Contractor · Denver, CO · Member since 2020 · 41 posts · 24 votes
Hi BP,
I have about 20k in student loans that I’m due to start paying in September of 2020. I plan on having a job that pays ~60k a year by then. I have about 11k in savings and want to time it so I can start house hacking right away. Does it make sense to do this or should I pay off all my loans first to lower the amount of money coming out of my paycheck each month. It might help to know that I do paying off the loan amount asap (within 18 months of starting payments). Any advice is appreciated!
Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Christian Albright - I talk a little bit about this in BP Money Podcast Episode 35. My short answer here is you should pay your minimum payments and start house hacking. My reasoning is:
1. With House Hacking your returns are typically 100%+ after cash flow, rent savings, and appreciation. If I had to guess, your student loans are maximum around 7% which is your return when paying off your loans. You will get much richer much faster by house hacking vs. paying off your student loans.
2. If you have $20k in student loans, how long will that take to pay off? I know very little about your financial position and savings rate, but if you can save about $1,000 a month, that's almost 2 years before getting your first house hack. For perspective, I became "financially independent" after 2.5 years of house hacking in Denver.
3. Here's an example of what I did. I purchased my first two house hacks before making a single additional payment on my student loans. Returns on both deals well over 100%. After the second property, I started taking any side hustle money I made and applied that towards student loans while saving the same amount from my W2 and rental properties. That allowed me to purchase a 3rd exactly one year later.
My best advice is: if paying off your student loans interferes with house hacking. Do not do it. If you can pay off your student loans AND house hack, by all means go ahead. Hope this helps!
Rental Property Investor · MD · Member since 2018 · 287 posts · 205 votes
6y
I think you should post more details on your personal position. Are you looking to live in denver? Is there outside help you could receive (i.e. help from family or partner with a buddy)? Nice work saving 11k but I would be hesitant to empty my cash position entirely via FHA financing to get into a property. If I were you... I'd strongly consider renting
When I lived in hawaii for a few years, I rented a room with some buddies which allowed me to continue to build my cash position before buying my first property upon relocating to the DC area. Despite zero equity, I put away a great amount of cash by living a modest lifestyle in one of the most expensive markets in the US.
Build your personal position and continue to accumulate cash. Study your intended market so you can learn to recognize real deals as they come around. When you are in a stronger position (both mentally and monetarily), you'll be less hesitant to take action as opportunity presents itself. Personally, the peace of mind of renting, saving and self educating more appeals to me more than forcing myself into a deal with my ENTIRE savings leaving me zero in the bank to obtain a property.
I think you should read scott trench's book "Set for Life"
Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Christian Albright - I talk a little bit about this in BP Money Podcast Episode 35. My short answer here is you should pay your minimum payments and start house hacking. My reasoning is:
1. With House Hacking your returns are typically 100%+ after cash flow, rent savings, and appreciation. If I had to guess, your student loans are maximum around 7% which is your return when paying off your loans. You will get much richer much faster by house hacking vs. paying off your student loans.
2. If you have $20k in student loans, how long will that take to pay off? I know very little about your financial position and savings rate, but if you can save about $1,000 a month, that's almost 2 years before getting your first house hack. For perspective, I became "financially independent" after 2.5 years of house hacking in Denver.
3. Here's an example of what I did. I purchased my first two house hacks before making a single additional payment on my student loans. Returns on both deals well over 100%. After the second property, I started taking any side hustle money I made and applied that towards student loans while saving the same amount from my W2 and rental properties. That allowed me to purchase a 3rd exactly one year later.
My best advice is: if paying off your student loans interferes with house hacking. Do not do it. If you can pay off your student loans AND house hack, by all means go ahead. Hope this helps!
Contractor · Denver, CO · Member since 2020 · 41 posts · 24 votes
6y
@Solomon Morris
Hi Solomon,
Thanks for the information. I actually planned on using a conventional or home ready loan with low down payments to avoid PMI. Although I haven't asked I am fairly confident that I could receive a loan (up to 5k) from family or friends to help pay for part of the down payment or closing costs.
As for your question about where I plan on living is either Denver or Boston (both expensive). I understand that you think I should wait but at the same time all the money I spend in rent is money that could be saved or put back into another investment. I also understand the self education part and the need to be ready but I’ve been hitting books hard and meeting with other people to build my network. I wouldn’t invest if I didn’t feel ready obviously, but I think that by that time I would be ready.
