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  • Home purchase question

    Dear WCI and forum readers,

    I am a newly graduated attending and I plan to purchase our first house. I hope you can give me your opinions. This is a question of what to buy, and not a question of rent vs. buy.

    I have a husband and no children. We have no debt, are maxing out our retirement accounts, and have about 300k in saving in a 1% high yield saving account. Now that I am more familiar with low ER index funds, we plan to slowly roll our savings into an equity portfolio, perhaps at a rate of 5k a month, instead of just dumping everything in at once in case the market crashes (is that a good idea?). We have two options in purchasing a home:

    1) Buy a 300k new house which is more than big and comfortable enough for us or any potential small children right now. Put down maybe 100k, pay the rest with a low interest monthly payment, and slowly investing the rest of our current saving and my additional monthly saving into a portfolio. In 5-6 years, we will most likely need to change to a bigger house if we were to have any children that grow to school age (such houses value around 500-600k now, but probably a lot more in 5 years to buy/build). I like this idea because we do not need a bigger house now, the smaller house has less tax, free up more cash inflow each month for investment, and also the smaller house would be much easier to sell if I were to leave my job in the next few years.

    2) Buy that 500-600k house now and live in it for the next 10+ years.

    I know there are many factors in place, but any comments would helpful. Thank you,

  • #2




    Dear WCI and forum readers,

    I am a newly graduated attending and I plan to purchase our first house. I hope you can give me your opinions. This is a question of what to buy, and not a question of rent vs. buy.

    I have a husband and no children. We have no debt, are maxing out our retirement accounts, and have about 300k in saving in a 1% high yield saving account. Now that I am more familiar with low ER index funds, we plan to slowly roll our savings into an equity portfolio, perhaps at a rate of 5k a month, instead of just dumping everything in at once in case the market crashes (is that a good idea?). We have two options in purchasing a home:

    1) Buy a 300k new house which is more than big and comfortable enough for us or any potential small children right now. Put down maybe 100k, pay the rest with a low interest monthly payment, and slowly investing the rest of our current saving and my additional monthly saving into a portfolio. In 5-6 years, we will most likely need to change to a bigger house if we were to have any children that grow to school age (such houses value around 500-600k now, but probably a lot more in 5 years to buy/build). I like this idea because we do not need a bigger house now, the smaller house has less tax, free up more cash inflow each month for investment, and also the smaller house would be much easier to sell if I were to leave my job in the next few years.

    2) Buy that 500-600k house now and live in it for the next 10+ years.

    I know there are many factors in place, but any comments would helpful. Thank you,
    Click to expand...


    You guys sound disciplined and are already off to a great start. There are a few things to consider with your questions.

    As for rolling some of your savings into a taxable account, this is a good idea overall. Whether to put it in all at once or slowly is just really trading one risk for another. In most cases, its better to just get it over with especially if you have a decades long outlook on it, it actually doesnt matter if it goes up or down initially if the ending price is the same when you withdrawal. A bear market could come tomorrow or years from, if we had any idea when we wouldnt be here of course. Though you certainly need to do more than 5k/month as it will take 5 years at that rate.

    If there is any reason you would be leaving a job in a few years you shouldnt buy any house, no matter how cheap. If the reasoning for the move is schools and not just a bigger place, its always best to buy in the better school districts in the beginning. Those are the areas where people want to be and its easier to buy/sell there than anywhere else.

    I'd do some soul searching and see which of your above options makes the most sense for your family long term, either way Im sure you guys will be good.

    Comment


    • #3
      Big fan of the starter home.  You get a chance to see what you like and what you want in a house.  If you are in a new place, you get a chance to see if you like the new place and the new place likes you.  You're right about a smaller house, there's less expenses all around--don't forget about utilities.  Heaven forbid, something happens to you--you have less % assets tied up in a big house, giving you a lot more options.  And ultimately in a few years you have the ability to be patient as you are looking for/building the permanent house.  If you're already thinking of leaving your job, I wouldn't buy anything.  In terms of schools and resale, I would argue that the market should have this priced in (for you buying and then for you selling).

      I rented for a bit until I moved into a nice little starter.  Raised a puppy and a baby to toddler there, casually home-shopped for a year, seriously home-shopped for a year (don't worry, our realtor didn't waste our time), found the perfect house which was a foreclosure, put in an offer immediately upon seeing it, moved in over the course of several months.  (This strategy requires the right realtor--this one happens to be married to a physician.)  Best series of financial decisions I ever made.

      Agree that you get the money into the market sooner than later (of course save enough for the down payment).  You could put in 100k tonight and then 100k after Brexit.  Or whatever you fits your risk tolerance.  But you gotta get something into the market ASAP.

      Also agree with Zaphod--it sounds like you guys are squared away and will be fine with whatever you choose.

      Comment


      • #4
        Thank you for your feedbacks. They are very helpful.

