Real Estate Investing Paid Off My Student Loans

Student loan debt is a financial burden many of us carry.  For many years I deferred payments or paid the minimum in order to survive.  I had no clue of the expense of these mistakes.  As I started to earn more income and became interested in investing, I took a harder look at what these loans were costing me.  

I purchased a 2 bed, 1 bath single family home in a suburb of Toledo for $37,000 that required an additional $10,000 rehab. I quickly rented it for $1,000/month.  After six months, I refinanced and was able to pull out $100,000 in equity and still cash flow on the property.  This left me with the question of how to re-invest my money.  A no-brainer would be to find another deal like the one I just did and repeat it.  However, it's now always that easy, so let's look at my other options.  

My initial thought was that I would pay myself first.  I figured I could conservatively make 10% profit through re-investing my money.  But should I do that OR pay off the $100,000 student loan at 6.55%.  Let's take a deeper look.  If I re-invest, my 10% profit is taxable which means I would make $10,000 per year minus 20% in taxes which equals $8000 per year or $666 per month.  Seems pretty good, right?!

Now let's look at what the student loan costs me. That $100,000 in student loans costs about $1200/month in payments.  I do not qualify to deduct any of my student loan interest, and this is probably going away for most people anyways.  A very important fact is that this is $1200 I pay every month after I pay taxes which means I have to EARN $1800 to make my $1200 payment after taxes.  

The take home message here is that even though my investment makes a higher percentage interest rate (10%) than my student loan costs me (6.55%), I keep twice as much money in my pocket by paying off the student loans.  This gives me an extra $1200/month I will have in my pocket to re-invest for even further dividends!   Of course, if I found the right house to invest in, I could have also bought another property to BRRR and start the cycle all over again!  Ultimately, I chose to alleviated some of my student loan debt, all thanks to a great deal I made in real estate!