Realty Q&A: Emptying a 401(k) to buy a home with cash


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By Lew Sichelman

Realty QA is a weekly mainstay in that Lew Sichelman, a nationally syndicated columnist who has been covering a housing marketplace for some-more than 40 years, responds to readers’ questions on genuine estate.

WASHINGTON (MarketWatch) — Question: we am 37 and have a pursuit grossing about $81,000. My mother is also 37 and grosses about $42,000. We both minister to a 401(k) to a balance of about 15% (including employer matches). We now have about $200,000 in a total 401(k)s. We have some tiny debt, zero major. We have a vast debt on a personal home, a home-equity line of credit and one automobile payment.


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My doubt is, with a housing marketplace attack all-time lows in sales, resales, home starts and debt rates, we am deliberation emptying my 401(k) to compensate all income for a let chateau that would cost about $115,000. This let skill would beget approximately $850 per month. (I now have a let that generates $900 a month, yet it has a mortgage).

My line of suspicion is this: Use income from retirement assets to squeeze a home undisguised and put a income from a chateau into a Roth or other retirement vehicle. The income would be taxable, but, we have copiousness of taxation advantages, so, I’m not too endangered about that. Also, during $850 a month ($10,200 annually), a lapse on investment would be larger than any retirement comment will earn.

So, it’s like guaranteed lapse on investment. Meanwhile, my mother and we will continue to minister to a 401(k)s, uninterrupted. What is your opinion on this logic? — K.V., Helena, Ala.

Answer: Several thoughts come to mind. First are foremost, we and your bride are immature adequate to raid your retirement accounts. As prolonged as we will continue to minister to your 401(k)s as we have in a past, we consider we should be OK on that score. There are taxation consequences for stealing income too early from a retirement account, yet that shouldn’t matter in this case.

Secondly, though, renting houses is no travel to a bank, as we am certain we no doubt have learned, given we already are a landlord on another property. You used a tenure “guaranteed,” yet there is zero guaranteed in a let business. Finding decent tenants is tough enough, yet we never, ever know for certain how prolonged they’ll stay, what kind of figure they’ll leave a place when they exit, and how prolonged it will take to find someone to take their place. The chateau could be trashed or sojourn dull for months during a time while we make it habitable once again or until we find a new tenant.

In your case, though, if there is downtime, during slightest we won’t have any debt use to worry about since we won’t have a mortgage. But you’ll still be on a offshoot for insurance, taxes, utilities and other repeated expenses.

I’ve created about landlording many times in a past. Heck, we am one myself. But a one thing we haven’t lonesome adequate is deferred maintenance, that can be a killer.

If a reside doesn’t protest about something not working, a landlord doesn’t know about a problem and can’t get it repaired. That’s usually excellent with many landlords, since no news is good news.

And as a result, a emanate — a leaky faucet, a using toilet, a leaking roof, shop-worn siding, descending gutters — never gets a courtesy it needs. Worse, a longer a problem persists, a worse it gets and a some-more repairs it can cause. So, if a reside is in a chateau for any good length of time — I’m articulate years, not months — a consequences of deferred upkeep can be devastating, if not to a chateau itself, afterwards positively a landlord’s pocketbook.

You can tell your reside to news even teenager problems to we right divided until we are blue in a face, yet some usually aren’t going to cooperate. Also, we can put in your franchise that we have a right to make unchanging inspections, yet unless we indeed do — and do it entirely — deferred upkeep can come behind to haunt you.

This isn’t to contend never a landlord be. But it is satisfactory warning about one of a drawbacks of landlording that tends to accept small attention.

Question: we have review that a Federal Housing Administration’s 203(k) rehab debt was being employed by investors who are shopping unsettled properties and rolling a cost of a chateau and a rehab costs into one loan. Do we know of that debt lenders are doing this? we live in Tampa, Fla., and I’ve usually found lenders who do this for primary chateau buyers. —W.E.

Answer: What we review was incorrect. No lenders are now creation 203(k) loans to investors. What a dishonourable author should have reported was that 203(k) lenders are plainly courting buyers of unsettled properties who intend to live in a them. we — we meant this penetrate — done a vivid reportorial error, and we — err, he — should have his permit revoked.

However, my sources — yeah, we have sources — tell me that given a outrageous series of foreclosures and short-sales on a marketplace — generally a FHA’s register of same — investors competence once again be included. Perhaps earlier rather than later, so stay tuned.

Meanwhile, a government-insured rehab loan is good for buyers who are in a marketplace for brief sales and foreclosures since these properties mostly have deferred upkeep issues or usually need to be updated. Especially if a buyers doesn’t have a income on palm to cover a down remuneration and a cost of repairs. As a contributor remarkable — during slightest he got this partial right —a borrower can hurl a cost of a chateau and a cost to move it adult to tinge into one loan formed on a “as completed” appraised value.

Question: we am carrying a tough time anticipating a bank that offers a 203(k) loan we wrote about. we live in Los Angeles. How do we find a bank that offers this, or do we have any suggested banks? —P.F.

Answer: Since we quoted someone from Bank of America in a story to that we are referring, we competence wish to start there. But for a minute list, a Federal Housing Administration’s website has a finish register of lenders we can arrange by state, county and even ZIP code.
See a FHA’s lender list here.

Nationally syndicated columnist Lew Sichelman has been covering a housing marketplace for some-more than 40 years. Because of a volume of mail he receives, he can't answer particular questions, nor can all questions be answered in this space. Email lsichelman@aol.com.



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