Is It Wise to Invest in Real Estate When You Have 6 Figure Student Loan Debt? - Passive Income

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Is It Wise to Invest in Real Estate When You Have 6 Figure Student Loan Debt?

January 9, 2018 • 7 Min Read

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Today’s guest post comes from Ryan Inman of Physician Wealth Services and FinancialResidency.com. He is a financial advisor and a real estate investor, so I thought he'd be perfect to give his perspective on this subject.

Take it away, Ryan.


Many of my physician clients ask me about investing in real estate. They are either ready to buy their first homes after years of training or they want to diversify their portfolios by purchasing an investment property.

However, even though many of my clients are excited to take the next step and own real estate, there’s one thing that concerns them: their student loan debt.

Many of them want to know, “Is it wise to invest in real estate when you have six figures of student loan debt? Would I be spread too thin financially?”

These are great questions to ask and my answer is that it depends.

When considering a large purchase like real estate, you have to consider a variety of factors, namely your risk tolerance, your cash on hand, and your available time. Below I’ll expand on each of these factors as well as offer some alternative ways to invest in real estate that you might not be aware of.

Your Risk Tolerance

I have clients who hate debt and want to get out of it as soon as possible. Just the idea that they owe the federal government or private lenders hundreds of thousands of dollars makes it hard for them to sleep at night.

I have other clients who are comfortable having debt, they have almost become debt immune. These clients are confident in their ability to earn money as physicians and know that they will pay off their debt in the near future. These are also my clients who make financial decisions that are math based. If they can make more of a return investing their money in the market or in real estate, they would rather do that than pay down their student loan debt.

There is no right or wrong way to be, and there is a significant amount of research that shows our emotions dictate how we manage our finances. So, it’s important to pay attention to that inner voice and ask yourself, “How comfortable am I with taking on more debt?”

If you are comfortable with it, then you can move on to the next step, which is deciding whether or not you have enough cash on hand to actually invest in real estate.

Your Cash on Hand

It’s not a secret that you need cash on hand to purchase real estate. Many physicians utilize doctor loans which allow you to purchase a primary residence with as little as $0 down, but you can’t get a physician mortgage for an investment property.

I usually advise my clients to get a conventional loan whether they are buying their primary residence or an investment property because it enables them to own significant equity in their home from the beginning. This means that you’ll need enough cash to put 20% down on your home. Then, you’ll need cash for closing costs and any other expenses you might encounter as a homeowner.

If you don’t have cash on hand but you’re still dedicated to the idea of owning real estate, you could consider borrowing money from someone for your down payment and taking on a personal note, one that’s not recorded anywhere. Keep in mind that this is definitely a more aggressive tactic, but it’s one I’ve used personally to purchase my own investment properties.

Once you have cash on hand, you should spend a significant amount of time vetting properties, looking at deals, and researching neighborhoods. I tend to look at 20-30 homes before I even consider putting an offer in on a property, and that’s after I’ve narrowed it down after looking at hundreds of houses online.

Again, buying a piece of real estate is a significant financial decision, so not only do you need the risk tolerance and the cash on hand, but you also need to be willing to put in the time to ensure you buy the best home for you. You also need to have the confidence and discipline not to deviate from this plan, especially when emotions get in the way and you fall in love with a particular property that might or might not be the best for you.

Time is your friend but don’t get trapped into the analysis paralysis dilemma.

Other Options for Investing in Real Estate

If you don’t feel like you have the time or the money to fully manage your own piece of real estate, there are other alternatives.

These days, you can actually invest in real estate on crowdfunding websites. If you choose to go this route, here is a list of vetted real estate crowdfunding sites to start with. For most of them, you have to be an accredited investor, i.e. someone who has earned more than $200,000 the last two years (or someone with a $1M net worth.) However, there are some companies, like Fundrise, who open certain investment opportunities to non-accredited investors too.

This can be a good option for someone who wants to learn more about real estate investing without actively managing renters or parting with large amounts of cash.

Ultimately, I’m an advocate for investing in real estate, even if you have six-figure debt, but as evidenced above, this strategy won’t be the best choice for everyone.

My wife and I were comfortable holding six-figure debt. We had $180,000 worth of debt when we started investing in real estate, but that debt had interest rates of under 4% after we refinanced it. I looked and based on our budget at the time, we could afford the payments on our student loans and still have enough money to invest in real estate.

We had to make a choice whether to use the extra money we had to pay down our debt quicker or to buy investment properties. At the end of the day, I was comfortable taking on extra risk and buying real estate. I’ve been happy with the results too. We’ve seen higher returns than we would have if we would have aggressively paid down our debt, and our real estate investments have increased our cash flow too.

For more information on investing in real estate as a passive income strategy, check out these posts:

Of course, if you have any questions about my own experience investing in real estate with six-figure debt, please feel free to ask them in the comment section, and I’ll be sure to get back to you quickly.

Ryan Inman is a fee-only financial planner who specializes in helping physicians and their families build a solid financial future through his firm, Physician Wealth Services. As the husband of a pediatric pulmonologist, Ryan has a unique insight into what it’s like to be a part of a physician family and thoroughly enjoys helping his clients. He also runs the site FinancialResidency.com and is the host of the Financial Residency podcast. You can listen to his interview with Passive Income MD here.

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Disclaimer: The topic presented in this article is provided as general information and for educational purposes. It is not a substitute for professional advice. Accordingly, before taking action, consult with your team of professionals.

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