Financing a Multi-Unit with Student Loan Debt

Oak Lawn, IL · Member since 2016 · 53 posts · 12 votes

We're looking for a lender who can help us purchase a multi-family building in NW Indiana. We have 750+ credit scores, decent liquidity for a down payment (we can put 25-30% down), we have modest but stable income, but we have tremendous student loan debt from law school and medical school. In 2019 our income will quadruple. We want to get started now to get the ball moving. Come 2019 we will have great w2 income, and we'll be ready to dive in aggressively with our disposable income. Any tips? Any recommendations for a lender? We live in the southwest suburbs of Chicago.

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Chris Tracy

Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes

@Lisa Rispoli- How about this strategy: Get a bunch of your attorney and doctor friends (ones that are looking to park their money somewhere), pool everybody's money together and go out and buy a property cash. Who says you need to use a bank? I'm burdened with student loan debt too and I have ownership in a 36 unit/144 bed student housing deal... Buying apartments is a totally different ballgame vs. residential. It's awesome!

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Michael Le
Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
9y
I would suggest you go and talk to a local credit union or bank. They're the only ones flexible enough to take into account all the information you provided.
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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
9y
Look to house hack using an FHA loan. Find a good 4-plex and live in 1 unit. You only have to be there a year. By that time you'll be out from under your student loans. I *think* FHA will consider 75% of the property's rental income when qualifying.
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Hau N.
CA · Member since 2017 · 153 posts · 74 votes
9y
Have you look into physician loan? I heard student loan debt is not included under physician loan but not certain. A resident I know purchase a house last year with his intern income.
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Ray Harrell
Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
9y
@Jaysen Medhurst, my FHA didn't consider ANY of the rental income to qualify me for the mortgage. Also, be out from under law and medical school debt in a year?!? REALLY?!?!?
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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
9y
OP said income will quadruple in 2019, read that as meaning debt will be paid off.
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Hau N.
CA · Member since 2017 · 153 posts · 74 votes
9y
Young physicians are still relatively "poor" due to student loan debt even though income quadrupled.
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y
Pay down your debts and wait till after 2019 to begin. Life is not a race, 2-3 years is nothing, enjoy yourself.
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Allan Rosso
Investor · . · Member since 2017 · 173 posts · 84 votes
9y
@Lisa Rispoli, I have about 10K student loan debt, and have financed two homes, a car, and have preapproval for the next home, by myself no problem. I don't think you'll have a problem at all, especially since it sounds like you have a cosigner.
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Eric Hardt
Oak Lawn, IL · Member since 2017 · 29 posts · 20 votes
9y
what areas of northwest Indiana are you looking? I'm sure living in the approximate area already that there can definitely be some pretty meh areas in the NW. However, you can also travel a few miles and be in some great areas. I think some areas of NW Indiana can really boom in the next few years depending on traintrack extensions. I think we see a lot more move that way from IL if they can get transit time down to 45-50 minutes from areas like St. John. I keep hearing possibilities for 2020.
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Chris Tracy
Specialist · Plainville, CT · Member since 2015 · 478 posts · 389 votes
9y
@Lisa Rispoli- How about this strategy: Get a bunch of your attorney and doctor friends (ones that are looking to park their money somewhere), pool everybody's money together and go out and buy a property cash. Who says you need to use a bank? I'm burdened with student loan debt too and I have ownership in a 36 unit/144 bed student housing deal... Buying apartments is a totally different ballgame vs. residential. It's awesome!
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Hau N.
CA · Member since 2017 · 153 posts · 74 votes
9y
Originally posted by @Allan Rosso:

