Pay off student loans or invest?

Question

Hi all,

So, I am new to this site and am very excited to learn and hopefully grow in the real estate world. I am itching to get into rental properties, but know I need to do some research and saving before I can make that initial investment.

having graduated from grad school last year, I have a lot of student loan debt. I have been paying it off aggressively and am very proud of my progress there. I have also managed to save a good portion every month. My goal would be to use these savings to purchase a rental property. SO, a couple questions....

-Should I pay off ALL of my student loans before investing? (This would likely take 3 more years to do completely)

-Would you recommend single family homes or multi unit buildings for a first investment?

-How much do I need saved for a down payment? is 20% accurate? should I put down more?

-Is buying a property that is cheaper, but maybe needs a new kitchen or bath better than paying for a nice upgraded property?

Thanks for any advice!!!

Madeline Jary · Answer

I appreciate all of the advice! I love this website and I'm looking forward to learning a lot. I'm definitely the "over-prepare before making big decisions type" haha

Onica Cole · Answer

We also own our home, and have massive student debt- but found a way to house hack with Airbnb! Last month I made a few hundred above the mortgage- so if you have a spare room...or even a couch, you could start house hacking!  It has been such a success that I may go this route for the new units we are finally acquiring as investment properties.

There are resources of BP and YouTube about hosting Airbnb, also be sure to check the law in your town.

As a member of the 6 digit grad school federal student loan club, with loans around or below 6%; I am in more of a hurry to max out my investments prior to loan pay off... Check out the Bigger Pockets Money Podcast #22 about student loan pay off.

Best wishes!

Sam Shueh · Answer

Go to a mortgage lender get a prequalification first see how soon you will be ready.

Madeline Jary · Answer

I do have some loans still above 6%, but not much. So would you recommend once that higher student loan debt is paid off to funnel the money I was putting towards student loans into saving for investing? And just reduce student loan payments to the minimum.

Also, I own my own home, so the househacking option won't work for me.

Mike B. · Answer

@Madeline Jary - a lot of answers to your questions are in the forums and blog posts so I highly recommend searching those and listening to BP podcasts.

To summarize a response to your questions

(1) Would only pay off student debt if interest rates are >7.5%... else would save money for investment purposes

(2) First investment.. duplex or triplex would get you the most income (paying most if not all of your PITI payments).  I did a duplex as my first investment property

(3) Down payment for owner-occupied SFHs can be as little as 3.5%.  On multifamilies it varies by state/lender.  I'm in Philly and on a duplex/triplex and owner occupied building.. you can put down 5%, conventional mortgage, 30 year term, as long as the rentals pay a good amount of your PITI, you're fine

(4) YES.. usually (but not always) buying a property that needs some rehab work will net you more money in the long run because of your forced appreciation in fixing the place up (read: sweat equity).  I will say that buying a turnkey place in an "up and coming area" (if it's really up and coming) may make you the same or more money in a few years.