Brooklyn, NY · Member since 2016 · 66 posts · 69 votes
Hey guys ! I have about $34000 of private student loans left to pay off at an interest rate of 3.55% that’s approx 675 per month. I’ve also managed to save 40k up until now, I earn about $5200 per month net. With a credit score of 801. Should I use this saved up 40k (which includes my emergency fund) to put 3.5% down on a fourplex in order to house hack it? Or should I just pay off my debt. What would you do in my position? I live in NYC looking for fouplexes in nyc or connecticut.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
5y
The Biden administration is trying to see if they can legally wipe out up to $50K of student debt. Personally, I am not in favor of this activity, but if the government is actively giving away the money, you would be wise to wait and see if it benefits you.
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
5y
Do Both.
Start out slow, purchase one property. Also continue to pay off student loans. Good job on your savings and your ambitions.
PS - NYC real estate is both expensive and highly regulated. Take your time, getting to know the rules and the market. There are some cheaper areas outside of NYC that you might want to consider.
Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes
5y
@Steve Vaughan
You must be new. I have no angle and never have. Discouraging others so the 10X napper can get more deals. LOL
This is a tough market to buy right in is all. Investing in real estate is talked about like buying a mutual fund. Just invest in real estate. Not so easy.
Glad I got a reaction because the difficulty in finding something that makes sense is not easy. I recommended to continue to save because it may be a while. That’s as pragmatic as I get.
I suppose I could be described as new😂 I do have a sub 9 figure net worth after all. Financially independence from real estate investing in early twenties is what I would call new also. If you wait to save to buy at lower prices you will be waiting a long time. The government just increased the money supply by an amount that normally takes decades and there are talks of low interest rates for at least the next 4 years less than true inflation rate interest. Plus the cost to build just went up a lot and we are millions of housing units behind demand plus it's very hard to build because of government in many places. House hack deals are super profitable even if most will be negative cashflow when you live in it and you may need to rent by the room or STR to make positive cashflow. Cashflow is far from everything I made 6 figures in positive cashflow last year and it's not in the top 3 most profitable parts of my real estate business.
In any market deals are made I'm currently in escrow on four houses one to flip and 3 that will average a 20 cap rate for my all in cost. In California in a market that had 20%+ appreciation last year. We do STR's and brrrr so there is work and skill involved but don't tell me 10% return is hard to get. With 4% interest and a 6% cap property after factoring in capx and repairs. With that house on a house hack the 0% appreciation first year return on 5% down is 44% yes that is negative cashflow but he is going to pay to live somewhere. With a bit of work or any appreciation that number easy jumps over 100%. Even if we have a huge dip in prices (unlikely in my opinion) that number is astronomical in a 20 year period.
Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
5y
I wouldn’t hold my breathe for Biden to forgive any loans. Much like Trump saying he’ll reopen the coal mines, it’s most likely BS to get some votes. Even if he tried it would take years to push through. I say pay it off and wash your hands of it.
Investor · Nashville, TN · Member since 2016 · 88 posts · 66 votes
5y
So my story will hopefully give you some perspective. I graduated with 145k in student loans with a 6.8% interest rate. I unfortunately HATED my career so I had some serious hustle fueled by hate.
I invested in rental property AND paid on my student loans. Looking back this was definitely the correct decision for myself.
I lived very frugally and house hacked while also making decent payments on my student loans. I would save up 10k or sometimes borrowing 20k from a family member for a down payment on a rental property. I would pay the family member after I was able to get the rehab done and refinance out.
It was a risky play but it worked out for me. Eventually 5 years later my student loan balance was down to 60k and my first rental property had appreciated 80k over what I paid for it so I refinanced that house pulled out 60k and paid off my remaining balance on my student loans. Now 8 years later all that risk and serious hustle has paid off. My student loans are gone (the renters are paying them now🤣).
