Recent Grad wanting financial freedom: Pay off debt or House Hack first?

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Recent Grad wanting financial freedom: Pay off debt or House Hack first?

Kari Karanikos
Member since 2023 · 7 posts · 2 votes

Hi everyone, I'm Kari, I'm 24 and I graduated college last year. I had a bit of a career pivot my first-year post-grad but just started my first $60K marketing job this month. I've known since about half-way through college that I wanted to use real estate to achieve financial freedom as soon as possible, however due to moving to the US as a teenager, I didn't necessarily understand how to approach financing my college education. 

Post-grad this puts my debt profile at $27K (4% fixed interest) in federal loans, $96K (7.99% fixed interest) in private loans and $5300 (0% interest) left on a car lease. I plan to refinance my private loans again for a better interest rate, but once federal repayment starts again, I'll pay $1330 per month to my debt. DTI 27% and credit score 746.

In terms of expenses other than debt, I currently live with my parents and have none. This leaves me with a solid $2500 saved per month, and in addition to my side-hustles I'm projected to have ~$15,000 by October 2023 - which is when I plan to move out, and no I can't continue living at home :(

My question is whether I should put the 15K onto my debt, move out and rent, continue to grow my income and save as much as possible OR use the 15K as a down payment, take the next few months to hunt for a house-hack and use the house hack to live "rent-free" which would give me the opportunity to continue paying down large amounts on my student debt. My job is fully remote, wfh and has no location limits, and because financial freedom is my goal, I don't care much where I move as long as I can set myself up financially.

Would appreciate advice since I have a lot of moving pieces and almost too many choices with a remote job!

  

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Abbey Humphreys
Member since 2023 · 303 posts · 324 votes
3y

Hey Kari- a DSCR loan could work for you given that the underwriting is done based on rental income and not your personal debt. I can message you about options!

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Kari Karanikos:

    Most people will tell you to pay the minimum on the debt and use your extra cash to invest. If you pay 5% interest on the debt but have a rental making a 10% return, then you will be 5% ahead, right? Wrong! Do the math with two different scenarios and you'll see that the best option is to focus your effort on paying off the debt first, then investing.

    Calculate the results on two scenarios:

    1. You pay the minimum on your student loans and put anything extra into investments. After the loans are eventually paid off, then add that to your investment plan. Where do you end up in 20 or 50 years?

    2. Pay the debt off like a madman. If you work extra hours, get $20 in your birthday card from Aunt Gertrude, or pick up a nickel off the ground, you put it toward the debt. After you've paid off the debt completely, start using that same hustle to invest. Where do you end up in 20 or 50 years?

    Carrying the debt will result in less wealth, and it holds you down in a variety of other ways. True wealth - like anything of value - comes with hard work and sacrifice. Don't think you can shortcut your way to success.

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  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    3y

    Have you thought of living with parents and taking a sack lunch and paying off quickly.

    0Reply
  • Kari Karanikos
    OP
    Member since 2023 · 7 posts · 2 votes
    3y
    Quote from @Scott Mac:

    Have you thought of living with parents and taking a sack lunch and paying off quickly.

    Have been living with them for a while now and putting $2000 out of my $2800 per month towards the student debt, after June I’ll have put around ~$13K total towards my private loan. I do have to move out by September/October so not much of an option going forward. Just wondering if I should take the savings advantage over the next couple months to pay more off of debt or use it as a down payment to house hack. 
    1Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    3y
    Quote from @Kari Karanikos:
    Quote from @Scott Mac:

    Have you thought of living with parents and taking a sack lunch and paying off quickly.

    Have been living with them for a while now and putting $2000 out of my $2800 per month towards the student debt, after June I’ll have put around ~$13K total towards my private loan. I do have to move out by September/October so not much of an option going forward. Just wondering if I should take the savings advantage over the next couple months to pay more off of debt or use it as a down payment to house hack. 

    Your own parents are throwing you out of the house?

    Try negotiating with them (when the time comes closer--not now--or you will have to pay to stay now) for $100 cash every 1st of the month. When you offer it to them--lay a brand new crisp $100 bill on the table in front of them.

    If that fails, offer to cut the grass once a month along with it--and stick to your promise every 1st of he month--so they don't have to nag you about it.

