Investing vs Student Loan

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Investing vs Student Loan

Alberto Izarraraz
San Antonio, TX · Member since 2016 · 19 posts · 6 votes
Hello Everyone, So I really wanted to know people's opinion on this topic. It's really about what I should do. I have a significant amount of student loans. Really talking about $120k of it at about 8%. I also saved up about $23k in my savings. It's hard to save up because I'm doing income based repayment right now. So I go back and forth a bit. My brother was suggesting we flip houses outside our day job so we can build up capital. I see this as a possibility. Other thought is just work on paying it off without investing or flipping. What are people's thoughts? I've seen different things. Rich Dad has been very much invest. Dave Ramsey is very much just work in paying off debts. Seems almost conflicting. I guess part of me is hesitant of spending 5 years paying off debts. But maybe I have to. I would like to start but don't want to be too careless. Thoughts?
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Nicole Heasley Beitenman
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
7y

I am in a similar boat. I started by doing what @Richard Sherman suggested and house hacking. Got a SFH and rented out the spare bedrooms. Been doing it for 2 and a half years now, and it's worked out great. I only wish I had known about BP and my REI goals when I bought the house. If I had, I would have bought a MFH.

Now I'm refinancing my current primary to get my FHA back so I can get a MFH and continue house hacking (having someone pay my mortgage is great; having roommates is getting old). I'm going to keep my primary and turn it into a rental. I'll take the cash flow and split it between paying down debt and saving for the next deal. I plan to do a 203k so I can build a little equity and use that to fund more deals.

Paying down debt is good; purchasing an asset that pays for itself and pays your debt down for you is better.

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  • Richard Sherman
    Rental Property Investor · Salem, OR · Member since 2017 · 696 posts · 660 votes
    7y

    @Alberto Izarraraz There are several other posts about this same topic, for sure search those!   What's your income level now and are you done with school?  Do you or your brother have contractor experience or experience flipping houses?

    0Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Richard Sherman hi. Yes I've been reading it here and I see it as a situation by situation basis. I am done with school. My income is approx $110. We are new to investing and flipping but it would really try to make it a different source of income. We are trying to learn.
    0Reply
  • Richard Sherman
    Rental Property Investor · Salem, OR · Member since 2017 · 696 posts · 660 votes
    7y

    @Alberto Izarraraz Cut your lifestyle to NOTHING...no new cars, phones, no TV etc..go crazy.  Get on Mr. Money Mustache site or something like that (google FIRE retirement etc.)  You have a great income, knock out that student debt and start going nuts investing.  I would be VERY careful about flipping or anything like that if you do not have experience.  

    Do you own a house currently?  What about buying a 4 unit building, living in one and renting the other 3 as a way to start?  You have a great income and that is a great way to get started.

    0Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Richard Sherman I currently own my house. I can definitely Airbnb a room. Im in san antonio
    0Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    I am in a similar boat. I started by doing what @Richard Sherman suggested and house hacking. Got a SFH and rented out the spare bedrooms. Been doing it for 2 and a half years now, and it's worked out great. I only wish I had known about BP and my REI goals when I bought the house. If I had, I would have bought a MFH.

    Now I'm refinancing my current primary to get my FHA back so I can get a MFH and continue house hacking (having someone pay my mortgage is great; having roommates is getting old). I'm going to keep my primary and turn it into a rental. I'll take the cash flow and split it between paying down debt and saving for the next deal. I plan to do a 203k so I can build a little equity and use that to fund more deals.

    Paying down debt is good; purchasing an asset that pays for itself and pays your debt down for you is better.

    6Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Nicole Heasley thanks. So do you think it's just pay off thr student loan as soon as possible instead while renting the room?
    1Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    @Alberto Izarraraz Why is it one or the other? Rent out the room. Read Brandon Turner's book on investing with no and low money down. Find local REI meetups and network. Listen to the podcasts. I'm currently looking for deals using creative financing that will allow me to avoid large down payments. If I'm successful, I plan to split the cash flow between funding more deals and increasing my debt payments. I definitely don't recommend doing nothing for multiple years while you pay off the debt. Why waste the time?

    2Reply
  • Hunter Collins
    Savannah, TX · Member since 2017 · 1 post · 3 votes
    7y

    Have you looked into refinancing with a private lender like Credible to reduce your student loan interest rate? You may be better off staying on IBR but 8% is a high interest rate. There are a lot of lenders now that offer fixed and variable rates with terms from 5 to 15 years. 

