Should I buy a 500k home?

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F0nzie

F0nzie

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I have 100k sitting in the bank. I pay 2k per month in rent. Should I use the 100k for a down payment on a 500k home, pay off 100k in student loans at 6.8%, or put it in stock/bonds?
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Personally, I wouldn't buy stocks/bonds unless you are talking about a SEP IRA which you can't put 100k in anyway.
The home or loans is up for debate.
I would go with the home if you think it is a good deal. Sure the interest rate is somewhat higher on the loan but you are also not paying for rent. Also there is something to be said for having your own home, but that is my own thought. Not every0ne thinks that way.
 
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Buy a 500k duplex. Live on one side and rent the other. Btw what is an average home price in your area?
 
Granted I'm not a psychiatrist or a financial advisor and I have very little money to my name. Having said that, a lot of people think the market's growth is untenable and that the fed will have to start charging something for money eventually (they're giving it away for free to banks right now which helps prop up the stock market). So, I wouldn't invest right now. I would put my money in at least an investor's checking account, though, so that you get at least some growth, and at the least no fees. Suze Orman is a big believer in paying off student loans first. She said that they don't go away in bankruptcy, but I've heard dissenting opinions. Either way, the idea of making 6.8% in the stock market seems unlikely with safe investing so paying those off makes more sense. If you spend all of your savings on a downpayment, you've lost a safety net (unless you have more besides that 100k). I'm not sure if you're self-employed or not, but if you are, you probably want a personal safety net savings. Real estate has traditionally been a good investment, and the markets seem to have stabilized in most places. 500k sounds very pricey for a house, but maybe you live in an expensive area. I like to look up how much people pay for their houses and none of my doctors have paid that much. Most areas of the country you can get a very nice house for much less than 500k.

My advice would be to buy a cheaper house, make sure your savings or checking account is making you some money (I like Schwab), don't invest in the markets, and use the money you save from buying a cheaper house to pay down your student loans.

But what do I know? It's fun to imagine having these considerations, so consider this a personal indulgence as much as it is advice.
 
birchswing said:
Granted I'm not a psychiatrist or a financial advisor and I have very little money to my name. Having said that, a lot of people think the market's growth is untenable and that the fed will have to start charging something for money eventually (they're giving it away for free to banks right now which helps prop up the stock market). So, I wouldn't invest right now.
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Yea. I am definitely concerned about the current market. I do not want to lose a large chunk of my savings from a market crash if investors freak out over the fed raising interest rates.
 
I've often heard people say not to look at a home as an investment. That's somewhat true, however, in the process of "not treating it like an investment" everyone then continues to treat it like an investment by shying away from it because it's a "bad investment." This is typically said as if the alternative is giving you some kind of return on your money.

I think the biggest thing is what your priorities are. When I finish residency we'll probably target 400-500k (hopefully much cliser to the lower end). Sure, I could wait a little longer to do that, but what's the point? I plan on paying that bitch off regardless. There's no reason to wait. I won't be upgrading later. It will be a rather permanent home and the place our kids will grow up. If we didn't have the kids, we'd go smaller, but it's hard to put a price on function, having space for the kids to play outside and in a safe area, etc. If you don't really have a strong commitment/tie to a certain area or if you foresee potential big changes in the future that's obviously a whole different ball game.

There are a lot of variables that are different for each individual. But remember that money is a means. If the circumstances of owning a home provides an intangible value beyond what a guy with a calculator tells you, then that's something to consider.

Qualifier: spoken as a resident who's only ~2 years into a ~150k mortgage.
 
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ima4ltrwrd said:
Pay off the loan, buy a 300K house...there are plenty of them in Scottsdale.
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Part of the reason I have been thinking about buying is because the homeowners might kick us out. Their son is a Neuroradiologist and he may be getting a job in the area. Plus he needs a free house because he chose a low paying field. But yea it's just a hassle to move around since we have a kid so we were thinking about buying soon.
 
I think it also depends on your comfort with a house. I'm pretty handy and so I bought a fixer upper. I enjoy owning and I am always tinkering. If you would rather not deal with the hassle of a home and there are a lot of them, then paying off the student loans is probably a better bet.
 
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You should buy one of those tiny home things. They sound just awful. Truely aweful.
 
