Can I use my 401K to invest in real estate? I get this question a lot and
it's a really good question because a lot of people have 401Ks. So, let's talk
about it. So, in this video, we're going to cover if you can use your 401K. So, the
first thing I'm going to talk about not only if you could but should you. 2, I'm
going to give you a step-by-step that you can follow if you do decide to withdraw
from your 401K. And then number 3, I'm going to tell you if you do, again, if you do,
what to do with the money and how to do it so that you don't lose a lot of your
401K in the process. When we're diving in and we're talking about whether or not
you should use your 401K for real estate investing, we first want to talk about
what a 401K is. Let me quickly just tell you what a 401K is and what the purpose
of it is. Because yes, you can use it for real estate investing but we got to kind
of go back just one quick step. So, let's do that. So, 401K, most people know this
from their job, it's a retirement account where you can put in dollars for your
retirement that are not taxed, okay? So, many employers offer this to their
employees. They sometimes match what you have in your 401K. And you have this fund
that's really for your retirement, okay? And it was set up by the IRS. You know,
kind of to help people save for their retirement. And unfortunately, many
employers have gone away from pensions and now we're totally into the era of
401Ks. So, there's over a trillion dollars in 401Ks right now. And this is a really
good amount of money that people should tap into for real estate investing and
I'm going to tell you why. So, the reason why you might want to use your 401K to
invest in real estate is because in most cases, most 401Ks are not making very
much money, okay? So, I don't know what your 401K is doing but on average, it's
not as much as most people are making in real estate. Just being honest with you.
So, in most case, you have a 401K. And what they do with
that money is they invest it in the stock market. So, they buy mutual funds,
they buy stocks, they buy bonds. They take the money that you put in there and they
invest it. And they try to make a return on your money. So, think about that for a
second. What if you took that money and you invested it yourself instead of them
investing it? Hmm, could you do it? Could you make more than they're making? Yeah,
you probably could. On average, most people's 401Ks are making about 6 to
8 percent per year, okay? So, that's not really a ton of money. So,
just using a round number if you had $1,000 in there at 6%,
you would be making about $60. So again, that's not very much money. It does grow
over time because yes, if you leave that money in there and it just consistently
keeps making 6 to 8 percent per year, the fund will grow. However, let's
talk about this for a second. Because I'm not going to ever tell you to be
irresponsible and just liquidate your whole 401K and go bet it on a flip. Yeah,
that's crazy. We're not going to do that. But say for example, you took a portion of
that money out and you invested it in real estate, okay? And I'm not saying you
have to use that money necessarily to buy a home. But you definitely could use
that money to start your marketing or to get some properties going. Even maybe
properties that you don't own that you can start making money off of. Yes,
literally start making money off of properties that you don't own. Yes, I have
lots of videos and you can click that and we can learn about that. And that is
still investing in real estate. And it'll be bringing you in capital and then you
can save that money and put that to the side. So again, you don't have to
liquidate the entire 401K. But just look at what your 401K is doing. How much
return on your investment are you getting. And then think about for a
second, if you took some of that money. Again, I'm never going to tell you to take
all of it. And you invested it in your real estate business. How much better
could you do than they're doing? The next thing that you want to consider is
knowing that your 401k is a retirement account. So, depending on your age, there's
probably going to be some penalties if you just withdraw that money out. And you
really want to take that into consideration.
Because the problem is, I won't say the problem but with a 401K,
you put in money that you were not taxed on. Okay? So, before they pay, you pay taxes
on your income, they let you put that into that account. It's essentially tax
deferred. Meaning when you take the money out, you pay the taxes. So, pros and cons
there. We're not going to go there on this episode. But just know that there are
usually penalties when you just take money out of your 401K. So, I'm going to give
you a quick way to get around that. So, there's 2 ways that you can get around
some of those penalties once you've decided you do want to tap into your
401K. Number one of course is you can take a loan against the 401K. So, if you
are still employed by your employer, 9 times out of 10, again, every employer is
different. Every 401K plan is different. But in most cases, you can borrow against
your 401K. If you're still employed there and pay a very low interest rate. And
this is really a smart thing to do. Because you're borrowing money from
yourself. You didn't take the money out of the 401K. It's still there. They loaned
you against it at a very low rate. So, you borrowed against that money. And you're
leveraging that money that you already have there. That's one way. Take a loan
from the 401K. The other thing that you could do is... And this is a little bit
more tricky. Whenever you're buying a home for our primary residence, they
do let you take the money out for a 401K. That's one of the caveats that they let
you do. But it has to be a primary residence. So, for some people, this works.
For other people, it doesn't. But I'm going to give you a super-secret tip on how
I did it and how I bought a rental property without buying a rental
property with my 401K. And here's how I did it:
So, here's how I took money out of my 401K and bought an investment property.
Because it's not technically allowed. You have to buy a primary residence. So, think
about that for a second. I know I've talked to you about real estate and
having you know multiple properties, multiple doors, multiple units. And so, if
you're buying a multi-unit property for example, that could be a primary
residence if you live in one of the units. So, I basically... And I've done this
and I've taught many of my students how do this especially if you don't already
own a home where you can tap into that 401K, buy a house with that money and
then rent out the other units so that you truly had a rental property right
from the beginning and you bought it with your 401K. And then last but not
least, I'm going to give you one more a sneaky tricky way that you could tap
into your 401K without tapping into your 401K to invest in real estate. And this
one's going to require a link because this video will be way too long. But I'm going to
tell you the secret sauce right now. There are these types of loans called
RELOCs. They are called real estate lines of credit. And many times, you can borrow
5-10 times what you have in those assets. And they will give you a line of
credit to purchase real estate properties. And really and truly, this is
a newer product. So, hopefully you're watching this video in 2020, 2021 and you
know that this did not exist many years ago. And this is something new that you
have that you can do and you can start leveraging your own 401K without
actually liquidating it and without actually taking the money out of it. So,
I'm going to give you a link below you really want to start looking into
RELOC and those lines of credit so that you can build your portfolio with
your 401K without spending the money in your 401K. Alright. Well that wraps up
this video. Can you use your 401K for real estate investing? I think I gave you
a lot of great information. The super-secret tricks that people are not
knowing about. So, go ahead take the moment and share this video. This video
should really go viral because I'm telling you, so many people do not know
about this. And this is the way to do it. If you really are saying to yourself, I
want to invest in real estate. Got a little bit of money in my 401K. Even if
you only have... So, you have 50,000 and they gave you 10 times that, that's 500,000
people. From 50,000 in your 401K and they loan you
10 times that amount, now you really have some leverage to buy lots of
properties. Now again, you're not going to buy property for $500,000.
That's never what I would recommend you to do. If you need help with what to do with
the money, of course you can click below and reach out to us and we'll help you
with that as well. But go ahead share this video. Take a moment to LIKE and
SUBSCRIBE and I'll see you guys next time. To your success.