Pay Debt First or Start Real Estate Investing

New to Real Estate · Trenton, NJ · Member since 2016 · 18 posts · 15 votes

Hi all, I’m interested in purchasing my first property by way of house hacking a multifamily property. I’m pre-qualified for a mortgage. My question is should I pay down debt (student loan, car) before investing or just jump right in?

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Professional Auctioneer · Baltimore, MD · Member since 2015 · 1k+ posts · 1k+ votes

Sound like you think the only way to invest is to go to a lender for money ----- you might want to use some creative financing methods to CONTROL real estate before you have to go beg a lender for money, before you pay retail for a property ----

Some ideas:

Consider the Control and Roll method of investing - find a property (using guerrilla method of marketing), use a "skinny contract - one page - control the property, offer it at public auction. You keep the overage at settlement. You never have to own the property while walking away with cash. Do this a few times a month and you'll have enough money to pay cash for your next property. Make full disclosures.
Try a "Front Porch Clause", tell the seller XY and Z needs to be repaired before you buy, estimate it at$15,000, tell seller to write you a check for $15,000 for the repairs, you endorse the check and give it back to him as your down payment.
Offer to buy the property with a 45 day study period - with right of possession - flip your contract by private treaty or public auction, assign your contract for cash.
Ask the seller to refinance - he gets the cash, you take the property subject to his new mortgage.
Ask the seller to take back a mortgage for 100% of the purchase price - you help him find a note buyer, sell the discounted mortgage ---- nothing down.
Make an offer with a delayed settlement - like 6 months with the right of possession - you fix and flip during your possession.
Have a partner with real estate (maybe some junk properties), offer those properties as a down payment..... your partner friend get an interest. Make it subject to the sale of his property.
Create a note on something you own, offer it for a down payment on the house you want.

Hope some of these ideas will help and get you thinking that you can do deals without banks.

