Fort Worth, TX · Member since 2016 · 15 posts · 4 votes
Ok, I have read through the student loans posts and didn't see anything quite like our situation, so I figured I'd lay it out and see what you all thought.
My wife and I have about $230K in combined student loan debt. She's a doctor of anudiology and I'm an engineer and both went to school full time and lived off the loans. Seemed like a good idea at the time I suppose. Most of it is private through Sallie Mae and Wells Fargo, so not much hope in the way of loan forgiveness or a settlement unless we go into deferment, which we won't do.
We also moved into our first home a few years ago and have about $140K owed on the property. Credit card debt is around $4k and we have one car payed off and one with about $10K remaining on the loan.
We make enough to make the minimum payments on everything and have maybe an additional $1.5K a month.
A lot of the suggestions in the student loan posts were to move into a duplex and rent the other side out. That is not something my wife and I are willing to do. What, do you think, is the best way of going about getting into real estate? Should we work on paying down our student loan debt as much as we can or continue making the monthly payments as we always have and use the extra to finance our first property?
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
I don't think this is a math problem anymore. Analyzing rates of return on RE vs the student loans, the cc's, the car, etc would've mattered years ago at the point of decision, but not anymore. Choices have consequences.
I challenge you to demonstrate you are serious about this. In 3 months' time, pay off the stupid credit cards and car. $1500/mo isn't sacrificing nearly enough. Brew your own coffee and brown bag your lunch. Every day. If you're not willing to cramp your style enough to plex hack, let's see if you can do small things every day to improve yourself.
Rates on the cards and car don't matter. Take action, James. See you Nov 30th!
Contractor · Skippack, PA · Member since 2014 · 228 posts · 39 votes
10y
I would work on getting the debt down personally. It will make getting loans on rental properties easier and your cash flow a bit more significant. However, if you come across an unbelievable deal I wouldn't pass on it if you can make it happen. You may be in a situation where you can fix and flip so you can make some money to knock down the loans (especially credit card and auto you are very close there).
The less liabilities you have the better. That extra 1.5k a month could really vanish extremely quickly if you have an issue with a rental property or a tenant.
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
10y
In my humble opinion you are not ready for real estate investment. Your debt is way too high to make people nervous to consider investment at this moment. Enjoy your most productive years and put money into 401K as much as possible.
Paying the minimum down on debt is going to take you about three life time to pay off. Bad debt is bad debt and needs to be eliminated at the fastest rate possible.
If you are not prepared to move to a multi plex property to begin your investing you are not ready to invest. Regardless you need to clear your debt first and to accomplish that you would be better off selling the house and renting. Home ownership is a lifestyle choice not a investment and is far more expensive than renting.
It appears your life style choices are driving your decision making process.
Fort Worth, TX · Member since 2016 · 15 posts · 4 votes
10y
Thanks everyone for the feedback.
I'm interested in buy and hold. If I find the means to do so, couldn't I still get a few properties while I pay down our student loans and hold on to them just on the side? I understand the debt to income ratio is pretty lopsided at the moment but I believe there are ways to at least make a few moves in the real estate game.
What about wholesaling to pay the loans off faster? I understand that wholesaling is not the easiest real estate path to take when starting out, but I want to do something to get going. What do you all think?
Wilmerding, PA · Member since 2016 · 188 posts · 44 votes
10y
You could start with wholesaling to pay down your debt and possibly have extra income. You are right wholesaling isn't easy but it is doable on a budget. I would try wholesaling to see if you like it before you spend too much money on marketing, you can always find another wholesaler to partner with that either has a cash buyer list or deals you can wholesale to your list of cash buyers if you have one. I believe it's called co-wholesaling. I would figure out what you'regoing to bring to the partnership deals or cash buyers and once you have either one in place you can network with other wholesalers to get the deals done and split the profits with them. Hope this helps you out.
Mountain Top, PA · Member since 2016 · 17 posts · 7 votes
10y
James Edmister yes! I have something to add! You are THINKING to small! Interest rates are super low finance the crap out of student debt! Meaning find the lowest interest rate you can for as long as you can and just forget about them! Now don't just look at the money you have, use your resources. Find a private investor, banks suck if you can find a hard money person like another veteran Doctor use their money to invest! The name of the game is using Other People's Money, no reason to stop now.
