Author Topic: Advice on taking distribution from Ira for first home? Good idea or bad idea?  (Read 846 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.

Homeskillet40

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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?

Thanks for your advice.  I think ideally we wait it out until we have to move nad hopefully we'll have enough saved that we don't have to borrow anything.

I have considered buying the property I live in it's a fourplex 3 units including ours are currently rented the other I think the landlord basically forced them out because he was claiming he lived in their unit so now he threw some stuff in there and stays occasionally when he's trying to get work done.  I don't think we could ever get financed for this property if it was all fixed up it would be worth a million plus (I think max we can get approved for is around 800000).  However the units are below market rent and it needs a lot of love.  It has a brick foundation(earthquake central), a 10' listing retaining wall at the front of the property, and needs updated electrical among other smaller things (the house was built in 1890's).  The only way I could see us getting approved for a loan from a bank would be a fha 203k loan (may still be higher than what we could afford). There are other things that I see as opportunities he hasn't capitalized on for instance it has a large unfinished attic which could add bedrooms to the upper floor units which we live in one and he has his stuff in the other. Even if we low ball him and get we'd need to get these things fixed.  Through this experience I've learned a lot about the type of landlord I'd never be and would rent from in the future.

I know very little about buying houses or multi unit properties so I'm not really sure if there are other financing options that could work that I haven't considered or how I should bring up the topic to him?  Would a bank approve us given the state of the property?  I see no reason to not at least try even if it doesn't work out.  If it played out well could be a great investment.

I don't really have any family members I can borrow from.  I have been trying to get a second job going that could produce 1000$ a month but wouldnt be sustainable for too long.  But still waiting to see if it works out.

Homeskillet40

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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.

If we moved out of the area we were thinking we would have someone manage it.  We would not sell it after only 2 years.  We don't know for sure that we would move in 2 years but have been considering it as it would make things easier financially.  Appreciate your input though.  I agree it does feel like a silly reason to take on a 30 year loan unless we think it will produce returns.  But then again if we ended up staying and paying 2000-3000$ of rent it also sounds silly.

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.

Homeskillet40

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Thanks for the advice.  We are saving at a feverish pace so hopefully if we do decide to buy a place we hopefully won't have to borrow from retirement accounts.  I feel like we could get there in a year maybe less but hard to say with appreciation.  I can definitely see what your saying about it seeming like a great option now and regretting it later.  Seems like it could work out for the better but that's making a lot of assumptions that may not be correct.   Its also possible the housing market here will cool down so if we just keep saving and waiting for a good deal I think we are better off.  It's crazy here right now and I can't see how it's sustainable.  I mean how can it make sense that at the pace of appreciation people are better off buying now because they'll have a larger percentage down now than they will if they save for another year? I am glad though that I had the account to get pre approved so we can at least start looking and got a realtor so if good deals come along we'll be ready to go.