Tips for ( soon to be ) 24 y/o high income earner with high debt?

Question

Hello everyone!

I just made my account and am excited to become more involved on the forum. I've been listening to the podcasts for a couple weeks now and it is definitely making my commutes more enjoyable while teaching me a ton of new information.

I graduate from college in NJ next semester. After that, I am attending graduate school in order to become a Physician Assistant, which will leave me $100k in total student loans debt while also earning a starting salary of about $95-$100k a year at 24 years old.  My main goal in real estate is to establish a "passive"(I understand that it's not entirely passive and will most likely be on par with a part time job) flow of income so I don't have to work the classic 9-5 until I die, while also allowing me to have something that could potentially be passed down to my (future) kids.

I was wondering what tips everyone has for me. Pay my loans off as soon as possible and live like I'm broke for a couple years? Invest early?  Has anyone been in this situation before and if so how did you handle it? I read the book "The White Coat Investor" which was super useful but did not heavily discuss real estate options.

Russell Gronsky · Answer

What interest rate are you paying on your student loan debt? If you can cover that with a house hack, then do that instead of dumping all your cash into paying off the student loans. You will always have the opportunity to spend your own money so spend other people's money first. I'd look for a residential multi-family. Live in one unit (with room mates possibly) and rent out the other units entirely. Also, look for side hustles to boost the cash flow. Maybe you can turn a small basement into an AirBnB? Drive for Uber? Rent your car out? Do small tasks for people on task rabbit or similar site? Maybe you can build storage units/garages to rent on the new property you will own?

By buying a house, you will also be able to write off a large chunk of expenses since you'll be a property manager so you'll need an office space with internet, cell phone and utilities to be able to do your job properly. Talk to your CPA about all the write off stuff.

Grant Cardone says if you can't write it off, don't buy it. He is 100% right.

By buying a house, you will also be able to write off a large chunk of expenses since you'll be a property manager so you'll need an office space with internet, cell phone and utilities to be able to do your job properly. Talk to your CPA about all the write off stuff.

Grant Cardone says if you can't write it off, don't buy it. He is 100% right.

Nolan B. · Answer

@Russell Gronsky - That's an interesting way to look at it. If I take ten years to pay off $100,000 at 6.6%(assuming I can't refinance to a lower %, just to be safe) with monthly payments of $1140 , then I will pay $36,903 in total interest over the course of the loan. If I live like I'm broke for 3 years and pay $3069 a month for 36 months, I will pay $10,500 in overall interest on the loan. That's paying about an extra $26,000 in total interest for the extra 7 years of time to pay the loan off. So essentially, the question is if paying that $26k in extra interest over the course of 7 years is worth having that extra ($3069-$1140)   $1929 a month for three years and if investing that $1929 a month would result in more than that extra $26,000 of interest I will be accruing for not putting it towards my loan.  I'm not crazy good with interests so someone correct me if I'm wrong there. Thanks for the advice on what to do for the first couple years out of school as well.

@Bill Goodland - Hey Bill! After some research on FHA loans it does look like this two year employment history doesn't apply so much to recently graduated students which is awesome. "Crossing that bridge when I get there" is something I really have to work on because I always see myself planning too far in advance. Frugal living is definitely nonnegotiable, but I am wondering if it would be more lucrative to live frugally and pay off my loan ASAP or if it would be more beneficial to drag that loan out for ten years and increasing the overall interest paid while house hacking ASAP.

The ability to work a 3 12 hour shift schedule is very important to me! This is definitely something that I'll be looking for in a job once I graduate, but like you said, I have to cross that bridge when I get there. It would be great to have those four days a week off in order to do other things I enjoy and to put time towards real estate investing as well. I've heard of many people refinancing to lower rates but have heard that this takes away the different benefits of having a federal loan. I'm not actually sure what these benefits actually are, so I do plan on refinancing after graduation.

I would love to meet up sometime to discuss both PA school and your real estate goals! I'm about an hour out of philly.

@Dennis M. Thanks for the advice! I agree that I should work on taking things one step at a time, lol.

@Alina Trigub I joined! Would love to begin networking.