@Lisa Rispoli, I have about 10K student loan debt, and have financed two homes, a car, and have preapproval for the next home, by myself no problem. I don't think you'll have a problem at all, especially since it sounds like you have a cosigner.
Most medical students owe $150K on average by the time they are done with medical school. A few lucky ones have parents to help out. It's not unheard of for some to owe more than $500K.
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Alec McCullough
Houston, TX · Member since 2015 · 98 posts · 24 votes
9y
@Allan Rosso your 10K in student debt misses the boat entirely they have law school debt and medical school debt. The average law school student graduates with $140,000 in student loans and the average med student graduates with $207,000 of student loan.
You're right in saying your 10K doesn't affect your bankability because the impact to your DTI is miniscule. However, when you are carrying 350K of student loan debt you better believe it impacts your ability to get financing even with a good job.
I just ran into this problem I have a law degree and MBA and carry considerable student loan debt. I just tried to get financing on a commercial property with a 3:1 DSCR and was denied because my global DTI was greater than the bank's requirements. We are exploring the deal with other lenders the point is to get creative and keep trying.
For all you Dave Ramsey acolytes out there I invest in real estate now because without additional income my ability to pay off my student loans at my current salary (which is a good salary) plus living expenses etc... would mean not be able to pay back those loans and be debt free for at least ten and maybe 15 or 20 years down the road. With real estate my goal is to have them liquidated in the next 5 years.
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Lisa Rispoli
OP
Oak Lawn, IL · Member since 2016 · 53 posts · 12 votes
9y
@Hau N. and @Thomas S. for clarification, I have about 140K left and my husband has about 400k. He has been on PSLF for about a year. His payments are very minimal (less than $150/mo). I pay my down as aggressively as possible. Mine should be paid off within 5-6 years. My husband's should be paid off in 2026.
Some speculate that PSLF will disappear. I think that's true for those who are not already in the program. This was written into law by Congress. I don't believe it'll be that easily rescinded for those who are already grandfathered in the program. We pay a small percentage of our income for 10 years, and at the end of the 10 year period, the balance is forgiven. He must work at a nonprofit hospital (most hospitals are). Forgiveness is not considered a taxable event.
I have looked into physician loans. Most banks/credit unions will only consider this for your residence, and we don't plan to house hack. Also, physician loans can even flirt with predatory lending. The interest rates are higher, and some doctor's see the "little money" or "no money down" as an opportunity to over-purchase (as many Americans do anyway). My point is, if we do decide to purchase a residential property over commercial, we'll likely go FHA and then pay down the 22% quickly to shed the PMI.
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Lisa Rispoli
OP
Oak Lawn, IL · Member since 2016 · 53 posts · 12 votes
9y
@Alec McCullough I agree. I want to get started now rather than wait until all of our debt is paid off. You can only learn so much from Bigger Pockets and other resources. Sometimes you have to learn by doing. I met my savings goal, sold my house at a profit, and moved in with family so I could reduce my monthly spending and have substantial liquidity to purchase my first deal. My hurdle in assembling a team is finding a lender who is willing to be creative, and understand our PSLF payments to see WHY we can invest now.
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Lisa Rispoli
OP
Oak Lawn, IL · Member since 2016 · 53 posts · 12 votes
9y
@Chris Tracy That is one of our ideas as well. 50% (or any percentage) of something is better than 100% of nothing, right? It's just a matter of pooling people who are willing to take a risk. Most of our friends are just starting out in their practices, and when we talk to them about investing, they don't think they're ready.
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Amanda Blanch
Real Estate Agent · Houston, TX · Member since 2017 · 5 posts · 1 vote
9y
Who's the attorney and who's the Dr? I'd say if you're the Dr with less student loan debt seek out physicians loans without your husbands on the mortgage. If it's the other way around, you may have to wait, start smaller with a single family that you can BRRRR with a bigger down payment then cash out quickly to do it again until you can go bigger. Just a couple thoughts. Good luck!
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Lisa Rispoli
OP
Oak Lawn, IL · Member since 2016 · 53 posts · 12 votes
9y
