Should I Pay Off My Student Loan or Invest in Real Estate?

Should I Pay Off My Student Loan or Invest in Real Estate?

2 min read
Matt Faircloth

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, N.J., is a developer and owner of commercial and residential property with a mission to “transform lives through real estate.” DeRosa creates partnerships to finance select real estate investments and has a proven track record of providing safe, profitable investment opportunities to their clients.

Experience
Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to hundreds of units in residential and commercial assets throughout the East Coast. Under Matt’s leadership, DeRosa has completed tens of millions in real estate transactions involving private capital, including fix and flips, single family home rentals, mixed-use buildings, apartment buildings, and office buildings.

Matt is an active contributor to the BiggerPockets Blog and has been featured on the BiggerPockets Podcast three times (show #88, #203, and #289). He also regularly contributes to BiggerPockets’ Facebook Live sessions and teaches free educational webinars for the BiggerPockets Community.

Matt authored the Amazon Best Seller Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money. The book is a comprehensive roadmap for investors looking to inject more private capital into their real estate investing business and is a must-read for anyone looking to grow their business by using private lenders and equity investors. Kirkus, the No. 1 trade review publication for books, had this to say about Raising Private Capital: “In this impressively accessible introduction to a complex subject, Faircloth covers every aspect of private funding, presuming little knowledge on the part of the reader.”

Matt and his wife Liz live in New Hope, Penn., with their two children.

Education
Matt earned a B.S. in Industrial and Systems Engineering with a minor in Business from Virginia Tech. (Go, Hokies!)

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Over the years, many people have asked me this very question: should I pay off my student loans or take that money to invest in real estate?

This is a great question that really has no “right” or “wrong” answer. Ultimately, it depends on your financial goals and financial situation.

In the video below, I share my thoughts on this very important topic. I also discuss some important things to consider as you navigate this situation to determine what is best for you.

Pay Off Student Loans? Or Invest in Real Estate?

From those in college, to those fresh out, to those in their 40s, a lot of folks in America are dealing with student loans. They’re also wrestling with the decision about whether to focus on paying them off or start investing.

If this sounds like you (or someone you know who should watch this video), here’s what to think about:

1. Your Credit

The first thing you want to consider is your credit score. Your student loans can pull down your credit, especially if you’ve missed any payments. So check your credit.

Is your score super low? Do you only have bad debt? If you can’t show a good payment history, it’s likely dragging down your score. Make regular payments and show you’re a good debt payer.

Alternatively, maybe you just don’t have any credit at all. If that’s the case, go get some good debt, like a small credit card, to prove you can make on-time payments, and build up your credit score.

You need to be focused on having decent credit before buying real estate. Otherwise, you won’t be able to get a bankable loan. Talk to a banker to check your status or get more advice.

Related: How to Build Credit From Scratch

2. Return on Investment

Look at the return on investment (ROI) on an investment property versus what it costs for debt. (I learned how to do this playing Robert Kiyosaki’s cash flow game.)

Say I buy a piece of real estate that returns 15 percent. That 15 percent beats the ROI I get if I pay off my student loan at 6 percent. And I could even take the cash flow from my rental property and maintain my student loan with it.

So if I’ve got $20,000 I could use to pay off my student loan, maybe I’d be better off taking that money and buying a rental property with it (as long as I can qualify for a loan). I’d be coming out ahead in the long run—by a lot.

3. House Hacking

This is what I did. I bought a 3-bedroom/1.5-bath for my first rental property.

I got it for $150,000. My mortgage payment was $940. I bought it on a 3 percent down FHA-backed mortgage and laid down $4,500, plus closing costs. So all in, it was maybe $8,000 or $9,000.

Then I rented two bedrooms to friends for $500/month. They also each paid a third of the bills.

So I was living for free (and actually making $60/month), plus I had a pretty good job. In two years, I was able to pay off all my student loans and my credit cards.

Therefore, I highly recommend that you take the ROI equation and parlay it up with a house hack. Then you can take what income you’re earning and save yourself a housing expense while simultaneously drilling down on your debt.

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What do you think? What are the pros and cons to both options?

Let me know in the comment section below!

 

Many people have asked: should I pay off my student loans or take that money to invest in real estate? This is a great question with no right or wrong answer. Ultimately, it depends on your financial goals and money situation. Here are three things to consider in order to determine what's best for you.