Invest or Pay Down Debt?

Question

Hi Everyone,

My name is Shawn and I'm new to real estate investing. I am curious your thoughts as to whether it makes more sense to pay down all of my student loans, invest, or a mix of both. Currently, my wife and I have one rental (cash flow of around $250/month) in South Carolina and I have six figure student loan debt (interest rate around 6.9% for consolidated loans). We both are fortunate to not have any other bad debt and have good paying jobs. We are currently operating off of just living on one partner's income while we use the other for savings, debt payment, etc. Would it make more sense to attack all of the student loan debt prior to looking for another rental or put some of the income toward a down payment on a new rental. Thank you for your time and responses in advance!

John Underwood · Answer

Never wait to invest or there will always be a reason to get in the way.

Bruce Woodruff · Answer

Both. Do everything you can to get out of that horrible debt ASAP. But keep looking for deals, fixer uppers, etc....

Brandon Plombon · Answer

Personally I'd invest in RE and use excess cashflow from properties to pay down your debt. It's essentially doing both but investing first for the cashflow and using the property to make your payments each month on the student loans.

Shawn Saylors · Answer

The doctorate is in psychology and the goal is to open up a private practice while also investing in real estate. We are currently renting but ideally would like own at some point in the next two years.

Reid Chauvin · Answer

I would strongly consider focusing on tackling the student loan debt first with that interest rate. It is not guaranteed that you will be able to achieve a return in excess of 6.9% on a rental, (though if you find a 'no brainer' then it warrants some consideration).

George Lay · Answer

@Shawn Saylors investments will grow over time. The debt will remain the same (assuming you’re making interest payments)

John Morgan · Answer

@Shawn Saylors

Put 20% down on a property. You’ll make 80% or more ROI on your cash when you factor in monthly cash flow, principal pay down and 5% appreciation. Invest in RE at the same time as paying off that debt.

Alex Abbott · Answer

I'm extremely debt adverse, my vote is to pay off a significant amount down on the student loan. Taking a short time to knock that debt out will free up more income afterwards for investing. If it takes you 2, 3, 4 years to get it paid off you'll have all the time in the world after that to make smarter, less riskier investments for the future. Just my 2 cents though!

To piggyback off the last response, don't wait for the government to wave a magic wand and make your debt go away. They can't even get their own finances in order, take control of your own future! Good luck!

Bruce Woodruff · Answer

During the lead up to the election, they were talking anywhere from total forgiveness to $50k. Now that reality has reared it's ugly head, they are having trouble agreeing on even $10k.....I would not waste any hope on much happening, they all promise big and deliver little.

Shawn Saylors · Answer

I appreciate all of your responses so far and insights. Since I'm thankful my wife does not have any student loans in her name we were toying with the idea of getting a potential investment in her name as a way to aid in the DTI Ratio. The 6.9% for the student loans in an average of the consolidation I did many years back. It will be interesting to see what the government does in the next few moments as to whether they will extend the loan freeze or not. Additionally, there is the potential that my income will change and drop about this time next year as I have to finish up a few things school related. Therefore, I am debating how best to maximize the next 13-14 months with our current income and savings. We have already built an emergency fund and want to put our best foot forward.

Invest or Pay Down Debt?

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