How to get started investing while having student loan debt?

Question

John Acheson · Answer

For residential lending, try to lower income through the use of entities, then go on income contingent payment plans, then borrow through Fannie Mae's program that allows for the lower monthly payments for calculating DTI.

For commercial financing, use the entities to pursue commercial financing based on the target's financials not personal debt.

Either way, shoot for a 800 FICO while starting an entity or few, season business credit and leverage flexibility in income, financing, taxes and other benefits!

Thomas S. · Answer

First option is the best. Counting on the cash flow from a second income property to bring you to the same point has a high risk factor. Once you pay off the student loan put all your savings toward your next investment. You will never regret getting out of bad debt asap.

Thomas S. · Answer

I would pull the equity out of the home assuming it will still cash flow positive if not I would sell. Either way use that equity to first pay off the student loan debt and anything remaining use to invest in another income property.

Although your student loan may be manageable when your investments hit that inevitable bump in the road having that debt over your head will likely sink you. Clear all bad debt first before entering the high risk fields of investing.

When it comes to investing if you are not prepared to lose it all you are not yet ready to invest.

Shawn Ackerman · Answer

@Phill Phelan that monthly payment seems like a big DTI killer. If you can get preapproved to execute a delayfinance deal, I’d say go for it.

Trevor Ewen · Answer

@Phill Phelan

@Ashish Acharya is correct. I would be aggressive on budgeting and get as passionate about paying down this debt as you clearly are about real estate. You'll be amazed at what you can do in a short period of time. Remember, your rate of return on paying down the debt is guaranteed (unlike any other investment)... that is assuming there is no early payment penalty, which most student loans should not have.

Here's an article about a good friend of mine and how he got serious about tackling student debt.

Ashish Acharya · Answer

@Phill Phelan , although student debt can be a killer as you mentioned, if it is properly accounted for in your budget, you can actually do much better. Seen it first hand and helped many with this.

I understand that if it was not there you would get 800 more in savings, but you would also not have a degree. In addition, you might spend it all on other random crap as well.  What I mean is change your mentality first and see the bright side. Those rates are also the cheapest rate you would find in any personal loans as well.

Second, you need to good budgeting system. You can only manage what you measure. I am sure you already have a budget, if not,  See below for files that I personally use. Create something like that so that you can monitor.

Phill Phelan · Answer

@Thomas S.

That is the option we keep coming back to. We just love getting rent checks. With end game in mind, relieving ourselves of bad debt certainly won't hurt us. Thanks

Phill Phelan · Answer

@Ashish Acharya @Trevor Ewen @Thomas S.

Thanks for the responses gentlemen! I really appreciate it. I've been listening to the BP podcasts for months but this is my first BP Forum post. What an awesome community. I didn't want to seem long winded in my initial post. Here's a little more info about my situation. Our single family house rental cash flows $650 a month after mortgage, taxes, Ins, vacancy, and maintenance. We bought the house for pennies on the dollar when a family member passed. Anyhow, with that $650 cash flow against the $800 in student loans that leaves us at -$150 per month. My thoughts are this. Using a cash out refinance to pay off the student debt and some repair work for the rental would leave us with roughly $325 of cash flow on the rental. So going from -$150 to +$325 a month seems like a good proposition.  Another option I see is to purchase another rental property that would hopefully cash flow $300 so the bottom line would be similar but that route at least gets us another income property. Although finding a deal and rehabbing it a bit will leave me with an uncertain timeline. Any other options to consider that anyone can think of? Thanks.

How to get started investing while having student loan debt?

Most Popular Reply