Is it wise to take out 401k loan for 5 year to buy property in India ? Property loan in India =9%, land appreciation 25%, 401k interest (pay myself back) = 3.25%

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Think about cash flow. Are you talking about using your 401k loan as a down payment and then taking out a mortgage in india? Then you will have two fixed cash outflows and no inflows to show for it. The land appreciation you speak of is not guaranteed. Also if you do end up renting that house to create cash inflow, you might get hit by taxes and foreign exchange risk if the rupee depreciates. I usually try to keep my liabilities and assets in the same currency to avoid currency risk.

likehelpful

Very easy to move money into India, very difficult to move money out

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It’s not wise to touch your 401k before retirement

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Have you thought about exchange rate?

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And tax implications

The 401k loan interest rate isn’t what you should be concerned about. You’re pulling money out of the stock market and likely incurring tax + penalty if you leave your employer or miss payments. You’re also likely to pay an origination fee and the interest you’re “paying yourself” is double taxed. (In addition to D1 and BCG’s points)

likehelpful

Yes. First, this is an opportunity cost argument and we haven’t identified OP’s next best option (which may very well not involve a loan at all). OP’s also talking about buying a foreign property so idk about tax there. Just bc mortgage interest on a US investment property is taxed twice doesn’t mean it’s a good idea to take out a 401k loan.

I don’t think you can take a loan to buy investment property, can you? (Especially in another country?) if not - that’s 10% loss right off the bat. Also - ask yourself WHY the interest rate in India is so much higher…

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Where are you planning to buy land?

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Why do you know the value will definitely increase?

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In India, land prices double every 4-5 years... that is the only way to generate wealth while in job

Don’t take money out of 401k. The high interest rate in India will work due to their high inflation. Once you convert USD to INR, the possibility of getting it back is close to zero. Few years ago I made a mistake of sending 300k to invest in India at the rate of ~45, now the property prices are increased (all good), but after paying taxes and exchange rate, when I try to covert the money back (at the rate of ~72.5) I will be getting back 290k ☹️

That is very interesting point. My thought was to take out 50k from 401k since I do not expect the market to go up a lot and leverage high FX rate. The interest I pay on 401k is to my account itself so fine there. With lower loan rate and high appreciation that should more than offset FX risk....

Don’t touch your 401k

Thanks everyone, great view points..... ! I will do some more research on this... but this was very helpful. Thank you.

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