Real Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes
10y
Hello James,
You have received quite a bit of advice here and it may seem difficult to sum up. It also seems like you've set your sites on REI but don't know which direction to follow. I would advise that you continue to educate yourself on the different avenues of REI and decide which could put you and your wife in the best position based on your goals. Perhaps revisit the idea of house-hacking a multifamily property (i love the idea of house hacking btw!).
For your situation, I like the idea of wholesaling or flipping since it allows you to come up with quick cash (if done right) in order to chip away at that student debt. Also, qualifying for loans will be a challenge as other BP members have stated on here.
I hope this helped a little, best of luck to you!
-Abel
Investor · Mcdonough, GA · Member since 2015 · 8 posts · 6 votes
10y
You build wealth by increasing income and minimizing expenses. You say you are not interested in living in a multifamily property but that may be your best avenue especially with interest rates at a historically low level. Sometimes you have to do what you do not want to do short term to get where you want to get long term.
Rental Property Investor · Baltimore, MD · Member since 2014 · 408 posts · 209 votes
10y
I might as well throw my gloves into the ring, too.
What rate do you have on that monster debt? Your expected finance costs less tax deductions must be compared to your expected real estate investment return less tax costs (if there would be any). If your debt is being paid at a high rate, your best investment probably would be to pay that down, not even considering other factors like stress, credit score, or safety reserve should something with REI go wrong.
With that being said, if you can find a great deal, your expected return on that might be significantly better than your student loan costs, and therefore it would be prudent to jump at such an opportunity.
Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
10y
@James Edmister Wholesaling and fix-and-flipping are jobs, not necessarily investing. Both are pretty tough right now in the highly-competitive DFW market. I would think really hard about going that route. It can definitely be profitable, but so can putting your head down and working hard at your W2, especially early in your career.
What is your big "why" for getting into real estate at this point in your life? Unless you have a good answer to that question, you are at risk for getting into it and quickly burning out when difficulties arise (and they will).
If you really want to get into rental properties, I would look into if you could even get a loan on an investment property given your debt to income ratio. Keep in mind for non-owner occupied you will have to put at least 20-25% down on a conventional loan. Do you have that kind of money sitting around? There are a lot of creative ways to acquire property with little or no money, but one of the easiest is house hacking (buying a multifamily, living in one unit and renting out the others). Striking that off the list of possibilities right off the bat makes me question your "why".
At the end of the day, the question of paying off debt first or investing in real estate first is really a question of temperament. If you can find an investment that returns more than the interest on your debt, mathematically that is the best use of your dollar. Personally, I don't think I could sleep at night if I was actively acquiring new debt on rental properties when I had $200k+ in student loan debt hanging over my head.
Indianapolis, IN · Member since 2015 · 125 posts · 50 votes
10y
What're your average interest rates on your student debt? If its in the 2-4% range, then I would honestly pay the minimum and try to get properties. Paying down debt that has a 3% interest rate is the same as getting a 3% return on your money. In my opinion, and based on my units, you could do much better than that with real estate. I'd rather have properties giving me a 20-30% return in addition to the student loans at 3%. My $0.02.....
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
I don't think this is a math problem anymore. Analyzing rates of return on RE vs the student loans, the cc's, the car, etc would've mattered years ago at the point of decision, but not anymore. Choices have consequences.
I challenge you to demonstrate you are serious about this. In 3 months' time, pay off the stupid credit cards and car. $1500/mo isn't sacrificing nearly enough. Brew your own coffee and brown bag your lunch. Every day. If you're not willing to cramp your style enough to plex hack, let's see if you can do small things every day to improve yourself.
Rates on the cards and car don't matter. Take action, James. See you Nov 30th!
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@James Edmister first of all, pay off the credit cards and stop carrying a balance on them. If you cannot control yourself, cut up the credit cards and use cash.
You shouldn't even be thinking about rental property with credit card debt. I would also suggest you pay off the student loans before investing.
A duplex is an excellent idea. It seems like you are not willing to make any sacrifice to get ahead and that is why you will end up struggling.
The later posts are starting to touch on this, but I wanted to emphasize and I'm not concerned about looking like a jerk doing it. A person in your financial position has no business doing real estate. This might sound harsh, but I'm actually trying to save you a ton of pain and money. With the way things are right now, you are almost guaranteed to fail, regardless of whether you go into wholesaling, fix & flips, or buy & hold.
From your post, it doesn't seem like you have mastered the art of personal finance. When you're already a quarter million in debt, you're still holding a CREDIT CARD balance and you took out two car loans. Even if you manage to make some money in Real Estate, will you really use it to pay down debt? You and your wife should both already have substantial incomes, yet your net worth is completely upside down because you're not in control of your spending.
