Author Topic: Advice on taking distribution from Ira for first home? Good idea or bad idea?  (Read 1449 times)

Homeskillet40

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Hi!  This blog and forum has provided me with a wealth of knowledge and changed my life so first of all I just wanted to say thanks.

I am considering pulling from one of my iras to buy a home but I wanted to get some feedback before I do anything crazy.  The reason I'm considering this is that I live in a HCOL area and I currently pay below market rent (1000$ vs average around 2000-3000$ a month).  This is great however my landlord is preparing to sell the property and so I'm thinking about buying a multi unit or a house where I can rent a room instead of renting at the much higher rate.  I currently have no idea when he will actually list the property.  We were given estoppel forms to fill out and a listing date (July 6th) and showing dates but then he backed out and hasn't told us when he'll be moving forward with this (my guess is because he's really let the property go and he has to fix stuff up first? Not really sure if anyone has expertise in this area I'd really appreciate some advice).  I was really aiming for next year to buy so I could finish paying off my debt first.  One other thing is I could receive Ellis act money payout depending on how it plays out which could be 6000$.

So basically this is my financial situation:

Salary- 80000 + 20000 in sep Ira contributions + 200$ for car used for work

Sep Ira-80000

Roth IRA- 27000 (19000 contributions 5 yrs June 2018)

Savings-10000

Debt-8000 car @3% 17000 student loan @6%

Amount I can stash away per month 2000-2500$

3.5% down payment + closing costs 20000-30000$

Cap rates are on average 4-6% for the area not to say there aren't better rates but they cost more and honestly I feel if I went that route I would be over extending myself.  Maybe I'm being too conservative but I feel like if I can't reasonably cover the mortgage by myself it's too risky without at least having some back up plan.  I don't necessarily know how good of an investment this route would end up being but it would also save me around 1000$ per month.  Another consideration is my girlfriend and I picture ourselves possibly moving in 2 yrs and hopefully to a lower cost of living area which is why I think a multi unit would be better route than a single family home.  Any advice would be appreciated.  Would be a real bummer to finally pay of all my debt to just have that portion of my budget just go to rent instead of putting it to work!


Cwadda

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Are you currently living in a multi family? Offer to buy it off the landlord. He'll save a bunch of money, win win.

I'd recommend buying an owner-occupying a multi family property. You can go through FHA and do 3.5% down.

I'd hesitate to draw from the Roth IRA. You could, but would it be possible to get the money elsewhere?

robartsd

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If you buy now and move in 2 years what will you do with the property? 2 years is short for holding real estate - transaction costs are just too high. I would not be considering buying if I were in the situation you describe.

moof

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We took a total of 30k out of ours for our down payment 10 years ago.  I wish we had just sucked it up and saved hard for another ~1.5 years instead.  I would be a good year closer to retirement now if I had.  Retirement was mythical to me at the time, and I was buying the whole mortgage debt is "good debt" tripe at the time.

My strong advise is to never buy a house you don't reasonably expect to be in or rent for at least 7-10 years.  Being a landlord from across the country can be quite a pain.

Even if are buying it to be a rental, buy a place based on its rental prospects.  Your dream home and a good rental house are likely very different in location, cost, maintenance, etc.