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Can You Use a 408k Plan to Buy Rental Real Estate? - YouTube
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what in the world is a 408 k planning
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can you use it to buy a rental real
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estate that's today's video let's dive
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in today we're going to talk about 408 k
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plans and how you can buy rental real
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estate using them but first I'm Clayton
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Morris I'm the founder of Morris invest
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I have rehabbed hundreds of homes and I
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own a huge portfolio of rental
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properties in order to create passive
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income and that's what this channel is
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all about is helping you create passive
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income so you can go out there and
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become a real estate investor so please
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subscribe to the channel if you haven't
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already done so little subscribe button
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down there please hit that and hit the
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little bells you can be notified about
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the newest videos all right today let's
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talk about a 408 k plan they're not as
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common most of us think of a 401 K with
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a large company a 401 k plan right we
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can't touch it until we're 59 and a half
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years old we put in yearly contributions
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up to a certain level and our employers
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often will match that contribution with
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a certain percentage and it sounds like
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a great vehicle I'm not a big fan of 401
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KS at all and we'll have a separate
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video on why I think 401 k plans are
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generally pretty awful and also why I
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think they kind of set us up for failure
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in a lot of ways anyway we'll talk about
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that in another video about 401 k plans
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but that's the basic structure of a 401
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k plan right the employer kind of picks
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the funds that we're allowed to invest
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in so we don't have much choice in that
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regard but it's there it's a safety net
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and it's something that many people do
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when they first sign up and start
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working for a new company they set up
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their 401 k plan and they think they are
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set for retirement well a 408 k plan is
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very similar it's just a little bit
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simpler actually it's a simplified
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pension basically and is meant for
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companies with under 25 employees so
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smaller companies with 408 k plan but it
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still has the same structure as a 401 k
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so here are some of the mechanics of a
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408 k plan you can't touch it until
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you're 59 and a half years old if you do
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before that time
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you'll be penalized of course but you'll
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have to pay taxes on that when you hit
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59 and a half years old there's also a
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yearly limit on the amount of money you
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can put into a 408 k plan just like its
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sister or cousin the 401 k plan so you
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can only put in a certain amount every
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year but here we go
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now let's talk about how you can use
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this 408 k plan in order to buy real
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estate just like its cousin the 401 k
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you can actually take money out in the
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form of a loan to yourself in order to
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buy rental real estate I love doing it
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so I have a 401 k plan
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I don't withdraw the money and get a 10%
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penalty what I do is I set up a loan to
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myself from the 401 k plan now you can
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contact your provider and ask them if
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they if your provider does this most all
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of them will I have fidelity others have
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Wells Fargo it doesn't matter
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most of them let you do this pretty
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simply with like three clicks of a mouse
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you can have that money in your account
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in like two days what is a loan look
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like so on a 408 K the loan is simple
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you might be allowed to borrow up to
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about fifty thousand dollars depending
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on how much you have in the account and
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you set the terms on your payback how
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long you want to pay it back so 12
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months 16 months 24 months and it comes
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right out of your paycheck that pay back
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each week comes right out of your
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paycheck it goes back into your 408 k
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plan now
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here's what's so great about this is
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that it's your money so you're creating
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your own Bank
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basically you're borrowing money from
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yourself this is your money remember and
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remember that the interest that you're
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paying back on this loan you are going
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to pay interest but here's the key that
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interest you're paying back is going
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back into your own account so it's your
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own bank it's not Wells Fargo it's your
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own account so if you're being charged
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2% or 3% interest on that loan guess
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what that helps you exceed your maximum
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yearly contribution limit so if you're
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only allowed to put $16,000 in there on
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your own every year or 16,500 whatever
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the cap is buy at by
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being back that additional interest it
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actually lets you exceed the federal
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minimum that you're allowed to put in so
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again it's your interest going back into
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your own account and at the same time
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you were able to buy a rental property
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with that so most of my properties that
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I buy are between 40 and 50 thousand
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dollars if you'd like more information
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about the types of properties I like to
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buy I've got a whole playlist in this
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channel devoted to turnkey real estate
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so check that out the little card will
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pop up right here you can check that out
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but again the 408 k plan is exactly like
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its cousin the 401 k just for 25
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employees or less and yes you can borrow
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money from your 408 k plan in order to
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buy rental real estate and then by the
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way when you pay it back after the 12
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months or the 16 months or the 24 months
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guess what you get to do it again you
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can borrow that same money right back
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out and buy your second or third rental
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property I have clients we work with to
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do it all the time and I like to do it
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once a year I borrow 50 buy a rental
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property pay it back do it again the
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next year why not the killer strategy so
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if you have any questions about this I'd
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love to hear them you can post your
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comments in the thread below also
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subscribe the big subscribe button over
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here go ahead and hit the subscribe
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button we publish videos three times a
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week our whole goal here on this channel
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is to try to help you get out there to
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become a real estate investor take
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action start creating passive income so
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you can live the life that you want
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we'll see you back here with our next
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video everyone take care
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