All,
I have created a pretty solid REI business plan and have taken down my first deal. A SFH for 50k rented at $1300/mo in Rochester, NY. 15.1% Cap Rate, 23.6% CoC Return. A great deal by most standards. Now I'm obviously salivating to find another and wash-rinse-repeat my way to financial independence!
As I sat down last weekend and reviewed the plan and did my monthly finances I started to ponder the risk of my variable interest rate student loans, my upcoming wedding (August) and my real estate goals. I've come to a series of questions that self-education has not been able to answer. I'm hoping you all can offer some advice. I will use real numbers so we have something to play with.
My wife and I are both engineers, currently working and making good money and living within our means.
Our combined student loan debt is ~$143k across 5 different lenders. We currently pay about $1086 a month in loan payments and make all payments on-time and in-full.
$65,500 of that is a Parent Plus loan fixed at 6.8%. We still pay $531 a month towards it (the full payment) but it won't affect our DTI since we are not personally on the loan.
$34,595 are private loans at 3% variable interest currently.
$43,332 are fed loans with a mix of direct-sub, direct-unsub, variable and fixed interest rates (2.14% and 6.55% respectively).
A 23.6% CoC return in REI makes it obvious to me to continue to put capital there and pay off the loans at a steady-rate. The interest rate would need to be fairly high to compete with this. I also understand that when loans are newer (I graduated in 2008 and she in 2011) the interest is front loaded in the amortization so putting small additional principal payments in can yield big savings (greater than 23.6%).
Student Loans are non-recourse but I'm not very worried about defaulting. Interest rates could rise and it would hurt but I don't believe it to be catastrophic, I could most likely cover the increase in loan payments with cash flow from the asset investments (buy assets not pay for liabilities right?)
I'm not risk-adverse but I'm wondering if I'm missing something big? Do I pay off the student loans for fear of them ballooning to 9/12/15% just to watch the government cap the interest rate raises on student loans when the economy bounces back to bail-out students without direct forgiveness?
I have considered backing off my plan to purchased building #2 with a 401k and saving that as an emergency student loan consolidation plan since I'll be paying myself 3%. That comes with it's own risks...but I was going to take those risks anyway with the building.
I have reached analysis paralysis. I feel I need to act...consolidate under a fixed rate and pay more in the short term?...pay down loans?...keep steady on my REI plan?. So much to worry about and so little cash.
Thanks,
-Frank-
