Investing with Student Loans

17 Replies

I am graduating graduate school for Physical Therapy in 4 months and will have a nice chunk of student loans (over 100k with interest included), but also have enough money currently saved to put down as a downpayment on a property or two.  I have been reading a lot of RE books and blogs, as well as listening to BP podcasts.  I would like to start investing in buy-and-hold real estate, and am toying with the idea of house hacking for my first investment, or potentially going the long-distance route if I can find a great deal.  

I understand from reading forums that investing can help to pay student loans quicker if done properly. Is there anyone who can give advice on the best way to go about doing this?  

In addition to this, would you choose the 110 month plan and pay a smaller total of student loans, or take the 300 month payment plan which will give smaller monthly payments, but will require a lot more interest on the loan debt to be paid back?

Any and all input is appreciated!

Hi Brad! I am having the same dilemma - I have around $23,000 in student loan debt and I am 28 years old! By the end of this year they will be paid off though! Thank goodness. I plan on doing a house hack situation myself. However, in Phoenix this is a bit challenging - as there are few multifamily residences in the area. 

If you found the right deal, you could probably pay down the student loans with the money that you save  on rent while house hacking.

@Brad Koegel my advice is to paydown some of your debt. That interest rate is pretty high. Realistically most people assume you can earn 7-8 percent long term on most investments and that isn’t a big enough differential from your interest rates in my opinion

@Sarah Kartsher

What area of Phoenix are you looking in? I ask because the statement that there are few multifamily residences out here... I'm looking on the MLS right now and in the greater metro area there are over 130 two-to-four multifamily properties for sale. Which is plenty of options.

Perhaps it's your budget or the area you're looking in... for example, smaller multifamily is generally scarce in Scottsdale and what's there is quite pricey compared to areas like downtown Phoenix, Tempe, Mesa, etc.

@Sarah Kartsher Thanks for your input!  Unfortunately, I have a bunch more in debt than that.  I think I still have some more research and learning on this subject.  Have you heard about consolidating your loans?  From what I understand, which is not much at this point, you can lower your interest rate by 0.25-.5%, perhaps even more.  Some people have shared that they have gotten their loans down to 4%. Still looking into this...

@brad koegel

Wow over 100k at 6.3% is awful. It’s gonna take forever to pay that off and you may not get that type of return in RE. I’d go with the guaranteed rate of return in your students loans of 6.3%. RE can be very risky and you can lose money. There is no guarantee. No one can dispute that.

Definitely look in to refinancing those student loans.  Right now the rates are around 4% I believe.  The one caveat is that you lose some of the protections that government loans (assuming you have government loans) provide, but assuming you've landed yourself a stable job I think the trade off of cutting your interest rate by over a third would be more than worth it. 

Some providers off the top of my head: First Republic, Sofi, Citizens, and Earnest.  

@Brad Koegel gambling can help to pay student loans quicker if done properly. That may sound silly, but my point is riskier investments always give a better return.

Student debt is usually permanent debt, meaning you can't file bankruptcy to get out of it. That means the debt will travel with you until you either pay it off or die. Worse yet the interest rate on your debt is really high. 

Here is the good news, Physical Therapy is a great profession with awesome income potential. If you are fiscally conservative, you can pay off that loan in three years. The real estate market is hot right now, so it is not like you are missing out on a buying opportunity. If you were graduating in 2012, I would say buy real estate, but we are nearing the top of this ride. No reason you can't wait a year or two.

Pay off your debt and save up a down payment. Then house hack and move into more properties from there.

Congratulations on your awesome career choice! 

Your interest rate is high. I would use the money you saved to pay off as much of it as possible. Then work crazy hours and live as cheaply as possible to pay off the rest of it and to save up for a down payment to begin your real estate career. And be sure to not incur any more debt such as a car loan, credit cards, etc.

@Wes Blackwell

Currently I am looking to find a multifamily in Central Phoenix. Mesa I have looked but I am not familiar with the area or any properties that I do drive by I would not want to live in those areas. It seems that the majority of the multifamily residences are in areas I would not feel safe in.

@Brad Koegel Hi Brad - yes I have looked into it but you also have to consider sometimes consolidating loans will have an effect on your credit score. I did look into it but I have made a plan and stuck with it and the loans will be paid off by the end of this year. Have you read the Book Set for Life? Its a good book for young professionals to read for a foundational understanding of the hows and whys of personal finance and starting in Real Estate Investing.

@Sarah Kartsher

The City of Phoenix and all the surrounding local municipalities report local crime on this website:

http://www.communitycrimemap.com/

(Although, I think it's a little bugged at the moment because there's no way there's that many murders in the past month for the area. It'd be ALL OVER the news. But perhaps when you see this post the site will be fixed!)

Use that to help you scout out areas online. But as always, you ultimately have to do the "gut check" and drive by the property to see if you'd feel safe living there. 

What's your budget? And are you looking for duplex, triplex, or fourplex? 

Generally speaking, when a duplex and a fourplex are priced the same, the duplex will either be in much nicer condition or a much nicer area... or both. A fourplex the same price as a duplex means you're getting twice the property (# of units) for the same price, so generally it's not as nice.

Also, searching for multifamily on sites like Realtor.com, Zillow and others totally sucks. They're more so meant to search and find single family homes. 

Here's a few that are centrally located and may be a good fit for you:

4008 N 20th St,Phoenix, AZ 85016

322 N 13th Pl, Phoenix, AZ 85006

3115 E Glenrosa Ave, Phoenix, AZ 85016

Let me know your thoughts and I'll try to point you in the right direction :-)

@Wes Blackwell

Hi Wes, I am not looking at anything more than $300,000. And that is really pushing my comfort zone. The property at 4008 N 20th Street looks like something I would be interested in. I like this location and I think the price could come down a little more...

Depends on what you are trying to accomplish.

Personally I preferred the route of paying down debt out of college.  It makes life much easier and when you pay off a car, student loans, miscellaneous expenses it makes you available to buy a home down the road without much concerns.  Having a second mortgage isn't as big of a deal when you don't have other bills to pay.

But if you're hungry and are going to buy anyway....buy a duplex that's a little bit of a fixer upper. Learn the trades it takes to fix up a property, have your tenant pay your rent, receive great financing from a local bank since you're an owner occupant you'll be eligible for an FHA. You will learn home remodeling, practice being a property manager, and take less risk on an investment, while decreasing your cost of living expenses.

The latter of the two options is more work and stress but if that's what you want it's an intelligent move.

@Brad Koegel , You've already invested 100K in a venture that is going to pay  you an incredible return on the money.  But now it is a liability and you need to get rid of it.  In my opinion Student loans are the next tipping point of financial crisis in our country.   If you have other unsecured debt as well you are a ticking time bomb and going further into debt is not the answer no way no how - especially in a market that is well into it's maturity.

We've had a young optometrist living with us for the last 18 months while he concentrated on his $180K of student loans.  The look on his face this month as he wrote his last debt check is priceless.  In 12 more months he'll have the cash to buy a house or a small MF.   

Take a breath, take some time, pay down the debt with a very  good PT salary.  Score some Per diem or extra hours and get out of debt.  Then use the PT gig to kickststart your RE investing career and you'll never look back.  If you leave the debt on and try to invest your way out by going into more debt you'll always be looking over your shoulder.

By the way, with your debt situation financing is probably hard to get anyway.  Without debt lenders beg to lend to you.

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