Expert: Steve Hach - 10/26/2011

Question
I've been considering purchasing a townhouse or condo while interest rates are low and renting the property. I don't have much for a down payment and wondering if it makes since to withdrawal some funds from my 401k, so I can put 20% down. I know there are penalties for doing so, and I'd have to pay taxes. I'm just beginning to research the pros and cons, and I stumbled across your website and think the advise you and Paul provide makes sense, so I would love it if you could let me know your thoughts. Advantages and disadvantages.

Thank you

Answer
Hi Dac,

I do agree with your thinking on the condo or rental property.  This can be a very good idea as long as the local market is cheap.

However, I am not an expert on the taxes of the 401k.  I do know that some forms of retirement accounts do allow withdrawals tax free if you are using the money to buy a home--but it may be that the tax break only applies for primary residences and NOT second homes.

So, to sum up, I do think buying real estate right now makes sense as long as the market where you live has seen that bubble deflate.

The tax issues here may work out or they may not.  I am not enough of an "expert" on those ramifications.

Best,

Steve