Buying Investment Properties with student debt

[Brady Boyer]

My name is Brady and I just graduated from Penn State this May. I will be moving to NYC in August, and I am eager to start investing in real estate as soon as possible. I have been reading books about real estate since high school and took numerous real estate classes in college. I want to use a buy and hold strategy once I start investing.

My issue, and what I want to get your opinion on, is that I have about $60,000 in student debt. My plan is to try and pay this down aggressively until I get the balance down to around $20,000 (which I anticipate taking 4-5 years) and then try to start buying investment properties. While paying down the debt, I have also budgeted to save 15% of my income, so that when I get my debt down to around $20,000 I will have built up enough money for a down payment on an investment property. My reasoning for this plan is that I don’t want to take on too much risk with that much debt, and I am skeptical if I would even qualify for a loan with that much debt as a new investor. What are your opinions about this plan? Do you have any suggestions? Has anyone else experienced a similar situation?

In the meantime I would like to start getting familiar with the NYC market and surrounding boroughs. Does anyone have any suggestions on which markets outside of NYC work best for a buy and hold strategy?

[Dan Schwartz]

Know your numbers. If you're $60K in debt, and it's Stafford loans at 6.8%, your payment for a 10-year repayment plan will be $690 per month. Divide by .43 to find out how much income that consumes at 43% DTI.

You are going to pay your loans off aggressively. Awesome. If you have enough discipline, could you refinance (do they allow that anymore?) into a longer term, thus bringing your required monthly payment down? If you can take the same loan to 20 years, the required monthly payment is $458 and your DTI consumed by student loans comes down proportionally. You HAVE to be able to stick to your accelerated plan, though!

Why go for the lower monthly payments, even though you'll be paying at least 2x minimum towards the loan each month? Because when you find its time to buy a property, you want your DTI Impact to be as small as possible.

Living in NYC is going to be a blast, but is unlikely to help your finances. Hope you have a great paying job there!!!

Good luck!!!