Hehe… we aren’t wanting a TV that rivals the size of my car… just to reinvest in more MHs, and pay off credit cards. We’re on a self-imposed “Rapid Debt Repayment Plan”, with the help of Mary Hunt’s Cheapskate Monthly newsletter/website. Unfortunately, with DH having lost his job in Feb and starting a new one in April, our savings are down, bills are up, and income is slightly down. We haven’t touched the 401(k), but I’m willing to do it for the right deal.
I think if we manage the finances right, we can take out some money for a couple of deals, and pay the 401(k) back, and use any excess to split between the credit cards and future deals.
Having credit cards since I was 18 (fresh and dumb) in college, with the number of bankruptcies and foreclosures on the rise, I have no clue why personal finance/debt prevention is not a mandatory class in high school.
I’ve posted before that we have no cash to buy a MH, but we have a home equity line of credit. I was advised not to use that, and I agree. I realized that we do have a meager retirement account (about $25K) that I had forgotten about.
I’ve read DoW and read about Lonnie’s friend that would rather keep his money “invested” in stocks at 6%, than to pay a small penalty and invest in MH for much higher returns.
Would it make sense to take a loan from the retirement account to fund our first couple of transactions? That way we could hang onto any down payment received for the next deal, and apply the monthly payment we’d receive toward the loan until its paid.
The last time we took a 401k loan, the tax and penalty on those proceeds would have been about 50% had we not paid it back when it became due. (we borrowed about $6,000, and when DH lost his job in Feb., which is why we are so low on funds, they said if we didn’t pay the remaining $4500, we’d have to pay about $2500 in taxes and penalties for early withdrawal).
As long as we pay it back, it should work, right? Please let me know your thoughts on this. I don’t want to be missing opportunities or starting too late, but I don’t want to put our family’s finances in peril, either. Its scary to take a first step in an unfamiliar direction.
Posted by Tony-VA/NC on October 07, 2003 at 11:37:52:
An IRA is a great way to invest for retirement while giving you the experience today. If you are seeking those results, then you may wish to consider rollling your 401k into a self-directed IRA with Entrust or Mid-Ohio (they just changed names but it is on the top of the forum page).
You can invest in these Lonnie deals with those funds and defer the taxes. The Lonnie yields will do incredible things for your retirement funds. Just bear in mind that you will still be actively working these deals but the money will be going into your IRA. That means no money for you today.
You can partner with the IRA on deals but be sure to clear it with the IRA company. Just dot the “i’s” and cross the “t’s”.
Once you have done some of these IRA deals, you will have the experience to prove yourself worthy of others investing in your deals. Investors like to see some track record and from this you will have one.
Check out the “How To Articles” here by Hugh Bromma and others that focus on using a self-directed IRA.
That does sound like a good idea that I will investigate, but currently we do need to have a portion of the income to build our emergency savings account and pay off debt, rather than in an IRA at this moment. DH is already contributing to another retirement account at his new job (which, btw, he likes, and I believe he intends to keep regardless of success in REI). Once the debts are paid, I’ll focus on adding more to retirement, but for now I believe that our debt is putting us in more trouble than than size of our 401(k)'s.
Is there anything unwise about taking a 401k loan for the purposes of doing Lonnie Deals, and paying it back with the monthly note payment (while I use the down payments for more deals)?
Cole,
It depends on the amount of financial dicipline you have. You need to stay focused, buy the homes right (a couple grand in the bank can sometimes make you careless in your haste to “invest” it), limit expenses, account for the money as you go etc.
That said, this is exactly how I started. I got 3k of “seed money” to start (went back for more as things grew) and used that to build my portfolio. Now I use a HELOC.
The only problem comes in when you get a down payment or proceeds from a cash sale (they do happen occasionally) and think “Oh it won’t hurt to get that big screen TV now…”. DON’T DO IT.
All the best, Lyal