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Posted: 24 May 2013 10:42 AM PDT
Here's an email I recently received from a reader:
I need to see how everyone would proceed in the following situation:
- I'm 27
- I make around $85k from my regular job
- I own a side business with my business partner investing in rentals and real estate (relatively new, but want it to become more serious)
- I own a rental house that cash flows around $1k per month.
- Home value is around $210k, owe $140k on loan
- I have a variety of accounts setup 401k, IRA, taxable, savings, checking (401k value - $65k; Roth IRA value - $30k; Taxable investment account value - $40k; Checking/Savings value - $13)
Here is my dilemma. We recently purchased some land at a significant discount. When I say significant, I mean cents on the dollar. We got lucky and ended up with a buildable lot with limited cost. The plan is to build on the lot and sell the home. We will require roughly $140k for the construction. Neither of us want to go get a loan for the construction and would rather do it all in cash. As you can see by the outline above, I would need to pull from a number of sources to come up with my half of the cost. We stand to make around $100k total when the house sells, assuming all goes as planned.
With that being said, I know taking loans against your 401k is typically never a good idea. I really don't want to cash out my taxable account and take a loan against my 401k, but given that it would only be for a short window of time, I am really considering this option. Is this a viable route or am I missing something that could potentially come back to bite me?
Open to any and all suggestions. Help me out.
What's your advice for him?
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