Does this plan make sense?! Am I crazy? ;)

Buying & Selling Real Estate
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Does this plan make sense?! Am I crazy? ;)

Sara Furlong
Sherrill, NY · Member since 2016 · 14 posts · 2 votes

Hi, all. New here. My husband and I have major student loan debt: $80K to be exact. We've been coming up with plans to kill it and at first thought we might sell our current house (we'd make approximately $16K), pay off one student loan, removing a $200/month bill, and buy a new house that is like $90K, saving us $400 on our mortgage - this would help us pay down our debt faster.

But as I look, a new option came to mind. A real estate agent wrote to me because she knew we want to live in the country. She showed me a house that went on the market on June 16 for $199K that has now been dropped to $169K and she said they are desperate and would likely take $150K or below.

It hasn't been on the market very long - about a month - and they need to sell because they're either moving or already did.

And it is a great house! Just so far beyond the houses you'd get for $150K - and it is on 2 beautiful acres with a two-story barn shed, a two stall attached garage, and another detached garage for toys. (Although it's not our dream house because we like older houses, we'd actually love living in this house for a while.)

Why isn't it selling? I believe it's due to 1. Time/the rush to sell, 2. mostly cosmetic things - stark white walls, unfinished walls in a 3-season/hot tub room, bland kitchen that could be made great with some used stainless appliances and new countertops (it is a large kitchen with nice cabinets), and just tasteful staging and decoration.

Our current home is about the price we'd hope to get this one for, so it wouldn't change our bills much.

*WOULD YOU:*

A. Sell current house for the little equity we have in it and move into a tiny house to throw more money at debt.

B. Buy underpriced house from desperate people, out equity from current house down as a 10% down payment, live there for two years and warm it up, then sell for a profit to put toward student debt (or future investments to eventually pay off student debt).

 C. Buy house with no money down, pay off the one student debt with equity from current house, live in house for two years, sell to make profit and either pay down debt or buy another house.

Thoughts?

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Jerry W.Pro Member
Moderator
Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
10y

@Sara Furlong, let me offer some alternatives.  First I am a huge fan of buying rental houses.  You might consider a duplex or even 4 plex you could buy and live in and rent out the other units while you pay down your student loans with the cash flow.  The last option I would choose would selling the house and using the proceeds to pay down the student loan.  You need the capital to buy an income producing property.make all of you loan payments and add a little as you can, but you should be able to invest by buying a rental and earn enough to be able to pay more over the long run than you would be able to by paying all of the proceeds into your student loan.  I applaud the idea of paying your loan off as soon as you can, but think long term.

Now if you are set on buy7ing the other property then go ahead and buy it, use as little of your own money as you can, and buy a rental for more income.  If you can make more money later by selling the house and taking your money tax free great.  Keep in mind that the student debt will make it harder get loans, and probably drive your interest rate up a bit.  You can always generate a little extra money by boarding a horse or 2, and you can have a garden etc.  

Either way you decide to go good luck and keep plugging away on it.  You will get it paid off some day.

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  • Daniel Toshner
    Investor · Seattle, WA · Member since 2015 · 91 posts · 111 votes
    10y

    Depends, What is your interest on your debts?  Way I always think of debt is that I would rather use someone else's money if I can make more than the interest I am paying them. Example I get loan at 4% but I can invest and get 15-20% on investment then I am netting 11-16% by the money I have to my name instead of paying someone else off.

    As for house, depends on what your situation is.  You want to make money or live comfortable?  Sorry to be vague but few things to think about...

    0Reply
  • Sara Furlong
    OP
    Sherrill, NY · Member since 2016 · 14 posts · 2 votes
    10y

    The student loan debts are 3-5% interest.

    And we'd like to enjoy the house we're living in. We'd need to live in this house for a couple years to avoid capital gains taxes and we're looking for a change of scenery. I'd love to make money and be comfortable - am I crazy to think we can have both by living in this great house for a few years, cost-effectively improving it, and then selling?

    0Reply
  • Sara Furlong
    OP
    Sherrill, NY · Member since 2016 · 14 posts · 2 votes
    10y

    It feels kind of low-risk because it wouldn't really increase our monthly bills, and we would like to live there for a while. But maybe I'm missing something?

    0Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    10y

    @Sara Furlong, let me offer some alternatives.  First I am a huge fan of buying rental houses.  You might consider a duplex or even 4 plex you could buy and live in and rent out the other units while you pay down your student loans with the cash flow.  The last option I would choose would selling the house and using the proceeds to pay down the student loan.  You need the capital to buy an income producing property.make all of you loan payments and add a little as you can, but you should be able to invest by buying a rental and earn enough to be able to pay more over the long run than you would be able to by paying all of the proceeds into your student loan.  I applaud the idea of paying your loan off as soon as you can, but think long term.

    Now if you are set on buy7ing the other property then go ahead and buy it, use as little of your own money as you can, and buy a rental for more income.  If you can make more money later by selling the house and taking your money tax free great.  Keep in mind that the student debt will make it harder get loans, and probably drive your interest rate up a bit.  You can always generate a little extra money by boarding a horse or 2, and you can have a garden etc.  

    Either way you decide to go good luck and keep plugging away on it.  You will get it paid off some day.

    2Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y
    Sara Furlong Sara the road to get out of debt is pretty streight forward. Like any business you have to stop the loss. That means spending less. The next step is to pay your bills off while not creating more debt. You will restart your 30 year mortgage by buying new. I also have discovered that when you buy on bigger lots in most places you usually get a lesser value house on a bigger lot with out buildings. Soooo what I'm seeing is you would be getting a lower value house but picking up some property and some out bldgs. With me it's a no brainier I'd move to the country (Colorado boy here). Does it fit with debt pay down no. Does it fit with investing? Maybe. Your logic there is sound IF the surrounding properties will support higher value rehabbed properties. If it was me I might try to get an owner finance or some how tie up the new property and rent out the old house. It's an awful long shot if you have no down pmt. The owner will need enough money to close some how. They may just want out or to break even. Maybe lease it and rent your current home. None of that is going to fit with debt reduction. Barring any creative out of the box thinking your only other course would be as you suggested. Sell and move but then you must be diligent about saving money and paying debt. I would suggest the book Rich dad poor dad. It will help you understand. Over all I would think living in a house you can fix and force some value too is better in the long run. RR
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  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    10y

    Buy a rental property the makes $300+ each month and use that to pay the bills. Your current house could potentially be converted into a rental. Once you do that you can buy your new house and start paying to loans off. 

    Personally, I would buy a fixer-upper to live in or a duplex to Rent one side and live in the other

    0Reply
  • Sara Furlong
    OP
    Sherrill, NY · Member since 2016 · 14 posts · 2 votes
    10y

    Thanks everybody!! Great input here. We were considering putting in an offer today, and the owners accepted an offer this morning! Will take your advice into account as we look at other properties to buy.

    0Reply
  • Turner Monroe
    Real Estate Investor · Arlington, VA · Member since 2016 · 84 posts · 26 votes
    9y

    As nice as it is to get out of debt, 3-4% interest rate isn't that bad. Say you suddenly had the 80k right now. With those interest rates it would make more sense to me to invest the 80k and keep paying off the student loans slowly. While I wouldn't say student loan is "good debt," I certainly don't think 3-4% interest is screaming to be paid off right now. Pay it off as fast as you can, but you have to think of opportunity costs as well since you can't invest the money you throw at it. Of course, at the end of the day you should be investing in your quality of life, and if it helps you sleep at night to be student-debt free then you should work on paying it off ASAP.

    Of course if you have any high interest credit card debt pay that off immediately!

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