Paying off student debt vs. starting my REI journey

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Paying off student debt vs. starting my REI journey

Evan Dieffenbach
Real Estate Agent · Morristown, NJ · Member since 2019 · 9 posts · 7 votes

Hello all

I am currently at a fork in the road! I unfortunately was very uninformed/uneducated when I made some decisions in terms of college. Because of that, I now am in 80k of student debt. I know this is asked often, but should I go dave ramsey style and take the next three or four years putting everything i make on paying off the dept or use the nice chunk of money (15k) should have saved up by this summer to invest in OOS (currently live in north jersey). I know what I want to do, but i also know that might not be the best financial choice. Trying to get financially smarter day by day!

P.s. might have interested partner in matching my 15k for this summer if I decide to go that route.

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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
5y

@Evan Dieffenbach I recommend paying about half of the $15,000 and keeping the rest for now as an emergency fund until you’re up and running making money at your job. Then I’d put the rest towards the debt and pay off the debt first.

My base salary is only $15.30 an hour but with overtime, savings and excellent credit (800+) I’ve been able to knock it out of the park recently with a mortgage I never thought I’d qualify for. $200,000.

But first I paid down $11,800 worth of credit card debt. Now the only thing I use my credit card for is purchases for supplies I need for the rental units and I pay them off the next month before any interest is ever due.

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  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    5y

    I think its important to pay off high interest debt.. Anything over 12% annualized first

    If its possible that you can invest $15k that can net enough to support your monthly student loan payments that would be optimal. That's math you need to figure out. 

    3Reply
  • Evan Dieffenbach
    OP
    Real Estate Agent · Morristown, NJ · Member since 2019 · 9 posts · 7 votes
    5y
    Originally posted by @Hai Loc:

    I think its important to pay off high interest debt.. Anything over 12% annualized first

    If its possible that you can invest $15k that can net enough to support your monthly student loan payments that would be optimal. That's math you need to figure out. 

    Thanks Hai! Luckily, I refinanced my student loans to be at a 4.5%.

    0Reply
  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    5y
    Originally posted by @Evan Dieffenbach:
    Originally posted by @Hai Loc:

    I think its important to pay off high interest debt.. Anything over 12% annualized first

    If its possible that you can invest $15k that can net enough to support your monthly student loan payments that would be optimal. That's math you need to figure out. 

    Thanks Hai! Luckily, I refinanced my student loans to be at a 4.5%.

    That's super low.. $15k you should be able to leverage and buy a cash flowing SFH somewhere in the midwest like Ohio Mich

    0Reply
  • Shane Cloutier
    New to Real Estate · Dalton, NH · Member since 2020 · 116 posts · 64 votes
    5y

    @Evan Dieffenbach I would go with making your money work for you. Investing will allow you to increase your income and then continuing that snowball till you can pay off your student debt in one payment.  @Hai Loc is right, you and your partner can get started quite easily in the mid-west with 30k. My wife and I are working on investing in Toledo , Ohio and seen many properties where your 30k would get you most of a cash flowing property. 

    3Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    Neither

    2Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    5y
    Originally posted by @Evan Dieffenbach:

    Hello all

    I am currently at a fork in the road! I unfortunately was very uninformed/uneducated when I made some decisions in terms of college. Because of that, I now am in 80k of student debt. I know this is asked often, but should I go dave ramsey style and take the next three or four years putting everything i make on paying off the dept or use the nice chunk of money (15k) should have saved up by this summer to invest in OOS (currently live in north jersey). I know what I want to do, but i also know that might not be the best financial choice. Trying to get financially smarter day by day!

    P.s. might have interested partner in matching my 15k for this summer if I decide to go that route.

     You will probably have a difficult time investing out of state with that little amount of money and that much debt. I would get your license and focus on making money through sales. Columbus, Ohio could use more hungry Realtors.

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    0Reply
  • Evan Dieffenbach
    OP
    Real Estate Agent · Morristown, NJ · Member since 2019 · 9 posts · 7 votes
    5y
    Originally posted by @Shane Cloutier:

    @Evan Dieffenbach I would go with making your money work for you. Investing will allow you to increase your income and then continuing that snowball till you can pay off your student debt in one payment.  @Hai Loc is right, you and your partner can get started quite easily in the mid-west with 30k. My wife and I are working on investing in Toledo , Ohio and seen many properties where your 30k would get you most of a cash flowing property. 

    Thanks for the feed back Shane! I have been looking into the Ohio market. Any reason you chose Toledo over Columbus? 

