Student loans or investment property

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Student loans or investment property

Ashley Gish
Member since 2019 · 31 posts · 94 votes

Together my husband and I have almost $200k in student loans with a significant portion of them being at 6% interest. 53k of that is at 6.8% and 7.2%. We currently live and work in Oregon and are interested in getting into the world of real estate investing. We had been renting our house in Utah, however we didn’t have much of a plan or a good team in place and recently sold it. Not for as much as we had hoped after sitting on the market for more than a few months and a big remodel after some awful tenants but still ended up with a fair amount of cash. We are trying to decide if we should use the money for a down payment on a single family home to use as a rental closer to where we can manage it ourselves or put it toward our student loans. We have no other high interest debt, have a reasonable mortgage on our home in Oregon with a fair amount of equity, 1 car payment with zero % interest and a 4 month safety net in place. Any feedback would be greatly appreciated.

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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
7y

I would call up Dave Ramsey, have a chat, then report back what you find. I'll bring some popcorn for everyone. You have $200k in loans but needed a new car? I'm assuming that because they offer 0% interest on new cars. Most vehicles depreciate the moment you drive it off the lot. It's very clear what you need to do but I don't think this forum post is going to change anything. 

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    @Ashley Gish  $200K is a lot, but you also mentioned that you have $100K in equity in your current home, plus money from the sale of your rental.  I'm guessing your income level is pretty high for them to give you a mortgage given the amount of the student loans.  The student loans are clearly weighing on you, so I would use the money to pay them down.  If you pulled some of the equity out of your home, what would the interest rate be on those?  Once you've paid them down, start saving and use that to buy another rental.

    1Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Charles R Andrews Jr. thank you! This was my thought process and why I asked this question in the first place.

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Theresa Harris yes debt to income ratio is ok, but the weight of the loans on my mind is heavy. That is a great strategy that I’m starting to look into. Thank you!

    1Reply
  • Jeremy White
    Accountant · Greensboro, NC · Member since 2015 · 22 posts · 10 votes
    7y

    @Ashley Gish If cash flow isn't an issue on the debt repayment, then you should definitely look at a refi. Some people can't refi because they have income based repayment, but it sounds like you are financially stable enough to be able to term out your loans and handle the payments. I would do this no matter what you decide on paying them down vs. investing. 

    The decision to invest or not depends on your personal risk tolerance and how you feel about debt. I know what Dave Ramsey would say, but he doesn't see things the same as a lot of us do as he hates leverage but we love it. 

    I would refi, then invest in property but that's just me. 

    1Reply
  • Caden Bradbury
    Lehi, UT · Member since 2018 · 7 posts · 3 votes
    7y

    @Ashley Gish

    The answer depends on how much risk you are willing to take. If you think you can get better ROI then the interest rate on your loans it makes sense. But keep in mind your loans are guaranteed zero risk, a real estate deal can go south very fast.

    The market is hot enough you will have a tough time finding a property to cash flow after ALL expenses. So in this stage in the economy I’d pay the loans first. If it was 2009 I’d buy a house first.

    Keep in mind you can look for a BRRR, buy it in cash for a killer deal then rehab and refinance and pull all your money out plus some. That way you get a house and pay your loans!

    1Reply
  • Javier D.
    Investor · FL · Member since 2017 · 266 posts · 220 votes
    7y

    @Ashley Gish

    There are great suggestions here. If I could go back I wouldnt get so caught up in the emotion of the amount owed. My wife had a good amount of studeht debt. Real Estate and investments should be looked at as money in money out monthly. Dont let the overwhelming feeling of having debt put you in a situation where you have no liquidity to invest.

    If you invest 100k into an investment property how much would it cashflow a month? Close or more of half your payment?

    Now throw in appreciation. Try to put numbers on paper and analyze these scenarios.

    I would definetly always look to make my debt more efficient and its nice to be debt free but not at the cost of hindering growth. And disregard the kick while your down comments. At least if they were funny but werent... maybe they can turnover your air bnbs in a few years.

    Good luck!

    1Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Ryan Conceicao great considerations! Thank you.

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Jeremy White Thank you! That is incredibly helpful feedback. Yes income and job are good and stable. I think the refi and then invest is totally possible and sounds like the right strategy for my current situation.

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Caden Bradbury always trying to find the balanced right?! Thanks so much for your feedback I appreciate it.

    1Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Javier D. Thank you! Yeah after the initial comments I wasn’t super excited about posting on here again but others like yourself have been much more helpful so thank you! Great advice to just focus on the numbers and try to separate the emotion out of things! Thanks again.

    0Reply
  • Anthony Rosa
    Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
    7y

    @Ashley Gish - IMO, Pay off your student loans first so its one big headache debt removed then pay off your car.  You are now debt free and can save for a down payment and a better home then if you had that student debt hanging over you. Maybe buy a two/three family house and you live in one unit.

    Good luck!

    0Reply
  • Michael Masterson
    Rental Property Investor · Lakewood, OH · Member since 2016 · 69 posts · 50 votes
    7y

    @Ashley Gish if you're in a position to qualify for a cash flowing property you should do it 100%. Rates are low, you can offset those student loan payments with the income and come out on top. 6-7% seems high because of where we are seeing interest rates now but in the grand scheme of things its still very low. Use leverage while you have it, and be smart. My only twist would be to entertain a multifamily vs. a SFR just because it spreads out some risk with vacancy. It sounds like you don't NEED this money monthly so you should take any cash flow and bank it or aggressively pay down those loans with every cent. I did the same thing with a duplex...I have the rents go to a separate account, and autopay my mortgage, insurance, taxes AND student loans out of there. Anything remaining at year end I dump right onto the loans so I have the safety net in the event of a major rental expense. It's almost like my student loans don't exist honestly. I forget about them often unless I have my credit pulled.

    1Reply
  • Justin Robert
    Investor · Temple, TX · Member since 2015 · 111 posts · 83 votes
    7y

    @Ashley Gish I think this question is too difficult to answer without knowing your income level and job stability. Not asking you to share specifics, just saying we don't know enough. 6-7% is extremely high. I would agree with one of the previous posters who said to spend all time / energy in to bringing that rate down ASAP. That interest rate reduction is a massive investment in yourself that will (most likely) cost nothing but a few hours of your time and energy. 

    0Reply
  • Kevin Blanchard
    Rental Property Investor · NJ · Member since 2019 · 66 posts · 44 votes
    7y

    @Ashley Gish don't listen to all the hate. Student loans are a necessary evil if you are attending college. I would use as little as possible for a downpayment on a cash flowing property. You would probably want to find something that cash flows at least $250 after all expenses, property management, reserves, etc.

    I don't know the market you are looking into but perhaps you could even do a few cash flowing properties. There are some turnkey providers in Tampa, FL where you buy a SFH for $120k and it cash flows about $250/mo. So if you were to put $25k down on each, purchase 6 of them, you would cash flow about $1,500. You could use some of that to pay down your student loans. It doesn't have to be Tampa, FL, but I just used that as an example as I am somewhat familiar with that market

    Someone else said househacking which is another great idea to keep your personal living expenses down while you pay off those loans.

    2Reply
  • Nathan Norway
    Rental Property Investor · Plymouth, MI · Member since 2017 · 59 posts · 37 votes
    7y

    @Ashley Gish my wife and I are in the same position. We started working 9-5s with 180k in student loans. In 2.5 years we have knocked that down to approx. 120k and managed to purchase a condo in that time too. We’re currently assessing whether we should

    A. Sell the condo to purchase a home (same or cheaper monthly payment)

    B. Hold condo to rent and purchase or rent our next living space.

    C. Sell condo and attempt to find a multifamily investment

    In the meantime we’ve been looking at paying off our loans quicker, or refinancing on a lower rate and extending the payoff period to build capital quicker towards a rental property.

    Best of luck to you in Oregon! We’re in the metro Detroit area.

    0Reply
  • George Munoz
    Real Estate Agent · Fort Lauderdale, FL · Member since 2018 · 360 posts · 213 votes
    7y

    @Ashley Gish 

    I will! stay away,  (a bit) from Dave Ramsey and focus on Grant Cardones, philosophy, instead of restraining yourself for a future (possible)  financial freedom  "Dave Ramsey" . IN the contrary Grant will say, Make more or find a way to make more and scale, building financial confidence instead of Financial Freedom. ( no such thing as Financial freedom, God forbids anything can happen and destroy your security, but nothing can destroy your financial confidence on a scale, financially and holistically in other areas. 

    I do firmly believe that if you apply the BRRRR strategy on your first deal and grow or build on that, in a couple of years you will be able to build financial confidence and freedom ;) and you will have your money working for you and paying your debt, instead of restraining yourself and you pay off the debt..

    My opinion.... 


    Wish tons of success, to you and husband..!!!

    3Reply
  • Devin Boyle
    Member since 2019 · 5 posts · 6 votes
    7y

    @Ashley Gish I agree with @Justin Frank... mid single digit interest rate on student loans is relatively cheap debt. The way I would look at it is...can you put the money to some other use that produces an ROI higher than your cost of capital (aka your student loan interest rate)....if so I think it's an easy decision. (google hurdle rate)

    *Not to mention, I would hold out on making any big payments to student loan debt until after the 2020 election. If a Democrat wins the Presidency and the Democrats somehow take the Senate...there are some Democratic presidential candidates talking about student loan forgiveness for all. Long shot but you never know. You'd really be kicking yourself if you make a huge payment on your student loans then a year later all student loan debt is wiped out and you could have kept the money.

    2Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Devin Boyle I’ve definitely been thinking the same thing re the upcoming election. And good perspective on the big picture re interest rates. Thank you!

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Anthony Rosa thank you!

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Michael Masterson all good considerations. That’s exactly what I was thinking, use the cash flow from a property to be able to pay down the loans at a quicker pace. Always good to hear how others are making it work! Thank you.

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Justin Robert thanks!

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Kevin Blanchard thank you! Yes ive found a few properties within an hour of where we live for under $190k with potential cash flow of $350-$400/month so am hoping that will help t pay down the loans more quickly while also building towards the future. Even with a second property and a vacancy the monthly mortgages would still be under 20% of monthly expenditures so that fees manageable to me. Thanks for your positive perspective re student loan debt. I am well aware it’s a huge amount which is exactly why I want to try and be as smart as I can In doing something about it. I have some good friends that just moved to Tampa and will definitely share that info with them about the market there.

    0Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @Nathan Norway that’s impressive in 1 year! Would love to hear what you guys decide on

    1Reply
  • Ashley Gish
    OP
    Member since 2019 · 31 posts · 94 votes
    7y

    @George Munoz great perspectives! Thank you

    1Reply
  • Mandee H.
    Investor · New Hope, PA · Member since 2019 · 16 posts · 3 votes
    7y

    I'm in a very similar position. Sorry you're getting some "neggy" comments here - everyone's situation is unique on why they have to borrow to get educated & shame on the fed!  Anyway, I bought an investment property with the money I would have paid into my student loan and now that investment property earns enough to pay the loan back - I was fortunate, there were long-term tenants in place when purchased. I have owned the investment property for 2-3 years and if I wanted to sell it today, I can pay off the student loan entirely and still walk away with some remaining investment money.  If I didn't make the real estate investment move mentioned herein, psychologically, I would have felt forever imprisoned - chipping away for 10 years or more.  Lastly, the deposit to get this real estate return was 1/2 the amount of the student loan owed.  Try and do both - package the student loans and put a healthy deposit down to bring the payment to a manageable level then find a real estate deal that works for you & in my opinion, not necessarily in that order.  Best wishes!!

    2Reply
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