Buying a House While being in Debt!!

72 Replies

Quick question all! After being so motivated I’m going to begin reading the necessary books and network best I can in the next couple months. Giving myself until maybe the Fall or Spring of next year to begin!! Want to play by ear. HOWEVER. I have a $100,000 in student debt. Now I know investing can begin with little to no money. And I know it is probably SMARTER to wait until I have my debt all the way down. But play Devils advocate with me a bit and tell me if there’s a smart way I can still play this investing game without being so caught up on my own student debt! I’m thinking BRRRR or House Hacking to begin, or Multi family. But are any of these still a good play with having an existing debt? Thanks :)

@Julian Joseph , all of them are. They are also a good way to pay your debt down faster. Waiting to pay off that kind of debt will set you back years. Besides you can write off student loan interest in a lot of cases so it is cheaper than other forms of debt. I am sitting on student loan debt because I can make more money investing that money than I can save by paying off the debt. 

Your problem is that you may have trouble securing traditional financing because of your debt. But if that is stopping you, then this game may not be for you in the long run anyway.

@Edward B. Thanks for the input Ed!

Yeah so I am currently paying it down, and will be under the 6 figure balance soon. My credit is great, above 750. And I want to play this as safe as possible while trying to gain momentum in paying the debt even quicker. Right now without doing real estate, I am preparing to get the loan done in 5 years. So securing financing should be ok for me I would think. Maybe I need more research.

And do you mean you're not paying your student loans currently because you can make more money investing with that money? Stories like that inspire me man.

@Julian Joseph , what interest rate are you paying? 5%-7%? and that is tax deductible as well so less really. If you can get into an investment returning 8%-XX% you can use that to make the payment on the loan and pocket the difference. It is more complicated than that, but you get the idea. 

How you handle your debt is really a matter of personal preference. I try to ensure that I am not overextended, but can be fairly aggressive at the same time. You need to have a good understanding of how it all works and the risks involved in the different types of lending, borrowing, and investing.

The student loan debt is actually my wife's. We paid off about half of it very quickly because it was at a higher interest rate and I wanted to get our DTI down to purchase a primary residence, but I am making the minimum payments on the rest of it for the reasons I stated above. Our financial situation is significantly different than yours, though, and you need to do what is right for you.

Yes, of course. Figuring all of that out will be personal preference for my situation for sure @Edward B.

Right now my Interest is 4.6% on my student loans and I'm being pretty aggressive towards it. I would definitely look into as much as I can, I know nothing is extremely easy, otherwise the world would be doing it.

Looking into lending, borrowing, and investing will for sure be where i begin

@Julian Joseph

5 years is not that long and the likelihood is that with increases in your income going forward, assuming you maintain your present life style, you could realistically pay it off much sooner. Once you get it down to a more reasonable amount you can then look at saving the cash you need to invest and be in a more stable situation before it is completely paid off. Discipline is the key and at this point you need to test yourself for a couple of years before you jump into investing. Having a huge negative debt hanging over your head will only be a hindrance when times get tough and be the straw that could sink your investment. Give yourself time to get your personal carer and your life moving forward..    

Wealth growth is a life long venture.

@Julian Joseph sure anyone can play devils advocate and say investing makes sense if you can earn 8 percent or whatever while paying 4 percent on your loans.

However this doesn’t take into account risk, and real estate despite what BP says is actually one of the riskier forms of investment. It’s illiquid and lots of things can go wrong.

So that being said, I would pay off your debt balance. If it will take you 5 years you’re probably not making 150k plus a year and if you are you should be paying that debt down a lot faster.

So in this case I actually do agree with @Thomas S. .

People are starting to get creative - if you are familiar with STR laws in your area & if that area is a destination spot, using that to your advantage might be something you are looking in to.

With AirBnB and HomeAway, there are ways to establish a listing that you dont need to own. Perhaps that can assist you out of debt and get you on the right track to find equity-based investments without putting yourself in more risk. 

Either way, best of luck man.

@Milad Awadallah Oh really? Won't hurt to look into that too then! 

I don't live far from Orlando at all. I have spent some time in South Florida as well, that as well being a destination area. Are there possibilities of establishing listing within hotels without owning?? This is interesting.

@Julian Joseph

Not hotels, but apartments, condos, and homes - anything you can sign a lease with really. 

If you are able to find a property manager who simply looking for their monthly rent, and you have done your homework for potential income for AirBnBs in that location (as well as being familiar with the ordinances in your area), you can negotiate a clause to be able to list on STR platforms.

With insurance and  the ability to demonstrate you are a professional, a property manager may be comfortable with their couple thousand a month in rent in exchange for you using listing their unit.

If you tell yourself that you can’t invest until it is paid off, you will probably pay it off quicker by making extra payments and getting a second/third job. Real estate will always be around. Get your personal finances scared away first because if you don’t real estate can ruin you.

When I was younger and deep in debt with little cash, I was forced to use my day job to build up my cash reserves and pay down my debt. Since I couldn't afford to go anywhere or do anything, I had plenty of time on my hands to study whatever field I wanted to pursue someday. How-to books are inexpensive and in today's world, there are plenty of online blogs and forums loaded with useful knowledge.

