Investing vs. Paying Off Debts

What is everyone's thoughts on investing in rental properties vs. using saved money to pay off debts? There seems to be a lot of differing opinions on whether it is smarter or better to remove debt prior to investing vs. keeping the debt and investing at the same time. 

In my own situation, I have money saved up where I could pay off my car loan and finish my students loans, or purchase some rental properties. Regardless of what route I could take, the monthly income from paying off the debts is roughly equal to the same cash flow as purchasing a rental property. Personally, I believe it is better to invest as soon as possible if the interest rate on the debt isn't outrageous and the monthly debt payments can still be managed. Just wanted to hear what others thought on this as well.

Comments

  • My thoughts are to keep low interest rate debt and buy more rentals. I have a super aggressive style though. 
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Mark, do you have a 401K or IRA contribution fund? Do you contribute to those monthly or do you use all your income for rentals?
  • I have a small IRA that I contribute to monthly, but I don't really know why. I am writing an article about this as we speak. I think I might use it as a self directed IRA to buy a turn key
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 0
    If you return on investments is percentage wise more than the interest %, fees etc, I would keep the debt. Would get rid of the student loans though. They follow you around until you die, even bankruptcy will not free you.
  • The one nice thing about student loans is the interest rate is usually extremely low. 
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 48
    I agree with you regarding the student loans, Mark. While they may be with you forever, there are better investment opportunities you can make with the money you would use to pay off the loans due to the lower interest rate. Having the loan a long time isn't a bad thing as long as you can manage it. That holds true for a lot of debts people may have with low interest rates. It's all about comparing the interest versus an alternate return from investments.
  • DaveV said:

    I agree with you regarding the student loans, Mark. While they may be with you forever, there are better investment opportunities you can make with the money you would use to pay off the loans due to the lower interest rate. Having the loan a long time isn't a bad thing as long as you can manage it. That holds true for a lot of debts people may have with low interest rates. It's all about comparing the interest versus an alternate return from investments.

    Yup, that's why i don't pay my car loans off early, because at 2.9% that is one of the lowest percentage loans you can get and i can use that money for much better performing investments. 

    A lot comes down to how comfortable people are with debt and getting around the idea that all debt is bad. 
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Posts: 0
    You should also consider the current trends in your local market. Here in Texas we are booming, If you buy it right, you equity expansion would surpass the interest on your debt. Remember, if you use financing you are controlling a large asset and your returns are based on that. The properties I bought in last few years are seeing nice equity gains and we are projected to add another 10% this year.  Hence, I want to control as many properties because we should see steady price increases because Texas jobs are really strong.

    ====================================
    Stewart
    Living the REI Dream in Dallas and Kansas City
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  • Not sure if you guys ever read "Rich Dad, Poor Dad" - I read the book many years ago and finally got to play the game about 5 years back, really good for actually understanding cashflow and debt. 

    There's a free version of the game here: http://www.richdad.com/classic

    I know it might seen a bit silly with a game, but I find it much easier to teach people how it all works rather then reading a bunch of large boring books on the subject.

    Kind Regards
    Mads Singers

    Operations Director - Real Estate VA 2 Hire
    Web: realestateva2hire.com
    Email: [email protected]


  • I have that game. I haven't had time to play much though. I think a lot depends on your personal goals
    Creator of Invest Four More
    If you want more help with your investing, check out http://investfourmore.com/blueprint-for-successful-real-estate-investing/


  • Agree completely, but I generally meet so many in people that doesnt understand Assets and liabilities and how cashflow works and the game is an awesome way to get a more realistic understanding of it. 

    No doubt though that you have to find your way of doing things, but its key for any business/investment people to have a basic financial understanding (In my view!) 

    Kind Regards
    Mads Singers

    Operations Director - Real Estate VA 2 Hire
    Web: realestateva2hire.com
    Email: [email protected]


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