    1Reply
  • Evan Dieffenbach
    OP
    Real Estate Agent · Morristown, NJ · Member since 2019 · 9 posts · 7 votes
    5y
    Originally posted by @Account Closed:

    Neither

     ?? Please explain lol.

    2Reply
  • Evan Dieffenbach
    OP
    Real Estate Agent · Morristown, NJ · Member since 2019 · 9 posts · 7 votes
    5y
    Originally posted by @Remington Lyman:
    Originally posted by @Evan Dieffenbach:

    Hello all

    I am currently at a fork in the road! I unfortunately was very uninformed/uneducated when I made some decisions in terms of college. Because of that, I now am in 80k of student debt. I know this is asked often, but should I go dave ramsey style and take the next three or four years putting everything i make on paying off the dept or use the nice chunk of money (15k) should have saved up by this summer to invest in OOS (currently live in north jersey). I know what I want to do, but i also know that might not be the best financial choice. Trying to get financially smarter day by day!

    P.s. might have interested partner in matching my 15k for this summer if I decide to go that route.

     You will probably have a difficult time investing out of state with that little amount of money and that much debt. I would get your license and focus on making money through sales. Columbus, Ohio could use more hungry Realtors.

    Thanks for the input! Already have my license in Jersey. 

    1Reply
  • Marc RiceBusiness Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    @Evan Dieffenbach

    You’ll need 20% down on a single family investment property or 25% down on a multi family investment property. You could do a low 1-5% down house hack where you reside locally and use that rental income to pay down your debt while saving on rent.

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    4Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    5y

    @Evan Dieffenbach

    A paid off student loan is guaranteed to give you a return on investment. If you invest in real estate, anything can happen because there’s risk involved. You could end up with Less then when you started or profit So it depends how risk adverse you are.

    2Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    5y
    Originally posted by @Evan Dieffenbach:
    Originally posted by @Account Closed:

    Neither

     ?? Please explain lol.

     

    You will probably have a difficult time investing out of state with that little amount of money and that much debt. I would get your license and focus on making money through sales.

    3Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @Evan Dieffenbach That scenario happens to a lot of people that go to school and take out loans. The decision should be your own, and what your comfort level is in the situation. Pay it off and then invest, or go to investing and work on making the money to pay off the loans.

    I was in that same fork in the road with my wife in 2017. She had just gotten out of law school with $160K in loans, and that was not all our debt, and we have some other debt as well (small medical bills and owning on a car). We went 100% Dave Ramsey's way in this aspect of life, we spent 2.5 years paying off all the debt. Now we can invest without having to deviate to pay some bills. 

    You can knock it out faster than you think with grit and putting your head down to get through it (real estate sales help). I would agree with @Account Closed on his last post, that 15K is a small down payment and with the debt it will be harder to get loans. Either way, pick what makes you feel the best about. 

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    4Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    5y

    @Evan Dieffenbach I recommend paying about half of the $15,000 and keeping the rest for now as an emergency fund until you’re up and running making money at your job. Then I’d put the rest towards the debt and pay off the debt first.

    My base salary is only $15.30 an hour but with overtime, savings and excellent credit (800+) I’ve been able to knock it out of the park recently with a mortgage I never thought I’d qualify for. $200,000.

    But first I paid down $11,800 worth of credit card debt. Now the only thing I use my credit card for is purchases for supplies I need for the rental units and I pay them off the next month before any interest is ever due.

    6Reply
  • Natasha Jansen
    Realtor · Lakeland, FL · Member since 2020 · 73 posts · 72 votes
    5y

    @Evan Dieffenbach agree with @Hai Loc - just be sure you are as accurate as you can be with your numbers, including setting aside reserves. With that being said, be sure to also keep some savings aside in a traditional account as you normally would should anything happen to your job. Your REI may pay for itself and for your student loan but you probably wouldn't want to invest all your savings should you happen to need it for your own expenses.

    2Reply
  • Tucker Cummings
    Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
    5y

    Since your interest rate is at 4.5% I would advise getting into real estate. Let’s look at it this way:

    Option A) Pay down the debt. The way I see it is that you’re just saving money or cutting costs at a 4.5% return.

    Option B) You’ll borrow money at 3.5% interest in order to make money back at a 20% return or more. Returns like that aren’t hard to come by in RE. Yes you’re taking on more debt, but you’re netting a 16.5% difference in interest. Then you can use the extra to pay down the debt. You could also say that you’ve got someone else (your tenant) paying down your student loans for you.

    Option C) GameStop call options...

