401k loan to purchase commercial real estate - yay or nay?
I have some cash saved up to put towards my first CRE property, and am actively in the market looking.  Trying to decide whether to withdraw $50k from my 401k (as a loan to be repaid w/in 5 years) to help increase the cash I can put towards a deal, as financing will either be a challenge to get at all (on vacant property for example), or very costly

Currently my 401k is all S&amp;P 500.  So I would essentially be selling low.  The right CRE deal may not materialize for quite a while, and the funds may not be needed in the end.  But if markets keep going down, then withdrawing later will be even more costly.

  
Thoughts?
[{"id": "iq70iwx", "text": "Depends on the level of risk and tax ramifications of the withdrawal", "replies": [{"id": "iq71zmd", "text": "no tax ramifications as long as paid back w/in 5 years.", "replies": [], "depth": 2}], "depth": 1}, {"id": "iq75ajh", "text": "Remember a couple points:\n- If you leave your job, you\u2019ll have to pay back the balance within 60 days.\n- You\u2019ll be paying back your loan with after tax dollars, which will again be taxed when you eventually draw from your 401k.\n\nIf you can live with those two things, you\u2019re good to go.", "replies": [{"id": "iq82sgq", "text": "Paying back the loan with after tax dollars is a non-issue, the loan was not taxed outbound so there is not the double taxation you are implying.", "replies": [{"id": "iq8roz2", "text": "That\u2019s not what I\u2019m saying. When you add money to your 401k, it\u2019s normally pre-tax. You pay tax later when you take it out. When you take a 401k loan, it liquidates that part of your 401k. You replenish it as you pay back the loan, using after tax dollars. When you eventually withdraw that part of your 401k in retirement, it will be taxed again.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iq7hq3u", "text": "Unrelated, but wanted to add you should probably diversify your 401k.  If you had a percentage in fixed income and the economy continues to tank, you essentially buy more \"at the bottom\" whenever the portfolio rebalances itself.  It de-risks your portfolio as well.  S&amp;P500 is a good example where if you bought in '07, you didn't get your money back until '13, whereas if you were diversified away, sure, everything came crashing down, but fixed income and bonds dropped a whole lot less, and you would've been underexposed at the top.  I'm a little concerned about whether you should be investing in CRE in the first place asking this kind of question (I don't mean it in a mean way.) I would probably recommend looking for a financial advisor.  I'm not one, but I can see when someone can really use it.  Especially if you're doing very well, like net worth &gt;$1MM, you're probably putting out more risk than you should be and probably need a profession to walk you through some of your decision-making.\n\nNot a financial advisor yada yada Past performance future results yada yada", "replies": [], "depth": 1}, {"id": "iq8jzo8", "text": "nay", "replies": [], "depth": 1}, {"id": "iq8kf4v", "text": "In general I say nay", "replies": [], "depth": 1}, {"id": "iq97i7y", "text": "In my personal opinion, I\u2019m no financial advisor. If you can justify a profit from CRE over keeping the money in your 401K till retirement. I think CRE is yay. You\u2019d have to do the math out for both scenarios and then compare. This is really a numbers game while considering the risks involved such as losing your jobs etc..", "replies": [], "depth": 1}, {"id": "iqaj2im", "text": "Might check and see how commercial mortgage backed securities are doing right now. I\u2019d guess you\u2019ll get a way better deal in a year or so. This one is gonna make 2008 look like a sneeze.", "replies": [], "depth": 1}, {"id": "iqbg8yh", "text": "It depends on the exact situation, but there might be another option.  You can often just use the securities (still in a tax-advantaged account) as collateral for a loan instead of withdrawing the money\u2026which might allow you to realize some tax benefits.\n\nI work for a VC firm and our partners do that sometimes when they have side projects, etc.  We have a company we work with for commercial lending and tax solutions, and they have a securities-based lending division. \n\nYou should speak to someone competent that can help you analyze your specific situation and set things up correctly. They should ask questions about your job security, age, etc.  Not just about the investment or just about your 401k.\n\nOne good thing if you go your proposed route is that the CARES act changed some of the rules about 401k withdrawals and you might get an extra year and be able to go up to $100k instead of $50k if you need to do so.\n\nIMO, it doesn\u2019t really make sense to do any of this until you can run the numbers on a specific property.", "replies": [{"id": "iqbihv9", "text": "Thanks for the thoughts.  Quick google search shows that 401k used as collateral is strictly prohibited, but ill look further.\n\ni think the window closed in 2020 for the add'l year and up to $100k 401k loan  \n\nagreed on waiting until i id a specific deal before doing anything at this point", "replies": [{"id": "iqbqbxv", "text": "I didn\u2019t know the CARES window on increased 401k withdrawals had closed\u2026it was some time ago I heard about it and I assumed it was still floating like most of the bill\u2019s provisions.  Sorry, I\u2019m mostly a PE/software guy and don\u2019t stay up to date.\n\n401ks do have different rules than most retirement accounts, because of how they are held (name and separation) and creditor rights etc.  So, yes, you would likely rollover into another tax-advantaged vehicle first. You still get all of the benefits, but using a different account structure that also protects the creditor and satisfies the IRS.\n\nMy partners often find it worthwhile to do this for the lower loan rates and deductions, but you can get the loan called if the underlying security value plummets, etc.  Everything has pros and cons, which is why you need to run your numbers and specific situation.\n\nI\u2019ve seen misleading info online on sites I normally respect about this stuff.  (For example, some make it sound like your existing broker/plan administrator is the only one that can lend against your account etc, which I know is not true.  One of my colleagues had several points difference in rates between his broker and the lender we usually work with.)\n\nGood luck!\ud83d\udc4d\ud83c\udffb", "replies": [{"id": "iqbsh6l", "text": "Appreciate your time and thoughtfulness!  I'm hoping to avoid traditional financing routes once I find a deal given the prohibitively high rates and the fact that a lot of lenders won't lend on vacant properties.  Seller financing could be an option, or private loan from someone within my network.  In either of those cases, I could offer my house as collateral if needed since it's paid off", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]