Using a 2.99% simple interest rate personal loan to invest

[Austin Cole]

This May my fiancée and I graduate college and will commission into the Air Force. Since we both did ROTC we each have access to USAAs career starter loan which is a $25,000 loan at an interest rate of 2.99%. If we take out the loan we have 6 months before the first payment is due. We have been thinking of using the $50,000(if we both take out the loan) along with money we have saved while in college to use as a way to fund our first BRRR deal, or a fix and flip.

Our question is would it be smart to take out this loan to get a head start on investing, or should we spend the next few years building the capital ourselves without taking out a loan?

[Ashton Cleveland]

Hi @Austin Cole - I’m an Air Force pilot and took out the Career Starter Loan when I arrived to SUPT with the exact same thing in mind and I don’t regret it at all. This was my thinking at the time:

• I would only use the loan for investment purposes. No Lt-mobile. 
• Since I knew the first couple years would be very busy in training (and I personally didn’t want to invest in the Columbus, MS market) - I would dollar cost average the money into the stock market (an S&P 500 index) as a place to park it and get a return while I waited to get into real estate. Here’s the risk involved with that:
  • If the market drops when you want to pull the money then you either accept the loss or are limited to using your own saved capital instead.
  • The money is slightly less accessible. 
  • You are assuming the market gets you at least a 2.99% return to cover the interest on the loan.

This is how its gone for me:

1. My wife and I now have 2 investment properties and I haven’t used a dime of the Starter loan. I’ve committed to putting half of each paycheck aside for investing since day 1 and it has allowed me to invest in these low-money-down deals without touching the original $25k. Saving capital will be even easier for you to accelerate being dual-mil.
2. I have been lucky and the stock market has really grown that $25k. At this point I don’t plan on ever pulling it back out. The basic question to ask yourself is, “do I believe I can get a greater return than 3% on this money?”

Other things I’ve heard from friends is using it to pay off loans with >3% interest rates or as a down payment for a house at their first assignment, with the latter being less common among those of us stationed at UPT bases or other short-assignments first. 

Something else to consider: in my experience you are going to have a hard time being so-easily granted $25k at 2.99% to do whatever you want with again, I recommend taking advantage of it before you’re outside the window.

I apologize for the long-winded answer. Bottom line: this loan is a great opportunity if you’re disciplined with it and have a plan.

If you’d like to chat about investing in the military, UPT or any other pilot-stuff please feel free to hit me up anytime! I’m still pretty new as well and learning as much as I can along side you.

Good luck in UPT! Study your a** off, and make sure you have fun along the way!