Deciding between paying off a student loan and real estate investment

Majority of the people have confusion that should they concentrate on paying off the student loan or should they start on investing the same on real estate? Even though this question has no wrong or right answer, this is a great question. The right answer can be this depends on the financial situation of an individual and his financial goals. There are many things to be considered before deciding on this.

Pay off loan or investing in real estate?

There are many people of all age struggling with their student loan in America. Some of them are college students, others fresh out, and there are some who are in their 40s. One thing is common among them that is they have confusion about whether they have to focus on closing or pay off the loan, or they should now start investing. Here are a few things which can be considered before an individual decides something.

Credit

The very important thing which one must consider in this situation is his credit score. There is a possibility that a student loan may pull down the credit score, especially in case of missed payments. So, to begin with, always check the credit score. In case if an individual has low credit with bad debt, and there is no great payment history to show, then these are the things which are dragging the credit score. At this situation, one must start making payments on time and try to improve the credit score.

Another case can be there is no credit at all. In this can, an individual can think of getting some good debt. It can be a small credit card. Through this, it is possible to make payments on time and start building a credit score. Before even thinking of buying or starting real estate, one must focus on keeping a decent credit. If it is not possible, then he may not succeed in getting a bankable loan. Before starting anything, one should talk to the bank for checking the status, and it is better to take some advice as well.

Return on Investment

It is always important to check return on investment of the property we choose against the cost of the debt that we are planning to go for. For example, if a person plans to buy a piece of real estate which returns him 15%. In case if his student loan can be paid off at 6%, then he can make use of this by renting the property. In this case, buying the property is worth.

For example, if an individual has said $20000, he can pay off the student loan completely using this. But the better option is buying some piece of real estate. He can buy a house or a rental property. This can gain him a lot in the long run.

House Hacking

In this case, let’s take my example. I purchased a 3-bedroom/1.5-bath. This was the first rental property I purchased. The cost of this house was $150,000. At that point, I have chosen a mortgage payment of $940.

I purchased this on three percent down, FHA backed mortgage. I laid down $4500 along with the closing costs. So, I ended up paying around $8000 or maybe $9000. Then I planned to rent the property. I decided to rent the two bedrooms for my friends. I was getting $500 per month. Along with this, they even paid a third ion the bills.

Here one must observe that along with renting the house; I was living in the same house for free. The best part is I was making around $60 each month. For my luck, I also had a good job. These all happened with me since I planned everything as early as possible. So, in just two years, I succeeded in paying off my student loan. At the same time, property was in my hand, and I was paying the debt as well. This can be the best situation and believe me. I never struggled with paying off my credit card bills as well.

So, I always suggest that if there is a possibility that one can purchase a property, he should go for it rather paying off the student loan. Here it is possible for the individual to take the income which he is already earning, he can save something for all his expenses, and meantime he can also take care of debt and try drilling it down.

Author: Lila Stoner

Lila Stoner is an author, editor, and copywriter. Having 5+ years of experience of writing.