Author Topic: Throw money at student loans or save for investment property?  (Read 2442 times)

bronxchickenman

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Hello everybody!

I'm a 29 year old guy living in NYC and I have been on here lurking for a while.  I feel like this site has really helped me understand how I should be thinking.  I was raised in a spend/live above your means family, and all of the "advice" I got growing up was buy new, finance everything, follow your heart and pay for it later.  My parents love mild luxury - new leased cars, new TVs/electronics, and most of all, eating out and drinking out.

Somehow, I always was the opposite.  Even in high school, I never bought anything new, liked eating/cooking at home, liked paying for things in cash, and tried not to spend more than I had.

The big mistake came with college, like it did for many others.  I got accepted to a good school in New York, wanted to go, and my parents, guidance, counselors, etc., all pushed me to follow my dream.  I should have taken the free in-state tuition, but I didn't understand the reality that would hit me later in life.  When I graduated, I was in denial, then got angry at everyone else (why me? why did you all let me take out these loans? I did everything right, got good grades, did all my work, graduated cum laude, yadda yadda yadda), then had some pretty serious depression for a while when it hit me that it wouldn't magically disappear, and then, finally, acceptance that it was my decision and it is my burden.  I have $100,000 in private loans and $25,000 in federal loans.

I decided that the only way to get out if it was to generate extra income, so I saved like crazy, did a lot of research and got some free money through city programs, and bought a multi-family house in a neighborhood with inexpensive mortgage and high rents about 3 years ago.  I live in the basement to maximize income, and after all mortgage, tax, utilities, etc, the house generates $1750 profit per month and I live for free.  I do almost all of my own repairs.

Even though I was able to pull that off, I never took control of my loans, paying only interest for the last decade, and I racked up about $15K in credit card debt.  I realized the error of my ways reading this site and decided it was time to treat my debt like an emergency and kill it.  I got a second job that generates $2000 extra per month (after taxes).  So before my regular salary, I am earning $3750 per month with the house and extra job.  I am a public school teacher, and my after tax income monthly is $3450.  I killed my credit card debt in three months (with the help of a tax return).  Now it's time to get those loans.  I am going in with $7200 income per month after taxes.  Every summer I work summer school, which generates another 8K after taxes.  Money out each month are car (bought used, no payment - gas+tolls+insurance - need the car to get between jobs on time) and trains for the wife (necessary to get to school - right now not working but getting degree full time and taking extra courses so we can max income ASAP when she's out), groceries, chicken and cat food, eating out/ drinking out once a week with friends).

I just got approved for a refinance loan through earnest.  I can get between 5% and 5.25% APR depending on how much I throw at the loans each month.  I need to choose my monthly payment before finalizing.  So for my question:

Do I go crazy killing my student loans and putting every dime I make towards them, or do I save for a down payment to replicate what I did with my first house?

I know that I need to kill some of the debt in order to get approved for another investment loan.  But should I just pay off the amount necessary and go for the next house, or should I get rid of the student debt entirely and go from there?  I feel like my desire to erase my student debt is emotional and not logical.

Also, I have the option to max out my pension, which I am contributing to but not maxing out.

Please let me know what you guys think, and if I'm leaving out any important information.

ShoulderThingThatGoesUp

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Re: Throw money at student loans or save for investment property?
« Reply #1 on: May 23, 2016, 10:18:08 AM »
What's the current interest rate on them?

bronxchickenman

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Re: Throw money at student loans or save for investment property?
« Reply #2 on: May 23, 2016, 10:31:25 AM »
Current rate on loans is 7.25% for private (100K) and 6.8% for the federal loans that i'd refi (another 16K - the others are at 2.3% so Ill leave them alone).  I already did teacher loan forgiveness for a big chunk.

ShoulderThingThatGoesUp

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Re: Throw money at student loans or save for investment property?
« Reply #3 on: May 23, 2016, 10:35:26 AM »
Getting rid of debt at that interest level seems entirely logical.

Can you pull some equity out of your multifamily at a lower interest rate to get rid of a few of the loans?

bronxchickenman

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Re: Throw money at student loans or save for investment property?
« Reply #4 on: May 23, 2016, 10:38:59 AM »
That's a good question.  I'll look into that.  Would I do that through my original loan provider, or is there a better place to shop for that?

ShoulderThingThatGoesUp

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Re: Throw money at student loans or save for investment property?
« Reply #5 on: May 23, 2016, 10:51:18 AM »
Not an expert in this but I think what you'd be looking at is a "cash-out refinance" and it's just like any other refinance...you go around and get quotes.

bronxchickenman

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Re: Throw money at student loans or save for investment property?
« Reply #6 on: May 23, 2016, 10:52:51 AM »
Thanks!

So - you think I should kill my loans entirely before buying a second investment property?

ShoulderThingThatGoesUp

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Re: Throw money at student loans or save for investment property?
« Reply #7 on: May 23, 2016, 11:07:37 AM »
That is what I would do, but if you believe you can safely get 12% or something with rentals, I could see an argument for refinancing them and then paying them off according to schedule. Personally if I could put any money towards a guaranteed effective 7.25% - or 5% - return I would, but I take a lower-risk, lower-debt approach than many here.

charis

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Re: Throw money at student loans or save for investment property?
« Reply #8 on: May 23, 2016, 01:11:43 PM »
How long have you been teaching?  It sounds like you have been on an income-based repayment plan - do you qualify for the PSLF program?

detailoriented

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Re: Throw money at student loans or save for investment property?
« Reply #9 on: August 29, 2016, 04:54:40 AM »
How long have you been teaching?  It sounds like you have been on an income-based repayment plan - do you qualify for the PSLF program?

This was my thought as well.   Before you take action, you should be aware that there are many options available to you.

Check out some stuff at http://www.studentloanshow.com.

DO

notactiveanymore

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Re: Throw money at student loans or save for investment property?
« Reply #10 on: August 29, 2016, 07:30:10 AM »
How long have you been teaching?  It sounds like you have been on an income-based repayment plan - do you qualify for the PSLF program?

OP has $125,000 in student loans. $100,000 is private and not eligible for any public student loan forgiveness (or REPAYE, etc).

I vote refinancing the loans and then seeing how quickly you can pay off the loans. It sounds like they've been hanging around for awhile with no progress, but you've got the perfect set-up right now to destroy them. You could probably do about $6000/month on it, if I'm reading your post correctly ($7200 takehome income with housing covered and no other debt payments). Then you'll get another $8000 for summer school in a year. You could knock them out in less than 18 months and then you will be able to save so quickly for another property.