You and your wife are not willing to house hack. Why? Your ability to get ahead in life later is highly correlated with what sacrifices you are willing to make today. It's apparent that you guys are bad at giving things up (thus the credit card and car loans). Stop stealing from your future self.
You are more fortunate than most. Both of you should have substantial incomes that will allow you to escape from the hole you have dug for yourself, but it's going to require much more discipline from you and your wife. I would really recommend reading some Mr Money Mustache, Early Retirement Extreme.
Houston, TX · Member since 2015 · 98 posts · 24 votes
10y
Just my 2 cents as a relatively new investor but I am someone that is in a similar situation as yours. I have pretty significant student loan debt, just finished a dual degree program with a law degree and an MBA, just bought my first house (we didn't house hack my wife didn't want to now kind of regrets it), and just bought a car. Yes these are big expenses and it sucks having that much debt hanging over our heads. However, investing is all about time, opportunities, and momentum. I'd rather get started now on smaller deals and starting to build my cash flowing assets base that can potentially help me pay off my debt at a much more accelerated pace than sit around and wait for the next 10-15 years when I could retire my student loan debt without any additional income bump.
In the last 9 months while working a new full time job (when I started my real estate journey) I have one rental house currently rented out and cashflowing, a fix and flip that is in process, and I just made an offer for a duplex with seller financing and limited money down that will cash flow nicely. In the next 9 months I would like to double what I've done in these first 9 months. Get out there hussle make it happen and be creative there are a million reasons to wait or why not do it don't listen to the naysayers. I really like the attitude that it teaches in Rich Dad Poor Dad start asking how can I do this not if you should or saying that because of X,Y, or Z that you can't and figure out how you can. Don't miss out on 10 years of building your asset base and increased cash flows and income you won't ever get those back.
Virginia Beach, VA · Member since 2015 · 54 posts · 14 votes
10y
Oh gosh it seems like only 1 or very few have the right idea! Has anyone on here read rich dad, poor dad, cashflow quadrant?? Pay off all of your student loans and put into a 401k is almost blasphemous! Lol. Yes get rid of credit card debt but the entire name of the game is to increase your income by any means necessary first and foremost. Listen to podcast with Clayton Morris, find your financial freedom number and work backwards from there. Being debt free, yes is a goal but realistically you may never be. Pay monthly mins of student loans (at least its a small tax deduction) pay off credit card asap and take OT and whatever you can to increase your income and save it to use as a down payment for an off market property that will generate great cashflow.
Oh gosh it seems like only 1 or very few have the right idea! Has anyone on here read rich dad, poor dad, cashflow quadrant?? Pay off all of your student loans and put into a 401k is almost blasphemous! Lol. Yes get rid of credit card debt but the entire name of the game is to increase your income by any means necessary first and foremost. Listen to podcast with Clayton Morris, find your financial freedom number and work backwards from there. Being debt free, yes is a goal but realistically you may never be. Pay monthly mins of student loans (at least its a small tax deduction) pay off credit card asap and take OT and whatever you can to increase your income and save it to use as a down payment for an off market property that will generate great cashflow.
PS- some of us that have passionate opinions are broke, in debt to our eyeballs and have yet to follow our own advice about getting a cash-flowing, off-market deal.
Everyone is entitled to their opinion of course. To say only you and 1 other person have the right idea implies everyone else has the wrong idea. I challenge that premise.
Some of us are offering experienced advice. We have been there, paid off our debt, built a portfolio of what you suggested and never have to work again. To discount everyone else but yourself as a new person acting like one of experienced authority, IMO, needed to be pointed out.
Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes
10y
This couple does not need more income, they need a budget.
I posit that this couple makes $150,000 a year gross annual salary. Median Audiologist in DFW is ~75k according to glassdoor. Various types of Engineers also have Median of ~75k. If you are making less than this, I would recommend looking for a new position that will pay you market value for your skills. There's no point in paying all that money in student loans just to end up getting paid under market value.
I have no idea how to calculate this, so I put this number in
($648.36)
Principal & Interest
140k, 30 yr amort, 3.75%
($187.50)
Taxes & Insurance
1.5% of 150k house
($179.69)
Car payment
10k, 5 yr amort, 3%
$4,328.85
Total After Leverage
($2,828.85)
Monthly Spending
Even after $1k groceries, $200 gas, $200 cable+phone? (where is all this money going???)