Thanks for the book recommendation! I’ll add it to my list, I’ve heard of it on the podcast, sounds great.
Contractor · Denver, CO · Member since 2020 · 41 posts · 24 votes
6y
@Craig Curelop
Hi Craig,
Great to hear from you again! I’ve been reading your house hacking book, it’s been really good so far. Anyway I see what you’re saying. Without knowing the hard numbers I was thinking the same thing, but the numbers don’t lie and put it into perspective.
I currently don’t have a car payment and don’t plan on getting one until very late in the future. That being said I believe saving $1000 a month is very realistic for me even after student loan payments assuming I am already housing hacking. If I house hacked that would be my only major debt each month. I tend to live lean and am used to the college, no money lifestyle.
Investor · St Louis, MO · Member since 2017 · 250 posts · 181 votes
6y
@Christian Albright There's really no right or wrong answer here, it depends on your goals. If you want to be conservative, stress free, and grow a bit more slowly, then pay off all of your loans first. On the other hand, if you want to be aggressive, grow more quickly, and take on more risk, then I would start investing in real estate right away. I had some student loans when I got started (still do), but I was willing to take on more risk to grow my portfolio more quickly. The choice is ultimately up to you!
Contractor · Denver, CO · Member since 2020 · 41 posts · 24 votes
6y
@James Gleeson
Hi James,
Thanks for your input. I agree there are options, but I see the ROI working out much more in my favor if I choose to be aggressive. Thanks for the insight, I think I've made up my mind!
Realtor · Portland, OR · Member since 2017 · 357 posts · 259 votes
6y
@Christian Albright It's absolutely possible to invest with student loans. Some people will tell you it’s irresponsible and to pay off all of your loans before investing. And some will say they get a higher return on their investments than the interest rates they pay on their loans so the money is better spent investing in real estate. We've seen both opinions here already! Another option, very “Rich Dad Poor Dad” style, is to buy an asset to pay off the liability.
The question is actually "how comfortable are you with debt?" Whichever route you choose, what's important is that you have all of your finances in order and are prepared (mentally and financially) to invest when you decide it's time.
When that time comes, make sure you have a liquid emergency fund set up and set aside that will help you weather the financial storms WHEN they come (lenders will also likely require you to have cash reserves). How much in a liquid savings account? That debate rages on as well. Some people say 3 months, some say 6 months, some say more. Again, it comes down to your risk tolerance. Starting out, I'd err on the 6-12 month side. When my wife and I purchased our house hack we had 8 months set aside. I would have been okay with 6 months, but we have very different risk tolerances and 8 months was a compromise. We calculated the amount we wanted in reserves by multiplying our mortgage payment (PITI) by the number of months we wanted to have available.
I have 501000 In student loans. Yes that is correct. 5 0 1 0 0 0. I own a rental, live in a soon to be rental and am about to buy a 500 grand home. It depends on your personal situation. I am going for public service loan forgiveness so will only pay about 30 grand a year in student loans and it will be forgiven via lovely government tax dollars in 7 more years. Work the situations anyway you can. Do you qualify for plf?
It sounds like you've already made up your mind. I don't think it's a question of being aggressive or conservative, but rather a timing question.
If you have your eyes set on something you can invest in right now, go ahead and use that money for that. If not, and you think you'll come across one in the next 6-12 months, go ahead and pay down the debt.
No need to over-complicate this by thinking about returns, etc., imo especially since you have enough cash flow to pay your debt off in 18 months and the interest on the debt is not an absurd amount like 10%+.
I have 501000 In student loans. Yes that is correct. 5 0 1 0 0 0. I own a rental, live in a soon to be rental and am about to buy a 500 grand home. It depends on your personal situation. I am going for public service loan forgiveness so will only pay about 30 grand a year in student loans and it will be forgiven via lovely government tax dollars in 7 more years. Work the situations anyway you can. Do you qualify for plf?
Oh god, this is a horrible mindset and you should re-think about what you're getting yourself into.
Why is that horrible? I will pay ten percent of my income for 7 remaining years (ten total) and it will cost be about 250-300 k at 2-3 k a month vs paying 6500 a month for 10 full years starting July to pay it off.I’m winning with public service loan forgiveness by a ton. It’s a great government boost To cover the cost of my student debt.
