14 Apr Can Investing in Real Estate Help Me Pay Off My Student Loans?
According to The Institute for College Access and Success, in 2018, a reported two out of three college graduates graduated with student loan debt. “These borrowers owed an average of $29,200”
Recently, I graduated from college. Like many Americans, I graduated with student loan debt. Before graduating college, I knew I wanted to pay these loans off fast, but I did not know how a young, broke college graduate was going to do this. So, I began exploring my options. I found that investing in real estate could actually help me pay off my debt faster and begin a path to financial freedom. However, I did not have a TON of money. After listening to a million podcasts, networking at local real estate meetups, and reading many books, I was ready to start on this journey. I formed a plan, and a method for how I was going to do it.
First, I calculated how much I would be paying each month in regards to student loans. Graduating with $25,000 in student loans with an 8% interest rate on a 10 year repayment plan, my monthly payment is roughly $300 a month. Student Loan Calculator
Second, I brainstormed a list of things I knew I would need in order for this to be successful.
Things I needed:
Monthly Cash Flow
A property at a discount
Low monthly mortgage payment
A property that needed some TLC
A property that would rent for $300 more than my mortgage & expenses
With not having a ton of money and being scared to take a big risk, I then began exploring different options. Everyone has different risk tolerances, but what I was most comfortable with, was buying a cheaper property that needed some work and wasn’t going to leave me with a huge monthly mortgage payment during the times it is not rented. What I knew was that I needed $300 a month in excessive cash flow after all of my expenses were paid to cover my student loans.
What actually happened, was I found a property for $14,000 that needed $9,000 in repairs with an after repair value of $45,000. I knew that once I improved this property, I could get a loan on it for 70-75% of the after repair value, which would be roughly $31,000 for my loan amount.
Number Break Down:
Purchase the Property for: $14,000
Closing Costs: $1,000
Misc Expenses: $1,000
Cost of Rehab: $9,000 (It was a light cosmetic rehab)
Total Money Investment: $25,000
After Repair Value: $45,000
Loan Amount after the property is rehabbed = $31,000 (70% of ARV)
Total Investment: $25,000 (this is how much money the deal cost me)
Cash in Pocket: $6,000 ( Because my loan is for $31,000 and it only cost me $25,000 I am pulling equity out of the deal)
Rental Price: $750 a month
Mortgage: $200 (Principal & Interest 20 year loan)
Monthly Expenses: $200 (Vacancy, Repairs, Insurance)
Monthly Cash Flow: $350
As it is stated above, my loan amount on this property is $31,000. It cost me $25,000 so I subtracted $31,000 from $25,000 which gave me $6,000 in excessive cash that I am putting in my pocket. Now, I am taking the $6,000 and putting $1,000 in a savings account that I call my “Rainy Day Fund,” and paying the remaining $5,000 towards my student loans. This brings my total from $25,000 to $20,000. My plan is to do this four more times to pay off my student loans. You could take that money in and just put it into your pocket, but my goal is to eliminate the student loan debt fast, that way it is not hanging over my head for the next ten years. This is a personal choice, and everyone’s choices may differ.
So how can you get started doing something similar to this? Reach out to one of the agents at Hermann London to get started today.
How did I buy the property? Lucky enough for me, I was able to get a loan from my grandpa for $14,000 and then I rehabbed the house using a 0% interest credit card.
Other ways to buy property:
Hard Money Loan
Line of Credit
Where did I find the deal? Facebook
Other places to find deals
Real Estate Agents ( Your friends over at Hermann London)
How did I estimate rehab costs? I used a family friend, did a lot of googling, asked around, read a few books … and guessed. I don’t recommend guessing.
Other ways to find deals
Hire a contractor
This is one of the many ways to invest in real estate and there are MANY MANY other ways to do so. I am just talking about what I am doing myself
Disclaimer: I am not a lawyer, accountant, inspector, contractor, financial advisor, or insurance agent. You should contact a professional before making any financial decisions because each situation is different and unique.
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