Pay back Student Loans or Save for First Rental Property ?

14 Replies

Good morning Bigger Pockets Family,

So I currently have $55,000 in student loans averaged out at about a 6% interest rate. I have been paying about $1000 a month to try and get this down fast, while still saving any leftover money for my first down payment for a multifamily my fiance and I want to house hack. I am wondering if there is anyone who could shed light on there experiences with paying loans vs. What is the best strategy you've found success with?  Any advice is  welcome! Thank you all. I can provide more info in needed. 

Thank you yo all! 

Do the math, and the math will tell you what to do.  

If the ROI on an investment is higher than the percentage rate on your student loan then invest. You are paying 6% on your loan, 10-12% is fairly typical real estate investment. So you make 6% more by putting the money in the investment. Make sense?

It's a tough situation! I had $100K in student loan debt from my fancy graduate degree and it was a weight on my mind. But, like you, I also wanted to build up a nest egg for investments and save towards retirement... I came up with a target that worked for me mentally: pay off the loans by the 10th anniversary of graduation. 

From there, I worked backwards to find out the amount to pay towards the loans each month. That was first priority. I also maxed out my 401k employer match, made Roth IRA contributions because those are super flexible down the road (now mine is an SD Roth invested in real estate - honestly wish I had invested more here when I still met the income qualifications), and kept anything else leftover (sometimes not much) for savings. I worked multiple jobs, kept a super strict budget, and tracked my finances very carefully...

As soon as I paid the last loan off (three months early!), I started saving exactly the same amount as my payments had been, so I instantly doubled my savings per month. It is so much nicer to be able to put that all towards investments!  

If you can refinance the loans, do it! I refinanced about 5 years out and it cut my rates in half!

America already has $1.2 trillion in student loan debt. Just default on it and put the capital towards your first property. Everyone else is doing it.

Just kidding.

@Wyatt Polk - you're welcome! It may be a struggle at times, but you can definitely do it! FWIW, I don't regret my education for a second. It was a great experience and something no one can ever take away. However, I do think the tuition and loan juggernaut is completely exploitative. A big part of my RE investment goal is to ensure my kids never end up in the same situation...

@George Pauley fair point, but the 6% return from paying down debt is risk free. A risk free return of 6% is fantastic in any environment. My recommendation would be to pay down the debt first, at least until it is at a more reasonable level.

6% risk free return compares to the ~2.5% you can earn in a high yield savings account. 3.5% incremental return to the equilibrium risk free rate is fantastic.

No one has mentioned inflation. Why pay off the $55k now when it will be worth way less than $55k later on? 

If inflation is at 3%, the bank is essentially only charging you 3% on your loan. I would rather have the student loans and an asset than nothing at all.


Just to be clear, I was not suggesting or assuming that we were talking about NOT paying the student loan.  I thought we were just talking about paying extra on on the student loan instead of buying the multi-family.  You gotta pay off the student loan, but minimum payments are just fine.

Do the math, and the math will tell you what to do.

Not really.  There is a 99.9 chance I will not wreck my motorcycle today.  I still wear a helmet.  Pay of the student loan first.  Investing is not risk free. You do not want student debt and an underwater investment.