Pay off student loan right now... or buy first property?

Member since 2018 · 10 posts · 5 votes

Hello Everybody! My name is Drew Roqué, 22 years old, and I am aspiring to be financially independent! I graduated from a Maritime Academy with a 3rd Mate’s License and I am now working for a shipping company. To make a long story short, I am able to pay off all my student loans ($30,000) in about 4 months. I was wondering if I would be better off paying off my student loan as soon as I can... or pay the monthly payments on them and instead use the saved money to conduct my first BRRRR method. Let me know what you think and why! Thanks!

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Tchaka Owen

Real Estate Agent · Merritt Island, FL · Member since 2017 · 986 posts · 1k+ votes

@Drew A Roque - I'm going against the recommendations above and say invest in your first BRRRR. Yes, it's good to rid of debt, however educational debt is often not considered 'bad' debt. That's different than a racked up credit card. Imagine completing a BRRRR that pays your monthly student loan obligation, then imagine a 2nd BRRRR that enables you to double your monthly obligation....before long it's paid off. Meanwhile you have 2 properties (likely more) that have mortgages being paid off by others.

Another option is to do a few BRRRR, then pay off the student loans lump sum. The difference is that though you'll be $30k lighter in either scenario, one has you dancing in your bellbottoms because you own 2 cash-flowing properties, the other doesn't.

