I told you so!
It’s been a while since I’ve written a post here, but I had a big life event happen today and I just had to write a little post and give a big fat “I told you so” to a bunch of people who doubted me over 2.5 years ago.
In December of 2012, I wrote a post about how I was taking a $15,000 401k loan to help on the down payment of my first house purchase.
Here are a few quotes from the comments of that post, including a few people who thought my financial decision was so awful that they had to stop reading this blog altogether:
401(k)’s are for retirement and unless it’s an emergency cash need, I just can’t advocate that as a good idea.
I feel more like you’re trying to justify your decision than advocating this as a great choice. I see our financial goals at odds, so I gotta unsub.
I agree with Lindsey. It looks like it’s time for me to unsubscribe as well. It appears that we have completely different financial (and life) goals and I don’t agree with yours.
Fast forward to July 13th, 2015. After buying the house for $200,000 in December of 2012, I closed on the sale of this house for $288,000. To complete the math, we did put about $35,000 into renovations on the home, and also paid a 3% Realtor fee to the buyer’s realtor at the sale. So here’s the final math:
$288,000 Sale Price – $200,000 Purchase Price – 8,640 Buyer Realtor Fees – $300 Seller Realtor Fee (flat fee listing) – $35,000 investment – $5,250 401k withdrawal tax+penalty = $38,810 profit.
259% Return on Investment in 2.5 years
In December of 2012, I had two options. I could either leave my $15k in my 401k and let it grow there, or I could leverage that money to buy a house.
If I had left it in the 401k and invested in the S&P 500, I would have gotten a substantial gain of 48.25%. That’s nothing to be upset with. But instead I bought a house, flipped it, and made a 259% return on investment, even after I did change jobs and had to pay a 25% tax + 10% penalty on the withdrawal.
In personal finance, there are no “right” answers because nobody can tell the future. Personal finance is personal and I certainly don’t have any issue with individuals who would never take a 401k loan to buy a house. That’s a perfectly legitimate financial decision.
However, when looking back you can absolutely determine which of two options had the better financial return, and it’s obvious that I made the decision that had the greatest return over 2.5 years.
The next step of my life is to use a big chunk of the profit I made to close on the new house my wife and I are building. We took the equity out of our house and put it back into a bigger, newer house where we plan to raise our family for decades to come.
Even though I’ve gotten a new, better paying job since December of 2012 and we are still being frugal with our money, I never would have had the money to build a dream home for our family if I hadn’t bought and flipped our first home.
Maybe the real estate market will crash and keeping my money invested in my home will make me a loser overall. Or maybe my new home will be worth 2 or 3 times what I paid for it when I look to sell in 10-20 years. I have no idea.
But I do know I made the right decision in taking a 401k loan to buy a house back in 2012.
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