A 34-year-old landlord says you shouldn't wait until you're debt-free before investing in real estate for 3 reasons

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  • Keallah Smith owns 3 rental homes but has $730,000 in total debt, including student loans and mortgages.
  • She said that waiting to be debt-free before you start investing in real estate is a waste of time.
  • The revenue you can lose out on by waiting probably isn’t worth it to pay off low-interest debt.

When Keallah Smith, 34, bought her first home in a suburb of Atlanta for $135,000, she intended to live in it. It didn’t occur to her that she could rent it out to someone if she downsized and moved her family back in with her parents, but that’s ultimately what she ended up doing. 

Today, she has three rental properties — the Atlanta-based home, a house in Daytona Beach, Florida, and an Airbnb just outside of Disney World — and still lives on her parents’ property with her husband and three sons. 

According to records verified by Insider, Smith estimates that her three properties and other assets equal roughly $1.5 million dollars. However, her total net worth is much lower because she owes about $730,000 in both mortgage and student loan debt. 

While there’s a likelihood that some investors would be uncomfortable with that kind of assets-to-liabilities ratio, Smith argues that it’s not a bad thing at all, and that waiting to be debt-free before investing is “a waste of time” for three reasons.

1. Not all debt is high-interest or “bad” debt

Smith said that before she bought any rental properties, she and her husband combined had about $100,000 in student loan debt. She said that they have much less student loan debt now than what they started with because they’ve been paying it off, but it’s still not completely gone. On top of that, Smith and her husband are on the hook for three separate mortgages. 

“Student loans and mortgages are just something that I am not in a rush to pay off, simply because they are low interest debts,” Smith explained. “I’m much more interested in making sure we keep low credit card debt, and things like that.”

One caveat that Smith added about her student loan debt is that her interest rate is low because it’s a federal student loan and not a private one, which would have made things more difficult and complicated for a new investor.

“A lot of them are predatory and have really high interest rates,” Smith said of private student loans. “I would definitely look into — if at all possible — refinancing any high-interest private loans.”

2. Other streams of income can cover your mortgage in hard times if you budget wisely

Smith said that carrying debt while making investments will feel less scary if you plan ahead and make sure that you have enough cash flow to cover your expenses in hard times. For real estate investors, hard times usually means periods in which you do not have a tenant living in your property.

In addition to being a property owner and manager, Smith also has a 9-to-5 job as a scrum master for a software development team and makes extra money on the side by teaching online financial literacy courses to both children and adults. Her husband works full-time as a barber. 

Smith said that these incomes put her in a position to be able to continue paying all of her monthly debts without going underwater, even if she didn’t have any tenants.

“One piece of advice that my mother gave me when I was a teen was to always live off of one income so that you’re not over-allocated,” Smith said, who cited recessions and potential job losses as other reasons to do this. “We always keep in mind always what all of our expenses are, even if they have to come out of pocket.”

3. Tackling debt is time-consuming, you’ll lose out on interest and revenue

She said that she thinks there is a lot of pressure on borrowers to pay off their debts as quickly as possible, and said that being “debt-free” is held up as evidence that someone is financially responsible and on the path becoming wealthier, but that this can actually be counterproductive.

“I think that just kind of wastes time if you can put together a real estate deal that makes instant cash flow for you,” Smith said, while adding that she knows many people who made their first financial goal being free of student loan debt “who highly regretted it.”

As an example, she said that while you might feel free after putting a $30,000 lump sum toward paying off some debt, if you do the math and see what that $30,000 could have done while invested in the stock market for a few years, you may feel that you should have done things differently.