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Emily Refi
Rental Property Investor · Portland, OR · Member since 2018 · 19 posts · 5 votes
8y
The "rental property estimator" under "tools" here is an excellent place to start and look at real numbers to evaluate. A 203k loan might be a good choice if you are occupying the property and renting the others, it has a low down payment which would allow you to work on your other debts. Lots to learn but if it saves money on rent while you have an asset appreciating it could be a good thing!
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Matt B.
Blue Point, NY · Member since 2015 · 88 posts · 31 votes
8y
@Jessica G. @Caleb Heimsoth @Brieer Doggett I agree with paying down higher interest debt, I love hearing everyone here who says buy an investment property because you’re returns are 10, 20+%, yet no one chimes in about a losing investment. Every podcast and every successful re investor always has at least one property they lose on, yea, over time it’s a great strategy but rushing in unprepared to anything is never a good way to start...
2 Reply
James Bradin
Rental Property Investor · Destin, FL · Member since 2016 · 91 posts · 55 votes
8y
I house hacked my first property prior to paying down my student loans and car debt. In one year I could have paid them all off however my returns were so great that I decided to re-invest my returns into another property. BP has tons of podcasts, webinars, and blog posts that will teach you everything you want to know.
If you are motivated and not scared to take risks, the info from this website can make you more wealthy than you could imagine.
1 Reply
G Brian Juk
Rental Property Investor · Corning, NY · Member since 2018 · 46 posts · 11 votes
8y
@Brieer Doggett You have to live somewhere. If you’re not paying rent, pay debt. If you’re paying rent, might as well let others pay your mortgage and house hack.
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Michael Lenahan
Rental Property Investor · Philadelphia, PA · Member since 2015 · 95 posts · 53 votes
8y
@Brieer Doggett This sounds like creative avoidance to me. If you don't jump in now you'll regret it forever. Just make sure you the deal makes sense. It's hard to miss with a house hack.
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Sergio Aguinaga
Detroit, MI · Member since 2018 · 148 posts · 38 votes
8y
Before you make your purchase, you have to make sure you have a good ROI. To do that, you must absolutely be able to calculate ROI properly. I recommend chapter 5 of the book on rental property investing by brandon turner. Instead of jumping right into chapter 5, read all the way up to chapter 5 to learn about a lot of things you have to know regardless. If you make a bad deal and negative cash flow, you'll just add more debt and stress.
Also, you have to weigh in your cash flow vs what your interest rate debt is so it wouldn't make sense if you cash flow 200 a month but have to pay 1000 a month from your credit cards.
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Luis C Ceniceros
Aurora, IL · Member since 2017 · 17 posts · 2 votes
8y
@Brieer Doggett
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
An investor mindset takes time. We see past Friday or the glittering car, clothes, vacations, etc for something bigger later. Dragging around a car payment and cc debt is what your broke friends are doing while they go nowhere.
Continue to be average or learn to delay shiny things. I don't think you're ready and I fear for those buying uneducated at this frothy stage of the market cycle.
Go with the sure thing that will help prove you are ready. Pay down a bunch of the debt. Brown bag a lunch every blue moon. Behave and spend like an investor while you learn. 20% RE returns don't just happen to every schmuck that falls off the cabbage truck.
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Chuck Klinger
Real Estate Investor · Frederick, MD · Member since 2014 · 35 posts · 9 votes
8y
@Brieer Doggett what do you mean by house hacking a multifamily? What is house hacking. Is this new terminology? I have been in real estate for quite a while and not sure what that means.
1 Reply
Matt B.
Blue Point, NY · Member since 2015 · 88 posts · 31 votes
8y
@Chuck Klinger not sure if you’re being sarcastic or not but if not... or to anyone new to BP because house hacking is discussed 5,000 times a day here, it’s buying a multi family and living in one unit while renting out the rest to cover most or all of your payment... getting paid to live somewhere essentially
0 Reply
PJ Kolnik
Chicago, IL · Member since 2017 · 81 posts · 87 votes
8y
@Brieer Doggett depending on your types of debt I would actually post on the reddit thread r/personalfinance. Great place to get a balanced perspective. Nothing wrong with Bigger Pockets but you’re probably not going to get the most objective answer to your question here.
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Frank Leone
Rochester NY · Member since 2018 · 33 posts · 16 votes
8y
@Brieer Doggett If you want a good book on rental properties get Brandon Turners book "The Book on Rental Property Investing" you will learn all about how to crunch the numbers and everything a beginner needs to know.
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Vinny Lopes
Rental Property Investor · Bridgeport, CT · Member since 2015 · 35 posts · 10 votes
8y
@Brieer Doggett If you have enough knowledge to buy it right and have a good deal, I'd say you should jump in as your investment return may help you pay off your debt. Use the BiggerPockets calculator to play the numbers, try to get a local mentor to guide you thorough the process and go for it. Good luck!
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Adam Chubbuck
Real Estate Agent · Glen Burnie MD · Member since 2018 · 5 posts · 0 votes
8y
@Brieer Doggett there is at least one number - the debt number - wealth is driven by personal choice and control. Having a large anchor (debt) is sometimes driven by choices - we can’t always earn our way out of a problem. Starts with choices
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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
8y
@Brieer Doggett My gut reaction to this question is always pay down the debt. However, we were interviewing @Craig Curelop for an upcoming episode of The BiggerPockets Money Podcast and his story of investing WHILE paying the minimums. He is cashflowing in an area that does not cashflow, and if he would have paid off his bills before investing, he'd still be paying them off.
It's a great episode, and comes out on 8/27.
[email protected]Podcast Guest on Show #261
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David T.
Real Estate Investor · Orange County, CA · Member since 2013 · 39 posts · 4 votes
8y
@Brieer Doggett I’m in the same boat as you and I still have a lot of student debt. Most of the response posted on this thread has been spot on. This is my take and something for you to consider. What is your income? When it comes to your first rental investment, i think you should be conservative and think of worse case scenario. Can your monthly income pay down the student loan debt and the rental property mortgage along with all the other expenses (PITI + vacancy)? If you can, sure go for it. But always have extra cash aside in case anything happens. I would always try to think of worse case scenario. You don’t want to over leverage and end up forclosing your property. Just my 2 cents.
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