Rental Property Investor · Jacksonville, FL · Member since 2016 · 20 posts · 5 votes
Hello Everyone...
Financial matters can be such an emotional decision. I have some cash savings along with a modest investment property and a primary residence. I own both properties outright with no mortgage payments. I am saving in a 401k for retirement as well. What I do owe is student loans, and I would like to pursue a Master's degree this fall, which will cost almost $20k over the next two years. A portion of the student loans are private loans through Navient, formerly Sallie Mae, and the rest are federal.
I have almost $20k in cash sitting on the sidelines waiting for the right opportunity.
I could potentially pay down a significant portion of my student loan debt right now, that altogether totals over $60k. I could rehab a property and either rent it out or sell it after the rehab is complete. I could also pay outright for my schooling come August and avoid getting any more student loans.
My main hope is to free myself from the rat race as quickly as possible. I want to pursue an advanced degree so that I can teach in college. I keep my expenses low and I am generally happy with things that way. I want to own a multifamily property, or several, which have some solid cash flow and not depend on a full time job to sustain my expenses.
I am emotionally torn between paying off student loans and holding on to cash and waiting for the right future investment opportunities. I am not quite sure what I would like to do and wondered if anyone had some thoughts.
Real Estate Investor · Arlington, VA · Member since 2016 · 84 posts · 26 votes
9y
@Josh Collins has some interesting points. Education is great, but what is your goal for it? There is often much cheaper ways to get an equivalent or better education than is taught in colleges. There are so many books, podcasts, and free courses out there now, this is the age of the Internet and free information after all! While going to a university program is certainly the easier, pre-packaged option, it's not always the best.
For instance, if you are going to get a business degree you could go to a business school and go into debt, sure. Or you could go into the same amount of debt and do self study and start your own business, learning on the job. At the end of the master's program you will definitely be in more, while if you start your own business, you might fail and end up in the same amount of debt, or you could succeed and actually make money.It's higher risk, but also higher reward.
The do-it-yourself approach is almost always the cheaper, but riskier and more difficult, than the pay to play approach. It also usually has greater rewards. It's true in education, real estate investing (turnkey vs flipping), business (self-employed vs 9-5), and more. I'm not saying that getting a Master's is a bad thing to do, it may be exactly the right fit for you at exactly the right price, especially if your goal is to get a teaching job in a University. I just don't think anything should be taken for granted, there's no "right" way to do things, and you don't explore all the options with an open mind, you'll never know which one is truly best for you.
Education is absolutely the best investment you can make, but there are many ways to get an education and it is often less expensive than people think.
Roseland, NJ · Member since 2017 · 11 posts · 4 votes
9y
As an alternative, you could also invest in real estate using your retirement funds. Self-directed retirement plans allow for investors to choose alternative investments, like real estate. If you have an employer sponsored 401k plan you can ask if you can roll it over into a self-directed account to invest how you see fit. Depends entirely on what you would like to do, but I just wanted to present another option.
Best of luck and if you have any questions on self-directed plans please feel free to contact me.
Investor · Stamford, CT · Member since 2015 · 33 posts · 16 votes
9y
Why not cash out some equity from the investment property.? You could use that to further your real estate investing. I wouldn't spend my last 20k on an investment with plans like going to grad school.
Rental Property Investor · Toronto, Ontario · Member since 2012 · 538 posts · 298 votes
9y
As you said, this is an emotional decision and there is no 'right' answer except the one you come up with for yourself. Having said that there are a couple of approaches that may help you;
The strictly analytical approach would be to look at ROI; what is the return of each of your options. Loan repayment reduces debt service and allows for further / faster other loan reduction. Investment creates new income streams which can be used to repay debt. This approach is all analytical and depends on the interest rates you are currently paying and the interest on loan options. You want to use the lowest cost debt option for the highest available return.
Another approach would be to first consider your comfort / tolerance for debt. If you did invest and / or did take on more debt for education; will you be able to sleep at night. Investing will increase your risk. For most people, additional debt causes some stress. If things go sideways for whatever reason, will you be able to deal with it? Understanding how these decisions affect you can go a long way towards making a decision.
For me, I believe that education is the best investment you can make in yourself and so would either pay down past student debt or pre-pay new education debt based on the interest rates of the two.
