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ADPI_031: How To Use Your TSP To Invest In Real Estate

Oct 05, 2018


Episode Transcription:

Hey guys what's going on? Welcome to the active duty passive income podcast. I've got an awesome episode for you here. It’s on TSP. I've actually did this video a while back. But I've chopped it up, remastered it and here it is. But first.

Hey freedom fighters welcome to the active duty passive income podcast. The only place where military members, veterans and their families learn how to build wealth through real estate investing. I'm your host Mike Foster and I'm here to show you how to stop wasting your benefits. Now get off your ass, step up to the firing line and make ready for today's lesson. Shooter stand by. 

Hey what's going on guys how you doing? Mike foster here again and this time I'm going to be covering how to use your TSP to invest in real estate. This is going to be a pretty good lesson for all those who are military out there or who know someone who's military this will be something that you definitely want to see. I'm going to be deep diving a little bit on how to understand it, whether you're taking a loan withdrawing all that stuff and it's going to be good alright. So I'm going to go ahead and kick it.

Alright guys so first of all what is the TSP? Alright so your TSP is right there Thrift Savings Plan and it's a retirement benefit that's been given to us by the government. Whether you're a federal employee or whether you are a uniformed military service member, you are afforded the opportunity to use the TSP to help generate wealth for retirement.

It kind of works just like a 401k. If you are not familiar with it. But right that's essentially what it is. Now let's talk about why you would want to use your TSP to invest in real estate. Well it's pretty simple, if you're buying a property let either for your personal residence or whether it's an investment property you are given the opportunity to do so at any point during your career. So if you're going to buy residential right, there is a particular loan that you can use for that and I'm going to be going over the specifics later on.

But if you're going to buy an investment you'll have to use the general loan and you can use that to purchase a property cash, if you have enough funds or you can use it for a down payment on the loan. If you want to use it for renovation you are allowed to do so with certain guidelines right. If you want to use it for a refinance you can and the interesting thing about the loans that you can take from your TSP is that the interest rate is just is the G fund. So it's very very low. It’s about one and a half sometimes almost 2%. Which is pretty good all right.

Let’s say if you want to give a private money loan right to a particular investor, you can do that as well right. There are different types of loans that you can make from your account. you can do a conventional loan right at a conventional interest rate paid back over monthly, quarterly, annually etc. you can do a balloon loan right.

Balloon loans were very popular or are very popular because their interest only for a certain amount of time and then you receive the full principal of your loan at a later you know later date. You can buy equity interest in a certain company. Let’s say if you want to partner with an investor or the friend and you want to purchase a particular percentage of equity in that property, you can do so and if you want to say use it for a peer-to-peer lending. That’s also become very popular. 

Another thing that you may not realize that you can do with it is invest that money into a real estate investment trust or a REIT and if you're not familiar with that you can definitely look it up. But real estate investment trusts were kind of like stocks. Where you're buying into a share of a commercial property or a commercial company that invests in real estate and you gain money over time. Just like you would with a stock. So there are plenty of really good ways that you can use the money that you have in your TSP. turn a little bit bigger profits than you'll see with any one of those funds. 

Loans versus withdrawal. All right this is important that you understand this. Now you are not allowed to withdraw money from your TSP account with the exception of experiencing some sort of financial hardship. Whether it be you know a man I don't know a bankruptcy, right impending bankruptcy. Let’s say a foreclosure or let's say you're experiencing some kind of bad medical situation right. There are certain situations where you're allowed to withdraw without penalty. However if you try and do any other way than that you will be penalized right and also fifty nine and a half right. So you have to be 59 and a half or above to withdraw also without penalty. If you're not experiencing in one of those hardships. So keep that in mind all right. 

So now let's just go over the general rules. So like I briefly mentioned before there are two types of loans that you can take right. A loan is different from a withdrawal right. If you're withdrawing obviously you're going to experience those penalties. Because you're taking money permanently out of it. But that loan that you can take right to yourself imply that you're going to pay it back and you'll set up for structure a payback structure right. So that there are two types. You’ve got your residence loan and you've got your general purpose loan. All right now I'm going to go over a general purpose first because it's the simplest one. You take out that loan to yourself and you can set up your payment structure back from one to five years right. Five years is the maximum amount of time you can have a general purpose loan out to yourself.

For residence loans right, those are a little bit different and there are a lot of rules and guidelines that go into it. But first you can structure your payments from 1 to 15 years and you're only allowed to use a residence loan to yourself if you're going to purchase your primary residence okay. Now that primary residence cannot be a renovation right project, it cannot be going into a refinance for your primary residence.