    And keep a low profile. Don't annoy them--just hang out in your bedroom---

    You should stay with them until you can get enough money saved for your own house based on your earnings.

    just my 2 cents.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    If you are moving out in the fall, talk to a loan officer at the bank now to see where you are at if you wanted to buy a home and live in it. Look at how much rent is vs a mortgage (realizing there are property taxes and repairs with owning a house). If the costs of the two are comparable AND you can afford to buy a home, why not look at a 3 bed, 2 bath home (not a condo, no HOA) and rent out two of the rooms? That gives you extra income to pay down your debt faster.

    As you just started a new job, they may say you have to wait until you've been there for a while (eg 6 months) to get a mortgage.

    Keep finding extra ways to increase your income and decrease your expenses (bring your own lunch, don't buy coffee at the coffee shop, etc).  While you say you are staying in your parents' home for free, I'm assuming you are paying for some of the groceries.

    2Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    3y
    Quote from @Nathan Gesner:
    Quote from @Kari Karanikos:

    Most people will tell you to pay the minimum on the debt and use your extra cash to invest. If you pay 5% interest on the debt but have a rental making a 10% return, then you will be 5% ahead, right? Wrong! Do the math with two different scenarios and you'll see that the best option is to focus your effort on paying off the debt first, then investing.

    Calculate the results on two scenarios:

    1. You pay the minimum on your student loans and put anything extra into investments. After the loans are eventually paid off, then add that to your investment plan. Where do you end up in 20 or 50 years?

    2. Pay the debt off like a madman. If you work extra hours, get $20 in your birthday card from Aunt Gertrude, or pick up a nickel off the ground, you put it toward the debt. After you've paid off the debt completely, start using that same hustle to invest. Where do you end up in 20 or 50 years?

    Carrying the debt will result in less wealth, and it holds you down in a variety of other ways. True wealth - like anything of value - comes with hard work and sacrifice. Don't think you can shortcut your way to success.


    Nathan is right. With $100k of student loan debt at 8% and another 32k at various, you're nowhere near it. Making a guaranteed 8% annual is a great return. If/when you have to move out, either a) rent the cheapest thing you can and continue to get your debt paid off, or b) buy a wreck of a duplex with an FHA, live in the worst part and rent the other side out.

    You need to start with some assets to have "financial freedom". Right now you are severely in the red.

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  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    Pay off consumer/loan debts before you start investing in the housing market. I wouldn't curtail retirement for it, but eliminate debts asap. Go work extra weekend/night shifts, clock in an extra $250/week net. Take that $1k/mo and beat those loans down. And make sure you got yourself a comfortable savings buffer(like 8-12 months of paychecks). 

    Get that DTI super low and credit score up, start saving up for investment houses then go at it. You got time on your hand, don't be a normal american and start getting crazy leveraged inclusive of crap debt.

    0Reply
  • Kari Karanikos
    OP
    Member since 2023 · 7 posts · 2 votes
    3y
    Quote from @JD Martin:
    Quote from @Nathan Gesner:
    Quote from @Kari Karanikos:

    Most people will tell you to pay the minimum on the debt and use your extra cash to invest. If you pay 5% interest on the debt but have a rental making a 10% return, then you will be 5% ahead, right? Wrong! Do the math with two different scenarios and you'll see that the best option is to focus your effort on paying off the debt first, then investing.

    Calculate the results on two scenarios:

    1. You pay the minimum on your student loans and put anything extra into investments. After the loans are eventually paid off, then add that to your investment plan. Where do you end up in 20 or 50 years?

    2. Pay the debt off like a madman. If you work extra hours, get $20 in your birthday card from Aunt Gertrude, or pick up a nickel off the ground, you put it toward the debt. After you've paid off the debt completely, start using that same hustle to invest. Where do you end up in 20 or 50 years?

    Carrying the debt will result in less wealth, and it holds you down in a variety of other ways. True wealth - like anything of value - comes with hard work and sacrifice. Don't think you can shortcut your way to success.


    Nathan is right. With $100k of student loan debt at 8% and another 32k at various, you're nowhere near it. Making a guaranteed 8% annual is a great return. If/when you have to move out, either a) rent the cheapest thing you can and continue to get your debt paid off, or b) buy a wreck of a duplex with an FHA, live in the worst part and rent the other side out.