If you plan to stay put, I say buy the house. Don’t make yourself cash poor over it, but get into the game. Interest rates will go up soon and now is probably the end of a good time. Even if things tank, if you get a fixed loan in a nice enough place and you can make the payments, things will come back up. You are young and can ride it out. No one who makes good money on real estate hasn’t seen things go down for a few years.
 
@F0nzie the question you are asking is extremely location specific. Real estate markets can appreciate on one side of town and stay stagnant or depreciate on the otherside. I would try to consult with a local specialist, preferably a real-estate agent to talk about what your area might realistically experience over the next few years. Caution: Many agents are inherently biased to always buy.

When determining home prices, the #1 factor is income. Generally affordability is defined by Income X 5. As long as people are employed and can afford houses in their neighborhood. Prices generally stay the same or go up. When buying a home, it may make sense to buy one in a neighborhood with good schools. These homes tend to hold their value more if the market was to decline.

With all that said, your student loan interest rates are awfully high. Can these be consolidated or refinanced? If I were you, my game plan would be one of 2 options:
1) Buy a home, say 30-year fixed, and then aggressively pay down your student loans
or
2) Pay down the student loans and aggressively save for a house
 
The only thing that appears clear is that it will be getting harder to buy in the next few years. Your loans are high, but a home loan will be about half the interest rate, and you are paying rent now.

Asking a local agent if you should buy or not is like asking a barber if you need a haircut. :greedy:
 
How's that house like? I mean, how many bedrooms/bathrooms and other features? (Just wondering what kind of house you can get with 500k in your area)
 
 
Sounds like heaven. If you can live in it for the next 8 - 12+ years, you almost can not go wrong.
 
I would probably buy the house. But first take a few thousand and talk to an acct and/or attorney who specializes in assett protection for high-earning individuals who are trying to become high-wealth individuals
 
MacDonaldTriad said:
The only thing that appears clear is that it will be getting harder to buy in the next few years. Your loans are high, but a home loan will be about half the interest rate, and you are paying rent now.

Asking a local agent if you should buy or not is like asking a barber if you need a haircut. :greedy:
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Hence the disclaimer I added 🙂 I will say that there are those that will give you an unbiased opinion but they are far and few in between.

Doctor Bagel said:


Those interest rates (and even higher) are the reality for all borrowers from 2006 onward. Low interest rates and consolidating at lower rates and whatnot are long gone from the student loan market unless you do convert your federal loans to provide loans, which seems scary to me.

Personally I'd put the money toward a home. In my market $500k is a reasonable amount to spend -- going below $400k and also getting a house that you intend to stay in for a long time would be hard.
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Really depends on the area. I'm sure there are areas where you could get a phenomenal house for $300k. In my town you couldn't even get a lot for less than $700k. Real estate is highly variable from location to location.
 
F0nzie said:
I have 100k sitting in the bank. I pay 2k per month in rent. Should I use the 100k for a down payment on a 500k home, pay off 100k in student loans at 6.8%, or put it in stock/bonds?
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No, you should not take on a $500k loan as a new grad when you stilp have 6.8% student loans.

Im surprised www.whitecoatinvestor.com has not been redered to yet.

Personally im following plan of "live like a resident" after graduating for about 3-5yrs (i will increase spending slightly). agressively pay down by $200k student loans and agressively save into tax defered retirement acounts (around 25-30% of pretax salary) to catch up with those that were working from 21yo and not loose more compounding time.

So many new attendings are growing immediately into their income. But thats not a path to financial independence.

You probably also have your private practice laons as well.

Pay off 6.8% student loans. maximize tax defered accounts ( do u have solo401k or defined benefit plan?) do backdoor roth IRA. Live with freedom of not paying for a home and flexibility of relocating with ease.
 
michaelrack said:
I would probably buy the house. But first take a few thousand and talk to an acct and/or attorney who specializes in assett protection for high-earning individuals who are trying to become high-wealth individuals
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i would avoid doing this. you can educate yourself on asset protection and estate planning. Its been discussed before how physicians get taken advantage of by high fee "financial planners". We are not high net worth individuals for a very long time. Especially those with student loans. We just have a lot of debt. net worth is negative. salary is high, and unless you have a high savings rate (at least 20% , but more like 30%) you wont be high net worth.
 
