Investing In Real Estate While Repaying Student Loans: What You Should Know

Dated: July 16 2020

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Most people consider real estate as a business of stable investments and equity development. Indeed, real estate investment is a proven and reliable business for building wealth. Between 1968 and 2004, the average price of homes improved by 6.4% annually. In recent times, the home value in the US increased by 5.16% annually. Even though value growth depends significantly on the location and other factors, the latest statistics are not entirely bad. For many investors getting into real estate, value growth is usually their primary objective; however, some young and middle-aged prospective investors typically have a significant obstacle known as the student loan debt.

While student loan debt is truly a barrier, prospective student-debt-ridden investors have to consider the different means of investing in real estate while still repaying the debt. Aside from the fact that it is possible, it may end up as a smart strategy.

Why Investing with a Student Debt is worth considering?

A good number of student debtors do find it hard to release the remaining fund after paying their loan, most especially if the loan is for luxuries such as real estate. Nevertheless, it is worth giving a second thought. Keep in mind that to benefit from real estate appreciation, it is not mandatory to invest in properties worth millions of dollars. Always consider the interest rates that come with your student loan. Perhaps, the return on investment (ROI) of real estate in your neighborhood is higher compared to your student loan’s interest rates or capitalization, then investing in them while paying your student debt may be worth considering.

The reason is that you will be earning higher from your investments compared to what you will be losing from the loans. Additionally, you may experience the ultimate power of investments by maximizing your lifetime returns when you purchase a real estate during the early period of your life. For instance, if you buy a real estate property and you are twenty years younger than your competitors, this implies that you have two decades longer to get incomes and see your property appreciates over time. Consequently, you will be purchasing at a lesser price and selling at a high rate with your colleagues. When you compare such an advantage with the student loan’s lifetime cost and the money saved from paying the loan off earlier, you will realize that investing in real estate while paying your student loan is worth considering – depending on your property’s appreciation.

Furthermore, even though, real estate being more profitable than loan repayment is a reliable means of joining the market, in the long run, real estate can be utilized as a passive income to help pay the student loans and retirement savings. Always keep your Student Loan Debt in Check Theoretically, this sounds like a great idea; however, while having a student debt to resolve, how do you release funds to invest in real estate? If you find yourself striving to free up cash monthly, there are certain means of approaching student loans. Read through the options below to find out how you can reduce the financial burdens which student loans are placing on your budget.

Know About Repayment Benefits from your Employers

In some establishments, they offer the benefits of student loan repayments to their employees. In recent times, most organizations have understood the importance of these benefits as a means of inviting and retaining younger employees in their company. As a matter of fact, according to 86% of employees, they are willing to stay with their establishments for at least five years if they offer a student loan repayment benefit. Hence, endeavor to make inquiries about the availability of student loan repayment benefits in your workplace. How does this benefit help? With the student loan repayment, you can release cash monthly. For example, some establishments offer $1000 and more annually. While there are restrictions to such a benefit, ideally, company benefit caps range between $5,000 to $10,000.

Income-Driven Repayment Programs

With income-driven repayment (IDR) strategy in place, you can reduce your monthly payment to a percentage of income, which usually falls between 10% to 20%. With this plan, you will have the chance of releasing cash to other vital areas such as real estate investment. The IDR plan allows you to make payment for 20 to 25 years. Afterward, the leftover payment will be waived. While waiver after 20 years seems quite exciting, there is a catch to it. Perhaps, you have a low income; the capped payments may fail to pay down the principal balance effectively after paying off the interest. Consequently, it may facilitate the lifetime cost of the loan significantly, and end up as an expensive tradeoff for lesser monthly payments. Nevertheless, this cost can still be outstripped by savvy real estate investments having strong lifetime returns. However, be informed that it could be significantly costly.

Student Loan Refinancing

This loan product is provided by lenders and private banks. Upon approval, the loan can be used to cover past federal or private student loans, and thereby consolidating the student debt effectively. With a new underwritten interest rate, this loan can be used to make payments, refinancing your loans effectively. Such a new interest rate is usually lesser than the weighted average of your previous student loans. Lower interest payments aside, investing in real estate while repaying student loan can be justified with a lower student loan rate. In this way, your increased odds of investment return will exceed the loan cost. Nevertheless, getting approved for student loan refinancing can be quite challenging. Banks and private lenders tend to approve candidates having high income and excellent credit; therefore, lower interest rates can only be achieved by only the highly qualified applicants – an advantage for the investors.

Federal Consolidation Loan

With this loan, you can cover many federal student loans by leaving a single payment on the consolidation loan. Interestingly, you can prolong the repayment duration to 30 years, which will consequently reduce the cost of your monthly payment. With a lower monthly payment, you will be able to release cash for real estate investments. Although repayment extension will help reduce monthly obligation, it also fosters the loan costs. There will be more time for interest to accumulate gradually on balance paid down. While this tradeoff is usually justified by the ROI of your real estate, it often depends on a comparison between the newly weighted interest rates and rate of return.

Final Note

Don’t consider real estate investment as a pipe dream outrightly once you have a student loan debt to cover. When you begin early, your returns will be maximized; hence, you are best advised to assess your budget for the possible plans to start your real estate business. In most cases, people begin by addressing present student loan payments.

Fortunately, several ways are available through which you can reduce the monthly cost of student loans, as stated herein. By choosing the most suitable option, you will be able to free up money monthly to invest in long-term real estate dreams. Student loan debt shouldn’t be a stopper against your lofty real estate investment dream. Investing in real estate can be your perfect platform to a successful future; all you need is a meticulous consideration and strategic planning that can generate a beneficial source of passive income over time, as well as covers the cost of your student loans.

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