Selling Rental to Pay off Crazy Student Loan

[Samantha Springs]

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!

[Samantha Springs]

Quote from @Jamie Jones:

Quote from @V.G Jason:

You should have never bought a rental until you paid off such loans. I think the only "debt" someone should have before investing in physical real estate is maybe their own primary home mortgage, but that's it. If you have any other debt, don't invest in physical RE. You got caught leveraging upon leveraging in the historically low, low interest rate environment. That's not forever, and you're going to learn the hard way. Sell the rental, pay off all debt(s) you have. Then invest in a position of strength. Quit thinking mathematically, think behaviorally.  

 You say she should never have bought a rental until she paid off such loans. However, my guess is she probably would have never been able to pay off the debt if she had not purchased the rental. Sounds to me like she made a very wise decision to purchase when she did, and can now compound that decision into freeing herself from that large amount of debt. I do agree that people should invest from a position of financial strength but with that amount of student debt, she likely has a decent paying job and (even with the student loans) was able to purchase an investment property in one of the country's most expensive market. That doesn't sound like a place of weakness to me. It would be different if she was talking about six figure credit card or multiple pay-day loans. 

Great job @Samantha Springs

Thank you! I did the best I could with the information I had at the time and I generally feel very good about the purchase.