@Eric Hardt I haven't pinned down a specific area yet. I'm waiting for the right property, really. I'd prefer something very close to the border, but would be willing to drive up to 40 or so minutes past the border. I want to capture the migration from Chicagoland to Indiana. The cost of living is lower. The LL/T laws are in favor of LLs. It just seems to make sense to get out of Illinois (especially Cook County) with outrageous property taxes, the new soda tax, and speculation of another rise in property taxes soon.
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Alec McCullough
Houston, TX · Member since 2015 · 98 posts · 24 votes
9y
@Account Closed just wondering where you are getting your data graduate and professional degree student loan debt defaults at half the average of undergraduate student loans. Thus those with higher debt loads aka graduate students are much less likely to default and/or miss payments than their undergraduate only counterparts. So your statement that most miss many payments is false. This is probably due to the fact that most students coming out of professional schools have much better job prospects with higher paying salaries and more job security than what is afforded to many undergrad degrees. Here are the actual 2015 numbers:
Plus loans are the grad school loans.
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Allan Rosso
Investor · . · Member since 2017 · 173 posts · 84 votes
9y
@Hau N. oh wow. Yeah my student loan debt doesn't even come close to comparing with that.
Either way, if you're ready to dive into it now @Lisa Rispoli, I'm sure you and your husband will figure out a way to make it happen. Like someone mentioned before, a local credit union/bank will be more willing to work with you. Establish a good relationship with them now, and come 2019, the sky will be the limit! Best of luck!
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Eric Hardt
Oak Lawn, IL · Member since 2017 · 29 posts · 20 votes
9y
@Lisa Rispoli I completely understand and can agree. I have family that have done section 8 in Hammond for the last 10 years and love it. They only had 1 bad experience the first year, but learned better vetting processes and they can evict in less than 2 weeks in most cases. I'm not too sure that's an investment I want to mess with, so I have also been considering nicer areas of NW Indiana as well as SW Illinois (Blue Island and Lansing mostly). We are also looking at purchasing 2-4 units in a deal that looks interesting, but not in a rush.
Everyone has a different approach to getting their feet wet. I purchased 3 units in the downtown Oak Lawn area to learn what I can from about the management side of things. They won't cash flow as well as some of the C type areas, but I'm renting to doctors, nurses, and downtown commuters. It won't prepare me as much for the headaches and lower level rentals I'm sure to experience with C areas, but I'm learning a lot about the process of doing things, which like you said, you can't learn entirely from podcasts and forums. I'm definitely interested to see how your search goes and what area you end up landing on.
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Lisa Rispoli
OP
Oak Lawn, IL · Member since 2016 · 53 posts · 12 votes
9y
@Account Closed just to piggy back on your conversation- we haven't missed a single payment in 5 years, AND I've paid 10's of thousands more than my baseline payments to pay down principle faster.
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Allan Rosso
Investor · . · Member since 2017 · 173 posts · 84 votes
9y
@Alec McCullough yes I realized my situation didn't compare to theirs. I honestly didn't have any idea how much law/medical school debt typically is, and didn't I think about looking it up. I thought my $10k was a lot, but now I realize it's minuscule compared to other situations out there. Thanks for the clarification.
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Alec McCullough
Houston, TX · Member since 2015 · 98 posts · 24 votes
9y
@Allan Rosso no worries and the day my student loans are down to 10K is a day I'll be celebrating for sure. It just goes to show that there is no one approach or 1 size fits all in REI because everyone's situation, tolerance for risk, criteria and goals can be and are so different.
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Hau N.
CA · Member since 2017 · 153 posts · 74 votes
9y
Originally posted by @Amanda Blanch:

Who's the attorney and who's the Dr? I'd say if you're the Dr with less student loan debt seek out physicians loans without your husbands on the mortgage. If it's the other way around, you may have to wait, start smaller with a single family that you can BRRRR with a bigger down payment then cash out quickly to do it again until you can go bigger. Just a couple thoughts. Good luck!
Good suggestions. I know someone bought a house under the name of the one with lesser debt.
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Hau N.
CA · Member since 2017 · 153 posts · 74 votes
9y
Originally posted by @Lisa Rispoli:

@Account Closed just to piggy back on your conversation- we haven't missed a single payment in 5 years, AND I've paid 10's of thousands more than my baseline payments to pay down principle faster.
Have you considered refinancing the loan not on forgiveness plan? There are many online companies that can reduce your rates from a typical 6.8% to 3-4%.
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