Rental Property Investor · Jacksonville, FL · Member since 2016 · 20 posts · 5 votes
9y
These are all excellent thoughts and I appreciate the perspective that others can bring to the situation. Thank you all very much!
One potential obstacle that I have with pulling out equity or getting loans other than student loans in general is the fact that I have a bankruptcy/short sale on my credit record from a previous investment property that I acquired prior to 2008. I ended up being upside down and took advantage of an offer from the mortgage holder to short sale the property in 2012. I have found it extremely difficult to get funding since, which is entirely understandable. That would be a great idea if I can find a way to overcome that obstacle.
The private student loans that I have are at 10.25% and 8.25% variable rates and slowly on the rise. The others are federal, fixed rate with a high of around 7%. I am not too worried about the federal loans but the private loans cause some stress.
I think I like the idea of funding new investment, but that may not be the most advantageous option.
Contractor · Staten Island, NY · Member since 2016 · 147 posts · 38 votes
9y
Quick question about where to find the initial funding for a down payment on an investment property. Is it looked down on to get the money from a hard money lender for a 20% down payment on an investment property? Or should I try and see what I can take from my retirement account or my annuity fund? I've literally have gotten hung up on from lenders I called this morning. I googled hard money lenders in my area and went down the list calling each one. Got to number 5 on the lit and said to myself let me jump on the forums and see what everyone else thinks. Thanks everyone
Lender · Morgan Hill, CA · Member since 2015 · 55 posts · 24 votes
9y
@Benjamin Small Congrats on getting to this point! Many have made good points already, but I would recommend that you take your $20k and find a 2-6 plex to purchase. If you want to get into living comfortably multifamily is where you need your experience. There are lots of podcasts, posts and whatnot here on BP talking about the BRRRR method and others. If you can buy a multi family, live in one of the units and get the others rented while you fix it up and bring up the value, you can rent your current primary and have 3 or more doors to live off of. Then either 1031 the first or buy another with the stockpiled cash flow.
I'd also try and convert your 401k into an SDIRA. Just my opinion there, but leaving your money to someone else to manage is a sure fire way to lose it. @Brian Eastman was very helpful in helping me out. Again, my two cents.
If I were you I would look harder to find a way to refinance your existing properties. You are presently loosing a boat load of money by having properties with dead equity. Very sad to see cash wallowing away the way it is.
As for your student loans they are bad debt that you need to eliminate. Refinance the rental and pay off your student loans, if there is anything left invest in another rental.
Look harder to resolve your problem. You can not let your money in the rental or your home languish any longer. Search out mortgage brokers.
Rental Property Investor · Jacksonville, FL · Member since 2016 · 20 posts · 5 votes
9y
I would really, really like to get in to multifamily properties. That is the long term goal for sure.
Does anyone have any recommendation for overcoming the financing hurdle? @Thomas S. That is an awesome suggestion. Thank you for that. I do not like my 401k except for the company match. I invest only enough to fully maximize their match.
Claremore, OK · Member since 2011 · 65 posts · 23 votes
9y
I know I am new here and other than flipping mobile homes don't really have a lot of experience but after reading @Brandon Turner 7 figures in 7 years, wouldn't a better idea be to buy a cash flowing 4plex and use the cash flow to pay down student loan. Not trying to do the 7 years to 7 figures, but instead just investing in a 4plex for cash flow to pay down debt thing I think would be the much better choice because even if the cash flow was only $600 and paying the rest out of pocket, as rents go up, the out of pocket goes down, and the cash flow to pay down debt goes goes up as rent goes up.
But I am just a guy who has been watching Brandon's training videos and has been crunching the numbers using the spread sheet and I just can't wrap my head around paying down debt instead of investing for cash flow.
Beloit, WI · Member since 2016 · 100 posts · 40 votes
9y
I don't like debt, so I'd start paying down the student loans, especially since the rates are so high. Then cash flow your Masters degree and save up earnings from your rental to buy another one.
Just my take on it; we're buying our rentals with cash. It will be slow, but worth it to not have the stress from debt. (I had student loans; worked my tail off to get them paid off in less than three years.)