@Dave Foster Hi Dave! I do love medicine, and while I have not personally been involved in any deals or the like, from all of my reading and listening I am sure I'd like real estate as well. It is true that I should learn how to be good at my primary job first, then worry about physically working on real estate. However, while I'm not ready to physically strike any deals yet, I'd love to continue learning until I am ready to dive in. Looking at getting rid of any debts owed against me as a side job is actually really eye opening, thanks for that!

Dave Foster · Answer

@Nolan Brodskiy, do you love real estate or do you love medicine?  In both cases you're at the steep end of the learning curve and it might not be best to take on two passions simultaneously?  There's plenty of time to develop your real estate self once you stabilized your finances and career.   Especially since all I'm hearing right now just equates to arbitrage on the student loans you don't pay back.  Leaving 6.6% debt in place so you can hopefully make 8% as a new real estate investor isn't a return that I'd feel great about risking much for.

Yes it's not sexy and yes you may pay a little more when you finally do dip your feet into real estate (or not - you'd be buying into the top right now anyway).  But pay off your student loans.  Get good at what you're real career is.  Position yourself through financial betterment and education so you'll be ready to invest when the time is right.

We just conducted an 18 month experiment and had a young optometrist fresh out of school live with us while he established his practice.  The deal was he didn't buy stupid stuff and paid everything on his student loans.  And we charged him next to nothing for room and board.  18 months later he's paid off $125K of student loans.  That's the same thing as doing a side job that pays you $14,000/year (accounting for income taxes).  He's debt free and now is having a ball learning about real estate, buying his own practice, and enjoying having people beg him to borrow money rather than the opposite.  The world is his oyster!

Patience and discipline will be your friend

Kent Hall · Answer

I would say follow the WCI advise on paying down your debt and "living like a resident". You could also add a house hack in to try and have your mortgage/cost of housing be as low as attainable.

Then after your debt is paid off (hopefully 2-3 years after you finish your training), keep on living frugally (no need to buy a Porsche just because all your loans are paid off) and direct the extra capital toward your RE investing.

Hope that helps, best of luck, sounds like you are on a good path.

Alina Trigub · Answer

@Nolan Brodskiy

Congrats on deciding to start investing in Real Estate at such early age! It's good to hear you're doing your research now. I'd also suggest speaking with some local mortgage brokers and RE agents to give you an idea of how much you'd need/qualify and what your options are. As a food for thought, if you personally are not qualified for a loan, perhaps you can ask your parents to sign off on it with you. I don't know whether this is allowed for FHA, so that's for you to find out. So essentially start networking with local NJ investors and building your team around the area where you want to buy a property. We have a meetup in NJ - you're welcome to join us. You can find it under my profile. I can also suggest other groups for you to join if you PM me.

Best!

Bill Goodland · Answer

Hey Nolan, love where your heads at man. I’m in a similar boat just a few years ahead of you. I’m graduating from PA school next year and plan to buy a househack right away and start building a portfolio. What everyone else said I agree with for the most part, in that you should keep your expenses low and look to househack.

I do however believe that since you will be making good income out of grad school and want to buy right away, as long as your debt to income ratio is okay and you have proof that you were recently in school, there should be no reason why you wouldn’t get approved. 2 years employment requirement doesn’t apply to recent students and more so to protect banks from the independent contractor worker type that can have extreme swings in income that can be more risky for the bank to loan on. That is my understanding of it at least. You can always talk to a lender, but cross that bridge when you come to it. For right now, focus on educating yourself and making connection both in the REI world and healthcare world. Seems like you have a decent enough head on your shoulders to know that living relatively frugally and house hacking is the way to go when you’re starting out.

My personal recommendations as a future PA though, is look for jobs that will allow you to work 3 12 hour shifts a week as your full time job. That gives you the flexibility to work on your real estate on your 4 days off, travel, or pick up extra shifts at what I’m seeing for new grad per diem rates at closer to $65-70 an hour($50 is more of an hourly rate for salaried employees with benefits attached). May not be ideal when the 12 hour shifts may include nights and weekends, but if you did that for a few years and worked your butt off, there’s no reason you can’t reach financial independence by 30. That is my plan and along with househacking to decreasing my expenses drastically by eliminating a rent payment and my goal is to gross 160k my first full year out between my full time job and extra money from per diem shifts. That leaves a large buffer to either pay off loans or invest. What I plan on doing and recommend you do the same is try and refi to a lower rate. If you can refi to high 4’s or low 5’s, why not do that and build cash flow to cover the payments on your student loans? No reason you can’t achieve double digit cash on cash returns from REI and start building the cash flow from the get go.