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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
7y
@Drew A Roque like Matt indicates, it's difficult to give someone advice without understanding the whole picture, financially and otherwise. I usually play around on in Excel if I have to make a decision like that and compare szenarios. The numbers will tell you what to do.
A friend of mine used to work as a scientist at a big brewery here in Milwaukee and she was saving furociusly to pay of her student loans. She would rent and room mate and bike to work. We got talking at a campfire about real estate - I had been a very active investor, but was still working at corporate myself at the time - her rent just went up and I suggested to become the landlord instead of paying the landlord. She is very smart, asked me aton of questions and ayear laterall the sudden she told me she just got an AO on a large duplex in a great area. THe place was in rough shape and she basically did a BRRRR house hack combo very creativley funded with a 203b loan and her 401k, chose to still take a room mate and ended up paying off her student loan much faster that she otherwise could have. She had sufficient income at the time to get a mortgage and fund the rehab, so the student debt did not effect her DTI enough to prevent her from buying and so she leveraged real estate to accelerate the process of eliminating debt. It was a really bold move and I was very proud of her. She later moved to a differnt city for a job, rented both sides of the duplex in Milwaukee for cash flow and with the help of that bought a lake house in need of some TLC. Needless to say she did a fantasic job updating the lake house, is travelling a lot for work and whenever she is gone she has AIrbnb guests at the place. She was never interested to become a full blown real estate investor and own lot's of doors, her passion is with her work, but I think it's a fantastic story and used real estate in a very smart way to support her life style.
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Gary L Wallman
Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
7y
I agree with Tchaka. I'm about as debt adverse as their is. I have over 85 SFR's with no mortgages. That being said, a few years ago I wanted a new Corvette. Could have paid cash but used the 70+K to buy another SFR. Fast forward a few years. The Corvette loan was gone, paid for by the income stream of the newly acquired SFR. That house still pays me every month and has appreciated quite nicely as well. If I had paid for the car outright a great house and investment would be missing from my portfolio.
Bottom line, in my humble opinion, buy the investment property and use the cash flow to pay your student loan.
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Drew A Roque
OP
Member since 2018 · 10 posts · 5 votes
7y
@Matt McConkey
@Matt McConkey
@Matt McConkey
Hey Matt!
(1,4) Right now I am over qualified for the position I’ll be working as. So right now I will be making 90k a year... however I’m looking to be promoted in June and if so I can make anywhere from 100k to 150k depending on how long I work out at sea for, how much overtime I work, and which class ship I get on. It varies so much because different ships have different types of work; and with that I may be working +70 hours a week and I may receive additional payment on top of my overtime payment depending if the work I do falls under “dangerous cargo”.
I’d be able to gain another 30k within the next 4 months after that first four months... maybe less.
2) I currently live at home with my parents while I’m not working. The reason is because I don’t want to be paying for a place of my own if I’m not there. I work for months at a time out at sea (+4 months at a time) so getting an apartment is an unnecessary expense for me. I don’t even have a car... no need for it.
3) I currently live in a hotel (waiting for the detailer to send me out to my next ship), which is paid for by the company I work for as well as food. While I work, I will be living onboard the ship; my living costs will be paid for onboard as well.
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Drew A Roque
OP
Member since 2018 · 10 posts · 5 votes
7y
@Zach Cummins
I’ve also read Dave Ramsay’s Complete Guide to Money before listening and reading information from bigger pockets! I’m going to start an emergency fund right away. Do you have one? How much do you have stored away for it, 4-6 months of expenses like Dave Ramsay suggests?
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Zach CumminsPro Member
Real Estate Agent · Carlsbad, CA · Member since 2017 · 53 posts · 68 votes
7y
@Drew A Roque
Yes we have an emergency fund. According to Dave Ramsey we are in baby step 3. We don’t quite have 3 months worth of expenses but are close. Our plan is to build it up so that each property (we currently have 2 rentals) has a rainy “month” fund. I am more on the conservative side so I would like to push more for 6 months of expenses rather than 3. We continue to put 15% of our monthly income towards our emergency fund until it is completed.
I wish there was a good combination of Bigger Pockets and Dave Ramsey... It ether seems to be leverage your way through real estate or cash is king whatever people identify more with.
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Connie Chan
Investor · Member since 2017 · 239 posts · 149 votes
7y
@Drew A Roque great question! I think the answer depends on your interest rate for the student debt. And also which real estate deal you start with. There are lots of startups that allow you to buy small stakes in multi family homes or commercial buildings (it’s a long list I’m sure there is another forum topic comparing them), so that might be an option to get into real estate without having to put all of your eggs in one basket so early on. Debt is not always a bad thing if you can use it as leverage to make more money.
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Alec McGinn
Rochester, MN · Member since 2018 · 79 posts · 36 votes
7y
@Drew A Roque
Saving 30k in 4months making 90k per year will be challenging after taxes, insurance, and retirement contributions come out of your paycheck. The BRRRR strategy will be challenging if you can't visit the property while at sea. I would definitely pay off the loans, but have a more realistic timeline. Educate yourself as much as possible while paying down the debt. Or just make the student loan payments and put that 30k toward a rental property. Fortunately, time is on your side! If the loans are all federal, the interest is pretty cheap money and you can choose to extend the loan payment to 25 years lowering the monthly payment by half allowing for more capital to be saved.
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Chris Heeren
Investor · Janesville, WI · Member since 2013 · 180 posts · 155 votes
7y
What is the interest rate of the student loan? What would be the cash on cash return of investing that $30K into a property (or several properties)? If you have a 2% interest rate and are able to buy a $40K property that rents out for $900/mo then it seems like a no brainer on what to do. If you are paying 15% interest and the properties by you are $300K and only rent out for $2000/mo then that also seems like a no brainer. The numbers should be able to tell you what to do. Either way, I would make sure you take the time to educate yourself first.
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David Maradiaga
Member since 2019 · 63 posts · 21 votes
7y
I would always pay off unnecessary debt, before investing in anything.
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Eric A.
Rental Property Investor · St. Augustine, FL · Member since 2017 · 189 posts · 127 votes
7y
@Drew A Roque I have never met a wealthy person with student loan debt. The reality is that wealthy individuals move quickly with no debt or obligations. Don’t listen to people who aren’t wealthy.
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Greg Jackson
Specialist · Chicago, IL · Member since 2019 · 2 posts · 0 votes
7y
Hello Chris,
Real flips are designed for 24-48 hours. You’re a young professional with a college degree, and you will be just fine. Your 30K will grow from having business success in no time.
My experience comes from a different background of 7 years’ management experience, and working with business loans. The debate on what to do comes from different experiences, and defiantly not to be taken lightly.
(Feel Free to inbox me)
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Jack B.
Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
7y
I had this choice to make and chose to buy first property paid in cash at the bottom of the market. Your situation may vary in this market.
I ended up living mortgage free for 2.5 years then getting high cash flow for 3.5 years give or take. The house tripled my money. Then I took that and bought two more houses with it. Those properties went up 170K first year I owned them and I made 15K a year from rents and mortgage pay down. So far I made five times my money from that house after all expenses.
