Making the most after college

Hey all, this is my first post but I’ve been lurking around for quite a while. Great advice here, so thanks for that already.

My specific question has to do with how to go about making the most of a small amount of savings after college. I’m totally infatuated with Real Estate investing, and have been for some time, even before I bought Carlton Sheet’s course about 4 years ago, so I’d like to get involved with it, but I am wondering if this is the right time.

I started with enough savings to pay for my first two years of school, but for my last two I borrowed on school loans at 6.8%. By the time I graduate in December, I will have about $10k in savings, and I will own free and clear my '03 Monte Carlo, however I’ll be $33k in debt due to the student loans, and I’ll need to start repaying them by May-June of 2009.

I’ve got good credit, and my current girlfriend does too, and she is completely debt free. Right now we live in an apartment paying about $760/mo (she does the bulk of the heavy lifting there while I finish school), and anyway, that’s the situation.

I was looking for some advice on maybe what angle you veterans would take here. I figure paying down the $33k loan to $23k with my savings is saving me $115.09 per month, and over a year that’s like a 13.8% return on that initial $10,000. However, we would like to get out of paying rent, and it got me thinking of weather we could do even better if we purchased a house, and treated our first home as a first investment.

We live in Michigan right now, and our plan is to move out of state in 3-5 years, and I’m just looking to get the most bang for my buck over that time period as possible. I can pay down my debt, throw the money into savings, or purchase a house. What do you guys think?

Again thanks for making this such a comfortable place for newbs like me to come and ask questions.


What kind of income do you and your gf realistically expect to make after graduation? What is the cost of living like in your area? What kind of repayment plan will you have for your student loans (montly payment amount)? That amount of savings is about the same as the down payment for our apt. building. Most people are going to suggest you to get into a duplex or triplex if you can afford it. Your living expenses will be offset by the rent you’re bringing in. This will give you some exposure to dealing with tenants. If you have no interest in doing rentals, maybe consider buying a house that needs a little work. Do some fix-up yourself. Live in it for the time you’ll be in the state and then hopefully you will have increased it’s value enough by your work that you’ll profit from it when you sell.
You can always accelerate your payments on your student loans so you’re not paying on them until you’re 35 or older. You don’t necessarily have to empty your savings acct. to make a huge payment. Play around with the “pmt” formula on MS Excel and you can figure out how many years you can cut off your loan by adding X dollars to your payment each month.
Maybe some more detailed information will help people offer advice to better suit your needs.

After graduation I expect realistically a combined income of around $70k per year. Cost of living in this area is on the medium to low end of the scale country wide. Average rents are between $600-$900 per month for an 800sq ft apartment depending on location. Average single family homes list for around $75,000 - $120,000 in the areas I’ve been looking at. The repayment schedule on the student loans will amount to around $300 per month over a 10 year period.

You feel that purchasing a small multi-family, or rehabbing a distressed property are both equally viable investments considering the time frame though? We will likely sell whatever we purchase in 5 years in order to settle down in a more climate-friendly environment. :silly I guess I was just figuring that $10,000 would be the minimum down payment for a ~$100,000 home at least from a traditional lender, so I hadn’t really considered only putting say $5,000 down, and sticking $5,000 in the bank to help accelerate the monthly student loan payments. That sounds like a better plan to you?

With your combined income and credit, you can easily move into a multi-family. Depending on the deal, you could live rent free, earn rental income, enjoy tax breaks and get landlord/REI experience. You can build a huge reserve to use for investing.

Honestly, I had not checked on the price of multi-families. I thought they’d be out of my price range, but I’m kind of excited now. I’ll start looking to see what we have in the area.

A lot of it depends on how handy you are with tools and how much you’re willing to fix up. Duplexes are generally very affordable unless they’re nearly new. You’d be surprised how far your money will go for reasonably priced materials and doing most of the work yourself.
Keep this in mind. Your resale market will be smaller with multi’s than SFHs because not everyone wants to be a landlord. I’m not saying that to detract you from multis because that’s what we have and we want more. I just want you to understand that about the market. There are obviously pros and cons to multi’s vs. SFHs

I think your best bet would be something that needs a little work. If you can get a 4 unit property, the rental income will be better. You have so many options with owner occupied property. The same rules for buying property apply. You want to find motivated sellers and buy at a HUGE DISCOUNT!! The down payments and terms are better also. You may even get in for 3 % or 0% down with your credit & income. I widh I did that when I got out of college.

I would recommend get a good job, and do investing as a part time till you realize enogh income from it to quit your job.

Yes this is definitely the plan. My girlfriend and I are both web developers, and I’d like to continue to do that. If I ever become a full-time investor it will just be because it requires my full-time attention, and it’s worthwhile to do so. In the meantime though, my biggest concern was how to best make use of my little bit of savings after graduation. Thanks for all the replies so far though.

The amount you have is enough to get you started as an investor… You can buy sub2 and use your money for holding costs till you sell it and cover small repair costs for example or use it for down payment on an investment property till resold or refinanced.

Are your student loans government loans or private loans. If they are private loans, there is no cap on your interest rate. Your first priority should be to pay down these loans as quickly as you can. Then start investing once your student loan debt is gone.

Hi Dave. They are Federal Stafford loans, so I think the rate is fixed at 6.8% until 2013. After that though, it’s anybody’s guess.

And Fadi,

A quick question about the sub-to. Were you saying I should look for a sub-to deal, and then try to sell it right away for the established equity, and use my savings for the holding costs during the time it’s on the market? I’m only asking because it was my understanding that sub-to’s with any equity are really hard to find, and that the real benefit is the low interest rate. I think I’d probably qualify for FHA lending since we’d be moving into wherever we go for at least a year anyway. Is there something I’m missing?

Since you use the plural, you have more than one Stafford loan. Look into loan consolidation once you graduate and have an income. Consolidation may extend the loan term from 10 years to 30 years, and, could lower your interest rate to 6%. Talk to your school’s financial aid representative to get more information on the timeline to consolidate and how soon you have to start paying back your loans once you consolidate.