Should you pay off debt before you begin investing in real estate? Is being debt-free a requirement for investing? This topic is one of our most frequently asked questions, understandably.
Debt can be overwhelming, but the prospect of creating passive income is enticing! Many people understand the value of real estate investing, but are concerned about approaching investing when weighed down by debt. How can you choose what is right for you?
Deciding how to approach real estate investing when you have debt is not always simple and straightforward. There are a few factors to consider. This is a decision you’ll have to make for yourself, but we want to help you weigh your options.
The first thing you should do is write down all of your debts, so you have a clear picture of where you stand. Assess the kind of debt, as well as the interest rate for each. Then calculate how much money you have each month to allocate toward paying off debt.
Sometimes, debt is necessary. Perhaps you had to take out a loan to buy a car, or maybe you have some student loan debt. Typically, anything under 4% interest is not a priority to pay off immediately.
For us, all of our real estate investments accrue a minimum of 10-12% return on investment. It's all about determining which rates are higher. For example, if you have a store credit card with 22% interest, you will likely want to consider paying that off as quickly as possible.
Next, weigh what you’re paying monthly in interest against a potential investment. For example, if you have $500 each month to allocate either toward paying off debt or investing, you’ll have to assess how quickly that $500 can help you reach your goals.
You should also consider that it’s not an all-or-nothing approach! You can split the money up and approach the situation creatively. Investing is not black and white, it’s about what finding what works for you and benefits your specific situation.
Want to know more about turnkey real estate investing? Book a free, no obligations call with our team! Just pick a 30-minute slot that works with your schedule, and we'll talk about how rental real estate can help you reach your goals.