Rental Property Investor · Cleveland, OH · Member since 2018 · 6 posts · 4 votes
Like many millennials, we have student loan debt. We make a middle class income and practice a smart saving, little spending lifestyle with no other debts. Currently living as tenants in someone else’s house-hack, no mortgage. Is it possible to invest in real estate with student loan debt? Is it smart? Or should we wait until our debts are payed off? Currently 25 and 27 years old. Thoughts?
@Rebecca Arko you should be concerned that everyone giving you advice to "go for it", knows NOTHING about your financial situation.
Here is what you have told us:
Rent: $850
Salary: Lots left over at the end of the month
Student Debt: Like many millennials we have student loan debt
How many of these "investors" would buy a property with such little information? I don't think you are ready to start investing until you can change your way of thinking.
If you were an investor your answers would look more like this:
Rent: $850 currently, lease ends February and I plan to have one duplex under contract, where I plan to live in one half and rent the other. The tenant in the other half will reduce my portion of the payment to $XXX each month so I am saving $XXX per month over my current rent.
Salary: After expenses $XXXX is left over, currently we are saving $XX and putting $XX to loan pay down.
Student Debt: Total debt is $XX,XXXX at X.X% interest rate, payment of $XXX per month. Currently we are paying $XXX extra per month and at this rate it will be paid off by January 1, 2021. Or if we stop paying extra, we can save up $XX,XXX for a down payment in 18 months.
Whether you pay down student debt or invest in rental properties, the first step is taking control of your finances. You don't just "house hack" because some other millennial is doing it. It needs to be part of an actual plan and the math needs to prove it will benefit you.
It is definitely possible. I bought my first house in September and I have ~75k in student loan debt after graduating in 2017. You need to be aware of your debt to income ratio and how purchasing a house would affect it. An important question to ask yourself is how much of your income currently goes to paying your rent? Can you get a mortgage with a PITI around the same amount? If so, I would recommend purchasing a house.
Wow... exactly what @Conor D'Arcy said! Yes, it's absolutely possible. Some people will tell you to pay off all of your loans first and some will say they get a higher return on their investments than the interest rates they pay on their loans so the money is better spent investing in real estate. The question becomes how comfortable are you with debt? What I would say is really important is that you have all of your finances in order and are prepared (mentally and financially) to invest.
@Conor D'Arcy thanks for the response! I currently pay $850 in rent and between my salary as a nurse and my many side hussles, I have lots left over at the end of the month. The Cleveland, Ohio market is so affordable so many of the properties I’m looking at range between $800-$1000 in monthly costs (mortgage, PMI, taxes, insurance). Even without side hussles, I would be able to cover. Our goal is to try and buy properties based off one income, so that in the case of an emergency where one of us can’t work, our properties (whether personal home or rental) won’t be in jeopardy. Cleveland is a hot area between the universities, medIcal schools, and hospitals, not to mention the steadily increasing social and entertainment scene. I guess I’m just nervous to take the first steps.
@Chace Fraser thanks for the response! I’d like to think that our finances are well in order. We both only have school debt, great credit scores, and we watch our budget like a hawk. We also have side hussles that provide us with extra income every month. The thing that I’m wondering though is should we be buying a home for ourselves first and setting roots and then getting into real estate, or should we jump right into it and house hack?
@Rebecca Arko - If your student loan debt is cheap (low interest rate), you may be better off letting it ride and putting your cash to better use. Or if you're really inclined to get it paid off, why not use the cash flow from your first rental, then you'll be killing two birds with one stone!
I'm a fellow Clevelander and just closed on a nice brick duplex in the Brooklyn area for under $100k, so PITI is under $700. Unless there are other signficant factors at play that you didn't mention, it sounds like you're doing the right things and may be in a position to take the plunge with your first property. Feel free to PM me if you want help talking through it. I was a mortgage loan officer in a previous life, so I can provide some guidance there as well. Or, if you just want to keep renting, I've got a place for you! :)
@David Bardwell thank you! That’s very uplifting to hear! I am interested in buying a multi family home in the Cleveland Little Italy area. I lived in the area for four years during college and know it well. Do you have any thoughts on that area?
It is defiantly possible, it is also very high risk and a irresponsible decision in my opinion. If you do not have the discipline to pay off your student debt first you do not have the discipline to be a success full investor in most cases. To be a investor you must have something to invest. If you have bad debt you do not have anything to invest until that bad debt is gone.