    You need to start with some assets to have "financial freedom". Right now you are severely in the red.


    I am most definitely in the red with debt, I was also thinking to possibly explore a DSCR loan option. My goal is to buy an asset that could pay off/ help me pay off my debt. Since living at home right now gives the chance to save for a down payment while paying the minimum on my student loans, I feel like it could be a good option to explore. I also think it could be a safer investment choice since the loan officers will have to evaluate and approve the purchase based on the legitimacy of the cashflow coming from the property, which I see as a bit of a fail-safe in buying my first property. Do you have any thoughts on that?

    0Reply
  • Kari Karanikos
    OP
    Member since 2023 · 7 posts · 2 votes
    3y
    Quote from @V.G Jason:

    Pay off consumer/loan debts before you start investing in the housing market. I wouldn't curtail retirement for it, but eliminate debts asap. Go work extra weekend/night shifts, clock in an extra $250/week net. Take that $1k/mo and beat those loans down. And make sure you got yourself a comfortable savings buffer(like 8-12 months of paychecks). 

    Get that DTI super low and credit score up, start saving up for investment houses then go at it. You got time on your hand, don't be a normal american and start getting crazy leveraged inclusive of crap debt.

    Gotcha yes, that is my ultimate goal. I'm thinking to also explore a DSCR loan to buy a cash flowing property to contribute to my debt payments before I move out. Do you have any thoughts on that?

    0Reply
  • Kari Karanikos
    OP
    Member since 2023 · 7 posts · 2 votes
    3y
    Quote from @Theresa Harris:

    If you are moving out in the fall, talk to a loan officer at the bank now to see where you are at if you wanted to buy a home and live in it. Look at how much rent is vs a mortgage (realizing there are property taxes and repairs with owning a house). If the costs of the two are comparable AND you can afford to buy a home, why not look at a 3 bed, 2 bath home (not a condo, no HOA) and rent out two of the rooms? That gives you extra income to pay down your debt faster.

    As you just started a new job, they may say you have to wait until you've been there for a while (eg 6 months) to get a mortgage.

    Keep finding extra ways to increase your income and decrease your expenses (bring your own lunch, don't buy coffee at the coffee shop, etc).  While you say you are staying in your parents' home for free, I'm assuming you are paying for some of the groceries.

    I will definitely be reaching out to some loan officers early, thank you for the advice! My parents and I contribute to household things as they come up, so its not really a strict breakdown but they are fronting the majority. I'd say I'm spending a little less than I would spend if I were living on my own for food. And am in the process of increasing my side hustles with the goal to have them cover all my expenses and use my W2 all towards savings/debt. If I can achieve this over the next month or so, I'm thinking about exploring a DSCR loan, do you have any thoughts on that?

    0Reply
  • Kari Karanikos
    OP
    Member since 2023 · 7 posts · 2 votes
    3y
    Quote from @Scott Mac:
    Quote from @Kari Karanikos:
    Quote from @Scott Mac:

    Have you thought of living with parents and taking a sack lunch and paying off quickly.

    Have been living with them for a while now and putting $2000 out of my $2800 per month towards the student debt, after June I’ll have put around ~$13K total towards my private loan. I do have to move out by September/October so not much of an option going forward. Just wondering if I should take the savings advantage over the next couple months to pay more off of debt or use it as a down payment to house hack. 

    Your own parents are throwing you out of the house?

    Try negotiating with them (when the time comes closer--not now--or you will have to pay to stay now) for $100 cash every 1st of the month. When you offer it to them--lay a brand new crisp $100 bill on the table in front of them.

    If that fails, offer to cut the grass once a month along with it--and stick to your promise every 1st of he month--so they don't have to nag you about it.

    And keep a low profile. Don't annoy them--just hang out in your bedroom---

    You should stay with them until you can get enough money saved for your own house based on your earnings.

    just my 2 cents.

    Thank you for the advice, yes its definitely not ideal but that's just life sometimes! I was thinking about also exploring a DSCR loan to purchase purely an investment property - do you have any thoughts on that?

