Using Rentals to Pay For Student Loans

[Benjamin Ford]

I went to school and earned two engineering degrees (BS and MS). Then, being the glutton for punishment I am, I continued on to law school. This was not a series of random choices. Rather, there was a method to the madness, I wanted to be a patent attorney. In college, while I was choosing a major, there were several aspects of this career that appealed to me, not the least of which was a six-figure salary and 40-50 hour work week. I was fortunate to not have incurred any student debt during undergrad. Unfortunately, I took on substantial debt during my masters and law degree. 

My student loans are quite cumbersome. If I were to take a non income based repayment plan with a 10 year repayment period, my payment would exceed $5,000 per month. If I elongated the repayment period to 20 years, the payment would be just over $3,000 per month. Despite having a pretty good salary, all the student debt I have qualifies me for an income based repayment plan that offers reduced payment amounts in the neighborhood of $1,000 per month. After 20 years of qualifying payments, my remaining balance will, hopefully, be forgiven. 

At some point during my formal education, I found Bigger Pockets and have become a faithful disciple in pursuit of financial freedom. Several of my peers and many of the posts in the forum suggest paying off student loans as fast as you can. While I don't think that is a bad plan, and is probably great advice for most people, I have chosen a different route. 

After beginning my career as a patent attorney, my wife and I bought our first house specifically with the intent of turning it into a rental. Because it was our primary residence we were able to get favorable terms on the loan and initially invested about $30k. After a year of living there, we moved out and began renting it. The property currently cash flows just under $500 month. After saving our money for a year or so, we put down $55k and are about to close on a multifamily property that will conservatively cash flow about $500. 

This strategy excites me because for the price of $85k I have bought two assets that will take care of my $300k in student loans. Critics will argue that it is not entirely passive, or that I am taking a risk that the forgiveness offered by my repayment plan may not exist in 20 years, or that I would have been better off taking the $85k and paying down my loans. While those may be true, knowing myself, it seemed far more risky to not be making investments and becoming complacent in a life without taking action toward financial independence. Every week I listen to the podcast and hear the question about what makes people give up or never get started. I desperately did not want to become that person, and I knew that by delaying my real estate investing career several years to pay off my student loans, would significantly increase my chances of becoming one of those people. For me personally, the risk of becoming someone who doesn't start, is more dangerous than the risk of relying on an income based repay plan.