Real estate investing is very high risk by itself, 95% of those wanting to do it fail. Investing with high debt is a albatross around your neck that will sink you when you hit the inevitable bumps in the road that are all too common with investing in real estate. One bad tenant is all it will take.
@Rebecca Arko. It’s possible, but like @Thomas S. Said I too find it irresponsible depending on income and DTI. Also those two things will also dictate a lot. Without specific salary numbers or student loan numbers it’s hard to say for certain. What’s the interest rate on the student loan debt? Typically you’ll want to pay that off.
@Rebecca Arko Little Italy is a great area, but to be honest I've never analyzed it as a sub-market for investing. I was actually just having dinner out there last week and it's amazing how different the area seems every time I'm there! Did you go to CWRU? If you really know the area well, that can be a nice competitive advantage. My assumption is that Little Italy real estate comes at a premium. That may or may not be an issue for you, but I'd still challenge you to research and consider other areas as well.
@Chace Fraser thanks for the response! I’d like to think that our finances are well in order. We both only have school debt, great credit scores, and we watch our budget like a hawk. We also have side hussles that provide us with extra income every month. The thing that I’m wondering though is should we be buying a home for ourselves first and setting roots and then getting into real estate, or should we jump right into it and house hack?
House hack! Great way to get started. I did a live in flip for one of my first deals, wish I went with house hack lol
Taking that first big step can be difficult but I highly highly suggest surrounding yourself with mentors , realtors and others in your community who have had major success. This can help ease your mind and help the overall process especially when there are other worries on the table.
Househacking just might be a great place to start especially while using some sort of creative financing if that means applying for a FHA loan or a combination of 203k as well.
Here in the Milwaukee area we've helped recent college grads and even students still in school seek out investment properties to ease on the stress of rent payments as well as for their student loan payments.
@Rebecca Arko you should be concerned that everyone giving you advice to "go for it", knows NOTHING about your financial situation.
Here is what you have told us:
Rent: $850
Salary: Lots left over at the end of the month
Student Debt: Like many millennials we have student loan debt
How many of these "investors" would buy a property with such little information? I don't think you are ready to start investing until you can change your way of thinking.
If you were an investor your answers would look more like this:
Rent: $850 currently, lease ends February and I plan to have one duplex under contract, where I plan to live in one half and rent the other. The tenant in the other half will reduce my portion of the payment to $XXX each month so I am saving $XXX per month over my current rent.
Salary: After expenses $XXXX is left over, currently we are saving $XX and putting $XX to loan pay down.
Student Debt: Total debt is $XX,XXXX at X.X% interest rate, payment of $XXX per month. Currently we are paying $XXX extra per month and at this rate it will be paid off by January 1, 2021. Or if we stop paying extra, we can save up $XX,XXX for a down payment in 18 months.
Whether you pay down student debt or invest in rental properties, the first step is taking control of your finances. You don't just "house hack" because some other millennial is doing it. It needs to be part of an actual plan and the math needs to prove it will benefit you.
@Joe Splitrock Joe, I am simply trying to get a feel and idea for investing. I am not saying I am jumping the gun and diving in. I just personally wanted to get opinions on the student loan debt vs. investing. This is my first post and I only joined the bigger pockets community yesterday. I am still learning. Remember, there was a time when you first started gathering information too.
Personally I think it matters more what type of investment you want to get into. Those saying it’s a terrible idea, from I’m seeing, are dealing with tenants. I would agree if you want to buy a rental as an investment, bad idea with student loan debt. Tenants can be good one day and bad the next, and they can totally trash a house or cause you some other sort of major problem. However, if you wanted to buy a house to flip (house hack) I would say you’d be much safer. I’m currently working with just over 40k in student loan debt. Also currently working on a flip. As of this moment in time, I have no financial troubles or unforeseen costs on the horizon that will sink me. It comes down to knowing your situation and yourself as well as picking a niche and getting to work. Being very thorough when looking through a property and having an army of contractors at your side is also a plus. Is it risky? Yes, anything worthwhile typically is. Is it worth it? For me, absolutely.
@Rebecca Arko Definitely possible. You'd have to be smart and strategic taking calculated risk if the situation calls for it. My husband and I are doing it... using no money and no credit. You have to do what's working today and not what worked years ago, but do what's working currently. The market is constantly changing so having a way to keep up-to-date on what's working is very important.
