pay student loans or invest in real estate?

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pay student loans or invest in real estate?

Alyssa Nagasako
Los Angeles · Member since 2019 · 3 posts · 2 votes

first time posting here!

If I have $20k, should I pay off my student loan (balance $16k, 6% interest) or buy a investment property?

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Adam Lang
Appleton, WI · Member since 2019 · 50 posts · 43 votes
7y

Interest rates are low right now so if you have decent credit you could refinance your student loans to get them at a lower rate. From there you you need to find a deal that as a higher % return long term. If you do that then real estate is the more profitable option. 

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  • Clark Kirkpatrick
    Contractor · Pottstown, PA · Member since 2018 · 216 posts · 160 votes
    7y

    I can do better than a 6% return in investing, so for me that's the answer. 

    And if you get something that cashflows (which you should aim to do) then that can pay your student debt down while you save up to invest again!

    2Reply
  • Amy Aziz
    Specialist · Los Angeles, CA · Member since 2019 · 587 posts · 269 votes
    7y

    @Alyssa Nagasako Welcome to Bigger Pockets!  There is a way to pay off your student loan and start purchasing investment properties. I'd love to connect with you and help! 

    2Reply
  • Account Closed
    Kingsland, TX · Member since 2018 · 164 posts · 86 votes
    7y

    @Alyssa Nagasako, I'm glad you asked this question! @Amy Aziz, what can one do to pay off student loans and start purchasing investment properties? Thanks!

    0Reply
  • Amy Aziz
    Specialist · Los Angeles, CA · Member since 2019 · 587 posts · 269 votes
    7y

    @Account Closed Hi Lauren,  you can invest in land its alto cheaper and no loans are required, it's an easy way to double your profit and get turn over quickly, but just like any real estate investment path you take you will need to have some upfront capital.

    0Reply
  • Account Closed
    Kingsland, TX · Member since 2018 · 164 posts · 86 votes
    7y

    @Amy Aziz, thank you!

    0Reply
  • Adam Lang
    Appleton, WI · Member since 2019 · 50 posts · 43 votes
    7y

    Interest rates are low right now so if you have decent credit you could refinance your student loans to get them at a lower rate. From there you you need to find a deal that as a higher % return long term. If you do that then real estate is the more profitable option. 

    5Reply
  • Amy Aziz
    Specialist · Los Angeles, CA · Member since 2019 · 587 posts · 269 votes
    7y

    @Account Closed My pleasure!

    0Reply
  • Alyssa Nagasako
    OP
    Los Angeles · Member since 2019 · 3 posts · 2 votes
    7y

    @Clark Kirkpatrick how do you factor in tax on the capital gain you make

    0Reply
  • Alyssa Nagasako
    OP
    Los Angeles · Member since 2019 · 3 posts · 2 votes
    7y

    @Amy Aziz thank you for the insight. I never really thought about land.. but will look into it. 

    0Reply
  • Amy Aziz
    Specialist · Los Angeles, CA · Member since 2019 · 587 posts · 269 votes
    7y

    @Alyssa Nagasako let me know if you need help  looking into land. I'd behappy to  assist you! 

    0Reply
  • Clark Kirkpatrick
    Contractor · Pottstown, PA · Member since 2018 · 216 posts · 160 votes
    7y

    @Alyssa Nagasako To factor in the capital gain, never sell the house, refinance it every 5-10 years to pull cash out, and pass it on to your kids when you die so they get a stepped-up basis and can sell immediately with no capital gain... or do the same thing themselves!

    Or do a 1031 exchange, or invest in an opportunity zone. There's a bunch of ways to avoid that.

    1Reply
  • Clifton Young
    Rental Property Investor · NE OHIO · Member since 2018 · 22 posts · 21 votes
    7y

    @Alyssa Nagasako a lot of time “bad debt” is psychological, so many ppl want to get rid of it. But, financially if you can make better than a 6% return, you should invest. I’ve once heard a quote , “a homeless man isn’t homeless because he doesn’t have debt, he is homeless because he doesn’t have enough streams of income”.

    Also from a tax standpoint, the interest you pay on your student loans are tax deductible (up to$2k). Combine that with real estate, you can see some tax saving.

    Last point, if you do decide to pay down your student loan, it will help your debt to income ratio. So, once you are able to save up more money to buy a property, you will qualify for more money because your debt to income ratio will be lower.

    All things to consider. Good luck!

    4Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    7y

    Will you save more money by paying off your loans than you could profit by investing intelligently...probably not. 

    2Reply
  • Jeremy Blevins
    Folsom, CA · Member since 2018 · 134 posts · 100 votes
    7y

    @Alyssa Nagasako hey Alyssa it sounds like your student debt may be low enough amount to put on a zero percent interest credit card depending on how good your credit is. If you’ve got $20,000 laying around I suspect your credit is probably pretty good. I’d look into transferring your debt and invest your $20 Into some property. Just make sure you pay that credit card off within the zero percent time frame or transfer it again when the time comes!

