Pulling Money Out of 401k – For Real Estate

Pulling Money Out of 401k – For Real Estate

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.

17 thoughts on “Pulling Money Out of 401k – For Real Estate

  1. Love the videos and the consistency in messaging about 401Ks, IRAs and other savings-based retirement plans. A related question on the mortgage pre-approval process: if I plan to use the 401k to purchase a future property, do I need the pull the money out and season it a few months in a bank account to have it count towards a mortgage pre-approval?

  2. our market in alabama isnt a boom or bust market. our house didnt drop in value much but is rising now. Rentals in Birmingham in good areas are like gold and rent quickly. I fully believe in buying rental property over stocks. If you are passive and dont want to buy rentals, invest in reits. medical properties trust is actually a great reit that is based in birmingham and has good returns.

  3. Many 401k accounts allow you to do a loan so you can borrow money from yourself when you get enough for 20 percent down in your account, do a loan, and then just pay it back every month and there is no penalty for a loan.

  4. Or better yet, don't put your money into a 401k in the first place. Sorry. I just had to be that guy! 🙂 Thanks for the vid

  5. I'm glad I only put $8,000 into my 401K before I noticed that it was a scam, I wish I knew it from the start but it could have been worse.

  6. Uh…there’s no penalty on a loan. Average ROR in the market is ~8% YOY.

    We get it, real estate can make you money but it can also make you go bust just as badly as a poor stock market investment. Due diligence is required regardless of where one puts their money.

  7. The best things about real estate is cash flow. Why do you need a boat load of money when you're almost dead. You don't. You need a steady cash flow all your life. It's the reason we work. I bought an investment house for $63K. I spent about 15K in repairs. It now rents for $1450 and it's worth 130K. Taxes and insurance are $2K. I should have all my money back in 5 years, so beyond that is all profit plus I own the house.

  8. You guys like generalizations don't you.

    1) You say that it averages out to 3% to 4%. I assume you mean after fees because the market averages more than that. Once again you could put your 401k money in an Index fund and deal with that.

    2) You need to check your white board math. If you take out the money from your 401k after taxes and penalty it more like 50%.

    3) Once again IRA are not as restrictive as 401ks. You can invest the IRA money you want.

    4) The fact that you said that your IRA and 401k are driven 100% by up and down by market shows you have no idea what you are talking about.

    5) You need to be diversified because all asset classes have a tendency to go up and down. So you better off leaving the money there and finding other money to do real estate.

    6) If you want to get into Real estate through a 401k or IRA a simpler way to do it without the penalty and fees is to just buy REITs.

    I would like to paraphrase the last part of the video. If you want more accurate advise go somewhere else.

  9. I feel like I’m getting jacked I mean I know it’s round about number but most videos Ive watched like this and they all start with the 100k number I’ve been with my job for 2 year and only have right at 7k. I mean should I even be thinking about something like this or should I be closer to 20k.

  10. Why non just borrow from your 401k and avoid all taxes penalties,they allow you to borrow from your account up to 50% of all vested balance and you pay yourself back monthly.

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