I make a nice cash flow now from my rentals, that work has truly become optional for me. I have done some stupid things in my life (like getting 6 figures in student loans for a career I hated), but my approach to buying rental property and paying hefty amounts on my student loans was a stroke of genius.
Here's the Dave Ramsey way to ask the question - -- If you had no student loans, would you go borrow $40k and put that money in your checking account? If you say no to that, then pay off the debt. You can always -reborrow money. Most really wealthy people are debt free.
This is so far off. First, Dave Ramsey is the high school education of financial literacy.
Secondly, most wealthy people understand the power of leverage.
No one is going to get wealthy doing the envelope system. Fortune favors the bold. Also Dave Ramsey is a cult leader.
You must be new. I have no angle and never have. Discouraging others so the 10X napper can get more deals. LOL
This is a tough market to buy right in is all. Investing in real estate is talked about like buying a mutual fund. Just invest in real estate. Not so easy.
Glad I got a reaction because the difficulty in finding something that makes sense is not easy. I recommended to continue to save because it may be a while. That’s as pragmatic as I get.
I suppose I could be described as new😂 I do have a sub 9 figure net worth after all. Financially independence from real estate investing in early twenties is what I would call new also. If you wait to save to buy at lower prices you will be waiting a long time. The government just increased the money supply by an amount that normally takes decades and there are talks of low interest rates for at least the next 4 years less than true inflation rate interest. Plus the cost to build just went up a lot and we are millions of housing units behind demand plus it's very hard to build because of government in many places. House hack deals are super profitable even if most will be negative cashflow when you live in it and you may need to rent by the room or STR to make positive cashflow. Cashflow is far from everything I made 6 figures in positive cashflow last year and it's not in the top 3 most profitable parts of my real estate business.
In any market deals are made I'm currently in escrow on four houses one to flip and 3 that will average a 20 cap rate for my all in cost. In California in a market that had 20%+ appreciation last year. We do STR's and brrrr so there is work and skill involved but don't tell me 10% return is hard to get. With 4% interest and a 6% cap property after factoring in capx and repairs. With that house on a house hack the 0% appreciation first year return on 5% down is 44% yes that is negative cashflow but he is going to pay to live somewhere. With a bit of work or any appreciation that number easy jumps over 100%. Even if we have a huge dip in prices (unlikely in my opinion) that number is astronomical in a 20 year period.
I just meant new enough to BP to think I'm working an angle but thank you for sharing I guess.
I would let the student loans sit, make monthly payments and put the cash in RE. Those loans IMHO are backed by your career and stable earnings. So lets say that is a good enough balance sheet. RE loan will be backed by an RE asset you will purchase, so that will be a good enough balance sheet.
Best not to intermingle the two. Just make darn sure you also keep some reserves (3 - 6 month emergency funds), are investing towards a 401k and paying for health insurance. I have seen some very bad cases in the post COVID age where the gents and ladies did not have enough insurance coverage but were investors. It did not help their cause in moments of crisis.
Oh last but the not the least, DO NOT give your money to anyone who tells you they will 'mentor' 'coach' you. There are too many elements like that in this day and age. So watch out for those types.
Investor · Pahrump, NV · Member since 2021 · 42 posts · 10 votes
5y
@Gervon Thompson
If you use the money saved to payoff your student loans then your virtually out of personal reserves. Which in my opinion is never a good situation. So if I may make a suggestion, have you looked into using that money to invest in discounted notes. These investment vehicles get anywhere from 10% to 20% return on you money. Then you can use this cash flow to pay for your loans and still profit another 6.5% to 16.5%.
Specialist · Philadelphia, PA · Member since 2014 · 231 posts · 69 votes
5y
@Gervon Thompson
Either way, your loan is 3.55% which is lower than any rate you’ll be getting for a line of credit or investment loan.
Especially if it is private debt, not showing on your report - leverage your current cash rather than empty the bank to go get another loan at higher percentages.