Igor4sugry said:
i would avoid doing this. you can educate yourself on asset protection and estate planning. Its been discussed before how physicians get taken advantage of by high fee "financial planners". We are not high net worth individuals for a very long time. Especially those with student loans. We just have a lot of debt. net worth is negative. salary is high, and unless you have a high savings rate (at least 20% , but more like 30%) you wont be high net worth.
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I disagree.... a mistake in asset protection can keep someone from achieving wealth. It will be about a year before I can tell my full story. Here is a precursor:

http://www.forbes.com/sites/jayadki...nfusion-for-bankrupt-debtors-interest-in-llc/

The article describes a portion of my battle for control of a healthcare company (Opus Medical Management) that I had invested heavily in. Opus was in ch 11 bankruptcy at the time; its majority shareholder and CEO (Denman) was in ch 13 at that time.
 
I suppose it isn’t a surprise you are getting differing advice and points of view. Here is the golden rule to financial success. Rule #1, Live below your means. Do that and all will be well.

Now some more obvious advice no one will disagree with. Rule #2, Don’t make investments that pay less than the 6.8% you are paying in loans before those are paid off.

OK, that is easy to defend, now what about the house? This may be where rule #2 might need some bending. It seems that you have to live somewhere and your landlord isn’t subsidizing your need to exist so he is making money on you. I will not make this a “rule”, but a fairly strong generally agreed upon belief system. “Two physicians should not be paying rent.”

Buy a starter you will not feel bitter being stuck in for the next 10 years. You will know when to take the next step up. It is probably time to take the first step however. :beat:
 
michaelrack said:
...healthcare company (Opus Medical Management) that I had invested heavily in.
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I see, that's a tough situation for sure.
Yet part of investing strategy ( what I follow is boggleheads strategy) is investing in low cost index funds to diversify/lower risk/ lower expenses etc. to avoid investing significant amount into single entity, avoiding things like non-government 457 plans as hosits last are not as stable financially as we think of them to be. I

Also I don't see why two physicians can't pay rent. Two physician households havea great amount of financial power. double the tax deferred space. Save even more aggressively to get to your goals (ie debt free and financially independent)
 
Fonzie,


Things you might want to consider:

1) create an emergency fund that can cover 6-12 months of expenses. Something that can add in some breathing room if you lose your license, die, get disabled, have huge medical expenses, etc. while you wait for disability or life insurance to kick in.

2) Create a SEP and contribute the maximum for your income level (~47k/yr). It will lower your taxable income. Some states even protect these against malpractice suits.

3) Consult sofi.com or similar to determine if you can refinance.

4) Determine if your state has a homestead exemption for asset protection. If so, it would be nice to have 500k in a place that attys could not touch. Also property taxes can be tax deductible.

5) If your state has the right tax option, create a 529 for both kids and one for your CMEs. There may be some tax savings here.

6) Determine is an HSA is right for you. You could again save tax $$. After retirement it functions like a retirement account. I think for a family the maximum savings is like 13k or something.

7) Determine if you can hire you kids for a summer job, and deposit their income into a Roth for each of them. Adding in 18-22 years of retirement before they start graduate college could make them extremely rich in their adulthood.

8) Meet with a mortgage broker and find out what rates you qualify for, and if you could pay less than 20%. Run each scenario. At current market rates, putting 10% down, would put you at 2500/month.

9) Historically, the market will perform better than 6.8%. While QE will end, strong USD might help the market. Determine your risk tolerance and financial savy. Then shoot way under both of those.

10) Please tell me you have a monthly budget. If not, get one. If so, look at what you spend and what you want from your spending. Maybe eating out daily is worth living in a smaller place, maybe not.

11) If any of this creates problems with the spouse, go to a financial planner and let them play the bad guy.

Sorry for butting into your forum, guys.
 
The safe thing to do is to pay off student loans.
The problem with paying off student loans is interest rates are at historic lows and will go up but it could stay at these rates for several months, possibly years.

The risky thing-but will be worth it if you know what you are doing is to invest it. I wouldn't do that unless you knew what you were doing.
The stock market is doing very well, possibly too well and it could go down significantly down.
 
I feel kind of like the devil on your shoulder, but my advice is buy the house. Sure, the safest investment would probably be to pay down your student loans, and that's what I'd recommend if you had no desire/need to leave your current home any time soon. But if you're going to move regardless, and you are in a position to buy your "forever home", why not take advantage of the low interest rates?