    1Reply
  • Abbey Humphreys
    Member since 2023 · 303 posts · 324 votes
    3y

    Hey Kari- a DSCR loan could work for you given that the underwriting is done based on rental income and not your personal debt. I can message you about options!

    13Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    3y
    Quote from @Kari Karanikos:

    Thank you for the advice, yes its definitely not ideal but that's just life sometimes! I was thinking about also exploring a DSCR loan to purchase purely an investment property - do you have any thoughts on that?


     Look into it and see if it is for you.

    Good Luck!

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y
    Quote from @Kari Karanikos:
    Quote from @Theresa Harris:

    If you are moving out in the fall, talk to a loan officer at the bank now to see where you are at if you wanted to buy a home and live in it. Look at how much rent is vs a mortgage (realizing there are property taxes and repairs with owning a house). If the costs of the two are comparable AND you can afford to buy a home, why not look at a 3 bed, 2 bath home (not a condo, no HOA) and rent out two of the rooms? That gives you extra income to pay down your debt faster.

    As you just started a new job, they may say you have to wait until you've been there for a while (eg 6 months) to get a mortgage.

    Keep finding extra ways to increase your income and decrease your expenses (bring your own lunch, don't buy coffee at the coffee shop, etc).  While you say you are staying in your parents' home for free, I'm assuming you are paying for some of the groceries.

    I will definitely be reaching out to some loan officers early, thank you for the advice! My parents and I contribute to household things as they come up, so its not really a strict breakdown but they are fronting the majority. I'd say I'm spending a little less than I would spend if I were living on my own for food. And am in the process of increasing my side hustles with the goal to have them cover all my expenses and use my W2 all towards savings/debt. If I can achieve this over the next month or so, I'm thinking about exploring a DSCR loan, do you have any thoughts on that?


    I've never used a DSCR loan, so I can't help.

    0Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    3y

    @Kari Karanikos Hi Kari, I’d pay the car off as fast as you can using the snowball debt method if you’ve ever followed Dave Ramsey then get busy working on the student loans. Ramsey would say to work on the smaller one first to keep your momentum going and pay any excess funds towards the principal on the small one while continuing to pay the minimum on both. That way you get the smaller one paid off first then you tackle the larger one.

    Unless when you refinance the one at 7.99% you consolidate the two into one loan and then you just put as much as possible towards it every month based on what you have available after you’ve saved up your emergency fund.

    I’ve used this method to pay off about $70,000 that I had on 4 different credit cards at one point, paying off the one with the least amount on it first then going in order of next least amount and so on until I was done. It took me about 3 years but I got it done. Today I only have about $4,000 on my cards at any one time due to my rehabbing rental properties.

    So this goal can be achieved if you work towards it, and you can buy your 1st home/rental property to house hack while you’re paying off the debt. You may have to shop a few lenders to find the right one for your needs but there are many lenders with many different loan options.

    0Reply
  • Kari Karanikos
    OP
    Member since 2023 · 7 posts · 2 votes
    3y
    Quote from @Alecia Loveless:

    @Kari Karanikos Hi Kari, I’d pay the car off as fast as you can using the snowball debt method if you’ve ever followed Dave Ramsey then get busy working on the student loans. Ramsey would say to work on the smaller one first to keep your momentum going and pay any excess funds towards the principal on the small one while continuing to pay the minimum on both. That way you get the smaller one paid off first then you tackle the larger one.

    Unless when you refinance the one at 7.99% you consolidate the two into one loan and then you just put as much as possible towards it every month based on what you have available after you’ve saved up your emergency fund.

    I’ve used this method to pay off about $70,000 that I had on 4 different credit cards at one point, paying off the one with the least amount on it first then going in order of next least amount and so on until I was done. It took me about 3 years but I got it done. Today I only have about $4,000 on my cards at any one time due to my rehabbing rental properties.

    So this goal can be achieved if you work towards it, and you can buy your 1st home/rental property to house hack while you’re paying off the debt. You may have to shop a few lenders to find the right one for your needs but there are many lenders with many different loan options.


     Hey Alecia, thank you for the insight! I’m going to try and continue refinancing that loan till the interest rate hits 4% or lower and thinking to follow that plan! 

    0Reply
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