Student loans, pay them off before investing?

[Christian Albright]

Hi BP,

I have about 20k in student loans that I’m due to start paying in September of 2020. I plan on having a job that pays ~60k a year by then. I have about 11k in savings and want to time it so I can start house hacking right away. Does it make sense to do this or should I pay off all my loans first to lower the amount of money coming out of my paycheck each month. It might help to know that I do paying off the loan amount asap (within 18 months of starting payments). Any advice is appreciated!

[Craig Curelop]

@Christian Albright - I talk a little bit about this in BP Money Podcast Episode 35. My short answer here is you should pay your minimum payments and start house hacking. My reasoning is:

1. With House Hacking your returns are typically 100%+ after cash flow, rent savings, and appreciation. If I had to guess, your student loans are maximum around 7% which is your return when paying off your loans. You will get much richer much faster by house hacking vs. paying off your student loans. 

2. If you have $20k in student loans, how long will that take to pay off? I know very little about your financial position and savings rate, but if you can save about $1,000 a month, that's almost 2 years before getting your first house hack. For perspective, I became "financially independent" after 2.5 years of house hacking in Denver. 

3. Here's an example of what I did. I purchased my first two house hacks before making a single additional payment on my student loans. Returns on both deals well over 100%. After the second property, I started taking any side hustle money I made and applied that towards student loans while saving the same amount from my W2 and rental properties. That allowed me to purchase a 3rd exactly one year later. 

My best advice is: if paying off your student loans interferes with house hacking. Do not do it. If you can pay off your student loans AND house hack, by all means go ahead. Hope this helps!