Pay off student loans before purchasing a rental property?

Question

Hello all,

I am in my final semester of college and have received my first full-time job offer, which will be part-time during my final semester before transitioning to full-time upon graduation. I was planning on taking the money that I will be making during this time period to pay off the 17k of loans that I have and then saving up for a down payment on a multi-family investment property for later in 2020. Looking for suggestions on if I should look to purchasing a property and then paying off loans or sticking with my original plan. Also, any advice on the best way to look for and purchase the investment property would be appreciated. I have listened to approximately 100 BP Podcasts and read 4 BP books on Real Estate investing so I believe that I have enough knowledge to begin my real estate investing journey and am excited to get started!

Lee Ripma · Answer

@John Desmet

I’d personally buy rentals first and just pay off the student loans over time. The student loans likely have very low interest. If that’s the case then if you can make a higher return on the rentals it makes more sense to do that.

Account Closed · Answer

@John Desmet

I’d be tempted to do both. Buy a property and house hack it. Live in the basement or in one unit, rent out the other unit and/or bedrooms. Plow ALL extra income towards paying down those student loans. Student loans are a boat anchor. In the USA as well as Canada the student loan system is set up to absolutely keep you poor for decades (in my opinion).

Nick Gann · Answer

@John Desmet if you can handle things mentally the best option will always be to purchase an asset that pays the debt. Theres never a best option that includes trading direct labor and not gaining an asset.

The answer is Assets, always.

Larkin Adey · Answer

@John Desmet

Keep the student loans. The interest will be deductible once you are an established investor and looking for ways to reduce your taxable income. Buy your rental, get your feet wet. Find a mentor.

Jai Nigam · Answer

@John Desmet

Hey john, congrats on the job! I'm a little biased but I would just knock out those loans first, since it's not too much (obviously depends on your income).

I was in a similar position when I graduated this past May. I decided to knock out all my debt (about 20k) and now saving up for a down payment. Not only do I feel great being completely debt free and able to focus my full income on real estate, but I also maximize my chances on getting the best loans (especially since I don't have a long job history of full time work). Just my preferred route.

Best of luck!

Account Closed · Answer

@John Desmet

The numbers say buy assets first. Although I can tell you we don’t regret paying off our debt one but. The feeling of not owing a dime to anyone is priceless to me. It’s amazing how fast you can save money and recoup your capital when you have zero payments.

Jordan Mummau · Answer

@John Desmet as others have mentioned, I would use the money to buy properties rather than paying down/off student debt. Student debt can be described as “bad debt” as it’s not tied to an asset that makes you money (Think Rich Dad Poor Dad). However, if you run your numbers and you can invest in a property which returns equal to or greater than the interest on your student loans, it just makes mathematical sense. Not to mention increasing equity, net worth and paying down good debt. All things you miss by taking the money to payoff the student loans. There are always caveats which may include being bankable due to debt/income ratio. If you don’t qualify for a mortgage based on the amount of student loans you have compared to your income, then your question is answered for you.

Greg Dickerson · Answer

If you can use the money to  get into a property that will pay the debt off for you that would be the way to go. Once the debt is paid it’s all cash in the bank to buy more property. You can also get into properties with owner financing as well.

Aaron K. · Answer

Depends what the job pays, you might talk to a lender about DTI ratios before you make a final decision.  Also if you are in SA you are probably looking at a 6-7% return I'm guessing if you self manage, so compare that to the interest rate on your loans and see what you want to do from there.

Account Closed · Answer

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Pay off student loans before purchasing a rental property?

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