3 Ways to Invest in Real Estate When Burdened by Student Loan Debt

by | BiggerPockets.com

The average graduate leaves college with a five-digit student loan debt attached to them. Many owe $100,000 or more when it’s all said and done. In addition to making large monthly payments for years to come, student loan debt often prevents people from making smart financial investments.

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How to Invest When You Have Student Loan Debt

If you’ve been around enough financially savvy people, you’ve probably heard the terms “good debt” and “bad debt.” As you consider real estate investing, it’s important that you consider good and bad debt. The latter could also be classified as high-interest debt. This includes things like credit card debt and car loans. The rates are high, terms are constricting, and carrying the debt is rarely, if ever, beneficial for your long-term financial picture. Good debt, on the other hand, typically has a low interest rate and is tax deductible.

Real estate falls into the category of good debt. It’s still debt, but there are benefits that come with investing. And in addition to getting the opportunity to deduct mortgage interest from your tax bill, you also gain access to an appreciating asset that will (by historic measures) increase in value over time.

Related: 6 Tips for Investing Despite Your Student Loans

But how? How do you invest in real estate when you’re already burdened by student loan debts? While it would be a whole lot easier to go to the bank and pull out a traditional loan, this probably isn’t going to work. Assuming the numbers aren’t in your favor, you’ll need to consider some other options. Here’s some food for thought.

1. Try alternative forms of lending.

The first thing to consider is an alternative form of lending that doesn’t take your existing student loan debts into account. Thankfully, there are lots of alternatives in today’s market, including private money lenders, hard money lenders, home equity loans, and crowdfunding.

2. Check out an income-driven repayment program.

The problem with your situation is that the student loan debt is like a black mark on your financial resume. When you go to a lender and ask for a loan, they look at your debt-to-income ratio. What you really need to do is change how the debt looks on your application.

In 2017, Fannie Mae made some changes to its requirements for individuals who are overwhelmed by student loan debt. According to MortgageLoans.co, certain people who qualify for an income-driven repayment program can actually set monthly payments to $0 per month for a period of time. This offers buyers the ability to qualify for a mortgage, despite their heavy debt burden.

3. Develop better strategies for attacking debt.

When it’s all said and done, the best thing you can do is attack your student loan debt. If you’re only making minimum payments, it’s going to be years before you even make a dent. You need to get aggressive and start biting off big chunks at a time. Buckle down for 12-18 months and work your rear end off. Pick up side gigs and focus all of your energy on paying down debt.

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Related: How My Journey Out of $2.5M in Debt Inspired Me to Live a Charity-Focused Life

Don’t Let Student Loans Hold You Back

By no means is this article saying you should invest in real estate if you have a large amount of student loan debt. There’s considerable risk that comes with investing in any asset you can’t control and, as always, more debt means more payments.

However, if you do it strategically and develop a strict budget for how you’ll handle income and expenses in your life, an income-producing property could help you in your pursuit of paying off loans by providing you with additional fiscal resources.

There are options and you should pursue them.

Are you looking to invest despite student loan debt? What’s your plan?

Leave a comment below!

About Author

Larry Alton

Larry Alton is a professional blogger, writer and researcher who contributes to online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.

5 Comments

  1. Francisco Perez on

    I have about $85K in student loans. I have a wife and 1 child. According to my repayment plan, I qualify for a $0/mo payment. This sounds good and to an extent it is. But when I went to go look for a loan, I was told that they have to count 1% of my total student loan debt towards my debt-to-income ratio. This killed my chances of` being able to buy a property. Any suggestions?

  2. Carolyn Hodo

    I’ve been able to apply for a home mortgage (owner-occupied) on two separate occasions using documentation from the loan servicer of my monthly payment on the income-based plan. Mine is not $0, it was $180/mo the first time, and $300/mo this time around. I have around $100k in debt plus the interest that has accrued. All my mortgage broker seemed to care about was the monthly payment, but not sure if that is different depending on the type of loan or your location…

    • Carolyn Hodo

      Also, I’m fortunate to be in a career where I can qualify for public service loan forgiveness (PSLF), so as long as that program isn’t eliminated, I can have the remaining loan balance forgiven in 10 years. If it wasn’t for that program, I would be focused on paying down the loans more heavily.

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