If you're planning on staying in your city, I don't really understand the advice to buy a starter house you're going to want to upgrade in a few years; it's a pain in the ass to move and by the time you factor in all of the expenses associated with buying and selling a house, and the (likely) higher interest rates when you move in a few years, you won't end up saving all that much money anyway.
 
michaelrack said:
I disagree.... a mistake in asset protection can keep someone from achieving wealth. It will be about a year before I can tell my full story. Here is a precursor:

http://www.forbes.com/sites/jayadki...nfusion-for-bankrupt-debtors-interest-in-llc/

The article describes a portion of my battle for control of a healthcare company (Opus Medical Management) that I had invested heavily in. Opus was in ch 11 bankruptcy at the time; its majority shareholder and CEO (Denman) was in ch 13 at that time.
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Sounds like you were pulling straws but got pricked by the needle. I wish you the best.

But I am going to disagree with your disagreement. Most psychiatrists aren't going to have complicated ownership deals in medical companies. Especially not early in their career. If we start protecting ourselves against every rare possibility, we would end up broke.
 
The one thing against buying is that physicians often leave their first job...
 
I believe Fonz works for himself, so his boss isn’t likely to turn out to be a real jerk. :smuggrin:

As far as dream house vs. starter house, I just made the assumption that Fonz wasn’t in the position to swing a house that will be it for life. Most people have to build some equity and then expand. I don’t know about his market, but there are places where half a mil could get you more house than anyone should possibly live in and there are places where this is a studio at best. Both types of market inflate and deflate so the decision is more about getting into the game or not.
 
I would absolutely 100% buy the house. You may very well end up saving money over renting, especially if you plan to stay 5+ years. Even if you don't save money, the freedom that comes from having your own place is well worth the cost, at least for me. I am a very independent person, though, and having someone else in charge of my living space drives me crazy.

This is from somebody who has only lived in rented homes until recently--I can't tell you how much equity I have purchased for my past landlords--it's pretty sad.

Also, a $500,000 home does not at all seem extravagent, especially for a two physician family--in my neck of the woods, that would buy you a 1600 sq ft 2-3 bedroom.

That said, we physicians are extremely good at the delayed gratification/denying ourselves thing--this can really get in the way of actually LIVING your life. Every year you spend living someplace you don't want to live is a year of your life you're not getting back. Responsible debt is awesome and enables you to get the most utility you can out of your relatively short time on this planet.

I guess it really comes down to, for you, whether the costs of ownership are worth the enjoyment, satisfaction and security those costs purchase.

Best of luck in your decision!
 
Look, the reality is that we are all going to exit this earth in not too long....so do what you want NOW. If you want to be living in a nice house that you own, do it. If you don't want to live in a house and like the freedom of renting, then keep doing that. Do what you WANT to do.

From a money perspective, yeah if you are going to stay more than a couple years it makes more financial sense to buy. Your monthly payment will likely be cheaper(assuming the same house.....no way can you rent a 500k house here for 2k a month, not sure about there. Here 2k a month rents a house that sells for maybe 220k). Plus there is the mortgage interest deduction.

In the end, maybe you lose some money and maybe you gain some money. but considering my first sentence, worry less about that and more about enjoying yourself.
 
vistaril said:
Look, the reality is that we are all going to exit this earth in not too long....so do what you want NOW. If you want to be living in a nice house that you own, do it. If you don't want to live in a house and like the freedom of renting, then keep doing that. Do what you WANT to do.

From a money perspective, yeah if you are going to stay more than a couple years it makes more financial sense to buy. Your monthly payment will likely be cheaper(assuming the same house.....no way can you rent a 500k house here for 2k a month, not sure about there. Here 2k a month rents a house that sells for maybe 220k). Plus there is the mortgage interest deduction.

In the end, maybe you lose some money and maybe you gain some money. but considering my first sentence, worry less about that and more about enjoying yourself.
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Buying a house that high is doubtful to be cheaper than renting anytime in the near future

https://web.archive.org/web/2014031...interactive/business/buy-rent-calculator.html
 
Buy a 300k-350k home if you can find one in a safe neighborhood with good schools... I am not a big fan of high mortgage payment.
 
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