    3Reply
  • Jason Snider
    Investor · Commerce Twp, MI · Member since 2017 · 40 posts · 29 votes
    7y
    Love the house hack ideas. I wish I had done this when I was younger before starting a family. It gets more complicated as you get older and have a family. My advice going back 20 years would be definitely be to house hack to get started. Take advantage of this technique while in your 20s.
    2Reply
  • Richard Sherman
    Rental Property Investor · Salem, OR · Member since 2017 · 696 posts · 660 votes
    7y

    I 100% agree with @Nicole Heasley Beitenman and @Jason Snider , AirBNB a room in your house or rent, or look at selling (especially if you have been there 2 years or more and have equity built up) OR keep as rental and look at buying a 4 unit (largest that gets a conforming loan) move into one unit, rent a room AND rent the other 3...GO CRAZY, you have an amazing income at your age...use it (be smart) cut the lifestyle to get the extra t pay down the debt.  SHOOT your TV, cut cable, no expensive phones, no vacations etc...every dollar you consume is thousands of future dollars destroyed.., so invest as much as you can and consume as little as you can.

    0Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    7y

    Lots of people throw around the phrase, "I am going to flip a few houses for some extra cash", but it is not as simple as saying it. Flipping is a business that takes money to start marketing, talking with owners, knowing ARVs, rehab costs, and many other facets of the business. 

    Go to some meetups. Meet some people. As mentioned above, live well below your means. 110k per year in SA is pretty high. You should be able to have the student loans paid off in a few years as long as you dont buy a 300k house, 50k car, etc. As you are paying everything off you can start learning everything about real estate. If a deal happens to come up, you can wholesale it and make a few $1000.

    I have a small meet up and even a blog that may help. All free stuff.

    3Reply
  • Amy Beth
    Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
    7y
    @Alberto Izarraraz. I would more aggressively pay off your student loans. At your income it should not take you five years to pay off the loans. You are spending too much if you are serious about becoming a real estate investor. I would stop eating out except for special occasions and spending money on things that you could do without. Create a monthly budget and stick to it. Get out of your income repayment plan and make huge payments towards your loan principle every month until the debt is gone. Perhaps you can even pick up a side job or rent out a room in your primary home to pay off the loans even faster. Once the loans are paid off then I would save up for a down payment on an investment property.
    1Reply
  • Mareion Fields
    Jackson, MS · Member since 2018 · 1 post · 0 votes
    7y
    @Rick Pozos interested in meet ups , I am an inspiring real estate investor , & in search of an mentor as I begin this journey.
    0Reply
  • Dennis Liu
    Toronto, ON · Member since 2018 · 17 posts · 4 votes
    7y

    That interest rate is extremely high, I'm not sure if you have a variable rate but it can get even higher if you do.

    I'd say you should spend the next couple of years learning some financial literacy and building some of the discipline it takes to save cash aside. 

    You could save yourself a lot of money in unpaid interest if you put some money aside to pay that loan off. For every dollar you put into that loan, you get 8% back, GUARANTEED which is quite high. The S&P really only nets you 6-12%. 

    You might say that you can earn more in real estate, and that is definitely true if you do it right. But you are still starting off. Not to mention do you think that with the money you save up for flipping you can be disciplined enough to not spend it. So like many of the others have said, and I really am beating a dead horse but I only just read their comments and I would rather stick hot sewing needles into my eyes than let this comment die, just pay off your student debt now and take this time to get educated.  @Nicole Heasley Beitenman said it perfectly, not all deals even require a huge amount of capital from yourself. 