With preparation (focused self-study) and luck (random events), the right opportunity eventually presents itself. This approach taught me to be a perpetual student and never stop learning new things. After I learned how to turn $1 thousand into $2 thousand, for example, I then learned how to turn $10 thousand into $20 thousand, and so forth.

@Julian Joseph

How much could you pay off in 2 years? It's just a LOT of debt to be working with. People are correct in this forum, yes you could get started, but there is risk involved and I would want to knock out a good 50-75% of that student loan debt before you get started. 

I have a different perspective than some. This is a conservative option (not considering using other peoples money or other creative investment strategies such as house hacking). 

If you are going to pay off $100,000 in 5 yrs that would be about $20,000-22,000 a year that you are paying to your loan. You are probably required to pay $300 or so a month to your loan anyway or $3600 a yr (estimates only of course). So that means you are going to pay about $16,000 to 18,000 or more extra a year to your loans. 

My preference would be to save the extra payment for 1 to 2 yrs and purchase an investment property. It will be a modest property but if you purchase right you should be able to cashflow $300 or so a month (at least that would be your goal, if you can cashflow more, great, if it wont cashflow that much it might not be the right investment). This can now covers your Loan payment. You continue to save the $16000 a year but now you also add the $3600  a year in loan payment you no longer have to make. In another year or 2 you buy another property. This is now cashflowing another $300 a month, which you can either pay to your loan or use towards your next investment.....you continue to repeat this process.

The difference in doing this vs just focusing on paying off your loans in the next 5 yrs and then starting to invest (It will be 7 yrs before you can start investing because after your loan is paid off you will then need to start saving for a down payment in order to be able to invest), is that it may be better to have 3 investment properties which are paying your student loans and providing some additional cashflow and still having your loans. Even if you have to keep paying your loan, your investment is taking care of it. All the while, your investment is increasing in value and your tenant is paying into your equity every month.

Even with a student loan like that, if you live frugally, you may be able to get conventional loans for your investment properties.

Waiting to by property is necessary sometimes. Buying property and then waiting is what I would recommend. Lets say your properties increase in value over the 5 years. You then have several options that you wont have if you just pay off your loan. 

The difference is 'reducing your expenses' vs 'increasing your cashflow'. If you have played Robert Kyiosaki's CASHFLOW board game you may have noticed that paying off your expenses wont get you out of the rat race.

Invest, and let your investment pay off your student loan. Or invest and let your investment pay for your Corvette or what ever luxury you want.....its the same concept.

What ever you decide, you will have some time to continue to learn. 

Best of luck.

@Julian Joseph

The one thing we CANNOT get back in life is time so don't waste it waiting to get your debt " way down". Pull the trigger now and figure out a creative way to start investing today. There are so many strategies available to get started. 

The BP podcasts will definitely help you get started and I would start looking into "Wholesaling"as it doesn't require any of your money. 

@Julian Joseph I think there is something to say about opportunity cost. I am not a risky person so the only option I would entertain is house-hacking...after all YOU need a place to live no matter what. If you can find something in your market that negates your living expenses then you have more cash to throw at your debt and you've already begun your investing career. We are aggressively paying down debt, but in the process airbnbing our condo and managing another airbnb. It is another job, airbnb is not passive, but we are turning our liability into a cash-flowing asset so we can get into an excellent financial position as fast as possible. We also are very frugal (listen to BP money) and work a lot of side hustles. Sprint while you can. We don't get time back. We have knocked out over 30k in less than a year and we don't make a lot of money to begin with.

@Victoria Hartcorn  30K in less than a year that is amazing!! I have been living frugally the last couple of months, and I believe 100% to Sprint while I can. I truly do not want to waste 5 years paying debt before investing in a property. I am currently under my folks roof, so I'm rent free. This would be a great opportunity now I think to pay less towards my loan for more cash reserve now for quickest route to begin investing. 

Originally posted by @Account Closed :

When I was younger and deep in debt with little cash, I was forced to use my day job to build up my cash reserves and pay down my debt. Since I couldn't afford to go anywhere or do anything, I had plenty of time on my hands to study whatever field I wanted to pursue someday. How-to books are inexpensive and in today's world, there are plenty of online blogs and forums loaded with useful knowledge.

With preparation (focused self-study) and luck (random events), the right opportunity eventually presents itself. This approach taught me to be a perpetual student and never stop learning new things. After I learned how to turn $1 thousand into $2 thousand, for example, I then learned how to turn $10 thousand into $20 thousand, and so forth.

 Yes, much time will be on my hands now to dive into books and forums. Thank you for the wise words!!

@Benjamin O'Brien Thanks man, time for sure is something I can't get back. And who knows where I'll be in 5 years, I have no family of my own right now, and no Girlfriend. I think this would be a great time to save more cash reserve vs putting it all to my student loans right now. You're right, it would be about 7 years until I could even begin if I continue my current route.

I can save NOW, then INVEST in a year or two, and figure things out along the way. Acquiring a home and waiting for it to value is something I thought about as well, then I would have several avenues I could pursue afterwards.

Right now I have a 10 year plan on my loans which are requiring me to pay $1200/month. I would have to refinance to bring that monthly cost lower as a strategy for more cash reserve.

Thank you, I'm gonna do some numbers and reading. I will have a plan!