Would anyone tap into a small portion of the 401 to own a second house outright?
There are a lot of angles to look at here.
But for starters, here's how I'd look at it.
A choice between keeping more cash liquidity now vrs future gains in real estate outperforming savings in the market.
And paying 401K taxes now rather than later (when I paid my primary home off, I had to take an extra 25K out to pay the taxes on my payoff amount; which was hurtful). But at least it was
after my retirement, so my other income was rock bottom and not up in my peak earnings higher tax bracket.
The most satisfying (and not thought about much) result of paying it off (besides just being glad it was), was that my savings started going right up, as a fixed income retiree, suddenly my biggest monthly bill by far (the mortgage) was no longer due each month and stayed right in my bank account. In just a couple years, I bought my last truck new with that savings for cash.
Real estate and the market are pretty closely tied together value-wise, up and down. You probably have more stability in real estate than the market (except there are a lot of market investment choices).
My pile of cash is safe (as long as not too riskily invested). But what if I sink a pile of money into that 2d home, and the real estate market plunges, and it looses a third or half of it's total value? What happened to my cash I paid it off with? And market and real estate crashes mean rents go down too. Or, can you I hold the home long enough to regain your loss? It will always come back, but when?
I'd always feel better about paying off my primary home, but less so for a 2d property. That property I would try to manage in whatever way protects my overall financial position best.
In uncertain times, cash in the bank may be safer, even with inflation.
I enjoy risk riding motorcycles. I don't enjoy risk with my money (I worry my ass off).
