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Can Real Estate Investing Help Me Pay Off $180,000 of Dangerous Debt?

Can Real Estate Investing Help Me Pay Off $180,000 of Dangerous Debt?

5 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized ...

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I think we can all agree that too much debt is dangerous, especially when that debt is from student loans.

That’s why today I wanted to share the email exchange between a BiggerPockets member named Ford (with his permission) and myself. Ford and his wife are struggling to get started with real estate investing and facing an uphill battle due to their student loan debt.

Below I’ve posted Ford’s question, as well as my answer.

I know that Ford is not the only one in this position, so it is my hope this post can help more than just Ford. Perhaps you don’t have $180,000 in student loan debt, but perhaps you are struggling with debt, with trying to buy a house, or trying to invest in real estate with bad credit. Whatever is stopping you from achieving the success you want, let’s see if we can help you out.

Webinar JpegFinally, before I get to the email, I wanted to invite you to this week’s webinar here on BiggerPockets! It’s happening this Wednesday and we’ll be talking about The Top 10 Mistakes Real Estate Investor’s Make (and How to Avoid Them). To register, click here!

With that, let’s first hear from Ford:

Ford’s Email to Me:

My wife and I have dreamed of owning a home to call our own and starting a family. Like most people, we also dream of owning rentals properties, having financial freedom, and enjoying the finer things in life. Our current situation is very discouraging and at times seems hopeless. We’ve tried several different things but have only gotten older and have yet to get ahead. I’m 30, and she is 29.

Related: Can You Invest in Real Estate With Bad Credit? (Maybe… Here Are 5 Ways to Do It)

Combined, my wife and I have over $180,000 of college loan debt. Mostly private. Several have adjustable interests rates maxed at 12%. Combined, we pay over $2,000 a month in college loans alone (not including the one car we share, rent, and food). We do not have any credit card debt. We’ve missed a couple payments in the past from being in between jobs, and as a result, her credit is around 580 and mine is around 640. We do not come from a wealthy family, and every member of our family is trying to survive in their respective manner. They are unable to help.

We have been unable to refi to lower rates due to credit and lack of a co-signer. I’ve spent hours researching all the ways to solve our college-loan problem with little success. Most of the advice is the same. Much of it is from lenders trying to refi to terms that do not favor us but get them paid a few points for restructuring our debt.

We are not doctors, lawyers, or any other professional that justifies this debt. She works in HR, and I’ve worked in various sales roles as 1099. I understand RE Wholesaling and have taken the actions to start. However, after our monthly expenses, we do not have a budget (Mailers/Adwords) to be competitive with the thousands of other people trying to do it in almost every market.

Because she is the only W2 employee (with bad credit), and I do not have two years of consistent income as an independent contractor, it makes it very hard to get approved for anything. We live paycheck to paycheck and rarely have anything left over for savings. This makes it very hard to invest or start a business. We see opportunities every day that seem out of reach because of our situation. Real estate is one of the things we truly wish we could do.

year-end-tax-strategies

My Answer to Ford:

Hey Ford,

Thanks for the message and sorry to hear about your situation. Sounds not fun at all. So, I have a few thoughts for you, and keep in mind this is just off the cuff stuff–take it for what it is. 🙂
First, you might be surprised to hear me say this, but I don’t think I would worry about buying a house. I think I would focus on getting the debt gone first. I don’t really buy the argument people say about “throwing away money on rent” ’cause when you get a mortgage, 90% of the mortgage payment is “thrown away” on interest anyway. Yes, long term it can be good, but it’s not really that important IMO.
So the real problem I see is the debt. As far as $180,000 in student loans, I’d expect that for a lawyer or doctor, but you said you don’t have those degrees. You were young and dumb, and I get that, and you get that, so let’s move on from there.
So, to begin, that $2,000 a month in student loan payments is going to KILL you for the next decade or longer and make everything in your life more difficult. That, in my opinion, is your “One Thing” you need to get rid of. I think you know that. That sounds overwhelming, but it CAN be done. There are, of course, two ways to make this happen, and you’ll need both:
  1. The first part of this is going to be cutting spending down to next to nothing. Like, really, really low. No more eating out, movies, etc. Live on under $2,000 per month in non-student loan income. Get on a REALLY strict budget and abide by it. Have a friend hold you accountable. Budget $50 a month for “fun money,” and everything else has to go to a bill or into paying off that debt.
  2. Next, you’ve got to increase your income–a lot. Like, I would make it a goal to be earning, combined, $150,000 per year within 12 months from now. You can live on $50k, pay taxes on $50k, and have $50k left to pay off debt. If you have no opportunity at your jobs to make additional income, it’s gonna have to come from another source. Now, we’re getting to the real estate investing stuff. I’d like you to set a goal of making $100,000 per year in real estate (assuming $50k from your jobs for the total of $150,000).

So, how can you make $100,000 per year in extra income, above your job, from real estate investing? There are a couple ways:

  1. House Flipping
  2. Wholesaling

(Of course, there are more ways than that; those are just the major two.)

I’d probably recommend doing both, because you can flip the deals that are the best and wholesale the rest. I’d start with reading my book The Book on Investing in Real Estate with No (and Low) Money Down. I’ve attached it here to this email so you can read it. [Sorry, BiggerPockets readers! You’ve got to buy it. ;)] You won’t necessarily do each strategy, but it’ll be good to know the stuff.

Related: How to Get Out of Debt: 5 Steps Toward Healthier Money Habits

Next, read J Scott’s books The Book on Flipping Houses and The Book on Estimating Rehab Costs. In fact, read all those books twice. You have 30 days to complete that. 🙂
Now, to make $100,000 per year from this means you are gonna have to do a lot of volume. Maybe four flips per year, or perhaps two flips and 10 wholesale deals, or whatever combination. You already said you can’t really afford mailings yet, so you will need to HUSTLE to get those initial few deals until you have the cash to pay for mailings.
I’d recommend Driving for Dollars to begin with.
Obviously, both working full-time jobs, this will be tough, but you have to sacrifice to make it happen. When you start earning double what you make at your job, perhaps you can quit.
So that’s how I’d do it. I’d start throwing $50,000 per year toward that student loan debt. In four years (or less), it’ll be gone and you’ll be at a REALLY good spot with your income. Just be careful, and don’t go into further debt unless it’s mortgage-related and on a REALLY good deal.
Then after all the debt is gone, I’d start worrying about buying the rental properties. At least, that’s my opinion!
I know this was long and not very cohesive, but those are my thoughts! Take ’em for what they’re worth. 🙂
Let me know how this goes,
Brandon
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READER: Do YOU have anything you would add? Anything you’d change from what I’ve said?
Share your comments below!