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To pay off student loans or put $$$ down on a rental
Hello Friends! I'm a realtor working in the twin cities and I do a lot of good business. I got into real estate to pay off my student loans without really thinking too much about investing. However, the more I work with investors and listen to podcasts, the more I think I really need to get into this. I've got about 30k left on my student loans and about 18k saved up. What are your thoughts on just paying those stupid loans off over the next year-ish vs. buying a rental now and paying the loans off more slowly?
I feel like I go back and forth a ton. I've made offers on a few properties but our market is pretty competitive at the moment and I don't want to bite off too much with my first one.
Thanks for you input!
It all depends on where you're at with your bills. If you're eating Ramen noodles to make ends meet then I might advise reducing bills (School Loans) but if you're getting by with a little extra at the end of the month I'd say get the rental. You could use to cashflow to pay the school loans off faster.
The math will almost always point to buying the property because of the positives - low rates, increasing values, rental income, opportunity costs, etc. but as you are seeing there is a gut check that makes you think twice about it, we call that risk tolerance.
Hard to really answer without knowing the whole financial picture, but not needed to comment. If you pay off the loans first it will help with getting approved for a loan and the amount approved for, it will also take some risk out of the equation as you will greatly reduce your liabilities. If I had your shoes on I would work on my monthly expenses to lower as much as possible, focus on your business to create as much income as you can and push forward on eliminating the debt. It looks like you still have a lot of years ahead of you to buy rentals and grow an empire.
Good luck!
bills are under control and income is better than i've ever had in my life. Which is why it's a question of which. I could get the student loans done with in a 'relatively' short period of time and then have the $1000+ that I pay on them a month to work up another downpayment pretty quickly. OR I could make the minimum payments on them $200 and keep paying them for the rest of my life, but have that $1000/mo now to buy a rental. I think paying them off seems like a good idea but if that stretches longer and longer the few hundred I could make a mo on a rental starts to add up. I really appreciate your input!
Let me throw a curveball here. If you are currently renting, I'd use the money for a downpayment for an FHA loan on a 2-4plex, living in one unit. Any of the 18k leftover plus monthly cashflow can go towards paying off your student loan.
This is a the same dilemma I started I went through a few years ago. I tried to buy properties when I had student loans and I was very limited to what I could buy and I had to be careful of payments etc. Once I decided to get out of all consumer debt before investing it has become the best decision I ever made. Saving money becomes much easier without all those monthly payments and you just feel a little more financially free. There will always be good deals whether it be this year or next year so I would get focus on getting out of debt and then save up for real estate.
I say do both. If you find a deal that is right then jump on it. Otherwise, dedicate a bit more money every month towards your loans but don't empty your accounts to pay them off right away.
Best to do both. Most important thing is for you to be comfortable.
Don't live to put money in others peoples pockets.
Pay loans off slowly, and in time you will not have any debt.
Meanwhile your income will grow from investments .
Focus on your prosperity first.
Thanks friends. I like the both idea too. I'm currently living in a single family home so the buying duplex deal won't work here. I really appreciate your input!
@Amy Ranae go flip a house or wholesale a couple of properties and then you can pay off your debt while investing in real estate. You also have a $250 payment for student loans I am guessing? Go buy a income producing asset that covers your expenses. Make your assets pay for your liabilities
I like that plan @Devan Mcclish! I get nervous though every time I find a good one. Plus I've been outbid like 6 times so far this season. I keep trying but every time I lose the bid I feel like it's the universe telling me to wait. maybe not though. I'm always looking for them.
IT takes at least 10 offers just to find one house. Don't get discouraged. I too am in an extremely similar situation and am hesitant to begin investing and risk the reserves I have that could be paying my debt down. I am determined to flip a house this year though. AS long as enough offers or made and you do your homework, you will find a good deal and its a win-win.
@Amy Ranae stop looking on the mls. go direct to seller. You should be make an offer a day. It's the universe telling you you're not taking enough action.
My personal philosophy would be to use your cash resources to acquire the income to pay off your debts.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Originally posted by @Devan Mcclish:
I tend to agree with Devan but if you are that apprehensive about a flip, seek out an experienced partner on the first few deals until your comfort level improves. It's an amazing feeling applying the proceeds of REI to satisfy student loan obligations. Also, be sure to consider where your money works best. If your interest rate on your students loans is only 2-3%, you can likely do much better committing your resources to REI as opposed to paying off student debt. Hope that gives you something to think about. Good luck!
It does! I've been thinking I need a partner. Don't really know where to get one though! Student loans are at 6.8 so not super high but mostly they cause enough emotional pain that i just want to knock them out. I'm in the twin cities, know anyone who wants to partner with me? I find deals ALL THE TIME and I'm a realtor so it's relatively easy for me to get them quickly.
@Devan Mcclish I have my face in MLS all day for work so it's hard not too. I don't feel comfortable with direct to seller. I do browse the craigslist occasionally but not regularly. Where should I be looking?
I always figure it's best to put money towards whatever has the highest percentages, whether it be debt or interest/returns.
@Michael Koncaba Thanks! Good luck to us both! I was determined last year and then life happened (moved august and had a baby in jan) but this year feels like time to get after it. I've found a LOT of good deals, but have only pulled the trigger to offer on a few that feel EXTREMELY safe to me. The problem is that they feel safe to others too.
@Dustin BeamStudent loans are pretty much the only debt i have and definitely the highest percentage. I've got a car loan too but its tiny and only at 2% so not stressful if I keep it for the life of the loan.
Sorry @Amy Ranae, I'm not familiar with your area. But, I am sure you could locate a potential partner through BP. Let us know when you land your first deal!
@Amy Ranae, keep in mind it's only how I view things. Have you done a cash on cash return analysis for whatever property you're eyeing? If so, compare that percentage to your loan percentage. When I do that, I put my money towards the highest, jmo
@Amy Ranae direct mail. direct mail. direct mail. If you don't feel comfortable, partner with someone who is. MLS is a waste of time. It's like you just said you have your face in it all the time. You shouldn't have to do that. Work smarter, not harder
@Justin S. will do! I just got on here a few weeks ago and so far it's cool but it's big!
@Devan Mcclish direct mail stresses me out too. I hate getting it, so why would I send it?! It's hard for me to wrap my head around that. I try to do-un-to-others...
@Amy Ranae the best deals are in mail. If you are not generating leads, then you have to rely on your network. Since you're not going to generate leads, you better have a SOLID network that is constantly feeding you deals. Whether you like mail or not, it produces the best deals. Remember you're not in the real estate business, you are in the lead generation business. If you cannot generate leads, you can't survive as a business. mail is the cheapest way to generate a deal. A deal that you buy on the MLS for 100k, I am buying it for 70k because I went direct to seller.