    1Reply
  • Stephen Diakos
    Rental Property Investor · Winston-Salem, NC · Member since 2019 · 63 posts · 73 votes
    5y

    The math says real estate is the way to go as you can no doubt make a better return there than the 4.5% you're being charged on your loans. Take that extra income and throw it at your loan in addition to your regular monthly payment and get rid of it quicker. Sure, some will say to take that extra money and roll into another investment and keep going however, sometimes piece of mind is worth more than anything and, if having those loans gone will give you that, then do what you need to do to make it happen. My wife and I are working on paying off our primary residence using the extra cash flow from our rentals to do that. Rates are low, and bound to get lower, so I would love to reinvest the money but she'd rather have the house paid for and not worry about it. Piece of mind in this crazy world goes a long way.

    1Reply
  • Jaquetta T Ragland
    Real Estate Agent · Winston Salem, NC · Member since 2014 · 486 posts · 303 votes
    5y

    @Evan Dieffenbach Can you invest and then use the money to pay off debt? While doing so, that asset could be building appreciation?

    1Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    5y

    @Evan Dieffenbach it's a simple numbers game. Will your ROI for investment properties (or any other investment vehicle) be greater than your interest rate on your student loans? If your student loan interest rate is 4.5%, you can certainly earn more than that investing in real estate.

    Think of all of the experience and knowledge you'll gain if you jump into real estate now instead of waiting 4+ years it will take to pay off your debt 

    3Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    5y
    Originally posted by @Evan Dieffenbach:
    Originally posted by @Remington Lyman:
    Originally posted by @Evan Dieffenbach:

    Hello all

    I am currently at a fork in the road! I unfortunately was very uninformed/uneducated when I made some decisions in terms of college. Because of that, I now am in 80k of student debt. I know this is asked often, but should I go dave ramsey style and take the next three or four years putting everything i make on paying off the dept or use the nice chunk of money (15k) should have saved up by this summer to invest in OOS (currently live in north jersey). I know what I want to do, but i also know that might not be the best financial choice. Trying to get financially smarter day by day!

    P.s. might have interested partner in matching my 15k for this summer if I decide to go that route.

     You will probably have a difficult time investing out of state with that little amount of money and that much debt. I would get your license and focus on making money through sales. Columbus, Ohio could use more hungry Realtors.

    Thanks for the input! Already have my license in Jersey. 

     Start brokering deals and make more money to do both.

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    1Reply
  • Anthony Torres
    Real Estate Consultant · Saint Petersburg, FL · Member since 2020 · 26 posts · 10 votes
    5y

    @Evan Dieffenbach

    Hi Evan,

    I currently work in higher education and have a passion for personal finance. That said, I have a great understanding from both sides of where you are.

    This would be my recommendation:

    What is the interest rate on your student debt? Likely low to zero right now. Now compare that to the ROI on your deal. It's likely higher. The Dave Ramsey method is really good, but there are avenues that you can do both.

    Use your capital to get in on a deal.

    Then focus on your school debt.

    Utilize your W-2 job and your cash flow from the deal to bust down that debt.

    That’s just my vantage.

    Tony

    2Reply
  • Chris Pasternak
    Real Estate Broker · Pueblo, CO · Member since 2013 · 368 posts · 303 votes
    5y

    Typical BP answers here "look at the numbers" and invest if you get a higher ROI in real estate. Easy to do math that way. What they're not considering is RISK (see Coronavirus) and PEACE.

    Wipe out the debt first.  If you're making $100,000/year in sales then you should wipe out that debt in 2-3 years MAX.  If you're not making at least $100,000 in sales then you need to focus on that first.

    And $15,000 to invest with is chump change.

    1Reply
  • Allen Williams
    Realtor · Jacksonville, FL · Member since 2019 · 95 posts · 87 votes
    5y

    @Evan Dieffenbach

    At such a low interest rate, I would absolutely invest in real estate and cash flow in order to cover your monthly debt. Buy something you can cash out refi and build (if possible), so if a big driver is paying off quick you can absolutely do that with more cash flow and build wealth while doing it. Hope this helps!!

    1Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    5y

    @Chris Pasternak ROI should include a risk factor. Peace of mind is great. Regret of not chasing after your dreams and passion is another killer. Which one is more important? Jumping into real estate can eliminate regret and improve peace of mind with monthly cash flow.

    It’s an individual decision. There’s no right or wrong. Pick a direction and take action

    0Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    5y

    Well, on a smaller scale a lender is going to look at your DTI. I think to grow the fastest, I'd just eat PB sandwiches and pay off the debt.

    OOC - What'd you get for your $80K?

    0Reply
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