Real Estate Agent · Tucson, AZ · Member since 2016 · 168 posts · 106 votes
9y
I really like @Chad Olsen's advice. I think you're going to find it really difficult to refinance or purchase an investment property for quite a while, between the bankruptcy & shortsale of an investment property. But you could probably get an FHA loan for an owner-occupied multi-family. After a couple years, see if you could try getting a a commercial line of credit by bundling all three properties. In the meantime, you could keep saving all that money for your next purchase (in case the refinancing doesn't work out).
Rental Property Investor · Jacksonville, FL · Member since 2016 · 20 posts · 5 votes
9y
Anyone heard of the NACA program? I came across it from a previous agent that I worked with. The only issue is that you can't have an ownership interest in another property on closing. Is FHA different in that respect? I am not familiar with FHA loans but since it was mentioned, I will be looking in to it now.
Real Estate Agent · Branson, MO · Member since 2016 · 141 posts · 93 votes
9y
@Benjamin Small
Congrats on your success - you're further along than most! Generally speaking, it is best to eliminate all bad debt, and caution folks that want to go to school by taking on more bad debt. Not saying that it is wrong to go back to school, however, borrowing money to do it is an extremely debatable topic. Nonetheless - choice is yours and good luck with that decision!
You should analyze your current rentals CapRate% compared against others on the market. I prefer small multi-family myself. Odds are that you can find a better performing property on a duplex, triplex or fourplex. Opt for a 1031-Exchange from your current rental into the multi-family and take advantage of low interest rates. Consider moving into one of the units and sell the home to pay off the bad debt and invest what is leftover into more properties or to fund your schooling.
Try to FHA the next small multi-family, because I doubt the bank will allow you to utilize that assistance program when you already own a home free & clear.
I need help with doing a 1031 exchange. I understand the concept but I get the impression you have to be on top of the requirements to properly take advantage of it.
I am looking in to doing an FHA loan now. Can you qualify for FHA while owning a home? I thought FHA was for first time homebuyers.
Are you going to be able to get a higher return on your money than 8.25-10.25% on putting it into a property in your area? If it is the same amount are you willing to do all the work for free while your money goes to pay for a loan returning the same amount?
Just a thought and good luck on whatever you decide!
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Benjamin Small, 1031s have to be performed under the direction of a qualified intermediary. They are not incredibly difficult but there are some very specific requirements in the process. Your QI acts as your guide. The 1031 would be helpful to you because it would allow you to tap the equity in your current units and allow you to transition into a different class such as multi family.
The 1031 Exchange transaction can provide tremendous benefits, but doing a 1031 Exchange must put you in a better position (as defined by you) otherwise you should not do one. There are specific requirements that you need to follow in order to qualify. You need to work with a good competent Qualified Intermediary that can walk you through the process, requirements and compliance issues necessary.
Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
Developer · Charlotte, NC · Member since 2016 · 12 posts · 2 votes
9y
I wouldn't waste money or take out debt for the Masters Degree. Get your employer to pay for it or change jobs to a place that will reimburse. The ROI really isn't there in my opinion.
Investor · Woodbury, MN · Member since 2016 · 90 posts · 72 votes
9y
Okay, I'm going to turn convention on its head. Should you be pursuing a Masters if you plan on being a real estate professional? I would also question whether the additional income you will generate with your Masters will have a good return on investment. I know it isn't in Civil Engineering or Real Estate Investing. If it is a Masters of Business, I'd recommend you start a business and get your education through the school of (not so) hard knocks. If the answers are yes, I should be getting a Masters and yes it will provide a good return on my investment, then I would say you should let your future earning potential pay for you Masters while you take your current capital (cash and equity) and invest it in cash flowing properties. If you make reasonable investments (not, great, reasonable), you should be able to equal or beat your interest rates on your past student loans.
Because even if you just equal your 7-10.25% interest rates in cash-on-cash returns, you still have phantom gains in equity getting paid down and the possibility of appreciation.
If I were you, I would save the $20K as a rainy day fund and then take out 50% loan to value mortgages on the two properties you own and rent them out. Then look for two (or more) more properties that can cash flow a decent amount of money. Ideally you could find a multiplex (duplex or better) and house hack it as an owner-occupant.
In the end, the best part of acquiring another couple properties is it can "diversify" your portfolio so to speak. Even if you acquired the new properties in the same area (you could buy in another area to diversify locations), it allows you to diversify your risk into more units. If one property goes unrented, it's only 1/4 of your portfolio as opposed to 1/2. That's good business acumen if you ask me.