    1Reply
  • Sarah Gilmore
    New to Real Estate · Modesto, CA · Member since 2019 · 6 posts · 0 votes
    7y

    @Alyssa Nagasako

    I was wondering this as well. In November I am going to have to start paying off my $7000 in student loans I have. Its hard to see investing while still having debt. I worry people won't want to help me because of my past debt.

    0Reply
  • Timothy M.
    Arlington, VA · Member since 2015 · 60 posts · 100 votes
    7y
    Originally posted by @Amy Aziz:

    @Account Closed Hi Lauren,  you can invest in land its alto cheaper and no loans are required, it's an easy way to double your profit and get turn over quickly, but just like any real estate investment path you take you will need to have some upfront capital.

    I'm sorry, wat 

    PSA to anyone else: no, there is no "easy way to double your profit and get turn over quickly."

    4Reply
  • Johnoson Crutchfield
    Rental Property Investor · Tupelo, MS · Member since 2018 · 132 posts · 61 votes
    7y

    @Amy Aziz pm me as well. I want to hear about this.

    1Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    Careful here, return and risk go hand in hand...to get high returns you need higher risk. 6% return with NO risk is pretty good, so is think really carefully about paying that off, or putting down a chunk so you are paying more principal.

    And cash flow is different from total return, which you would only see at a distant exit.

    Lots of people out there trying to trap the unwary. Easy land deals? Cmon.....

    5Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    7y

    Or think about this:

    purchase a duplex as your primary home (no tax when you sell) or even a single and get some roommates.

    FHA loan and some other products out there can do 3.5-5% down payment. So see what's out there for that number. Run the numbers so that you are living cheaper than if u were renting, use the difference to pay the loan down.

    Keep AT LEAST a few thousand in reserve. Good luck and ignore the predators.

    2Reply
  • Jim BlackburnBusiness Member
    Lender · Florida Based (48 states Puerto Rico) · Member since 2017 · 321 posts · 121 votes
    7y

    @Alyssa Nagasako

    If you invest your 20,000 instead of paying off your student loans, and you lose the 20,000, how are you going to feel when you still have the student loan?

    Another words, how long have you been saving this $20,000? And how difficult would it be for you to save the 20,000 again?

    For some people $20,000 is a lot of money… It might take them five years to save up that money, maybe 10 years… For those people, it might feel good, to get those didn’t land paid off, and never have to worry about that debt again...

    And then from there, start aggressively saving again as much as you can… I want you have a nice lump some amount that you can start investing with, then start! But at least if you lose it, you know that your debts are paid off...

    That’s the conservative approach....

    There of course is also the aggressive approach... Which is what the first gentleman mentioned who replied to this post… In general, if you think you can net the return on assets, that’s greater than your cost of capital, then you net the spread. That’s hedge fund management 101!

    So then you have to ask yourself, what kind of investment opportunities do you have in front of you right now? What are the chances of success? Do you have business partners Who may be willing to split up the risk with you so that you’re not taking on all of the rest by yourself? By splitting up the risk, you enjoy the benefits of the lesson, the education, the experience, along the way whether your investment makes or loses money…. This is the best way to go with a beginner...

    So from there,… You decide are you a conservative investor or are you an aggressive investor… Then you can make the decision to pay off your student loan, or to invest the money right now before paying off the student loan..

    Also keep in mind before you go out and buy real estate, you’ll need to get preapproved by a lender to determine your max purchase power, either for a standard purchase, or a renovation loan.

    Good luck!

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    2Reply
  • Amy Beth
    Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
    7y

    @Alyssa Nagasako. I personally would pay off the rent, then save up a three to six month emergency fund, then save up for a downpayment.

    1Reply
  • Amy Aziz
    Specialist · Los Angeles, CA · Member since 2019 · 587 posts · 269 votes
    7y
    I’m sorry Tim let me clarify. We assist people and teach them about bulk mailers and investing in land which is an easier route than traditional investing and take up loans. 

     Originally posted by @Timothy M.:
    Originally posted by @Amy Aziz:

    @Account Closed Hi Lauren,  you can invest in land its alto cheaper and no loans are required, it's an easy way to double your profit and get turn over quickly, but just like any real estate investment path you take you will need to have some upfront capital.

    I'm sorry, wat 

    PSA to anyone else: no, there is no "easy way to double your profit and get turn over quickly."

    0Reply
  • Jennifer Rysdam
    Rental Property Investor · Cleveland, MN · Member since 2017 · 518 posts · 354 votes
    7y

    I would purchase an investment property and use the cash flow from that to pay off the student loans. That way in 2-3 years you will not only have the student loans paid off, but you'll still have the rental income. If you just pay off the student loans you will only have that and no cash flow to show for it.
    If you are able to, I would very much recommend getting a triplex or 4-plex and living in one unit while renting out the others. You can get a low down payment FHA loan and then let the renters pay the bills. Good luck! In the end you have to do what works best for you :)

    0Reply
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