My wife and I are Realtors. We have extremely modest lifestyles that cost about $3,500/mo to uphold. Here's our approximate cost breakdown:
- Mortgage #1 ($1300)
- Mortgage #2 ($1600)
- Monthly Cash Flow from Mortgage #1 Rental ($400)
- Groceries ($200)
- Gas ($200)
- Entertainment ($200)
- Healthcare ($400)
- Insurance, Home Maintenance, MISC: ($1,000)
- ZERO car debt, ZERO consumer debt
Our pie-in-the-sky investment goal is to have 10 rental properties before we turn 40, which puts us on track to pick up 1 every 14-16 months. The average duplex in our market costs about $220,000-$250,000, and we're able to put away about $75,000 a year in savings (we net about $120k after business expenses and taxes).
I'm a little torn on where to start first. We sort of lucked into our first rental by buying our first home before that particular neighborhood took off. We only had 5% down at the time and bought for $205,000. It's worth about $250k now which gives us an equity position of about +$62,000. We also bought our second home at 5% down for $250k in a growing neighborhood and now comp it out at about $275k. Our equity position in this house is about $38,000.
We've only put 5% down on our homes because we've been throwing nearly every disposable dollar we make at our student loans. We each went to private grad school and racked up a combined $155k in debt (oops) at 6.8%. We've paid off $105k of it so far and have just about 50k to go. Do we wipe out these student loans, which are currently in deferment until next July before picking up our next rental property, or do we buy the rental and use the cash flow to subsidize about 80% of the (future) payment?
Given our income and modest lifestyle, does it really even matter what order we do things in? I understand paying off the debt is an immediate return of 6.8%, however there is no asset to back it, no cash flow, and virtually no tax bennies. I'd love to hear someone's thoughts on this.