Save for real estate or pay off college debt first?

Question

Hello, i'm 22 years old and I live in Parsippany, New Jersey. I'm really interested in real estate but I don't have any experience yet. I'll be graduating from Rutgers University in May 2018 with a degree in Electrical and Computer Engineering. I have been actively reading books, watching videos/webinars and taking online courses to learn as much as I can about REI. My goal is to be financially independent with real estate and use the money I make from engineering to continue to invest in more properties and grow my company. I have 2 questions I would like some input on.

1) This summer I'll be making a decent amount of money at my internship. Should I start saving this money for my first deal or use it to start paying off my college debt?

2) What's the best way to pick a niche (wholesale, buy and hold, flip)? How much does it depend on the area you live in? What other factors should I look at before diving deep into one niche?

Thanks, guys!

Tom ONeil · Answer

Welcome @Nicholas Grieco.

I started out my career in engineering as well before moving to real estate full time.

When deciding whether to pay off your student loan debt first or invest in real estate, look at what your potential rate of return is for your investing activities. If it is greater than what your interest rate is on your student loans, I would say invest first. I have no idea what student loan rates are like now, when I finished school they were extremely low and I had my monthly payments set up for automatic withdrawals so I never even thought about them.

As for deciding on a niche, my advice would be learn one and master that and then move onto another. I started out with buy and hold while working a traditional 9-5 job. To me, this required much less of my time than wholesaling and flipping. Also, since I had my down payments saved and knew what my rent would be, it was (is) very predictable what my rate of return would be and relatively low risk.

Feel free to reach out to me with any questions. Best of luck to you!

Account Closed · Answer

I agree with everyone saying that you should take into account the return on the real estate vs your interest rate on your student loan.  However, your real estate also has the potential to appreciate in value, as well as increase your immediate cashflow (if you get a decent deal).  Don't forget to take that into account.  Don't just compare ROI vs. the interest rate on your student loans.

Ibn Abney · Answer

@Nicholas Grieco You can only write off $2500 max of student loan debt interest vs. unlimited amount of mortgage interest.

Gain enough equity in real estate to trade your student debt for a 2nd mortgage. The interest rate will be lower, you can finance the debt over 30yrs, and you can write off all the interest. :-)

Good Luck!

Nicholas Grieco · Answer

Thank you all for the great advice!

Judy Parker · Answer

@Nicholas Grieco Welcome to Bigger Pockets!  You are going to be very successful with both your degree from Rutgers, and investing in real estate!

Patrick Liska · Answer

Personally i think you should pay down your college dept some first. as @Jordan Grimstad pointed out, you do not know how your first deal may go and do you want more dept to work off ? Pay down your loan as you work, learn a specific niche as best you can. when you do start, look at buy and hold, possibly a 2 family or more, this way you can collect rent to help pay the expenses so you can live there for as little as possible.

Jordan Grimstad · Answer

• What engages my interest the most? (Realistically, I don't think anyone can trick themselves into fully committing themselves to something they're not interested in, particularly if it's not their primary source of income.)
• Financially, do I want a steady income stream (rentals, for example) or something more "event" oriented (flips, wholesale)?
• From a level-of-involvement perspective, what kind of time and energy can I invest?

Hi, and welcome! Couple of thoughts on my end:

"1) This summer I'll be making a decent amount of money at my internship. Should I start saving this money for my first deal or use it to start paying off my college debt?"

Not sure if you're asking it in this way, but I don't think it's an either/or - you can (and probably should) do a mix of both. My personal opinion would be to lean towards paying down the loan debt more aggressively - I'm not terribly risk-averse myself, but if your first deal goes sideways, you'll be dealing with both a student loan issue and a real estate issue, so I'd personally look to stabilize my student loan situation before taking on additional risk. "Stabilize" and "additional risk" here are highly variable terms - if your honest assessment is that your loan situation is in a good spot, and your first real estate deal is less risky (due to price, quality of the deal, quality of your mentors, etc.), then I think you should push forward.

"2) What's the best way to pick a niche (wholesale, buy and hold, flip)? How much does it depend on the area you live in? What other factors should I look at before diving deep into one niche?"

Again, personal opinion on my end, but my priorities when thinking about a niche:

• What engages my interest the most? (Realistically, I don't think anyone can trick themselves into fully committing themselves to something they're not interested in, particularly if it's not their primary source of income.)
• Financially, do I want a steady income stream (rentals, for example) or something more "event" oriented (flips, wholesale)?
• From a level-of-involvement perspective, what kind of time and energy can I invest?

I'd say chat with a few people in your area that are involved in the industry, and sit/think for a while about what matters to you. I'd be surprised if a niche doesn't find it's way to the top of your thoughts, and you can press on from there.

Save for real estate or pay off college debt first?

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