Payoff Student loans with Flip Proceeds or reinvest profit?

Question

Hey Everyone

I'm about done with my first flip property that I will be all in at $54k, ARV is 95-100k. I have 19 buy and hold units currently and my original plan for this flip was to BRRRR it and buy another flip or Multi-family. I've been thinking lately that maybe I should pause my real estate investing for a few months an roll all the profits from this flip directly against my student loans which would free up about $1000/mo personally. I know I'll have to pay capital gains on the profits vs doing a 1031 exchange into more property.

What would you do? My interest rates on the student loans are varying from 4-8% interest on about $55k remaining balance.

Dave Foster · Answer

@Luke Hoffmann, I get where you're coming from. This property was intended to be a hold property but you're thinking that it may not be the best plan. So you've left the 1031 door open. I live in the world of doing 1031s but twere it me I'd get rid of that debt. Student loan debt is stacked against the consumer in numerous ways. It's not dischargeable so if you ever have a doomsday scenario that student debt won't go away. It's a drag on your credit and your dti. The interest rates are almost as high as unsecured debt. So much so that I'll bet if you ran a scenario and compared cost of incurring full tax on your sale vs savings from pay off of debt that you're almost a wash.

The only counter point would be that our government has such a rich history of rewarding bad behavior when done by large groups of voting constituents that it would be a crying shame for you to be responsible and pay off your debt only to have the govt institute a large scale forgiveness policy. I'd still go the pay off route on this one.

Matthew Paul · Answer

Me , I would get it over with pay that student loan off and move ahead .

Lee Ripma · Answer

@Luke Hoffmann

I think there is what makes sense from a numbers perspective and then what you emotionally want. I have student loans at a fixed rate of 5%. I don’t pay them off because that is cheap money to me. I can get higher returns than 5% investing. Same with my car, 3% interest so I don’t pay it off. However, there are reasons to pay off the debt. Like you would love to have it gone, it’ll allow you to buy a primary residence you want, etc. So if you can get higher returns in RE then the logistical thing to do is to keep doing the RE and use the cash flow to pay off your student debt monthly. But it sounds like you WANT to pay off the student loans. So go for what you want!

Luke Hoffmann · Answer

@Dave Foster thank you for the insight. You've summed up my thoughts exactly. I never thought of the gov't bailout as a potential option if too many people default or something. The DTI was a fairly large factor to me as well, I'm sitting ok now but a little breathing room might be what I need down the road to get another loan,etc.

Payoff Student loans with Flip Proceeds or reinvest profit?

Payoff Student loans with Flip Proceeds or reinvest profit?

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