Wipe Out Student Loans or Save for Later Real Estate Buys?

[Chris Williams]

I've seen some threads about paying down student loans vs. investing in real estate. Usually great material; par for the course here. However, I haven't come across one discussing my situation. So I thought I'd start one. If nothing else, it may help those in a similar situation at some point.

Prior threads have weighed the pros & cons of paying off a student loan (or a high-interest debt like car loans) in the short- to medium-term, vs. using that money to buy real estate. The question of time comes up, of course. How long until the student loan is paid off? How aggressive should you be? 

Here's my snag. I've saved enough that I could pay off my student loan balance NOW.

This came from several years of saving my income, and paying down the student loan at standard payment level. Wasn't a huge loan anyway.

I rent in a shared house, own an older car, and use a work-issued phone, so my expenses aren't too high. Job's not going anywhere. I own no property right now. The student loan is the only debt I have.

I could press a button and wipe it out (and still have about 3 months' expenses left in the bank). This would of course risk my ability to handle a crisis, leave me with fewer liquid assets, and negate my ability to buy real estate for a while.

Thing is, I wasn't planning to anyway. I have decided not to buy real estate in my immediate area (San Francisco Bay Area) due to the ridiculous pricing here. My income's OK, but not enough to sustain mortgages here if I have vacancies. The numbers I see just don't work. 

I plan to move out of the area in a couple years, and THEN begin investing. Or try note investing.

My question is: should I do this? Or just keep saving, pay the loan down over time, and buy real estate in a year or two?

Thanks everyone.

[Account Closed]

@Chris Williams There are two answers. One is practical. The other is emotional. 

1) Practical - buy using Subject To in Phoenix or a similar market where you can receive your investment back at closing and cash flow for years on the same property. Rinse & Repeat. Once far enough ahead financially, pay off student loans. (This means not needing to use a bank for RE Investing.)

2) Emotional - I once had an engineer approach me. He wanted to try being a real estate investor. So, I consulted for him, located a property for him, bought it "Subject To",  took him step by step on how to do a fix & flip and we made a ton of money on the deal. He was stressed *every* month through the process because he had a mortgage. He constantly worried about missing his mortgage. Normally, I am sympathetic to this concern. In his case, he was single, had no kids, had a great income and a steady job and his mortgage was $178 a month. I spend more on gas in a week than he spent on his mortgage. He could have written a check and paid off his mortgage entirely. 

He couldn't see the house for the sub-division, to torture an old saying. As I said, we made a ton of money but the stress was too great for him and he never did another property. I had the deal structured so his down side loss at most would be a few thousand dollars and the upside was multiple tens of thousands of dollars each. He walked away with so much money, he figured it was all luck and couldn't be duplicated. To his surprise over the years, I've done these again and again and again and again.

The point being, if it stresses you out to spend money to make money, invent something and sell that instead of doing real estate. 

If your passion is to find the "right deal", making a lot of money, meeting great people, getting out from behind a desk, having a day to call your own and being able to travel or be with the family when you want to be, then real estate can provide that for you. The key will be to get over the emotional need to always have *safety*. Real estate is a **calculated** risk. If I don't know the outcome before I buy the property, I won't do the deal. But, I don't spend seven ways to sunday worrying about every possible thing that can go wrong. I've seen it all and there is always a way to turn things around and move on to the next one. Time & money go together. Sometimes I just have to wait to get my money out of the project but I always do get it. It is all part of my business plan in the section called "what if". ;-)