Taking Care of Student Loans

[Mackal Smith]

Hey everyone,

I haven't provided an update since my last post in November. At that time I asked everyone's opinion on using rental properties to help offset my daughter's student loans. Well, I'm 5 months in and I figured I would give everyone an update.

My daughter finished school about 4 years ago with a little more than $100K in student loans. She has been able to defer the government loans, but the private loan payments (that I co-signed) run her about $850/mo. The most she can pay is around $600/mo so my contribution is around $250/mo over the last 4 years.

I just finished setting up a line of credit for $125K and I'm lucky enough to live in St Louis where I can find positive cash flowing properties. I already own 25 units so I know the market fairly well.

My plan has been to acquire a couple (or three) 4 plex units that should net me $150 to $175/unit/mo (based on what I have seen over the last 3 years with my other units). Luckily I was able to find a couple. The first is $135K and the second is $112K (after lots of wrangling with both). Rents for both come in at $2025/mo for the $135K property and $1850/mo for the $112K property. These 2 should provide me close to $1,000/mo to cover her student loans after debt service, insurance, capex, opex, taxes, and vacancies. The nice part is that I need $27K down payment for the $135K property and $22.4K for the $112K property which I will use the line of credit to pay for. My daughter will pay back the line of credit which should reduce her payment to less than $350/mo.I'll then use the cash flow from these properties to pay her existing student loans.

I formed a new company which I named EdRecoup Properties, LLC. I'll keep everyone updated on how I make out, but at least I was able to find properties in the same farm area where my other properties are and on the surface it seems that my plan will work...

[Kyle Eckert]

@Thomas S.  A good point terribly delivered...

@Mackal Smith I agree with Thomas in principle.  While I think what you are doing is excellent, personally I would adjust 2 things:

1. Incorporate your daughter into the investment/management process which is going to help her.  I am going to assume college gave her little in the way of financial education, so I think this would be a great opportunity to provide it.  Along with the financial side, the project management side is also invaluable and will help her in future careers.

2. I would try not to reduce her payments, instead trying to maximize the "Snowball Effect" of making the higher payment along with your contribution.  While I know as dad's it is our prerogative to fix things for our kids and make everything easier, I think that she should feel the weight of $100K of debt as much as possible.  If you can shrink the duration of the  financial burden by providing extra cash, I think that would be preferable to reducing her payments.

Good luck!