Should I invest into real estate with student loan debt?

Question

Hello All,

My Background:

Age: Early/Mid 20s

Occupation: Information Technology

I moved back home with my parents a year ago, to pay off student loan debt($$$). In the next 3 months i would've paid off $33k+ in loans and would free myself of some loan payments ($220 back in my pocket). In total it would have taken me 14months to pay off 33k. I have more loans to pay off, about another $37k ( $480 monthly payment, already refinanced). My parents are also paying on $27k of loans that i shouldn't have to worry about paying, since they agreed to pay this portion.

My Total Debt 64k (Note: I only have to pay the 37k)

Question/Problem: I want to invest in a buy and hold property but I'm unsure if I should do this at the current time with my debt. I do plan on moving out of my parents home in 2019 (can't take living home too much longer lol, maybe until mid 2019).

Note: I spoke to Dave Ramsey on his show about this months ago and he told me not to buy a home and pay debt (he gave me the "your crazy" talk). In return this made me chop down 33k in 14 months.

My options that I've come up with are

1) Buy a single family home to live in for a year and then rent it out.

2) Buy a multi family live in for one year and move out when its full rented.

3) Move out after my 33k is paid off and rent until my the next 37k is paid off (This will take time).

I'm very fiance driven and also ambitious. I don't want to make any moves without being able to afford the risk. What should I do?

Steven Eitreim · Answer

@Aaron Mayo.

Do what the smartest folks in the game are doing.  Buy a 2, 3, or 4-plex as a primary residence, rent it out (including additional bedrooms in your own unit, if willing), and live for free or with a profit.  Look for a value-add opportunity that you can refi in a couple years and pay off your remaining debt with that.  Or, as @Nick Macklin suggested, invest in a property that gives you a better rate of return that what you're paying for your school debt, which shouldn't be hard if you find even a reasonable deal.

If you're really interested in getting in the game, don't wait.  Do it now.  Remember... each year that you delay investing in real estate, you're not losing the amount you'd earn in your first year... you're losing one more year of earnings at the end of your career, which for good investors, is counted in the hundreds of thousands, if not millions.  Start now.

Good luck.

Christian Montalvo · Answer

Hi @Aaron Mayo,

My husband and I have a significant amount of student loan debt (much more than you do) and we have steadily been building a cash flowing RE portfolio by house hacking over the past almost 3 years. The reason for building the portfolio was to help pay our student loans. We started with a 3.5% FHA duplex house hack that immediately cut our housing expense in half because the other tenant was paying majority of the mortgage. After 18 months we moved into a 4plex using the same strategy. When we made this move we eliminated our housing expense completely and actually started cash flowing. Sure a portion of the cash flow went into keeping up with our now 6 unit portfolio but it freed up more money in our W2 incomes to pay our loans. We have continued this process and are about to close on our 9th and 10th doors. This has actually helped us sustain a frugal yet normal lifestyle where we travel, pay for daycare and have been able to increase our student loan payments on average by $1000/mo. This is after all properties and average monthly expenses are covered. We treated the house hacking game like @Brandon Turner says... "you can either drag buckets of water or build a sprinkler system". If we were still paying what we could barely afford 3 years ago on our student loans and paying housing expenses we would be dragging buckets of water but now we are building a system that is actually helping us pay our student loans off faster. This technique is not for everyone but so far it is working for us.

Isiah Ferguson · Answer

START NOW king. Everyone has there own path in this business, there is NO right way. Getting started is the best thing anyone can do. Grow through the head-aces of uncertainty and you will not lose. You either WIN or you LEARN. Personally, in your situation I would buy at-lease an 2 - 4 unit property. Live in 1 unit and rent out the others. In this case, you mitigate you living expenses or potentially live for free w/ cash flow in your own space. At this point, continue work your JOB and attack your student loans. As time go on, you can scale up as you may.

Jarrod Deshields · Answer

@Aaron Mayo if you're in Maryland, check out the Maryland Mortgage Program. I think the exact program is called SMART BUY. They use student loan debt toward the price of the home. Up to $40K.

Aaron Mayo · Answer

I agree with you here Steven, in buying a multi family and renting out the units! I was thinking of looking for a foreclosure single family or multi family... Either way it will be something with a better rate of return than my student loans, as you and @Nick suggested. Thanks for you help!

Originally posted by @Steven Eitreim:

@Aaron Mayo.

Do what the smartest folks in the game are doing.  Buy a 2, 3, or 4-plex as a primary residence, rent it out (including additional bedrooms in your own unit, if willing), and live for free or with a profit.  Look for a value-add opportunity that you can refi in a couple years and pay off your remaining debt with that.  Or, as @Nick Macklin suggested, invest in a property that gives you a better rate of return that what you're paying for your school debt, which shouldn't be hard if you find even a reasonable deal.

If you're really interested in getting in the game, don't wait.  Do it now.  Remember... each year that you delay investing in real estate, you're not losing the amount you'd earn in your first year... you're losing one more year of earnings at the end of your career, which for good investors, is counted in the hundreds of thousands, if not millions.  Start now.

Good luck.

Nick Macklin · Answer

Hey Aaron!

I don't think anyone would have to actually ask Dave Ramsey this question before they would know his answer!  That being said you are going to get varying responses.  Many would probably say as long as you can get a higher rate of return on the investment than you are paying on the school loans to go ahead.

My background is in finance although I have never done it professionally and I am no CPA either but if you are going to live in a place as your primary residence for a year I would suggest thinking about living in it for an additional year to get the added capital gains exclusion.

Should I invest into real estate with student loan debt?

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