Pay off student loan before Investing?

Question

Real Estate newbie here! I owe about 35k left on a student loan but I am very much interested in investing in some property (Small multi-family preferably). Should I pay my loan down some more or start investing??

Account Closed · Answer

Hello Krystal,

This type of question is definitely personal preference & there isn't a "right or wrong" answer. I would sleep better having that student debt taken care of. My goal has always been to only have debt in real estate. No debt in cars, credit cards, etc. Again, that is complete personal preference. Do what helps you sleep best at night! Best of luck to you.

David M. · Answer

@Krystal Knox

This is something you should work out with a good loan officer unless you want to put your financial status on a public forum.

There is no "right" answer.  Several factors go into qualifying you for a loan such your available down payment and your debt to income ratio.  If you take all yoru available cash and pay down the student loan, now you have no cash for a down payment much less closing costs.  Meanwhile, if you only paid down your loan, you haven't changed your debt to income ratio (dti).  Remember, it doesn't matter how much you owe, but its how much you have to pay each month.  Generally, student loans have relatively low monthly payments.  So, while its a good chunk of change over your head, if its not hurting your cash flow / dti, it might be better to leave it alone.

Do you have any other debts?  You might even want to talk to a financial planner.  What is your timeline?

Also, student loans aren't exactly considered as much as "bad" debt like a credit card or judgement.  In someways, your question makes just as much sense as:  "Should I pay off my current mortgage on my house before I go buy another house?"  On one hand, less debt is good so that you can qualify for another loan easier, but if you had that much cash on hand...

Anyway, one needs to look at the whole picture.  That is, your financial status to see what will help you qualify for a loan that is sufficient to purchase what you want.  Also, you'd want to be on sufficient financial footing to be able to carry out your investing.  Using debt/leverage is an acceptable method to use when investing...

I hope that helps.  Good luck.