Student loan Pay off or another investment property? advise

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Student loan Pay off or another investment property? advise

Nick Ritter
St. Paul, MN · Member since 2017 · 11 posts · 0 votes

Hi BP,

Recently in January I closed on my first duplex with a 10% conventional loan and im currently living in the smaller unit cash flowing $150 per month after all expenses ! Fixing it up along the way here and there remodeled the bathrooms etc adding equity/ BRRR basically. Anyways my question is I have about $38,500 in student loans (government) I have been out of college for about 1.5 years now good job as an engineer been saving money living frugal driving a clunker car etc. Wondering if I should go ahead and use the $44,000 I have saved (if I cash out refinance it will pull out 19k of that total amount) and start looking for another investment property with an FHA loan or another 10% conventional to help increase cash flow. My loan payment is $190 a month for 30 years I believe, no car payments.

I'm leaning on growing the portfolio more, on the other hand it would be nice to get my loans out of the way and be stress free in that department  

which would you all do and why ? if anyone has been in this situation before your advise is greatly appreciated.

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Account Closed
Investor · Havre De Grace, MD · Member since 2017 · 71 posts · 54 votes
8y

@Nick Ritter

Maybe frame your student loan debt like a deal. 

Compare your rate of return from the pay off versus investing in a property. Or maybe a partial payment (to make yourself more bankable) while ensuring you have the capital to buy a new place using that leverage. 

Then calculate cash on cash return and see how you feel. 

Congrats for being in this position!

Good Luck Nick!

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Nick Ritter what’s the interest rate on the student debt?
    0Reply
  • Account Closed
    Investor · Havre De Grace, MD · Member since 2017 · 71 posts · 54 votes
    8y

    @Nick Ritter

    Maybe frame your student loan debt like a deal. 

    Compare your rate of return from the pay off versus investing in a property. Or maybe a partial payment (to make yourself more bankable) while ensuring you have the capital to buy a new place using that leverage. 

    Then calculate cash on cash return and see how you feel. 

    Congrats for being in this position!

    Good Luck Nick!

    2Reply
  • Nick Ritter
    OP
    St. Paul, MN · Member since 2017 · 11 posts · 0 votes
    8y
    Originally posted by @Caleb Heimsoth:

    Nick Ritter what’s the interest rate on the student debt?

     Totally forgot to add that in.... super important, all loans very from 3.5% to 9% they average about 6.5% across the board there are some that were un-sub and some that were sub. reason for varying interest rates

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Nick Ritter that’s a huge range.  I would vote to pay anything over 6 percent off.  Especially 9 percent.  That’s a gauarantee return that you may or may not beat in real estate 

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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    8y

    Great question and look forward to other peoples responses. I was in the same situation last month with $15K in student loans. I decided to pay the loans off. My reasoning was my DTI ratio since my income isn't that great. I'm working two jobs but want to leverage debt on a future property. Another part is paying off the loans should improve my credit score. Also, the interest rates on my student loans were 4.5-6.9%! That's higher than a fixed rate mortgage so I feel I made the right choice. 

    1Reply
  • Nick Ritter
    OP
    St. Paul, MN · Member since 2017 · 11 posts · 0 votes
    8y
    Originally posted by @Jaron Walling:

    Great question and look forward to other peoples responses. I was in the same situation last month with $15K in student loans. I decided to pay the loans off. My reasoning was my DTI ratio since my income isn't that great. I'm working two jobs but want to leverage debt on a future property. Another part is paying off the loans should improve my credit score. Also, the interest rates on my student loans were 4.5-6.9%! That's higher than a fixed rate mortgage so I feel I made the right choice. 

     Definitely, I just don't like debt that is permanent if that makes sense, If I don't want a property I can sell it. student loans on the other hand are forever they'll never go away even if you go bankrupt. I just don't like that idea.

    0Reply
  • Nick Ritter
    OP
    St. Paul, MN · Member since 2017 · 11 posts · 0 votes
    8y
    Originally posted by @Caleb Heimsoth:

    @Nick Ritter that’s a huge range.  I would vote to pay anything over 6 percent off.  Especially 9 percent.  That’s a gauarantee return that you may or may not beat in real estate 

     I was told to work on the higher interest debt first luckily the higher interest rates are the ones with less debt they're around 10k or less of the makeup of the loan the majority of the loan is at a 3.5% rate.

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    that’s good.  So pay that off to start then go from there 

    0Reply
  • Ryan D.
    Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
    8y
    Nick, consider this: You have an outstanding (student) debt of $38,500, for which you have to make monthly payments of $190 for the next 20 years. If you have $38,500 in cash in your pocket, you can pay off the loans right now, & in 20 years have absolutely nothing to show for that $38,500 - it’s gone, poof, vanished, you’ll never see it again. BUT, you have eliminated the stress associated with the loans. Your 2nd option would be to invest that $38,500 in a property making a 10% CCR, which gives you $320/month cash profit. Make the student loan payments front this, and you will still have $130 left in your pocket every month. In 20 years, your student loans will be paid off, you will have 20 years worth of cash flow profits in your bank account, a largely paid off property, all the appreciated equity on your balance sheet, PLUS you will still have your original $38,500. For all this, you will have had to take one some extra work, & deal with the stress of having the student loans for the full 20 years. You decide for yourself which option will yield the better results for you. Keep in mind, that the easy road may be less work/stress, but it never leads to wealth.
    1Reply
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