$1,500.00
Claimed Monthly Savings
Above is my WAG on what your monthly finances look like. If you're getting much worse rates than these, refinancing is definitely something to look into. But assuming fairly reasonable rates, you should have plenty more than $1,500 a month in savings.
Maybe these figures aren't accurate for you. If they're not, SOMETHING is wrong that really should be corrected before you venture into real estate. Are you making much less than market income? Are you paying outrageous interest on the student loans? Are you just spending way too much money on non-essentials and fanciful desires?
I'm not saying you shouldn't ever get into real estate. I'm saying you should solve these sort of problems and build a strong foundation for yourself upon which to grow a solid business before you start, not after.
Accountant · South Windsor, CT · Member since 2015 · 58 posts · 20 votes
10y
I'd do both. Get a line of credit on the house. Pay off student loans; split your cash flow between emergency funds/real estate and extra debt payments to (smallest balance or the highest interest rate. Eliminating the balance raises the fico score. But don't close the line of credit. Revolving rates are important. Closing a line lowers the denominator in that formula) all the while search for deals with seller financing and partners with $. Good luck. Any questions feel free to PM me!
Rental Property Investor · Portland, OR · Member since 2015 · 338 posts · 332 votes
10y
Underwriters will count at least 1-2% of your student loan balances as your "monthly payment" if you are on any income-based repayment plan, even if your payment is actually just $100/month. I don't know what your repayment plan is, but underwriters will count at least $2300/month as debt against your DTI. That is in addition to your other debts.
The best DTI you can probably hope to achieve with a bank loan is about 45%. This means your monthly debt payments can total no more than 45% of your monthly income. You're smart people and can do the math yourselves, if you haven't already spoken with a loan officer. I suspect that your DTI is already over 45%. @Frank Jiang was very generous with his time in coming up with a hypothetical scenario for you, but I'm guessing your debt payments are even worse, since he's assuming that your car and house payments are (roughly) based on the current balances rather than the original principal.
So unless you can get a private lender to lend you the cash at an interest rate below your lowest extant loan (i.e. car?) rate, and unless the property was guaranteed to cashflow at a cap rate that is at least 2-3% higher than your highest interest rate loans (school?) it would be imprudent and unwise to accumulate any more debt until you have paid down existing debt and/or lowered your expenses.
Were I in your situation, I'd:
0. Make sure you have an emergency fund of at least 3 months' worth of living expenses and good health/home/liability/disability/life/umbrella insurances.
1. Pay off the credit card and keep it paid off each month.
2. Concurrently with #1, I would see if I could get an equally reliable car with a lower monthly payment than the one with the 10k remaining on the loan, or ask myself whether I even needed a second car (maybe in Texas, you do, but it's also possible to carpool, take public transit, bike, etc.) And/or if the paid-off car is a nice/expensive one, I'd sell that and pay cash for a more modest used car. I lease a 2015 hybrid gas/electric plug-in (Ford C-Max) for $234/month. It's a $35k car, but federal tax credits for electric vehicles make the monthly lease payment low. But I digress.
3. Then I'd start paying down the Wells Fargo student loan, throwing anything extra towards the principal (you need to tell them that you want the extra payment applied to the principal, rather than pre-paying the loan). After that's paid, I'd do the same with the government student loan.
4. While I'm doing all/any of the above, I might also see if I can get cash-out refi with a very low rate to pay down the student loans (private first, then government) as much as possible. (Chances are slim though because to get a refi, you still need a good DTI. It's a chicken/egg scenario, but maybe a community bank would do it.)
5. I don't know what your house is like, but if you can get a lodger to rent out a room, or if you can add a separate space by inexpensively finishing a basement or attic (microwave, hot plate, mini-fridge, bathroom, + bedroom or studio), you can use that income to both pay down debt and to establish yourself as a landlord in the IRS's eyes.
6. If and only if the numbers work out for your current residence, you may consider renting that out to a tenant and then renting a much less expensive place in which to live (closer to work so you can get rid of one car and its related expenses?)
Essentially, pay down your bad debt (which is pretty much everything except maybe your mortgage) before you accumulate any more debt. (There are some rare exceptions to this relating to interest rates that I would probably only suggest an experienced investor make.)
Your first rental will cost you more (in time and money) than you anticipate.
I also second everyone who suggested house-hacking as a way to get your foot in the door of RE investing and re-evaluating current desires vis à vis life goals.
Lastly, this isn't advice and I'm no CPA/lawyer. It's just what I would do were I in your situation.
