Student loans or investing?

[Jamir Burney]

Hey BP community -- I'm a recent college graduate and accountant working in the Bala Cynwyd/Narberth , PA area. I'm ready to start investing, but I do have a question I want to ask you guys. Would you personally begin investing if you had student loan debt or try to pay off as much as possible first? Thanks in advance. Also, the areas I am looking to invest in are Delco area and Philadelphia.

[Cary F.]

@Jamir Burney

I do not agree with the people who say pay off the loans first. It's not a simple calculation of interest expense from the loan vs ROI from the real estate investment.

There are 4 major returns in real estate:

1. Cash flow (After tax)

2. Tax shelters (Interest, depreciation & business write offs)

3. Amortization (People buying your house for you)

4. Forced & organic appreciation (forced being rehabs or value add activities)

Let's say your loans are $50,000. No matter how aggressive you are, that will take many years to pay off. Now if you're a very sharp real estate investor, you could create more than $50,000 of value in just a few years or less.

The OPPORTUNITY COST of paying down your student loans is forgoing real estate investments. Because your real estate investments will COMPOUND over time (law of compounding returns), you would be losing a great deal of money by putting real estate investing on the back burner.

Not to mention the fact that you have no idea what interest rates will be 5 years from now. I'd get into REI because of low rates alone. Do not wait... It will cost you a great deal.

Cary

P.S. Anybody who offers another opinion has most likely used a formula that doesn't apply to all the considerations of REI. (And they're probably not an economist either haha)