I flaunt conventional wisdom of paying off high interest debt and trust my own judgement above all others, even when I was in my mid twenties.
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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
7y
@Drew A Roque start house hacking, then use extra money to pay off student debt
[email protected]512-888-9122
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Account Closed
Rental Property Investor · Jacksonville, Florida Area · Member since 2016 · 106 posts · 48 votes
7y
@Drew A Roque Pay off your student loan debt first, unless you are going to be house-hacking with roomates that are helping you pay the rent.
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Chris Mackinlay
Midland, TX · Member since 2015 · 90 posts · 75 votes
7y
I think student loan debt is still debt. It's freeing when you pay it off. Hunker down for 4 months and get it done!
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Chris Virgil-Stone
Rental Property Investor · Cape Coral, FL · Member since 2015 · 206 posts · 83 votes
7y
@Drew A Roque I'm surprised at how many people say pay student loan debt. If you buy right (for cash flow) then you should be getting 15-20% return minimum with debt pay down and appreciation to boot. I'd bet that your student loan debt isn't anywhere near those rates. Paying down "good debt" has a big opportunity cost. You will still have nothing in your asset column which is where you will find financial freedom.
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Randy Janoe
Lender · Asheville, NC · Member since 2019 · 60 posts · 50 votes
7y
think about paying debt as guaranteed returns. If your student loans are unsubsidized at 7%, that's a decent return to knock those out.
Keep in mind a 1098-T allows for student loan interest deduction from taxes, so it reduces your effective interest rate. On that balance, probably $200-$300 net effect on your tax liability.
Maybe a balanced approach would be best. Reamortize student loans on longest term at best rate as possible. Enjoy the liquidity, benefits of the 1098-T and the extra cash flow can help you leverage rental properties.
However, I'm a firm believer in if you have debts have an asset behind it. I would never pay off my autos or house personally (for asset protection and leverage), but never use long term unsecured debt (>60 days).
Up to your comfort level.
If you are interested, I could point you to a market where you can buy a free and clear condo for 30K and it will cash flow $500-$550/mo and probably pay all or close to your student loans payments.
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Tandi H.
Investor · Albuquerque, NM · Member since 2017 · 133 posts · 83 votes
7y
Add my vote to pay off the student debt, if you can get it done in 4 months and see lots of funds coming your way in the future. During that time study REI, choose the location you want to invest, get your contacts (turnkey provider, real estate agent, management) and team lined up, get your lender and prequal organized...that will take some time. Then you will be ready to pounce when the great deal shows up, you will have left debt behind you, and the way forward will just be net positive!
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Amy Beth
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
7y
@Drew A Roque I would pay off your student loans today and then work hard to build up your savings for your first property. If you are not carrying debt you will be able to handle problems that always come up in real estate much easier. Having monthly debt payments to worry about while investing in real estate will hold you back.
And once you get into real estate you will then want to get money for the next deal and before you know it Years will go by and you will still have this debt hanging over you.
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Michael S.
Rental Property Investor · San Jose, CA · Member since 2016 · 54 posts · 31 votes
7y
@Drew A Roque I'd pay off the debt. This is coming from a guy who doesn't consider student loan debt as bad debt. I see it like this, if you keep the debt you have a liability you need to account for each month. Knock it out and keep that money in your pocket to invest with more velocity down the road. If you bought a property now, would it's cash flow be consumed to cover the debt? Spend the 4 months, Study and learn, then go and crush it!
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Matt McConkey
Rental Property Investor · Phoenix, AZ · Member since 2015 · 222 posts · 126 votes
7y
@Drew A Roque
A good friend of mine did what you did, actually. Stayed with parents while he was kit to sea. Saved a ton of unnecessary spending.
If I were you, I'd pay off the loans and be done with it.
Like Forrest Gump said, "one less thing to worry about".
Then you can move forward with your investing and a clean financial plate. Then use the time while you're saving to study and get really. Really, really comfortable with your REI mission.
Best of luck to you. You are in a solid position!
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Robert Leonard
Rental Property Investor · Greater Boston Area · Member since 2018 · 258 posts · 105 votes
7y
@Drew A Roque Given that you have such a short period of time before you could pay off your student loans, I'd just pay them off and then move into real estate investing. If you were going to be paying them off over the next 10-20 years, then I'd say to look at your ROI on your investments and compare it to the interest rates your paying on your loans. However, in your case, I'd just pay off your loans and then focused on real estate investing. Also, given where I believe we are in the current market cycle, you might be better off by waiting a bit to buy your first property, anyway. You might have even better deals to buy in 4+ months once your loans are paid off.
Robert Leonard
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Trevor Camanse
Real Estate Agent · Saint Petersburg, FL · Member since 2018 · 10 posts · 8 votes
7y
@Drew A Roque Heres another one for paying off student loan debt. I read this whole forum and there is a lot of good advice on both sides. I am in the same type of situation and reading the advice for investing first are really informative. Right now you are living a frugal life style and keeping living expensive at a bare minimum for your age and situation which is great (I wish I could do the same haha). You are pulling in a good amount of cash flow by living this way and only have one debt to focus on. There are many creative ways to use a REI to pay off the student loans with ease but you should know all of the ins and outs of investing and confident on the deal. There are many things that can go south with REI that could potentially cost more money than expected. Personally, I'd rather have only one debt than potentially two. This is the biggest reason I say pay off student loans first. Buying first can be risky for many reasons and since you can pay off your loans relatively quick, then you will be in a far better situation to buy with nothing financially binding you down. Also, I am assuming that loans have already started and finding a deal takes time. Pay off the student loans as soon as possible. Student loans won't stop until they are paid off but REI isn't going anywhere.
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Trevor Camanse
Real Estate Agent · Saint Petersburg, FL · Member since 2018 · 10 posts · 8 votes
7y
@Drew A Roque Heres another one for paying off student loan debt. I read this whole forum and there is a lot of good advice on both sides. I am in the same type of situation and reading the advice for investing first are really informative. Right now you are living a frugal life style and keeping living expensive at a bare minimum for your age and situation which is great (I wish I could do the same haha). You are pulling in a good amount of cash flow by living this way and only have one debt to focus on. There are many creative ways to use a REI to pay off the student loans with ease but you should know all of the ins and outs of investing and confident on the deal. There are many things that can go south with REI that could potentially cost more money than expected. Personally, I'd rather have only one debt than potentially two. This is the biggest reason I say pay off student loans first. Buying first can be risky for many reasons and since you can pay off your loans relatively quick, then you will be in a far better situation to buy with nothing financially binding you down. Also, I am assuming that loans have already started and finding a deal takes time. Pay off the student loans as soon as possible. Student loans won't stop until they are paid off but REI isn't going anywhere.
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