Service Academy Career Starter Loan - What NOT To Do

Service Academy (and ROTC students to a degree as well) have access to some of the least expensive unsecured loan available on the market - and this can be a good or bad thing. Though the terms change over time, I had a loan for $36,000 at .75% interest made available to me during my Junior year of college. The loan would then be repaid over 5 years with payments starting a few months after graduation. THIS IS A HUGE OPPORTUNITY (and a MASSIVE PITFALL for most of my classmates). 

What Most People Did - The No. 1 purchase with this money? You bet - a $36,000 brand new car that loses half of its value after driving it off the lot. Financing a depreciating asset where you are immediately underwater by 50% is NOT the way to start a path to financial freedom.

What Some People Did - Not take the money at all! The Dave Ramsey approach would be to not take the loan! This isn't the most mathematically efficient option, but being completely debt free is a top priority for a number of people. Even at a modest return of 7% that can be found in the market, the numbers lend to taking the loan and sticking it in the market. However, this does not take into account the psychological component of the debt. Personal finance is just that, Personal. 

What I did - I had not found BiggerPockets yet, and I didn't really know what my options were RE-wise outside of a typical SFR. I put the money in the market for 2 years, used $11,000 to max out my Roth IRA over those two years, and ended up using the remaining $25,000 towards a downpayment for my first owner-occupied home in Pensacola, FL using VA financing. Was this the most efficient use of capital? No. Did it stoke my interest in real estate investing, starting me on the path towards more creative and efficient uses of my money? YES!

One of the most common hurdles that us BiggerPockets members face is finding the Dollars for our Deals. This loan provided me with an awesome opportunity to get the ball rolling on my investing career. Did I squander this opportunity? Not completely. However, I did not use it to the fullest potential. I would certainly have done things differently if I had the opportunity to do it again. 

What I should have done - I would have used the money as my skin in the game to purchase a fixer-upper owner-occupied 4-plex in Pensacola to BRRR and refinance into a VA loan to pull out all of my money (and potentially more using a higher LTV available for VA loans) and "Accelerate" the 36k into more deals to get those dollars working as hard as possible for me. 

Happy Investing

David