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That part doesn't bother me, as its only the 2nd offer in 3 years!
Just to play devil's advocate, is $10,000 "earnest money" a lot to ask? When I purchased my condo for cash, I only was asked for $500 in advance of closing. How do I "justify" 10K?
Yes, it is the same crazy guy who made the other 2 pseudo-offers of us carrying $175,000 with a 10K "down payment" after living there rent-free for 6 months to "see if he likes it"....
We really need to unload this place...and are willing at this point to take a huge drop in price, as others advised over in the real estate forum. We own it outright.
Ok, you want to get rid of it and it is very hard to do. Then I would try and keep the guy on the hook. Ask for 1% of the sales price. This is low but you do not want to chase him away incase he really can close.
Why do you guys think it's not wise? I've done it. You pay the money back to yourself, with interest, over 60 months. There's really nothing to it.
Google "compounding".
It seems like no big deal, but it is. It's a huge deal, and it very rarely works out.
I wish someone would do a study about people with similar balances and contributions, and compare those who took loans vs. those who didn't. Probably wouldn't matter, though. If you look at your 401(k) as a piggybank, it's always going to seem like a good idea to break into it, "just for a little", "just for a short time", "only for this one emergency".
Is this routinely done? We got this offer on some property of ours:
______________________
Response from _______ see below:"Because we planning to build a new home on property only to see it working if he would take a straight cash deal for $155,000. I have 230,000 in a 401k, so is max can offer and still build house. Would take me 30 days to get loan against 401k and other legal things finished to fund."
"Go cash out your account. I promise to check in with you if I receive any other offers. If you want me to "hold", I need an earnest money deposit."
Others have suggested $10K. That sounds reasonable. If he can't come up with it, fine... let him come back when he's got cash.
It seems like no big deal, but it is. It's a huge deal, and it very rarely works out.
I wish someone would do a study about people with similar balances and contributions, and compare those who took loans vs. those who didn't. Probably wouldn't matter, though. If you look at your 401(k) as a piggybank, it's always going to seem like a good idea to break into it, "just for a little", "just for a short time", "only for this one emergency".
Every situation is different.
Raiding the 401K as an emergency fund is probably not a good idea.
Borrowing against it, for an investable property, might be a good idea. Check the numbers, check the interest rate, and see if the deal makes sense. Since a house is a necessity, the 401K might be the way to go here.
It seems like no big deal, but it is. It's a huge deal, and it very rarely works out.
I wish someone would do a study about people with similar balances and contributions, and compare those who took loans vs. those who didn't. Probably wouldn't matter, though. If you look at your 401(k) as a piggybank, it's always going to seem like a good idea to break into it, "just for a little", "just for a short time", "only for this one emergency".
Quite a few years ago, I borrowed $10K from my 401K to build a garage. It seemed to me to be the best route as I made payments to myself rather than to a bank or credit union. At that time my 401K had, I don't know, maybe $50K or so in it. It now has close to $1M. So, even if this was not the smartest move on the board, it didn't kill me.
I could have got a loan from my credit union, or a bank, but would have been paying them interest.
Weigh in on how I screwed up if I did.
Of course if I had left my job for whatever reason, yeah, I would have had to pay the loan back pronto. I didn't see that happening at the time, although it's always a risk.
Thanks for the recent replies---and all others. This flake has not reappeared after we countered with a mere $5,000 more than his offer and a mere $2,000 down. And we asked for verification of said 401k that was very wisely advised here. Maybe he doesn't even have it.
You gotta wonder why these supposed buyers even bother....
A 401k loan should be looked at just like the timing of when to jump into the stock market and when to get out. When the market is high your funds are at a higher price. There is a better chance that it might drop than there is that it would climb.
Take out your loan now and you stop gaining/losing on the funds you have removed. You pay them back in at the level of value it is when you pay it back. Then the funds you have restored are subject to the variables again. Therefore you have a better chance of buying low, before it gets back to the level it was when you took it out. Taking a loan out when the market has just dropped a bunch would have the opposite, negative, effect on your account.
Thanks for the recent replies---and all others. This flake has not reappeared after we countered with a mere $5,000 more than his offer and a mere $2,000 down. And we asked for verification of said 401k that was very wisely advised here. Maybe he doesn't even have it.
You gotta wonder why these supposed buyers even bother....
Sometimes they are just dreamers, and really think they have a chance. Unfortunately, the schemes they come up with that SEEM like they should work, rarely do...
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