Making ~50k on house, where to put money?

[Harebear]

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Howdy,

My wife and I made a decent investment and bought a foreclosure in 2012, fixed her up, and will be netting ~$50k on it.

Starting residency in july, I have $179k in loans at 6.8%. I believe I will be choosing the REPAYE repayment program

Also, I will be purchasing another home for $163k and will be putting 10% down. Using physicians loan through suntrust, so the benefits of putting more money down is decreased since there is no PMI anyway.

Where should I put the money? The obvious answer seems to be into school loans, but the details of the repayment programs are a little over my head and the benefit to pay the school loans off seem less clear...


THANKS!

 

[Mad Jack]

Given the terms of REPAYE I'd say your best bets are either:

1: Put the money into your loans- this is not the brightest idea unless you are in a highly paying specialty, as REPAYE halves interest over your required payment.

2: Put the money into your new property. No downsides, really, aside from low returns.

3: Put the money into new properties. Downsides are having to look after your property, etc. But 50k can be decent collateral for a multifamily or another property that would be desirable, if you had the time and ability to care about such an investment.

4: Invest it in the markets. Safeish, smartish.

Disclaimer: SDN is not for financial advice.

Personally I'd use the money as collateral on a bigger property or to pay down my own property.

 

[Harebear]

I will be going into anesthesia, likely private practice.. so then you would suggest putting it into the loans?

 

[blue0rchid]

I have a very similar situation so I'd love to hear advice on OP's questions as well. I'll be in EM.

 

[dpmd]

Given the terms of REPAYE I'd say your best bets are either:

1: Put the money into your loans- this is not the brightest idea unless you are in a highly paying specialty, as REPAYE halves interest over your required payment.

2: Put the money into your new property. No downsides, really, aside from low returns.

3: Put the money into new properties. Downsides are having to look after your property, etc. But 50k can be decent collateral for a multifamily or another property that would be desirable, if you had the time and ability to care about such an investment.

4: Invest it in the markets. Safeish, smartish.

Disclaimer: SDN is not for financial advice.

Personally I'd use the money as collateral on a bigger property or to pay down my own property.

At 6.8% and the fact that the OP has unpaid interest that will capitalize prior to starting whatever repayment plan he selects I don't see how paying down a mortgage would be the better idea (which is going to save him what? 3-4% interest since doctor's loans have higher interest rates, but the mortgage interest is going to stay deductible longer than the student loan interest would). The investing option may or may not be better long run. Real estate investing or getting a bigger property with it is probably too risky for a resident.

 

[mvenus929]

Personally, I would use some of it for the down payment, save a chunk for an emergency fund, and throw the rest at loans. But I'm also the type that is trying to pay down loans a little during residency (not working so well given the size of my loans, but I'm focusing on the one that I actually have a hope of paying down).

 

[bc65]

No one should buy a home unless they know for sure that they will be there for the long term, ie more than 5 years. Residents should not buy homes. Neither should new attendings, until they have been in their new job for several years and are sure that they are going to stay in that immediate vicinity.

 

[bawer234]

1031 tax exchange (this means you defer paying tax on your capital gains allowing you to roll over ALL the equity you have with certain limitations) into the new house or into an investment property like Mad Jack said. As far as I'm aware, if you apply the proceeds of you home sale into your student debt you'll be paying tax on the money you make.

 

[dpmd]

1031 tax exchange (this means you defer paying tax on your capital gains allowing you to roll over ALL the equity you have with certain limitations) into the new house or into an investment property like Mad Jack said. As far as I'm aware, if you apply the proceeds of you home sale into your student debt you'll be paying tax on the money you make.

Not if it was their primary residency and their gains are under the exclusion limits (assuming that net 50k is after accounting for all the work they did on the house through the years-for all i know they failed to account for that and don't actually have any capital gains at all)

 

[Stroganoff]

(Just some ideas, please fact check and consider many opinions.)

• Do you have an emergency fund? If not, throw $10-20K in there to establish one or add to a current one.
• $5,500 in a 2016 Roth IRA for yourself and $5,500 in a 2016 Roth IRA for your wife.
• (Optional gunner step): Max out the 403(b) or 401(k) of your employer from July-December ($18,000 is the limit for 2016), which would make your residency paycheck very small, but live off some of the money from your $50K home sale. This will make your 2016 income tax burden really, really low.
• Put the rest towards your student loans for a guaranteed 6.8% return. Plus, it makes the overall balance more palatable when attending pay starts coming in.

 

[Chloroform4Life]

This one is easy: after emergency fund, student loans take priority over mortgage and stock market. With student loans, you are pretty much getting 6.8% tax free return. With mortgage, you are getting maybe 3% return. With stock market who the hell knows, but you would be getting taxed at least 15% off your return. Also, note that the market seems to be plateauing currently and may be due for a correction soon.

I graduated med school with 250k, was pretty aggressive in putting any excess money into student loans and lived frugally during residency, but it still ballooned to 300k after 4 years. Now I'm still living frugally as an attending trying to pay it off as quick as possible. If I had an extra 50k at the beginning of residency, I would definitely have put it toward my student loans.

bc65 has some good advice on buying a house as well. Unless you are married with kids, renting would be more beneficial I think. It would mean you have more cash to put toward student loans. But if you and your wife have kids or are planning on having kids, and need a lot of room, the mortgage on a house may be cheaper than rent over the course of 4 years.

 

[Stim4me]

Vanguard intermediate municipal bond...