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Updated over 1 year ago,
Selling Rental to Pay off Crazy Student Loan
Hi BP Fam! I am considering selling my duplex to pay off my insane student loans and would love to hear from the BP brain trust.
My student loans are $355K total with a 7.5% interest rate. Once repayment starts in October, I will pay about $1,300 monthly (but that will increase as my income increases, which it will continue to do as I get regular raises and have a promotion coming in the near future). I am about 10 years from payoff given the loan repayment program I am in.
My partner and I are currently renting in Los Angeles and intend to continue (interest rates and home prices are too high for it to make sense for us right now) and the duplex is also in Los Angeles. My current interest rate on the duplex is 2.75% (bought during COVID, what a time).
I would only sell if I could pay off my loans in their entirety, which would require a sale price of about $1.1M (which I think is doable in this market) and I owe about $737K. I have owned for almost 3 years and I lived in it for the first 2.5, so I would be exempt from a large portion of the capital gains, though I know depreciation recapture is a consideration.
I just started renting out the front unit on a medium term basis and combined with the long term rent in the back unit, I about break even right now, but could hope to cash flow around $200/month (on the conservative side) once I get more reviews and stays under my belt.
From a non-financial perspective, I am not loving the property management aspect of the home as it is not in a great neighborhood and even as the best AirBnb host ever, there are environmental factors that I can't control. My goal is to start investing out of state where I can do much more with my money and afford to pay a property manager, cash flow in a more meaningful way, and generate passive income to subsidize (and maybe eventually replace) my W2 income.
Should I sell to payoff the debt or keep it and keep paying on my student loans? Or do something else? Any thoughts are welcome!