On the issue of poor credit score, I would recommend discussing your plans with a couple smaller, local banks and see what they say. If they knew you were willing to put 50% down on your new property, I bet they'd be much more apt to listen. There isn't a lot of risk for them to loan out 50% of the value. Even if things went sour, I'm sure the bank could see that they're isn't any risk of getting their money back. And in the end, banks are really just weighing their risk.
All of my suggestions are based on mitigating the risk of taking cash out of the existing properties by only taking out 50% of the value. You can certainly ramp things up by going to 90% loan to value (assuming the original poster (op) would qualify for the loans naturally) on a number of properties but it doesn't sound like the op is open to that at this time. Plus, I think leaving a margin of safety is a good thing and a 50% margin of safety seems very reasonable to start with.
And lastly, if the op can't get traditional financing, that's when they could get into private lending (hard money, etc.) to work out some creative financing with property owners like owner financing. You have some serious collateral (2 properties) to get some sort of loan. The terms may just be a little less than ideal (although it's doubtful that they'd be impossible to overcome).
Real Estate Investor · Arlington, VA · Member since 2016 · 84 posts · 26 votes
9y
@Josh Collins has some interesting points. Education is great, but what is your goal for it? There is often much cheaper ways to get an equivalent or better education than is taught in colleges. There are so many books, podcasts, and free courses out there now, this is the age of the Internet and free information after all! While going to a university program is certainly the easier, pre-packaged option, it's not always the best.
For instance, if you are going to get a business degree you could go to a business school and go into debt, sure. Or you could go into the same amount of debt and do self study and start your own business, learning on the job. At the end of the master's program you will definitely be in more, while if you start your own business, you might fail and end up in the same amount of debt, or you could succeed and actually make money.It's higher risk, but also higher reward.
The do-it-yourself approach is almost always the cheaper, but riskier and more difficult, than the pay to play approach. It also usually has greater rewards. It's true in education, real estate investing (turnkey vs flipping), business (self-employed vs 9-5), and more. I'm not saying that getting a Master's is a bad thing to do, it may be exactly the right fit for you at exactly the right price, especially if your goal is to get a teaching job in a University. I just don't think anything should be taken for granted, there's no "right" way to do things, and you don't explore all the options with an open mind, you'll never know which one is truly best for you.
Education is absolutely the best investment you can make, but there are many ways to get an education and it is often less expensive than people think.
Flipper/Rehabber · Tulsa, OK · Member since 2017 · 4 posts · 3 votes
9y
Your answer is in this paragraph. Read it carefully. You say what you really want several times. Follow your heart and pure desire first; especially if you are young. Pursue your own freedom first. If you can do that, then you have the freedom to do the next thing your heart desires with no strings to hold you down. And if you want to teach in college, be an adjunct professor at a community college for a few semesters while you flip houses. You may find you don't like it as well as you thought, but you will make some extra money.
"My main hope is to free myself from the rat race as quickly as possible. I want to pursue an advanced degree so that I can teach in college. I keep my expenses low and I am generally happy with things that way. I want to own a multifamily property, or several, which have some solid cash flow and not depend on a full time job to sustain my expenses."
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
9y
The answer comes down to which option will give you the biggest impact.
First, anytime you are paying down debt, you first must payoff "one time" debt (i.e. credit cards, car loans, student loans, etc...) that has monthly bills associated with it. This is the equivalent of a "triple play" in money management.
Out #1: The One time Debt is no more Out #2: The monthly payment on that debt is gone forever Out #3: The cash you were using to pay the monthly debt on Out #1 (see Out #2), can be used to cover the next monthly bill on the list of monthly bills...
thus, the "triple play".
Second, if you invested that money in something that had cash flow, that cash flow now pays a monthly bill as well.
My "Order of Appearance/Use of Funds" are as follow:
1 - Pay of ALL of my Triple Play Debt (this doesn't mean rental property mortgages...that's good debt)
2 - Flip my "cash" (re-use it...don't ever spend it), for profits to use to pay off the rest of my debt &...
3 - Invest in Passive Income Properties to make your monthly payments
If that is your OoO, you'll be amazed just how fast you can get to the end.