I’m in the philly area and would love to chat sometime and hear about where you’re going to school and what you’re plans are. Best of luck.

Russell Gronsky · Answer

6.6% interest and you have 10 years to re-pay the student loans, I'm assuming? IF so, your monthly will be around $1,140. IF you can take longer to pay back the note, your monthly will obviously be less. After taxes on your 100k salary, you'll probably take home around 70K-ish? I don't know what NJ taxes are but I'm ballparking 30% for taxes. That gives you around $5,500-$5,700 per month income before medical and whatever other "must pay" bills. Plenty of money to go around for your investing goals.

Banks generally want to see 2 years of steady w2 income and a FICO of 720+ to get the best rates so in the mean time, make your monthly student loan payments (don't pay more than the minimum required right now, save the cash and let your future property pay the note in 2 years), keep credit card debt low and save as much money as possible from your main job and your side hustle. Shoot for a minimum of 10% of your gross annual income from the main and side hustle but obviously, the more you can save, the better off you'll be and the faster you'll be able to expand.

For those first 2 years, move in with a room mate into a B or C class apartment that is convenient for you to get to/from work. This is just for 2 years and you should be pretty busy with your main job and side hustle so you won't miss the luxuries of high end finishes or a pool in a fancy apartment building that will charge you top dollar for rent.

When you are ready to buy your residential multi-family, you'll be a first-time home buyer so you'll be able to qualify for a 3% down or a 5% down loan plus closing costs (I usually estimate 3% of purchase price for this) so keep track of what the prices are in the area you want to buy and make sure you have that at least that much when the 2-year mark comes around. NJ has high taxes so maybe you will need to budget more for closing costs than 3%. Look into that.

Pretty soon, you'll be closing on your first property and looking for renters!

A house hack is when you do 1 of 3 things: 1. Buy a house and live in 1 room while renting the other rooms. 2. Buy a multi-family residence and live in 1 apartment while renting out the other ones. 3. Some combination of 1 and 2.

Buying a cheap house and living in it while doing renovations is called a live-in flip (if you plan to sell it once you're done) or simply a renovation to your residence if you plan on keeping it and/or renting it out once the renovation is complete.

I would recommend finding a 4-unit property that is ready to be rented but has a dated interior/exterior or as you put it, an "old property". Rent out 3 units and live in the 4th unit.

The reason I recommend this approach is that you will have 3 and when you eventually move out, you'll have 4 units to spread risk across, instead of just 1 unit as you would with a single family house.

Once you have everything rented, I would start doing renovations so the  property looks updated, will command higher rent and you can cash-out  refi to pull equity out and use it for your next property purchase.

Pete S. · Answer

@nolan It may be worth your time to look into a Physician Mortgage. Most banks and credit unions offer some variation but the gist is 0% down, no PMI, considerably more lenient DTI ratio requirements, all you need is a contract to prove future income. Most require the place be your primary residence (some allow for 2nd home) and while most are for single family only, there are some out there for multifamily.

Every institution slaps the label "Physician/Doctor Loan/Mortgage" on the loan but they are usually structured pretty differently (keep an eye out for variable interest rates etc). When I did my shopping, I made  a big excel sheet comparing ~30 of them. First question you would want to ask is if PAs apply, I believe I saw a few that did offer them.

Good luck in your medical and REI careers, both will be rewarding!

Craig Jeppesen · Answer

First get the job, second save up the 3.5% down pmt for an fha loan on a duplex or fourplex that you can house hack. Live super cheap for 2 years and pay off the student debt. Next stay out of debt and use your income to grow your re and other investments portfolio. You can qualify for a mortgage with up to a 43% debt to income ratio although you don’t want to go that high. Take your monthly debt payments including the new mortgage and divide by your gross monthly income. This will determine if you can get into a fourplex vs a duplex. I am guessing your student loan payments will be around 800 a month so you could qualify for around a 2800 monthly mortgage although I would stay below $2000. in my area you can buy a 4 plex for about $1500 a month and three units would rent out for $2000 ish. You could easily pay off your loans in 2 years.

Tips for ( soon to be ) 24 y/o high income earner with high debt?

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