Rental Property Investor · Largo, FL · Member since 2021 · 48 posts · 38 votes
5y
@Gervon Thompson
34,000 * 3.55% = $1,207 annual interest
Or $100.58 monthly.
Decision differs depending on your scene. Without knowing your life fully, I say house hack, and divert the rent you used to pay towards your student loans.
Rental Property Investor · Dallas, TX · Member since 2018 · 64 posts · 43 votes
5y
@Gervon Thompson, since everyone is giving their own advice (with best intentions, I'm sure) I came in to chime in as well :) Your situation is different from everyone else's so need to consider what's best for you and your family.
I'm a somewhat recent graduate with a lot of student debt to my name. Are you on private loans or federal? What's your risk tolerance? Will you sleep well at night if you go with adding on more "debt" (mortgage)?
I chose to go with REI because I wanted to plant the seeds (properties) and let them grow (appreciation) so I can reap the benefits sooner rather than waiting to pay off my student debt. Cashflowing properties are good debt and you can use that extra income towards your next property or student debt if you wanted to. With assumptions that inflation will continue to happen, your "borrowed" money (both student and mortgage) will be cheaper as the years go on. I'm biased because I obviously chose REI over aggressively paying down debt.
Again, consider what's best for your and your family! Best of luck, Gervon.
@Gervon Thompson I’m in a similar situation. Student loans is one of the biggest burdens we can have. I’m hoping Biden will cancel student loan debt but still saving. It doesn’t hurt to wait a bit, and in the mean time research which markets you want to invest in, diversifying your savings or creating passive income in the mean time.
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
5y
@Gervon Thompson have you considered a combination approach? Assuming you would still have enough for your down payment and some emergency funds, put a small chunk of $5-10k into the student loan. That should push the official next payment due date out months or even years (talk to your bank first though). You should continue making your monthly payment, but if you ever ran into a few bad months you could skip payments on the loan which would give you some peace of mind. Since the payment isn’t actually due it won’t hurt you or your credit.
Personally, I’d be taking advantage of the low interest rates and buying something. As someone else pointed out, if you buy right and lower your monthly housing expense enough, you may save your loan payment right off the bat.
Rental Property Investor · Stamford, CT · Member since 2015 · 69 posts · 32 votes
5y
@Gervon Thompson
Hi Gerson,
I am in the same boat like you. I own $34k in student loan. I am from CT. However, I have decided to keep investing in RE and pay the minimum payment for now.
I am in the process of buying a 6 units building. Just make sure that the property you buy is a multi family. You live in one unit and rent the heck out of the others units.
This way, your tenants can pay the mortgage for you and you keep paying the monthly student loan payment and making extra payments if you can.
In a few years, you investment will help you with both, paying down the student loan and to acquire more properties.
Huntsville, AL · Member since 2018 · 577 posts · 864 votes
5y
@Gervon Thompson - you have received some excellent advice on here overall.
I have had student loans for over a decade (and still do!), but I would have missed out on a ton of investing opportunities if I had focused solely on paying them down quicker, rather than paying them down gradually.
When I finished school, I had private loans and Stafford (federal) loans. The private loans were at 8% - I worked extra and spent minimal, and paid those off in 3 years. The federal loans were consolidated and refinanced at less than 3% - I have made no more than monthly payments on them, and continue to do so. Like others said, look at the simple math here - since my investments return > 3%, why would I want to utilize more money to pay off my student loans?
Also, re-read @Carrie Carlton post. I think this is an excellent example to review.
@Gervon Thompson buy that fourplex Gervon. At that interest rate it is as cheap as you an borrow money, in 10 years from now you should make way more in equity and cash flow, you can also live in one of the apartments rent free which saves you that same about in about a year or two. Plus it starts your portfolio
You are in a great spot with you student loans. I would invest in the fourplex. Your fourplex can potential give you enough cash flow to "let some else" pay your loan off.
@Carrie Carlton I absolutely agree with you. I don't agree with the idea of having no debt. Understanding debt and how to make it work in your favor is the best practice.