Recent graduate, okay to invest and use profit to pay down loans?

Question

Hi everyone, I am a recent graduate, 25-years old, and looking to get started on my real estate journey while taking action to pay down student loans as quickly as possible. Would it be a good strategy to invest in say a single-family home, and use the profits from that first investment to pay down student loans? I have begun paying student loans using money from my paycheck and feel that this is not a good use of my money nor helpful towards financial freedom.

Or would it be best to start looking into other, small creative outlets to help me generate extra income that I could put towards paying down student loans, and then eventually jump into my first real estate investment?

Thank you all so much for your time and help in advance!

Or would it be best to start looking into other, small creative outlets to help me generate extra income that I could put towards paying down student loans, and then eventually jump into my first real estate investment?

Thank you all so much for your time and help in advance!

Robert Reynolds · Answer

@Sharon Ramirez

I would look into house hacking to help cut down on living expenses and building wealth. With the money saved by house-hacking, I would pay down my student loans. In my opinion there’s no better way to build wealth but through real estate investing and the younger you start, the harder it is to mark a mistake.

Jaron Walling · Answer

Interest rates on real estate are the same or higher depending on your credit. It's a wash given the circumstances.

I wouldn't be looking to buy right now. I'd be getting debt free, building relationships, doing market research, strategy research, building credit, and saving for the down payment the entire time. In my opinion you need more tools in your tool box.

"it's way below typical rent charges in the SoCal area" - Take advantage of this situation (fairly) because that can't last forever.

Nathan Gesner · Answer

I recommend paying down debt and getting your personal finances under control before you consider investing. In fact, I think people should be 100% debt free (not including their personal residence) before investing in anything. If you invest and make a mistake - which is highly likely for a new investor in a peak market in one of the most expensive, heavily regulated, and litigious markets in America - you risk serious financial problems that could plague you for years or decades.

Jonathan R McLaughlin · Answer

@Sharon Ramirez if you can swing an owner occ rental then I would look strongly at doing it, as you might as well put what would be your rent money towards your mortgage while u are paying off loans.

And while it might be sound math to pay off all loans first, you can probably tolerate more roommates, DIY and worse conditions now than you will in a few years, which lets you be more flexible. And accumulating capital is hard.

But your loans will count against what you can bored for a house, so be sure the math works.

Sharon Ramirez · Answer

Hello @Frank Avallone II, I appreciate your response, it has definitely given me much to consider.

The interest rates on the loans are frankly high (all between 4-7%). I have been looking to refinance my loans. I have started to pay down the loans, but could definitely put extra money towards those payments.

I currently live in a single-family home with my relative. They are building new homes near our area, which has only made me more curious and eager to get started in real estate.

Thank you for your advice, I'll definitely reach out if I have further questions!

Sharon Ramirez · Answer

Thank you @Theresa Harris for the quick and helpful response.

I am planning on staying in the area. I do have some money for down payment, and was thinking of borrowing from the bank and/or family member for that 20% down payment.

Thankfully I live with a relative in their home, and while I do contribute money towards household expenses, it's way below typical rent charges in the SoCal area. This allows me to set aside to put towards that down payment.

Frank Avallone II · Answer

HI @Sharon Ramirez, how are the interest rates on the loans? If they are very high it may be worth it to put the money towards the student debt initially.

If not, you could definitely look to invest the money into real estate to speed up the process for you.

Another things to consider is your current living situation. Depending on what that looks like, it may be a good option to potentially house hack in order to save money while making money.

I would love to chat more about this if you are interested!

Theresa Harris · Answer

It can be a good idea.  Are you planning on staying in the area for a while and do you have enough money for a down payment?  Talk to a bank and find out how much you can borrow for a mortgage (you'll need 20% down if you aren't living in it).  You can also look at buying a place and either getting roommates or a place with a suite where you live in one part and rent the other.  In that case, you can get it for 5% down.

Recent graduate, okay to invest and use profit to pay down loans?

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