    But at the end of the day, it is your life and we are just internet commenters

    0Reply
  • Daniel Campbell
    Lender · Detroit, MI · Member since 2017 · 36 posts · 30 votes
    7y
    @Alberto Izarraraz I have considered the same issue (I have ~$70k remaining in student debt) and I’ve done the following: STEP 1: Reduce your monthly expenses to almost zero. I bought a $9,000 Prius with cash. I live in a $525 a month apartment, etc, and my fiancé and I almost never eat out. My total monthly expenses are $1,685 not including student loans. STEP 2: I personally chose the option to have a low monthly payment now with an escalating payment. Basically, I pay ~$200 per month now and in 10 years I’ll be paying ~$700 per month. That keeps your payment low, for now. STEP 3: Start getting some income generating property that pays for your student loans and other expenses. Each new property covers more of your bills untIl you’re saving ALL of your W2 income. One decent rental can cover the $200 per month now, and you can surely purchase more as your payments increase every two years. If you’re aggressive with keeping your expenses low, I’ll make an educated guess and say that once you have completely replaced your expenses with rental (or flip) income, you can use your W2 income to pay your student loans off in 2 years or less. That’s my personal 5 year plan for FI and cleaning up my student loans. Hope that helps!
    0Reply
  • Ray Johnson
    Irvine, CA · Member since 2016 · 545 posts · 614 votes
    7y
    @Alberto Izarraraz one thing to keep in mind is if you get into flipping properties, that additional income will cause your Income based repayment plan to increase, so you'll need to make sure your flipping business accounts for the higher taxes from flipping, and the higher repayment income class you get bumped up to. Is there any chance your job qualifies for the student loan forgiveness program? That was the route I went after school.
    0Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Hunter Collins I have thought about it. I have been deeply considering throwing the money saved into my student loan. If that is the case then I will refinance it. I might do it regardless because due to my income im pretty much paying the same in income based repayment if I just refinanced it.
    0Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Rick Pozos thanks for the advice. Nothing as crazy. 175 home and 5k owed on the car. I want to keep the house at the moment. But would be willing to as Airbnb. I have to finish Brandon's book but I think I'm leaning towards putting my money into the debt. It's strange that you can read all this but they don't mention the emotional part of it all.
    0Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Rick Pozos can I know more about the meetup? Please
    0Reply
  • Grayson Wester
    Lender · San Antonio, TX · Member since 2018 · 109 posts · 108 votes
    7y

    @Alberto Izarraraz my wife and I paid off $130K in debt in 3 years - almost all of it student loan debt. At the time we were making $60K a year combined - neither of us were in real estate. I found a mentor who showed me the ropes and did some JV deals with me. Everything we made in real estate we threw towards the debt. Eventually I got into it full time and am glad I did.

    I agree with @Richard Sherman, cut your expenses to NOTHING. Throw everything you have towards the debt and try to make as much extra cash as possible. You have great income for San Antonio so unless your living expenses are super high you should be able to do some serious damage on these loans quickly.

    I also agree with @Rick Pozos, real estate investing is not complicated, but it's not easy. It takes time and serious effort to get some deals going. Find someone you trust who can help you fast track the process of getting started. I don't know Rick personally, but I know people that do and I've heard good things about him.

    I also second following and applying the methods of Dave Ramsey and Mr. Money Moustache. That's what my wife and I did and it was a huge part of why we were able to make the progress we did (aside from just making more money). Eventually you'll graduate to higher levels of financial management, but that is a great place to start.

    1Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Grayson Wester oh that's great to hear. I appreciate it. I think the time has come for that. So I might need to do that. What was the turning point for you that made you decide to pay it off? Might be a dumb question but there is always hesitation. I like the idea of a mentor so I'm going to start networking and learning
    0Reply
  • Grayson Wester
    Lender · San Antonio, TX · Member since 2018 · 109 posts · 108 votes
    7y

    @Alberto Izarraraz I looked at how long FedLoan told me it would take for us to pay it all off and I wasn't happy with the timeline - like 30 years. I also noticed how much interest they were making off of us and I couldn't bear it. I wanted the extra cash flow in our bank account month to month and the freedom to know we didn't owe anything. It was quite a journey, but I'm so glad we did it.

    0Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    7y

    @Alberto Izarraraz all the info for the blog and the meetup is on my profile. Everyone is invited. All free. 

    0Reply
  • Nathan Wankel
    Investor · Denver, CO · Member since 2018 · 57 posts · 30 votes
    7y

    One option could be getting a rental property with the 20k you do have. The extra income that comes from that can pay off your student loans. 

    The second option would be to go with what you initially were interested in and flip a house and see how that goes. 

    There's plenty of other ways to go about it, but either of these options would get your feet wet and pay off some of the loans. 

    0Reply
  • Alberto Izarraraz
    OP
    San Antonio, TX · Member since 2016 · 19 posts · 6 votes
    7y
    @Nathan Wankel this is what I was aiming to do but I'm stressing out a lot more lately. I think it's my gut feeling thr debt.
    0Reply
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