Why is that horrible? I will pay ten percent of my income for 7 remaining years (ten total) and it will cost be about 250-300 k at 2-3 k a month vs paying 6500 a month for 10 full years starting July to pay it off.I’m winning with public service loan forgiveness by a ton. It’s a great government boost To cover the cost of my student debt.
There's been a lot of media coverage re: PSLF program, so I won't get into the details, but 1) there's a lot of speculation about whether it'll exist in the next 5-10 years, 2) if it doesn't, what will happen to the people currently enrolled in the program and 3) there are many cases where after 10 years of payments, people find out they don't end up being approved.
Based on your calculation, it looks like you're just paying off the interest portion and making no dent to the principle amount, if any. Worst case, you end up paying 10 years of interest only to find out you still owe the 500K 10 years later. Just something to think about ask you weigh the pros and cons whether the risk of PSLF not existing / not being approved is worth the 2-300K in payments.
May be a moot point - it sounds like you're 3 years in, so my guess is you don't have much of an option but to continue with it.
Quad cities iowa · Member since 2019 · 104 posts · 78 votes
6y
Student loan planner. please educate yourself.
I hired an advisor for it and am in the program. If the program is revoked, any de legislation has been for new borrowers only. This program is in our promissory note and likely , almost certainly can’t be revoked. Most student loan reform is expansive and not limiting. Thus any new things would only support my cause.
There are many reasons why others failed, mostly because they were uneducated, didn’t pay 120 payments, weren’t in ICR, repaye, ibr or paye. In my case, I literally took a job to ensure I can get this. a lot of the speculation is fear mongering and anyone in the business is pretty pro plsf
Quad cities iowa · Member since 2019 · 104 posts · 78 votes
6y
And worst case scenario I pay 10 percent of my income for an additional 15 years and pay the tax hit at the end. Depending on income, I could always change my plan but I prefer to use plsf and encourage all to. @Henry Gu. Please so my other post for debunking your myths. The plsf program isn’t going anywhere for Current borrowers as its in our contract with the loan servicer
Plus there’s loopholes like working as a contractor and paying yourself a massive 401k As the employer, filing taxes Married filing separately one year and addending it a year later to get the married brackets a year late but not have your spouses income count toward your repayment. I essentially will have paid 0 dollars a month for 2/10 years by sheltering my income. It’s a great way to get your education on the governments dime. I provided you with those examples to demonstrate the homework I have done. I am a W2 employee I income earner and am one of the few people who geek out on finances and student loans as much and more Than real estate on here.
Love Ramsey’s attitude but his math is flawed. However, if you need the behavior coach, he’s not bad. Certainly won’t be bad off if you do what he does.
Doctor. Schooling costs were outrageous. Due to the cost of school I had to force myself to be financially literate
Those two aren’t even the biggest money makers. Probably the best guarantee at the 200 k plus, but putting off an income until 30 really sets you back if you’re a saver up front. Plus the tech people make so much as does Wall Street and other finance
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
@Edward Kanive. I would agree with you there. Financially speaking becoming a doctor only makes sense if you can get through it without hundreds of thousands of dollars in debt and you choose a specialty that pays well.
I agree mostly. the loans can be managed with a savvy plan.
The delayed income is brutal tho compared to other fields. Plus medicine is the only field where people try to exploit us by always saying you get into it to help others, which we do, but many Suites around the hospital use it as a crutch to not pay us as well.
take the loans and out that aside. Someone who started making money I out of undergrad vs someone that starts making good money ten years later has a huge advantage especially in a tax system like we have, that decade of saving and compounding investments can’t be understated.
Add in the desire to pay yourself with treats once you have a 5 figure paycheck and you ain’t got ****. 25 percent of docs at age 60 aren’t worth a million
Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
6y
@Christian Albright I paid myself first via a house hack and save a few hundred a month now that can be paid toward my student loans. My market is dramatically less expensive to enter, but hopefully, at 5% down and something in the suburbs, you can pull something off in not too much time?
Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
6y
@Christian Albright
My God at that point you put 11 K toward your 20 K in student loans and you only owe 9k. With the 60 K income you could have 9K paid off in like what three months. Now your monthly income is increased and you should be able to save a lot of money. Unless you have a lot of other bills.