Prioritize Student Loans or Real Estate Investing?
COVID gave student loan borrowers some brief relief. Most have decided to put payments on hold which allowed them to spend money on travel and investing. This won’t last forever, and pre COVID a common question that got brought up was how aggressive should you be in paying off student loans? They are a major burden, both financially and emotionally. Will paying them off early slow down your retirement plans? If you're considering paying off your student loans or investing in real estate, it's important to weigh the pros and cons of each option.
Paying off student loans
There are several benefits to paying off your student loans:
You'll no longer have to make monthly payments.
You won't have to worry about interest building up.
You'll have a better credit score.
You'll be free to invest your money in other things.
However, there are also some drawbacks to paying off your student loans:
It can be a lot of money to pay back, depending on how much you owe.
You may be able to earn a higher return on your investment if you put your money into real estate or other investments.
You may not be able to afford to buy a house or start a business until you've paid off your loans.
Investing in real estate
Real estate can be a great way to build wealth over time. When you invest in real estate, you're buying an asset that has the potential to appreciate in value. You can also generate passive income from rental income.
However, there are also some risks associated with real estate investing:
The real estate market can go up and down, so you could lose money if you sell your property at a time when the market is down.
You'll need to have a down payment saved up in order to buy a property.
You'll be responsible for all of the costs associated with owning and maintaining a property, such as property taxes, insurance, and repairs.
Which one is right for you?
The best option for you will depend on your individual circumstances and goals.
If you have a lot of student loan debt and you're struggling to make the monthly payments, then it may be best to focus on paying off your loans first. Once you're debt-free, you'll have more financial flexibility and you can start investing in real estate or other things.
If you have a small amount of student loan debt and you're able to make the monthly payments comfortably, then you may want to consider investing in real estate. Real estate can be a great way to build wealth over time, but it's important to be aware of the risks involved.
Historical real estate rental returns
According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the average annual return on real estate investments has been 10.6% over the past 30 years. This includes both rental income and appreciation in value.
Of course, past performance is not indicative of future results. The real estate market can go up and down, so there's no guarantee that you'll earn a 10.6% return on your investment. However, the historical returns suggest that real estate can be a good investment over the long term.
There is no one-size-fits-all answer to the question of whether to pay off student loans or invest in real estate. The best option for you will depend on your individual circumstances and goals.
If you're not sure what to do, you may want to consult with a financial advisor. A financial advisor can help you assess your financial situation and create a plan that meets your individual needs.
Here are some additional things to consider when making your decision:
Your risk tolerance. How much risk are you comfortable with? Real estate investing is generally less risky than the stock market, but it's still important to be aware of the risks involved.
Your time horizon. How long do you plan to invest for? Real estate is a long-term investment, so you need to be comfortable with the idea of your money being tied up for an extended period of time.
Your personal financial situation. How much money do you have saved up for a down payment? What is your debt-to-income ratio? Can you afford to make monthly mortgage payments?
Once you've considered all of these factors, you'll be in a better position to decide whether to pay off your student loans or invest in real estate.
