Soon to be debt free, now what?

Question

Hi Everyone,

I have about 37k in both subsidized and unsubsidized student loans, and I'm close to 36k on my total investments
I've decided to pay out all of my student loans by the end of the summer so that I could be free of financial debt, with the cost of using up my nest egg that I've been working and saving up for an entire year. I originally wanted to use my savings on buying a property to BRRRR, but after numerous long discussions, I've decided that it might be better to get rid of my student loans while the forbearance is still going on.

But now I'm kind of lost, how am i gonna start trying to BRRRR now? I really wanted to start some time around 2022 (somewhere in Philadelphia/South Jersey), but I wont have as much savings anymore.

If you guys have any advice I'd really appreciate it.

Young Park · Answer

Hi @Trix Contreras!
I also have federal student loans on forbearance right now until 9/2021. It sounds like you're set on paying off your student loans vs investing. Obviously, this is based on your own financial situation and your preference (debt-free, peace of mind, etc). I'm sure you've discussed with several people, but think about who you discussed with - did they go through similar situations? are they successful? I've heard from several coworkers who told me to pay off my student debt first, but they've also been working in the same job for 10-20+ years and will likely work until they can retire. Their best intentions may not be in your best interest. So think about.

But enough about that lol.

I decided to carry on my student debt and utilize capital to build cash-flowing assets (REI!). Paying off my debt first would put me several years away from even start investing. I'm glad I jumped in even though it's only been a few years, but they have been appreciating in value and give me monthly cash flow (which can be used towards your student loans). I'm using the BRRRR strategy from out-of-state in the Kansas City market because the numbers make much more sense than where I'm at (Hawaii).

I'm not a financial advisor or anything, but if you want to bounce off ideas, feel free to send me a DM!

Ahmed Saad · Answer

@Trix Contreras definitely research and talk with a CPA before you sell anything. You may have capital gains tax which you should check out. Hate to be the bearer of bad news, but would also love to save you some 💵!

Ahmed Saad · Answer

Hi @Trix Contreras,

I paid off my student loans about 10 years ago. Mine were significantly higher than yours. I can say I felt really great having them paid off. To say "I felt free" from that burden is not an understatement. If you're committed to it, good for you!

But now that I am older, I can say it may not have been the smartest financial move. My loans were at a 4% interest rate and if I had invested the $50K in an index fund or real estate, I probably would be better off. Then again, having the burden lifted from my shoulders mentally allowed me to expand to doing the things I am doing today.

It's all a very personal decision. If you are able to compartmentalize, stick to a plan, and be patient, I'd say hold off and invest. If you feel the burden is too great and getting them paid off will release the shackles that may be holding you back, then get them done and live your life. Hope the perspective from someone a bit older helps.

Young Park · Answer

@Allen Wu I'm looking in N of the river, raytown, independence, Grandview, and a pocket in the Kansas side. I'm not sure about the 'A' areas as they seem to have appreciated to the point where it might not cashflow as well (but that's subjective and how you calculate cashflow).

Theresa Harris · Answer

Don't use up your investments.  Find out how much you can borrow from the bank with your current student loans.  What rate are your student loans at?

If you can borrow enough to get a duplex or house with a suite, either live in the suite or half of the duplex and rent out the other half.  If done right, this should cut your living expenses and the rent from the tenant should pay most of the mortgage and property taxes.  You can then use the savings from your reduced living expenses to pay down your student loans.

Alex Cadoret · Answer

@Trix Contreras you also have to factor in that interest on student loan debt is tax-deductible.  So you're really paying 0% interest on that money.  I would take your savings and invest in something that will give you a positive return and continue making minimum payments on your student loan.  Good luck!

Peter Mckernan · Answer

@Trix Contreras

My wife and I paid off our loans, they were over well over $100K took us 2.5 years, and now we are able to save more and put more into investing verse having to put $1k-$2K a month back into the loans to keep up with the payment. This helps out when there is a rental that is not rented out and we have to float the mortgage (currently doing that due to permits on a rental).

I would suggest if you are able to pickup a side job, may be something in real estate? An agent, an appraiser etc. to gain more money that will pickup your current income to get you into the position to invest.

Luckily, your down payment will be 3.5% for that first time buyer, or 5% if you want to go conventional.

Trix Contreras · Answer

@Theresa Harris fafsa charges about 2.75% on interest loans for direct subsidized and Unsubsidized loans at the moment. I have to check if mine is about that much in interest after the forbearance ends.

Trix Contreras · Answer

@Ahmed Saad yup that was the plan.

Trix Contreras · Answer

@Ahmed Saad

Thank you all for the advice and I’ll definitely rethink what my close friends said.

Soon to be debt free, now what?

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