How to Use Real Estate Investments to Cover Student Loan Debt, Car Payments & More

by |

Recently, I was at a wealth building mastermind group in Dallas that was attended primarily by physicians and private practitioners who were high income earners. I was having lunch with an impressive young man who was just finishing up dental school, and the topic we were discussing was the high cost of college tuition, when he disclosed to us that he was looking at about $250,000 of student loan debt (approx. $1,200 monthly payment over 20 years).

How to Analyze a Real Estate Deal

Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.

Click Here For Your Free eBook

Using Real Estate Investments to Cover Expenses

It was then that I told him about my son — who didn’t quite have that much debt — and how he was using an investment to pay off his student loan with a fraction of the money. I told him how my son had purchased a note for a fraction of what he owed in student loan debt, and the note’s payments would pay for the monthly payment of his student loan. Later on, he did the same thing to pay for his car payments. In essence, my son’s investment was paying for his car.

It doesn’t necessarily have to be a note investment, as it doesn’t really matter what the vehicle is. It’s the strategy that is crucial. All I’m suggesting is that it’s a good idea to have our investments pay for our expenses, instead of us paying for them out of pocket.

Using an example of a note investment, though, I showed the young man that if he purchased a note for approximately $28,500 that has 240 payments remaining of $300/month and the payments were made through the full 20 years, he’d be looking at approximately $72k.

Related: The Simple Savings Strategy That Will Jumpstart Your Investment Account

Now, let’s say he bought three more notes just like that one. He would be out of pocket only $114k (total for all four notes), but over those 20 years, the notes would pay off his $288k in student loan debt.

Applying the Strategy to Real Life

The same concept can be applied to many areas of one’s life. For example, years ago when I was a painting contractor, I worked for a high-end builder who would borrow money out of his life insurance policy, use it to build a house, and then sell the new construction home for a sizable profit. He would use a portion of that profit to pay back the life policy. Then, he would just rinse and repeat the process all over again.

If you really think about it, the profits from the sale of the real estate more than paid the builder’s insurance premiums. In this case, the builder was getting free insurance and then some.

Similarly, this strategy can be demonstrated from a business perspective. For example, I’m using money borrowed from a key man life insurance policy to start an auxiliary business that will benefit my primary business.

Another way I apply this principle in my own life is that I utilize the positive rental cash flow from my local bread-and-butter rental properties to pay for my vacation home.

Other than the increase in equity build up either from some possible appreciation or paying down the mortgage balance, my vacation home is a cash flow loser. But I use the cash flow from my other rentals to pay for my vacation home. Just imagine how many folks we all know who pay for their vacation homes out of their own pocket.

If you think about it, we all have necessary expenses, but it’s how we pay for them that can make all the difference in the world. This concept is just another way people build wealth through the use of intelligent leverage, and it can work even if you’re not a high income earner.

Related: Case Study: The Strategy That’ll Help You Reach Your Retirement Goals Faster & More Easily

I strongly believe that one needs to leverage carefully, though. It’s probably best to do what you know, what you’re good at, or what you’re passionate about.

If you can invest in multiple asset classes, and utilize collateral or insurance on your investments, it won’t be long before you’ll be living for FREE by having reduced the percentage of your income that you need to live on.

So, what are some of your favorite strategies for utilizing leverage to pay for your expenses?

Let me know with a comment!

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


    • Patrick Desjardins

      His point is that if the student used 114k to pay down his loan, he’d be 114k out of pocket and would still owe 136k.
      If he bought 114k worth of notes or rentals, the interest/cash flow would bring the proceeds well above 250k over the life of the loan basically giving the student a discount of 50%+.

      As far as finding the 114k in this example the student was in dental school, and dentists have very high earned income. He would just divert some of it to fund the investments.

      Love this strategy Dave.

    • Dave Van Horn

      Hi @K. Marie P.

      Patrick Desjardins is correct.

      The dentist I’m referencing actually explained to me that he found working in rural areas of the country gave him an even better rate. So if he makes $150K/year right out of the gate (as a single guy), it’s very feasible for him to put away $28,500/year for a note that will pay $300/month for 20-30 years or for an owner occupied rental property. And the plus side is, these investments will most likely pay past the term of his student loan.


    • Dave Van Horn

      Hi Joe,

      Many re-performing institutional notes pay a yield higher than 11%, and are secured by hard property. Even if you were to diversify capital into unsecured notes on a site like Lending Club, you could net yields anywhere from 4.5% to 24%.


  1. Edward B.

    I love this concept. I would much rather own my assets on my balance sheet vice outright, a concept that was really highlighted to me in another of Dave’s articles. That is putting your money and assets to work for you. This is how many banks, savings and loans, credit unions, and funds make gobs of money. They borrow money at a low rate and lend it at a higher rate. Are there risks? Absolutely, but all investing involves risk. You can utilize this strategy with a fairly conservative approach to mitigate much of that risk.

  2. Timothy Lewis

    Dave, I agree that this is a great strategy, but I’m with Matt. $250,000 paid back over 20 years at $1,2000/month assumes almost 0% interest. To make it reasonable, we could assume 6.5% on the school debt, which is on the lower end of rates for graduate school. That would yield a debt payment of a little over $1800 and would require about 6 of the $300/month notes you describe for a total cost of $171,000. Thus, his “discount” for purchasing assets instead of paying the debt out of pocket is approx. 68%. Still a great deal.

  3. Steve Hodgdon

    Interest rate arbitrage is great. Just make sure you have 3 months cushion in case the borrower defaults. And LTV is in your favor, even when the market tanks again.
    Go EXTRA special, put the notes in a trust. Follow DOE rules on loan forebearance. Tuition costs have skyrocketed because the Fed guarantees the banksters profits. I’ve negotiated reductions in debt but it’s hard to do. No incentive by the servicer to make a deal because the loan never goes away.
    but… there’s a trick if you do it right. Income based payments. After 20 years of PERFECT payments remaining balance goes away. Not for the faint of heart.

  4. Scott L.

    I’m not following the ‘note’ strategy. I understand rental cash flow paying for vacation home. But what are these ‘notes’? Are these other peoples debt? How would go about finding these? I’m very interested in learning more.

    • Dave Van Horn

      Hi Scott,

      When I say notes, i’m referring to institutional mortgage notes. So yes, other people’s debt (i.e. payments streams) that you can buy at a discount. Investors can purchase these notes from banks, servicers, loan exchanges, and funds and collect a monthly return just like they would a rent check, only without the hassle of owning a property.

      They can more be capital intensive than some hard real estate but they’re great alternative passive investments. I personally like to invest in hard property and notes in tandem to really maximize the benefits of both.

      I’ll PM you a copy of my new Introduction to Note Investing E-book that explains it all more in detail.


Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here