TSP Loan

This topic contains 9 replies, has 2 voices, and was last updated by  TS Paul 2 years, 4 months ago.

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  • #16838

    aoak

    Hey TSPaul,

    I read your articles on TSP loans and performed lots of research on this subject and I feel that I have a good grasp on it to be able to attain my real estate investing goals and retirement goals. I would appreciate another person’s analysis of my plans because I cannot find anyone…on multiple forums… to understand my plans. I think this is due to the fact that no one has done it, people have done it but have not posted their personal experience, it is just not a sound plan, or people do not understand TSP loans. Here is my plan:

    Continue to max out my wife’s and my Thrift Savings Plan at $36000/yr, let it compound in conjunction with what we have in our TSP already, $140k, and from now till 15 years from now take out between $10,000-$20,000/year from TSP to serve as part of our down payment on rental properties.

    Worst case scenario base on above plan: A net value of $16000/year would continue to go towards our retirement accounts and after 27 years (when we reach retirement eligibility) our retirement nest egg will have still grown to approximately $2 million (this is all we need in retirement…and more) and we should have 8 rentals properties. I will have gained liquidity in the monthly cash flow from the rentals since the Thrift Savings Plan is considered to be illiquid until reaching retirement age…thus I could retire early.

    I would pay off my loans within 1-2 years. My plan sounds solid but contrary to popular belief, borrowing from a person’s retirement account is not so “bad” as long as I do it in a smart way….which I believe I am. I feel that it is better to have my money grow within my tax sheltered retirement account, pay a minimal, fixed interest rate of 2% ASAP, and then use the tax sheltered money as a down payment.

    We have one year’s of savings as an emergency fund and I like your idea of using your Thrift Savings Plan as a source of an emergency funds. I may reduce my one year’s worth of savings to just 6 months. ..using that concept. ..and put the rest into our Vanguard brokerage account.

    We also max out our Roth IRA’s each year.

    Is this sound thinking? Please be brutally honest 🙂

    #16847

    TS Paul
    Keymaster

    That sounds like a lot of work. I much prefer the relative ease of just investing in the stock market to all that fussing around with real estate. But for people who know what they are doing, there is a lot of money to be made in real estate.

    So assuming you are going to be investing that $10,000 to $20,000 in real estate each year either way, the question boils down to whether you should put it into your Thrift Savings Plan first and then pull it out through a TSP loan to use in your real estate investing.

    I think your plan makes a lot more sense than just saving the money in a non-tax advantaged account and not maxing out your Thrift Savings Plan contributions. The great thing about a TSP loan is that you get to put the money back in and it goes back to compounding tax free until you pull it out. If you stuck the money in a bank account instead of the Thrift Savings Plan, you would miss the opportunity to invest that untaxed money forever.

    Now as to whether or not the real estate investing is a good idea for you, I can’t begin to venture an opinion.

    The TSP Allocation Guide www.TSPallocation.com

    #16852

    aoak

    Thanks for your help TSPaul! I really appreciate it. I would rather just do the stock market too but I can get better returns on my money and many tax advantages my real estate. I have two rentals so far and the returns on my money are 20-25% based on my cash flow from each one. It is a lot of work but I want to have liquid money available for when I retire early. ..instead of having to wait till 57 to get money from my “illiquid” TSP.

    I have never used my TSP as a vehicle for an emergency fund so I am excited and confident to use it to serve as my down payments on my future rentals.

    Thanks for all your help and I have recommended you to all of my fellow federal employees. I always refer to you as the “Robin Hood” of TSP to them 🙂

    #17277

    Joe Warner

    aoak,

    I like your plan. But I am a bit confused over your borrowing and payback. I may be wrong you can only have one TSP loan out at a time and for a max of $50K.

    I guess you could take out a $20K loan and repay it in the year with your contribution. But such short term loans doesn’t seem to save a lot of money as i can get a loan from my credit union at ~2%. I didn’t think the repayment of the loan gave you a tax advantage. If it does then your plan is a great way of saving your marginal tax rate which I would assume to be above 28%.

    #17293

    kyle

    I have used the TSP loan myself to get into the rental property market. I am working towards the same goal. I have found the loan to be a helpful way to buy the first few houses and get your rental properties on solid ground. I plan on working my way to 5 rental properties this way all on 15 year notes (currently at 4). Granted the return is not as nice on a 15 year note, but I have built up a lot of equity. Now I am able to use that equity as collateral to buy more investment properties. I am looking at it as a short term solution to another money stream. Plus rental properties do not count as income against your social security giving an extra boost to your retirement.

    #17836

    aoak

    Hey Kyle,

    How has your real estate investing been going? I am glad to see that someone else is doing what I’m doing with my TSP account. Do you use the same strategy or a variation of it? I have only found that by borrowing from your TSP, especially$20k, if you want to pay it off quickly you have to take pretty hefty cuts to your pay check. This is the only thing I do not like. Is your goal to attain 5 rental properties?

    Thanks,
    Jeremy

    #17868

    Kyle

    aoak,

    We are still sitting at 4 properties at the moment. I can see how it would take a big chunk out of ones paycheck. Right now my TSP loan is out on my military TSP so I didn’t really feel the hit yet. My wife and I are building a house now so the rentals have been put on hold. Hopefully once that is done, I can start back at the rentals. My ultimate goal is to get to at least 10-15 properties now. I am looking to replace my income completely with these properties. I have also rethought the 15 year loan in recent months though. With a 30 year note there is a lot more flexibility to pay down one at time and also have more in reserves when things inevitably break.

    #18067

    Jeremy

    Hey Kyle,

    I like having the 30 year notes for the reasons you have stated also. I do know of other Real Estate Investors that use the 15 year note investment strategy.
    As of late I have been considering Turnkey Rental properties but I have not pulled the trigger. I am also considering a different real estate market where cash flow is greater and homes are cheaper. My latest thought has been to perform a 1031 exchange of one of my properties for a 4 plex.
    Congratulations on building your own house! That is another goal of mine!

    Have you ever checked out Biggerpockets.com? I am on their all the time and have learned a lot!

    Good talking to you!

    Jeremy

    #20975

    Nicole C

    HI! In 2013 I took out a residential loan 35K to buy a home. Nearly 60 days ago I paid it off. I just signed a contract to build a new home closing in December 2016. I am interested in taking out another residential loan to cover closing costs.

    I’m confused on the TSP rules though – since I paid off the last residential loan in the last 12 months, does this mean I am only eligible for the difference between 50K and 35K from original loan = $15K max I can take out now?

    Or am I reset and able to take out up to $50K again this next residential loan?

    Appreciate any advice to clarify the rules.
    Nicole

    #21087

    TS Paul
    Keymaster

    My understanding is that you are only eligible for $15k until twelve months has passed since that balance was paid off.

    The TSP Allocation Guide www.TSPallocation.com

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