Invest or focus on Student Loans
Hey BP,
My wife and I are looking to settle into our first SFR or small multi fam this Fall but I'm curious over the long run what is the best solution. We are both physical therapists, make around 150k. Our student loan debt is currently 118K. We have been paying that off as fast as possible starting February 2016 when the balance was 197K.
Between now and Sept we can put away about 30-40K which we could use for either a down payment on a conventional SFR or FHA a multi fam (owner occ,) and house hack the units.
Or throw that 30-40K at loans, rent for a year, save another down payment and really delay REI for another 2-3 years.
We are both about 30 years old and looking to start a family in the next year as well. This would be in the Sugar Land-Stafford-Missouri City area of Houston.
Thanks in advance for your responses!
#2 General Landlording & Rental Properties Contributor
The reason you want to clear your student loans and all other debt before you start investing is because investing is very high risk. Most, believe it or not, fail.
S**t happens in life, before you decide to put it all at risk by investing get your life in order. There are a million different thing that can happen that will turn a investment sour. If that happens and your investment goes bad your personal debts do not pull you down with it.
Never invest without being prepared to lose it all.
Originally posted by @Account Closed:
@Cody L. What part do you disagree with?
I absolutely wouldn't let the fact I had student loans keep me from investing. Why? It's some of the cheapest debt you can have. That's like saying you can't invest until your personal home loan is paid off. Now if you had some insane credit card debt -- yeah, get that squared away first. Sure.
I can make a much higher return on an investment property than the cost of my student loan. Thus I can buy an investment property, and use the income to pay off my student loan and have $ left over.
Hi Ben Volkman
I lived in Austin for 14 years, so I know owning a home their is costly if that's the market you are looking to buy in. Then, there are awful property taxes. We always rented.
My question is could you downsize to help cover your debt? I agree with those who say Invest and use your returns too pay off debt, but maybe you could cut back in some way and help pay debt that way as well. I never had the amount of student debt you have acquired, but Ive also never had the kind of income you have. More like 21,000 debt to a $30,000 income, so relatable. We paid it off fast but we also had a smoking interest rate and paid no income taxes, so all our returns went to my debt. We've always been a one income family and if we weren't we both made little combined straight out of college. I was either in school or I worked as a teacher, while my husband transitioned jobs.
When the market crashed, we were living off savings because I had my first child and stayed home and still do, and my husband was getting certified to teach with no pay. We could have bought a condo in Austin for $20,000 that sales for over $100,000 now and makes good rent, but we were uneducated in real estate and too afraid of risk. In hind site, we could have paid cash for this condo and lived rent free for a year or two. Once my husband got his first teaching job, we could have saved for our next purchase, or pulled out equity and rented the condo out.
We have managed to buy a home with a depressing Az teaching salary. Teachers in Austin make $15,000 more than here. Granted we live in a place were its cheap to buy a home, and the house wouldn't be considered a dream home for some; its allowing us to use equity to buy a nice home in a different market. It's also gonna cash flow. All that with 3 small kids. You just have to get creative and maybe sacrifice some
Personally, I'd never wait on kids. Real estate will always be there. Your ability to have kids is limited to time. I think having both is possible. We weren't even thinking real estate anymore. We just bought a home for ourselves and the light bulb went off and we are turning it into a rental and are on to the next purchase.
Have you thought about purchasing in Buda or Kyle? Maybe avoid those taxes? Not sure if round rock is cheaper.
Just my personal experience. Your variables maybe different or more complex.
@Ben Volkman Do you know Dustin the PT that just got married to another PT in Austin? I think she is from SA. ;-) Anyway. I digress, there are ways you can use real estate to reduce your student loan debt burden. Talk to a CPA about offsets and depreciation. I would probably allocate some of the income to investments (my student in Austin bought a $250,000 house in Kyle TX for $100 down and about $10,000 in walking money and closing. He will make about $52,000 on it when it closes. There are a lot of different ways to invest in real estate that can be done. You will be in a high tax bracket as a PT, you need to be thinking of ways to reduce that tax. Real estate investing is one option.
This is a no brainer to me. Buy a duplex. Live in one side and rent out the other. It will be easy to manage. Ask a local property management for assistance and I am sure that they would help for a small consultation fee. Or, better yet, ask the agent that helped you buy the place to assist you from time to time. I am sure that they would help. I know that I would.
The reason for buying a duplex is that you have to live somewhere and you might as well live in a duplex with the tenants paying a good portion of the mortgage. You will see that over time that the rent will go up with inflation. Also, you will have a ton of write offs as well. Your living costs will be decreasing year after year so that if you are prudent then you can pay off the student loans quickly. After you pay off the student loan debt you can move to a bigger house and you will have a good rental property where by then the rent will easily pay the mortgage and provide you a nice income that will easily surpass tbills, bonds and/or cd's. I would suggest buy and hold strategy.
Get a good cpa. You will have substantial tax savings all over the place. If you were going to buy in Austin I would make several suggestions but you will be in Houston. My two cents
You will need a place to live-- you can either pay the rent (est $1K/mo)-$12K/yr, or you can get a duplex and live rent free and you'll be at zero, even positive if you do a multi family house! Think about it rationally-- that $30K down payment will pay for itself in less than 3 years in income, and then that additional $12K rent can go towards student loans. That duplex will propel your financial situation and get those student loans paid down significantly faster, if that's your main goal.