually show you how to pull some out
maybe this year, next year, depending on what month you're in and we'll figure
out the best way to do it but you're going to have to pay taxes.
Steven, regardless of when they take that money out, it doesn't matter what age
they ever get to, will they have to pay taxes? - Oh, you're always going to have
to pay taxes even in a 401k, those funds are just tax deferred so at some point,
you're absolutely going to have to pay taxes, just be aware of that and if you
want to do better than what your 401k is doing, which by the way, is never going to
retire you, okay, we we've talked about this before then you want to do other
things in real estates the best thing to do. - So let's say for this example that we
have 10% going to penalties and 20% going to taxes and there's 70% left over,
that would be $70,000 and let's say that you use that to purchase two properties.
Well these two properties are now free of the 401k, they're now producing, let's
just say that each one is producing $400 a month of cash flow so for the first
time in your life, you're 401k was paying you nothing, now it's paying you
$800 a month. Let's assume you bought those properties with some equity, now
all the sudden you have recuperated your taxes and penalties there, you've got
$800 a month and guess what we want to do with these two properties in time.
- You're to turn those into more. - We're going to multiply them like rabbits, we want two
to become four, four to become eight, eight to become a lot of properties and
now the sudden, you're taking back financial control of your life and all
those hard-earned saving dollars in your 401k can mean something for you now and
they mean something every single month. $800 a month for a lot of people, an
extra $10,000 a year, that's a really big deal. $10,000 a
year is a lot to find, it you can fund a lot of things or vacations or trips or
or things that you've wanted to do that your 401k has been getting in the way of.
So this is one option and now I want to talk about well, how could I have my 401k
helped me invest, Steven, in real estate and even avoid the penalties and taxes?
So I want to talk right now, we're talking to the uber conservatives and I
know we've got people here on our channel that are wondering, okay
look, this all sounds fine and good but as much as you guys say it, I still don't
want to pay my penalties and I still don't want to pay the taxes and I want
to keep my growth inside of that 401k or inside of that IRA and that's where
this strategy may come in useful for you. In this scenario, you'll need to
use and have enough in there to purchase an entire property. So in this option,
where you're saying, no, I don't want to pull my money out of a 401k or IRA, I
actually want to keep it in there and still invest it in real estate which by
the way, if you understand 401k's and IRA's, they're typically tied to
the markets, right. So they go up and down with the market as the market goes up
and down. Real estate though is something that can
be done inside of a 401k and IRA, you can actually do what's called self-directing.
Now self-directing just means you become the custodian, you become the person that
has control over your IRA or 401k. You can now with that control, go off and buy
paid off real estate. - Now there are restrictions if you leave it in the 401k.
You cannot buy leveraged real estate, instead, you can really generally only
purchase paid off free and clear real estate and with this hundred thousand
dollar self-directed, we can take you to markets where you can buy a hundred
thousand dollar house and on this scenario because it's paid off, we're not
using leverage so instead of maybe making 20% a year, we're now maybe
making 10% a year but I want to ask, is 10% more than 3% or
4%? - Absolutely. - It's more than 3% or 4%, I have a paid off
piece of property. Let's say that after all my expenses that this property is
producing ironically $800 a month so I either own a paid off property
conservatively doing 800 a month, I own two properties in this scenario
and the question is, Steven, should I self direct my 401k or should I take the
taxes and penalties and buy real estate and the question is, which one's better?
- Yeah, the other day, I really think it comes down to a couple different things.
Number one, personal preference. Number two, what's your risk tolerance?
Those two things I think are the biggest factors in what you're going to do or do
I have enough to pull out and this way or do I want to keep it in
here and just grow it inside? - Yeah and I'm going to tell you right now, it
really also comes down to your goals. If you're saying, wow, I feel so far
away from what I need for retirement and I need to focus on producing a powerful
residual income, hands down, this is going to be the option for you because we want
to take two homes and turn them into many homes. When you buy a paid off home,
what you're doing is not just earning 10% instead of 20% but you're also slowing
down your growth because you have one property growing in the market instead
of two properties growing in the market and ultimately, this is going to be a
slower path to getting where you want to go if so that makes this a very
appropriate path if you're close to retirement and you actually say, I
actually have a lot of what I need. I looked at my social security, I looked at
the other investments and I looked at this and I'm adding it all up and hands
down, I've got enough money for retirement by choosing this path. If
you're far away from retirement, you're probably going to want to look
more of this direction but the bottom line is, instead of making 3% or 4%
your 401k, there are some different options that you have of how
you can go out there and start investing successfully in real estate. If you want
to get a more in-depth and a more accurate analysis of what you want
to do, then you have a chance to talk with me, Steven and the rest of our team.
Just go ahead and click this link in the top corner and we're going to reach out to
you and we'll actually walk you through your very specific options so even if
you only have 10,000 or 20,000 and a 401k or if you have a half a million dollars in
a 401k or other assets, we'll be able to do a comparison analysis of equity in a
home or other assets and again, if you have very little or no assets, that's our
specialty because we'll go into partnering and lease options and some of
our other creative strategies because bottom line is, no matter how old you are,
no matter how young you are, now is the time to get out there, there's a way for
you to invest successfully in real estate. If you want some help navigating
how to maneuver those 401k's, how to use them, should you self-direct, should you
just pull it out and pay the taxes and penalties that cost a business go ahead
and click up here, contact my team, reach out and we'll start getting you hands-on
information on what it would look like and exactly the kind of properties that
you can step into right.