Soon to be debt free, now what?

18 Replies

Hi Everyone,

I have about 37k in both subsidized and unsubsidized student loans, and I'm close to 36k on my total investments
I've decided to pay out all of my student loans by the end of the summer so that I could be free of financial debt, with the cost of using up my nest egg that I've been working and saving up for an entire year. I originally wanted to use my savings on buying a property to BRRRR, but after numerous long discussions, I've decided that it might be better to get rid of my student loans while the forbearance is still going on.

But now I'm kind of lost, how am i gonna start trying to BRRRR now? I really wanted to start some time around 2022 (somewhere in Philadelphia/South Jersey), but I wont have as much savings anymore.

If you guys have any advice I'd really appreciate it.

Hi @Trix Contreras
I also have federal student loans on forbearance right now until 9/2021. It sounds like you're set on paying off your student loans vs investing. Obviously, this is based on your own financial situation and your preference (debt-free, peace of mind, etc). I'm sure you've discussed with several people, but think about who you discussed with - did they go through similar situations? are they successful? I've heard from several coworkers who told me to pay off my student debt first, but they've also been working in the same job for 10-20+ years and will likely work until they can retire. Their best intentions may not be in your best interest. So think about. 

But enough about that lol.

I decided to carry on my student debt and utilize capital to build cash-flowing assets (REI!). Paying off my debt first would put me several years away from even start investing. I'm glad I jumped in even though it's only been a few years, but they have been appreciating in value and give me monthly cash flow (which can be used towards your student loans). I'm using the BRRRR strategy from out-of-state in the Kansas City market because the numbers make much more sense than where I'm at (Hawaii).

I'm not a financial advisor or anything, but if you want to bounce off ideas, feel free to send me a DM! 

Hi @Trix Contreras

I paid off my student loans about 10 years ago. Mine were significantly higher than yours. I can say I felt really great having them paid off. To say "I felt free" from that burden is not an understatement. If you're committed to it, good for you!

But now that I am older, I can say it may not have been the smartest financial move. My loans were at a 4% interest rate and if I had invested the $50K in an index fund or real estate, I probably would be better off. Then again, having the burden lifted from my shoulders mentally allowed me to expand to doing the things I am doing today.

It's all a very personal decision. If you are able to compartmentalize, stick to a plan, and be patient, I'd say hold off and invest. If you feel the burden is too great and getting them paid off will release the shackles that may be holding you back, then get them done and live your life. Hope the perspective from someone a bit older helps.

@Trix Contreras

My wife and I paid off our loans, they were over well over $100K took us 2.5 years, and now we are able to save more and put more into investing verse having to put $1k-$2K a month back into the loans to keep up with the payment. This helps out when there is a rental that is not rented out and we have to float the mortgage (currently doing that due to permits on a rental).

I would suggest if you are able to pickup a side job, may be something in real estate? An agent, an appraiser etc. to gain more money that will pickup your current income to get you into the position to invest. 

Luckily, your down payment will be 3.5% for that first time buyer, or 5% if you want to go conventional.  

Correct me if I misunderstood, but are you planning to liquidate investments in order to pay off the debt? If so, you will have to pay tax on that. 

Don't use up your investments.  Find out how much you can borrow from the bank with your current student loans.  What rate are your student loans at?  

If you can borrow enough to get a duplex or house with a suite, either live in the suite or half of the duplex and rent out the other half.  If done right, this should cut your living expenses and the rent from the tenant should pay most of the mortgage and property taxes.  You can then use the savings from your reduced living expenses to pay down your student loans.

@Trix Contreras definitely research and talk with a CPA before you sell anything. You may have capital gains tax which you should check out. Hate to be the bearer of bad news, but would also love to save you some 💵!

2.75%? Don't pay them off early. You will be hard pressed to find such cheap money for real estate investments (other than your first home that you buy as owner occupant). What would you rather have, a $100,000 loan at 5% used to buy your rental, or a $70,000 loan at 5% and a $30,000 student loan at 2.75%? 

I'll reiterate what many on this thread said. I would encourage you to rethink paying off the debt prior to investing. Yes, paying off the debt can give an incredible peace of mind. But I think you'll find that the sooner you invest, the better you'll be. 

If you're planning on doing BRRRR as you mentioned, you'll still have a lot of the capital left over after each deal. You may leave 5-10% of the ARV of the home in deal, but with that 5-10%, you might have picked up several properties. Those properties are going to pay down the principal and cash flow, and you can use the cash flow to more aggressively pay down your student loans.

@Allen Wu  I'm looking in N of the river, raytown, independence, Grandview, and a pocket in the Kansas side. I'm not sure about the 'A' areas as they seem to have appreciated to the point where it might not cashflow as well (but that's subjective and how you calculate cashflow). 

@Trix Contreras you also have to factor in that interest on student loan debt is tax-deductible.  So you're really paying 0% interest on that money.  I would take your savings and invest in something that will give you a positive return and continue making minimum payments on your student loan.  Good luck!

Normally I'm a "pay off your debt" guy if the debt isn't investment property where the returns exceed the cost of the debt, but in your case I would probably hold off for a couple of reasons:

1. The interest rate is ridiculously low;

2. There are some real tax benefits that you have access to while paying those, reducing your effective rate even further;

3. You may have good opportunity to exceed what you are paying by investing your savings; and (perhaps most importantly)

4. There's a not-insignificant chance that some/all of your student loan debt may be cancelled or otherwise reduced by the political machinations going on in Washington DC right now. I know there are already some cancel programs for certain types of debt (i.e. working in public service). Once you pay that off, that option is off the table.

I think everyone has done a great job emphasizing that what's most important to you is how you should make the decision. I balanced a lot of debt while I invested all the cash I had, because I saw an opportunity in my area. Now that things have gone up so much in price and competitiveness I don't know if I'd make the same decision. Not to mention, I was under a lot of stress due to how leveraged I was and was fortunate enough to have a lot of things end up going my way (i.e., Covid hit after I had already stabilized my portfolio and finances).