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JJ | I am considering withdrawing my IRA money in order to purchase two 4 unit properties. Comments? |
I have $165,000.00 in the account and will need about half for down payments. I will net about $52,000 a year in income. |
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Vol
|
Wow. Thats a great question, and very hard to answer.
This has a lot of variables that should be considered.
1. How old are you? How close you are to actually NEEDING the IRA?
2. Is that $52,000 a year AFTER you pay off the rest of the loan? Cause you mention that you are going to use about $80k for just the down payments.
3. Are you going to pay penalties for withdrawing the money from the IRA and how much will that be? Has that been considered in your decision?
4. Has the research been done to see the growth rate of the area you are buying in? In other words, if you are buying in an area that you will have a hard time getting the money out of the units, then it will greatly hurt you.
Given the information you have provided, I would definately go for it. Its quite a risk, but it could pay off in the long run. Just be sure that you dont get yourself in trouble by emptying out your IRA just to own property.
Owning property is always good, though.
And you know the saying..."Its always good to buy property. Its the one thing they arent making more of."
Best of luck in your endeavor. |
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v b
 |
While it's possible to own real estate within an IRA, you'd have to find a trustee who can meet all of the legal requirements.
If you take the money out of the IRA, realize that you will owe income tax on the total (at your highest marginal tax bracket) along with a 10% penalty if you are under 59.5.
To net $80,000, you may have to take out virtually all of it. |
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Rainman
 |
The IRS penalizes you 10% on early withdrawal from an IRA. Combine that with the lost compounding interest on the IRA and you will know the true cost of withdrawing the money.
The property itself will likely appreciate in value over the long term which may offset the lost interest. The income from the property will be reduced by any maintenance required as well as during the period of time the units may be vacant between having renters. |
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loanmasterone
|
There are ways in which you may do this without the penalties everyone is speaking off.
First check with your IRA manager and find out if there really a penalty for withdrawing funds for the purchase of a home for you. Some are set up for withdrawal without penalty for the purchase of a home for you to reside in. You need to find out if yours allow you to do this.
If your IRA does not allow withdrawal without the penalty you should contact your fund manager about the possibility of opening a self-directed IRA which without penalty will allow you to purchase real estate in the name of the IRA. Your fund manager will tell you how to complete this type of transaction or should be able to direct you to someone that is able to accomplish this.
Some 401-k programs will also without penalty withdrawal for the purchase of a home.
Now the programs I have mentioned are for one to purchase a property they are planning to reside in. 1-4 units qualify for this since you may reside in one unit and rent out the other 3 units.
Good financial planning on your part should make you plan work without any financial loss on your part in penalties or fines.
Make sure your calculations are correct about your projected income. You should contact your tax consultant about possible tax consequences if any, depreciation, repayment schedule, interest deduction and if this make financial sense and when you can expect a return on your investment.
I think you have an excellent idea, your investment should work out just fine with the proper financial strategy.
I hope this has been of some use to you, good luck.
"FIGHT ON" |
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golferwhoworks
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if this is an early withdrawl then no way. Your tax basis would take the other half of the 401k--- 50% taxed |
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macoy
|
If you are going to use only half of it that will be ok, at least you didn't invest everything in real estate. I knew people who invested 100% ine real estate and now they have to let some of the properties foreclosed. |
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CSUflyer
|
I find it pretty hard to believe that you will NET $52k a year in income but beware of what you are considering even if the income potential is there. The income you can make on this property is still a statistical risk whereas the taxes and penalties you pay on an early, unqualified IRA withdrawl are a GUARANTEE. A situation like this makes it hard to compare apples to apples and sometimes it's the risktakers like yourself that stand to make more money in the longrun but don't forget about the many the costs of failure if it doesn't workout. Depending on your age and everything you may run the risk of losing money on the property AND being stuck without a retirement fund and no time to recoup that if you're near retirement. Unfortunately even a few hundred thousand dollars isn't enough to get most people through retirement. If I told someone two years ago that real estate had the potential to be a bad investment, they would have laughed in my face. With the extended balloon in appreciating housing people quickly forgot that it is actually possible to lose money on things that seem like a great investment or a guarantee. Feel free to contact me if you have any questions |
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michael g
 |
Once you see the early withdrawl fees and talk to a tax advisor you will see this is a very bad idea.
Being a landlord is not for everybody and rental properties can be money pits as well . |
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Marysue
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It’s probably not a good idea. Assuming IRA early withdrawals are penalized the same ask 401-K early withdrawals, it’s an expensive way to get money.
You take a 10% hit off of whatever you take out, so if you took out 100,000 so you’d really only get $90,000. Then I believe you’re taxed on that income at 15% so you really only end up with $76,500 on your 100K that you would have had for retirement. |
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rkbejh
 |
get EDUCATED!!!! be careful of everything. I belong to a group of investors if you would like more info contact me. rkbejh@yahoo.com |
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Alterfemego
 |
I would strongly urge you to consult with a tax advisor before doing that. You want to make sure you are not penalized at tax time next year. While I believe you can use some of your IRA, I just wouldn't want you to have a BIG surprise next year. |
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Classy chick
 |
It truly is a no brainier as you know that you will make more money off the net then you would in the IRA. What you need to consider is the penalty costs for with drawing the IRA and the amortisation of the IRA when you withdraw it.
So say that at present the 165 could be in 20yrs worth 500g is it worth it now to stop the flow and restart the IRA.
Simple math and talking to your Bank will give you the answer.
Best of luck |
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beach_man_45
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I know everyone is telling you that it is a bad idea without even reading the comments but it isn't always a bad idea. I took from mine several years ago and had to listen to everyone telling me I was making a mistake. I did lose lots of money but did some reinvesting which more than made up for the loss. In addition the market turned shortly after I took the money and the ones that left their money in, lost out. Good luck. |
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Tghjyj J
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