@Joe Splitrock Joe, I am simply trying to get a feel and idea for investing. I am not saying I am jumping the gun and diving in. I just personally wanted to get opinions on the student loan debt vs. investing. This is my first post and I only joined the bigger pockets community yesterday. I am still learning. Remember, there was a time when you first started gathering information too.
It is great you are educating yourself. I was just trying to point out that investing is all about the numbers. Without giving us numbers, nobody can give you educated advice.
You are a nurse, so consider this analogy. What if I asked your opinion of it surgery or medication is better? Most of us would say medication is better - less invasive. However a nurse would ask for more details. You would want to know the symptoms, the current diagnoses, run tests and any you would want details on what treatments have already been tried. Only then would you give your opinion.
Investing is no different. It is all about the numbers and calculating the best path for your money. It may be paying off the student loans or it may be investing. It could be a combination of both.
That is my only point, sorry if I didn't word it very well or made you feel uncomfortable for raising the question in the first place.
@Rebecca Arko we had six figure student loan debt and bought an owner occupied three family which allowed us to live for free in a high cost of living area right outside Manhattan. This allowed us to plow money into the student loans which are now down to $6,600 and will be done this year.
If you can find a 3-4 family and use an FHA loan at 3.5% down, as long as the numbers make sense as a strong investment on its own, it is a great introduction to landlording and can give you the power to pay off your loans.
In my opinion you shouldn’t pay down debt or invest, it’s better to both simultaneously. We will only know what the better decision was in hindsight, but doing both hedges your bets.
@Rebecca Arko Sorry if you answered this already, but whats the total debt, average interest rate and what the household income? Those numbers may change my answer but I THINK I say go for it...4 unit (largest you can get that still gets a conforming mortgage, get a 30-year loan, live in one of the units, get the hang of it and repeat a few more times. KEEP YOUR EXPENSES to nothing, no new cars, no fancy anything...every dollar you spend on things that go down in value represents thousands of future dollars you just have stolen from yourself.
I did not go to private college and always has a tuition scholarship work PT and two jobs or FT in the summer. Ditto graduate school expect job focused on research. I did have a $800 govt loan that I paid off in a few month. Anything in America is possible. I never try to overextend myself. My DTI is always too low.
@Rebecca Arko I'm new to BiggerPockets too and I just wanted to say thank you for raising this question. My husband and I are in a similar situation. We have a large amount of student loan debt from our undergrad and grad school educations. Fortunately, our income is high. But it will still be a while before we're able to pay off all the student loans. We're just getting started with real estate investment and hoping that it can help us pay off some of the debt in the long-run. We're actually considering investing in the Cleveland area since the property prices in California are too high for us. I've heard great things about Cleveland. I'd love to connect with you to learn more about the Cleveland area and different neighborhoods. Again, thanks for the post and best of luck to you!
@rebecca arko I am in a similar situation myself. It depends on how much risk you are willing to take on, your loan amount, loan interest, salary, savings amount/month, etc.. More details are needed.
You could pursue a middle ground strategy where you house hack and use the money you would otherwise be paying in rent and making sure that amount goes into paying down your loan. In this case, you'd be increasing your loan paydown, living for free/discounted rate, building equity, and also starting your REI portfolio.. Similar to what @Steven O'Leary mentioned.
@Rebecca Arko
My husband and I are 20,000$ in student loan debt have been paying it off over the last couple of years too! I’m a nurse as well! We just purchased and househacked our frist duplex at 232,000$ renting out the other side for 1,150$ tenant pays heat and electricity. Our mortgage,taxes and isurance are1,450$. Its about 300$ we have put towards mortgage, taxes, and insurance. We pay about 200$ extra in trash and water a month. we also set aside 200$ per month for future repairs/expenses ect. All total expese is 700$....which in our area Is really good. Just know a couple things....
your fIrst house purchase Is always the scariest
people wIll try to talk you out of It (my nurse frIends did!)
add up your numbers...make sure If you want to leave your house hack It wIll still cash flow!
@Rebecca Arko my wife and I owned 24 units (7 buildings) before we paid off our loans. If we focused on paying off student rather than investing, our wealth trajectory would be much lower than it is right now