Use property to pay for student loan/car?

Question

Hey guys! So I just sold my property, and my wife and I are planning on getting rid of all our debt and still have cash left over to invest. My question is, do you think I should just pay off the student loan/ car right away ($100k) OR use that money buy a foreclosure for $60k and rehab it no more than $40k, refi, use that money to pay off loans and rent out the property. The latter seems pretty obvious to me lol but I'd like some confirmation. What do you guys think?

Tj M. · Answer

@Sue K.

I have found that a lot credit score advice is not quite true. I have not had any consumer debt in many years. I only have 1 mortgage currently and use a credit card for only online purchases that I pay off in less than 30 days. My credit score is in the 800’s most the time. Being out of consumer debt would be my advice to the OP.

Nicole Heasley Beitenman · Answer

My student loans are getting in the way of EVERYTHING. I want more properties, but I'm committing to putting my spare cash into my SL's for the next ~3 years. Wish I would have done it sooner. I can partner if I want to do more deals.

Steve Vaughan · Answer

Same here.  No consumer debt but high score.  Don't chase a score.

Personally I'd sell or pay off the car.  The student loans I would at least pay off the highest rate or smallest loan depending how they are structured.

Cash is nice to have to buy and rehab without hassles or borrowing costs.  Each one saves me 45 days of pain and at least $3k.  Leverage is not free.

Derek Harris · Answer

It depends on your current DTI ratio and what kind of interest rates you are currently paying. Me personally, if I was in your situation and the DTI ratio and interest rates were not a factor, I'd maximize my leverage and purchase a MF property preferably one that I could househack. Is there a reason you would pay all cash for a foreclosure and all cash for the rehab?

Victor Bradford · Answer

@Derek Harris thanks for your comment!

Ideally I would buy a multi-family home preferably a triplex so one unit could pay the mortgage the other unit could pay the bills and I would live in the third unit.

also we don't want to just pay the bills because obviously we're paying interest over time we want to just pay it off, so by buying a house cash with the same amount the arv of the property would still be significant after getting a cash out refi. This way we have zero debt except for the mortgage which is not bad debt and it's a small mortgage that's being paid by someone else and still cash flows well.

Account Closed · Answer

Paying off the debts may affect your credit score negatively.  If you're going to need your score to stay high for mortgage loans, you might want to read up on managing your score.  I'm reading Your Score by Anthony Davenport right now.  He also has a company that advises people on managing their credit score and profile.  At any rate, since I'm reading this book and learned your score is higher when you have all types of open accounts - revolving, mortgage, installment, car, student loans, etc. - it occurred to me that you might want to check that out before you pay everything off.

Or maybe just pay them down some, but not completely?

Account Closed · Answer

YES! Pay off the loans

Victor Bradford · Answer

I really appreciate it everyone! Thank you!

Will Fraser · Answer

@Victor Bradford I think a lot of this is going to come down to what you and your family values.  For example, if you guys value be "free" from the lender and you want to be moving towards an "all cash" lifestyle in which you'll NEVER have a creditor's "due" showing up every month, then that's a pretty clear path forward.

If, however, you value scaling to X point, then you'll likely get there faster and easier using leverage than not using leverage and you might find that the $100k is better used with RE investments while you continue to pay a 3-6% rate on your student and car loans.

There really isn't a one-size-fits-all solution here, but rather it is going to depend on what you value.  So, this could be a great opportunity to have those talks and really home in on what you value as a family.

Theresa Harris · Answer

@Victor Bradford  Look at the numbers.  If the interest on the car loan and student loans are low and you can get a higher return on your money by buying a rental, then I'd go that route.

Use property to pay for student loan/car?

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