The only way you can buy that property is if you are using it either to buy full cash for your primary residence. if you're using it to put a down payment on a mortgage for your primary residence or if you're using it to you construct right, a new construction per se and you are going to live in that residence and the importance with that too is that you know you have to have documentation for this to work.

You can't just go ahead and say oh yeah I'm using this for my primary residence. Now unfortunately that's not how it works. So keep those rules in mind okay. So the minimum amount of loan that you can take for any one of them right is about a thousand dollars okay. One thousand dollars and the maximum gets a little bit hairy okay. So just bear with me on this. This is going to be a little bit to dissect and to go into. So the maximum amount of the loan that you can take is calculated based off of the smallest amount of these three factors okay. The smallest amount of these three factors. A, your contribution plus your earnings minus any loan that you have already taken out okay.

Now with this it's important to understand you can take out a general purpose and a residence loan at the same time. You cannot do two of each at the same time, does that make sense? so if you've already taken out a residence loan, you can still take out a general purpose loan and you'll only be allowed to withdraw you know your contributions minus your loan balance from the other one that you took, does that make sense? okay right now condition number two, 50% of the total amount of your account including your loan so that you've already taken out if you have one right or 8% whichever those two numbers is greater minus any loan that you currently have.

So I know it's kind of counterintuitive there and it's a little hard to dissect. So hard to understand. But so 50% of the total amount that you have including any loan that you might have already taken right or $10,000, which ever those two numbers is greater minus the current outstanding balance that you have on one of your loans okay. Now number three okay and this one's also a little tricky. So $50,000 right minus the highest amount of loan that you took within a 12 month time frame okay. Now let's say you took out a loan for 35,000 okay. So 50,000 minus 35,000 equals 15,000. That’s how much you'd be able to take if that number right there is less than any of the two conditions that I've mentioned previously okay.

These are all certain tests that the IRS does to allow your eligibility for these loans and so again like I said it's very very complicated. It’s definitely something you want to look into and you want to talk to one of the TSP advisers before you go out and do this. There are also a bunch of rules as far as what you're required to do to pay back if you're considering separating from the military or from federal work. there are also certain things you want to take into account if you're going to be switching from one federal job to another job and the other one doesn't necessarily you know offer, I'm sorry not offer structure your TSP payments. You have to you know let TSP know ahead of time. So I've offered the TSP loan booklet which has a whole bunch of information.  It’s about 24 pages. But it's really really good, it goes in-depth and it'll break down everything that's important to you. 

Right so other things that you're going to want to take into account are the spouse right. So if you are married your spouse has a say and you're using your loan. Okay so that's another thing it's important. Even if you're separated right you'll still have to get your spouse. If you're still married right to sign on you using your loan okay. That’s another important thing and then obviously you have to fill out the loan agreements right that are on the page. But once you get to this point honestly guys it's really a pretty simple process. I have done this myself. I've taken a general purpose loan out. It was very very simple.

I went through the loan agreements. took me maybe you know 10 to 30 minutes to read through everything and to understand it all and then how I got my money was through an EFT and you are given the choice where you can get an EFT or you can get a check, that's payable to the address that you have on file. So also very important that you make sure that your address is correct. Okay but yeah guys other than that it's super simple. It’s a $50 fee for the loan right that for any of the loans that you take other the two and you can't use another loan until there's a 60 day waiting period from the time you fulfilled it. So let's say you paid off your loan December 1st right.

Now you have to wait until February 1st in order to use that same type of loan again. now you can use a different type of loan if you want. But if you want to use that same type of loan or other general purpose again you have to wait 60 days upon the completion okay. 

All right all right guys that's going to do it. Thanks so much for listening. If you want to learn more about the Thrift Savings Plan, make sure you check out the resource that I put inside the show notes page. Its great little pamphlet, you'll love it alright. Also we have an e-book that will come in now November 2nd. November 2nd is the launch date. You’ve been hearing about. It it's coming out. November 2nd is the date. Make sure you save that and you go and you get it. It’s going to be available for $0.99 for only 48 hours okay. 48 hours, 99 cents.

Make sure you guys spread the word and you go and you grab it so you get the best value you can for that book.  I'm telling you is an opportunity you do not want to miss. All right please make sure you reach out to us. Hit us up on our Facebook, hit us up on our Instagram or if you are ready to get your financial freedom started, www.activedutypassiveincome.com, we want to see and help you. Alright guys I'm out of here.

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