Beginner - 2 Unrelated Questions

  1. Would it be recommended to liquidated a 401(k) to get started, given the right deal comes along, knowing the tax and penalty implications.

  2. Would a formal education leading to certification as an RE appraiser be worthwhile?


Howdy RocklandCtyRE:

Get money some way to do deals, HML’s charge 4 to 5 points to help you get the money. I do not think your fees with the 401 would be that much.

If you want to become an appraiser then get the formal education, If not then get a street education. Maybe a single course on principals of appraisal would be good if cheap enough.

Education is great if you plan on using it, My sons girl friend was a French and Japanese major in college and is delivering pizza until her job comes around


I believe trying to take out money from your 401k early would lose you some big chunk, like 25% or more. I also think it is possible to borrow or get a loan using your 401k as collateral which would be a MUCH wiser thing.

Also, as stated above hard money lenders (HML) and other creative as well as conventional lenders might be an alternative.

Understand that when using retirement funds for the purchase of real estate you will normally not face any penalties.

Formal education can be a great resource for a real estate investor, but you will find that it is riddled with in the box thinking as an investor this is almost a death sentence.

Thanks for the replies…

I am in a tough area Rockland County, NY. Home prices have appreciated rapidly (50% - 75%) over the past few years.


By the way on the thing about getting licensed as an appraiser…

I recently was told how I should look into becoming a Licensed Home Inspector fro some extra cash while looking at doing some REI. After looking at the costs involved in getting the study material ($3,000-$4,000) and the time to do it all and take the exam (1-2 months) I decided I could well be on my way to owning tons of good, serious REI courses and books and have already found some deals.

Not to mention I would then have to market myself as an inspector cuz it’s not like once I get licensed people just call me up to come take their $150-$400 for the inspection. heh!

Same would be similar to a licensed appraiser. Best to learn how to appraise a house yourself for yourself by hands-on learning and just not be licensed to do it for others and get paid. Finding out the value of a house for a potential deal will pay for itself the first time!

My recommendation is that you leverage your 401 K to get a bank loan, but under no circumstance should you cash our your 401 K. I believe that there is a clause that allows you to borrow up to 10K or so to buy your first home without being penalized. However, if this money is for investing then you will be penalized at tax + 1/2%. Meaniing that if your are in a tax braket of 28% then you will be paying almost 50% on taxes if you cash out. So, don’t even think about it.

As for point number two, you don’t have to have to be a licensed appraiser to be a successful investor. Just read everything in your local library that will save you tons.

I have borrowed from my 401k without being penalized and actually pay myself back with interest. I think it was around 5% or 6% interest that I pay right back into the account over a 3 year period. My 401k allows me to borrow around 50% of the total value and it was really easy. I did it all online and they just mailed me a check. Now, I only borrowed 3k for some work on a property of mine.

I am an appraiser and do home inspections. I have been in the business for over 20 years. An appraisal license is really not a necessary tool in the real estate investment business, but you might take a class or two to get the feel on how the process works. Don’t forget, an appraisal is just an opinion of value. After you look through the market and see what the sales are and get a feel for the cost to fix things(cure), you will have a better understanding of what a property is worth and what you are willing to pay than most appraisers.

Understanding real estate is not just a hobby but a vocation, that over time you will pickup and in 3-5 years have a good understanding of what is going on.

I hope that helps…