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A married couple in their early sixties successfully purchased a $364,000 retirement home in South Carolina by leveraging a loan from their 401(k) retirement plan, securing the property for $36,000 below its original listing price. This case study details their strategic approach, from defining their priorities to navigating a complex transaction, offering a realistic look at using retirement savings for a real estate investment.
How did this couple define their ideal retirement home? The couple, owners of a towing business with a household income of $400,000, had a clear vision. After 37 years in their first home, they sought a property where they could age in place. Their key criteria included a primary bedroom on the ground floor, no homeowners association (HOA), and a location that offered privacy and character. They were split on style—one preferred new construction, while the other wanted an older home with charm. Working with a buyer's agent, they viewed numerous properties remotely via video until they found a match.
What made this 1910-era property the right choice? The home, built in 1910, represented a compromise. It featured a recently renovated interior that appealed to the desire for modern amenities, while retaining original floors and brickwork that provided character. A critical feature was the ground-floor primary bedroom, supporting their plan to age in place. The seller had extensively renovated the property, adding a new roof, HVAC system, kitchen, and two bathrooms. The couple was also undeterred by its proximity to a freight yard, as they were accustomed to noise from their business. The home’s unique blend of old and new ultimately satisfied both of their preferences.
What challenges emerged during the transaction? The purchase was not straightforward. The home’s price was reduced from $400,000 to $385,000, and the couple offered $380,000. However, a professional appraisal valued the property at only $364,000. With no competing offers, they successfully negotiated the sale at the appraised value. A more significant issue involved the land. Public records showed the parcel was originally 0.86 acres, but the seller had subdivided it, listing the home on only 0.43 acres. The adjacent lot, priced at $45,000, was a concern. The couple insisted on purchasing the entire original parcel to prevent it from being developed, which the seller agreed to. The deal also included a second, gutted structure on the land, which the couple plans to renovate for rental income.
How did they finance the purchase with a 401(k) loan? Instead of a traditional mortgage, the couple opted for a loan against their 401(k) retirement savings. This type of loan functions as a personal loan from their own retirement account. They are required to repay the principal plus 9% interest to themselves over a four-year term. A critical consideration with a 401(k) loan is the potential for tax penalties if repayments are not made according to the plan's rules. This strategy allowed them to access funds quickly without a formal mortgage application, but it commits them to a strict repayment schedule.
What is their plan for the property before full-time retirement? The couple intends to move into the home full-time in three to four years. Until then, they are maintaining two households, which has required sacrificing other luxuries like vacations. They treat the South Carolina property as a vacation home, visiting once or twice a month. Family members who live nearby assist with maintenance, such as collecting mail and mowing the lawn. This phased approach allows them to enjoy the property now while preparing for a permanent retirement in a community they love.
Based on this experience, key considerations for using a 401(k) for a home purchase include:
