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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  • Brant Richardson
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    7y

    This forum sees A LOT of posts along the lines of "I'm 22 and just got out of college with massive debt but want to get into real estate.  What do I do?"  Unfortunately you got lumped into this category though it is not your story at all.  Bigger Pockets is the best learning resource for real estate I have ever come across.  Stick around, check out some of the podcasts and don't be afraid to post more questions.  

    1Reply
  • Jermell Shavers
    Member since 2019 · 295 posts · 159 votes
    7y

    I went to college years ago and I had the chance to either pay off my student loans or buy my first property this was 2015 I wish I would've bought that property I drive past it when I visit Saint Louis all the time. I just bought another property in north county. My advice do the rental property and make a payment plan for the student loans.

    0Reply
  • Alonso Escalante
    Lender · Irvine, CA · Member since 2019 · 13 posts · 5 votes
    7y

    @Ashley Gish

    Hi, just putting my 2cents. From my pov, wouldn't the ROI from an investment property have to be greater than your loan interest rates for an investment property to be worth it?

    If you can't find an investment property that gets you a minimum annual ROI >8% then paying down the debt would help you speed up the time it takes for you to start saving money that you can invest into real estate? (ex: if you pay down the debt then it would only take you 3yrs to pay it all off and afterwards you would be able to start saving way more money to invest rather than wait 6yrs to pay it all off and then start to save money)

    Hope this helps. I wish you the best and if you don't mind, could you update us on what you decide to do and why?

    Thanks!

    0Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y
    Originally posted by @Marcus Johnson:

    @Syed H.

    Lol that was funny. I just can’t get over the excuse that someone has to take out that much in student loans to go into the medical field. There are many ways to save up money or to get scholarships and grants to go to medical school. I know of many who have done it, I work in the medical field as an IT Professional at the University of Minnesota. In fact if you took a couple years off before you went to medical school you could live on nothing, rent and save up as much as you possibly can.

    My sister and brother in law took about $400k combined. They paid it off in 5 years and make $800k-$1m/year. But hey guess they’re idiots.

    There’s this thing called opportunity cost as well, so your plan to take off for a few years is pretty stupid. 

    1Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    7y

    @Syed H

    It sounds like you need to take a math class. When you calculate for risk, which most investors fail to do, there is a high probability of going bankrupt. You and Brandon can name call, but that usually means your losing an argument. Also I would recommend reading the book The Millionaire next door or anything from Dave Ramsey, because debt is the number one reason people fail. The people researched in the Millionaire next door don’t believe in debt and Dave Ramsey judy interviewed over 10k people and none of them used debt to get rich. I don’t mind mortgages, so long as I put 25% down and buy low and sell high or get really good cash flow like I do on my investment properties. Still laughing that Brandon called me a high school drop out. Talk about judging someone. Lol

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

    @Brant Richardson Thanks again Brant! I will get started on the refi ASAP and really do appreciate your all of your advice. 

    0Reply
  • Dave Hyson
    Member since 2019 · 1 post · 0 votes
    7y

    Paying down student debt is not the best use of funds. The ideal scenario is selling your current home and using any equity as a down payment for a multi unit investment property. If you don't live in the right market to make that happen, you should move. You can always pay down the student debt later using money that is worth less than it was when you borrowed it due to inflation. With any luck you will even be able to use passive income from real estate investments to make the debt payments.

    0Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y
    Originally posted by @Marcus Johnson:

    @Syed H

    It sounds like you need to take a math class. When you calculate for risk, which most investors fail to do, there is a high probability of going bankrupt. You and Brandon can name call, but that usually means your losing an argument. Also I would recommend reading the book The Millionaire next door or anything from Dave Ramsey, because debt is the number one reason people fail. The people researched in the Millionaire next door don’t believe in debt and Dave Ramsey judy interviewed over 10k people and none of them used debt to get rich. I don’t mind mortgages, so long as I put 25% down and buy low and sell high or get really good cash flow like I do on my investment properties. Still laughing that Brandon called me a high school drop out. Talk about judging someone. Lol

    Didn’t call you any names, just said your plan was stupid. I think you might need to retake that math class as well.

    You would want people to work & delay med school for 4-5+ years off to save enough to pay for med school, and lose 4-5 years of increased pay of a physician... like I said do you understand opportunity cost? 

    I can guarantee you the math doesn’t work in your favor. I’d do the math out for you, but I can see you have some chip on your shoulder and/or bought into the cult of Ramsey. & Ramsey actually says certain degrees are definitely worth paying for.


     Not sure who he interviewed but I know plenty of multimillionaires who used leverage. High leverage is never a good thing. 

    0Reply
  • Cory K Bente
    Lender · Everett, WA · Member since 2019 · 55 posts · 25 votes
    7y

    @Marci Stein I like this response - nice hedge.

    0Reply
  • Neal Collins
    Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
    7y

    @Ashley Gish Check out the book “Five Day Weekend” (except for the last section). There is a good tool for analyzing which debts to pay down relative to the timing of your investment career.

    0Reply
  • Michael Laviolette
    Member since 2019 · 2 posts · 1 vote
    7y

    @George Gammon this is amazing. In a ber similar situation to the OP and learned a ton here, thanks!

    1Reply
  • Michael Laviolette
    Member since 2019 · 2 posts · 1 vote
    7y

    @Ashley Gish Hey Ashley! I posted something similar on here not too long ago (in a very similar situation). I also got destroyed (mostly by the dave Ramsey crowd), but I also got some really good ideas and made some excellent connections. I also met a few fellow medical professionals on the thread that had already successfully done what youre asking about. For what it's worth I want you to know that I gained some really good knowledge from this thread.

    Also for federal loans, dont consolidate! They will all have a single interest rate and kill the ability to strategically pay them down!

    Having been through posting a thread like this on here, I can tell you its gonna last 3-5 days, but it will end! ;-)

    0Reply
  • Nathan Hall
    Rental Property Investor · Martinsburg, WV · Member since 2017 · 111 posts · 81 votes
    7y

    @David Fairall s 401k isn't debt, it's a tax deferred investment.

    0Reply
  • Nathan Hall
    Rental Property Investor · Martinsburg, WV · Member since 2017 · 111 posts · 81 votes
    7y

    @Rhonda McDaniel just curious, what happens if you don't pay them?

    I had a small one once when I was post military but was luckily able and smart enough to pay it off when I had a windfall of funds from traveling with my job.

    0Reply
  • Nathan Hall
    Rental Property Investor · Martinsburg, WV · Member since 2017 · 111 posts · 81 votes
    7y

    @Ashley Gish this might seem flippant but, from my perspective, your student loans are a sunk cost. That's just a bill you're going to pay, for a long time, and that's ok, no judgment from me. But it's equally obvious that you have funds available to purchase an investment property.

    If you can continue to make the loan payments regardless of the down payment you are contemplating, then analyze that deal. Analyse it again, and a third time. If it looks profitable and if you'd be happy with the return on your investment, buy it. The worst that happens is that you took a chance and it didn't work. The most likely scenario, if it's a good deal, is that you, for once, are making money every month. And regardless of the amount, that is an eye opener and game changer. Real estate isn't the passive game it's made out to be, at least for most, but it is a tried and tried vehicle for people looking to increase their quality of life. If you can take a jab at it without causing yourself harm on a bad decision, I say do it. And I also recommend reading up on how to suck away that money so that you see it, are motivated by it, but HAVE it and don't RELY on it in case it's needed for CAPEX.

    1Reply
  • David Fairall
    Salt Lake City, UT · Member since 2019 · 42 posts · 30 votes
    7y
    Originally posted by @Nathan Hall:

    @David Fairall s 401k isn't debt, it's a tax deferred investment.

     I know. Maybe you misread my comment. I was saying that some schools of thought are that you pay off high interest debt before you invest in anything and a possible exception to that would be investing in a 401k where you receive some kind of match from your employer. 

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

    @George Gammon easily one of the most helpful things I have seen all day! Thanks so much for sharing your insights and amazing visual aids. 

    0Reply
  • Allyn W.
    Rental Property Investor · Iwakuni-Shi, Yamaguchi · Member since 2017 · 48 posts · 17 votes
    7y

    Hi @Ashley Gish

    I feel your pain with the student loans. Since your major was in the medical field, there may be some option for student loan repayment with your employer. Here’s a website to check out

    https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

    I also like the house hacking idea as well. That would definitely cut your living expenses.

    There’s also a car sharing program out there called Turo that could possibly cut down on your car payments

    https://turo.com/

    I hope these suggestions help.

    Thank you for being so transparent. We all have situations and this should be a platform we can be transparent and helpful without people being insulting.

    All the best to you and your family

    Allyn

    0Reply
  • Daniel F.
    Member since 2018 · 4 posts · 0 votes
    7y

    @Ashley Gish

    One more consideration, I do not think anyone has mentioned, should be capital gains tax on the sale of your rental in UT. If you made a good profit on that sale, the government is going to want their cut before you pay down your student loans. That alone may make a 1031 into a new rental in your area a more appealing option.

    That said, I have not sold a rental yet, but it is my understanding that if you are going to do a 1031 exchange you need to act fast...

    Best of luck in whatever you decide!

    0Reply
  • Matt P.
    Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    7y

    @Syed H. Does she work in the medical field? I read the thread and didn't see where she mentioned what her career was.

    0Reply
  • Chris Salerno
    Rental Property Investor · Charlotte NC · Member since 2019 · 306 posts · 183 votes
    7y

    In my opinion. I would do investment property that pays for your student loan! At the end of the day, you want cash flow from an asset. 

    1Reply
  • Jonathon Weber
    Member since 2018 · 110 posts · 109 votes
    7y

    Ashley... I had a lot of debt out of college. It made life a living $#@@ until paid off. 

    You need to attack the debt head on. Depending on where you live, max out your retirement percent from each paycheck, pay your bills, put one income after paying yourself to the highest interest debt and start saving up for flipping houses to build up money. 

    0Reply
  • Rhonda McDaniel
    Realtor · Tulsa, OK · Member since 2019 · 76 posts · 42 votes
    7y

    @Nathan Hall I've never tested the theory. Poor credit for one. Then on to a collections agency I'd imagine. Plus the interest will continue to accumulate. Then you'll be paying interest on the interest accumulated. The price goes up. You can defer them with approval, but they continue to gain additional interest to add to your balance. I've done that a few times. It's not good. 

    0Reply
  • Rhonda McDaniel
    Realtor · Tulsa, OK · Member since 2019 · 76 posts · 42 votes
    7y
    Originally posted by @Steve B.:

    @Rhonda McDaniel the reason student loans are not bankrupt-able is because they are federally backstopped by Sallie Mae & Freddie Mac. So the idea is that taxpayers shouldn’t be subsidizing people who default or bankrupt their loans. So if you want to default on your loan let’s agree to stop federally backing this program as we agree it’s stupid. Put the loan risk on the private market just like normal loans.

    However it’s not ‘Trumo’ who is making you take these dumb loans, rather the same people you vote for are the exact people causing the problem by demanding that the federal government insures this dumb loan program so people can pursue 100k advanced pottery degrees. The same people you vote for are all about letting you default on taxpayers backed loans but those same clowns want to keep this broken system in place.

     @Steve B. good to know for the next vote. It is a broken system. Although I'm thankful for my education. 

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