        I do not plan to leave this job. That's why I mentioned it's not a rent vs buy question. But like you mentioned, heaven forbids if something were to happen, I hate having to sell a 500k house instead of a 300k one.

        The school district is not great, which also makes it a cheaper buy, and obviously will be a cheaper sell in the future. I just nope it wont be too hard to sell.

        I appreciate your opinions on getting the money into the market soon. It's quite daunting for a novice in financial planning like us.

        thank you,

        Comment


        • #5
          For me, I don't think it makes sense to buy a$300k house to buy a bigger$5-600k house in 5 years. That's around the break even point on a house, so I think either rent for a few years or just buy the big house now with a big down payment and grow into it. The only advantage a starter house gives you is an idea of what you really want in a house but financially I don't think it makes sense.

          Comment


          • #6


            we plan to slowly roll our savings into an equity portfolio, perhaps at a rate of 5k a month, instead of just dumping everything in at once in case the market crashes (is that a good idea?)
            Click to expand...


            Not really. On average, the market is up 7 out of 10 days. Recommend moving what you will not need for the next 5 years into a well-balanced equity mutual fund/ETF portfolio, rebalanced annually.


            In 5-6 years, we will most likely need to change to a bigger house if we were to have any children that grow to school age (such houses value around 500-600k now, but probably a lot more in 5 years to buy/build).
            Click to expand...


            5 year minimum is my bright line for selling a house and you meet that minimum so I say go with the starter home then change school districts when you have school-age children.


            It’s quite daunting for a novice in financial planning like us.
            Click to expand...


            With sincere respect, a portfolio is not a plan and putting money into the market is not financial planning. Investing is only a means of accomplishing what you want to do in life (the goals in your plan). You guys appear to be accomplished savers (maybe, maybe not, since I don't know all of the other pieces of your plan and how well you've managed your resources). A plan will guide you to make the choices employing your available resources in the most efficient way possible to reach your goals from now until dead.

            Good luck with finding the right house!
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

            Comment


            • #7




              For me, I don’t think it makes sense to buy a$300k house to buy a bigger$5-600k house in 5 years. That’s around the break even point on a house, so I think either rent for a few years or just buy the big house now with a big down payment and grow into it. The only advantage a starter house gives you is an idea of what you really want in a house but financially I don’t think it makes sense.
              Click to expand...


              Thanks that's what we are concerned about too, whether we would break even when we sell the house. It's hopefully better than renting though, since the monthly payment would be what I am paying for rent now.

              Comment


              • #8





                we plan to slowly roll our savings into an equity portfolio, perhaps at a rate of 5k a month, instead of just dumping everything in at once in case the market crashes (is that a good idea?) 
                Click to expand…


                Not really. On average, the market is up 7 out of 10 days. Recommend moving what you will not need for the next 5 years into a well-balanced equity mutual fund/ETF portfolio, rebalanced annually.


                In 5-6 years, we will most likely need to change to a bigger house if we were to have any children that grow to school age (such houses value around 500-600k now, but probably a lot more in 5 years to buy/build). 
                Click to expand…


                5 year minimum is my bright line for selling a house and you meet that minimum so I say go with the starter home then change school districts when you have school-age children.


                It’s quite daunting for a novice in financial planning like us. 
                Click to expand…


                With sincere respect, a portfolio is not a plan and putting money into the market is not financial planning. Investing is only a means of accomplishing what you want to do in life (the goals in your plan). You guys appear to be accomplished savers (maybe, maybe not, since I don’t know all of the other pieces of your plan and how well you’ve managed your resources). A plan will guide you to make the choices employing your available resources in the most efficient way possible to reach your goals from now until dead.

                Good luck with finding the right house!
                Click to expand...


                We are novice in financial planning, investing, life in general. Only been practicing low living expense, paying off student loans, and saving whatever left under the mattress (checking account) during training. So the saving just sat and depreciated.

                Comment


                • #9


                  We are novice in financial planning, investing, life in general. Only been practicing low living expense, paying off student loans, and saving whatever left under the mattress (checking account) during training. So the saving just sat and depreciated.
                  Click to expand...


                  If you have recently finished training, I would say you are way ahead of most new attendings - at the very least, doubt that you are "novice" at life in general.
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                  Comment


                  • #10


                    We are novice in financial planning, investing, life in general. Only been practicing low living expense, paying off student loans, and saving whatever left under the mattress (checking account) during training. So the saving just sat and depreciated.
                    Click to expand...


                    If you have recently finished training, I would say you are way ahead of most new attendings - at the very least, doubt that you are "novice" at life in general.
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11
                      I know it wasn't phrased as a "rent vs. buy" question, but the fact remains that about half of doctors leave their first jobs by choice or circumstance. A sage attending of mine gave a talk to final-year residents. One of his bullet points was in capital letters. It said "RENT. DON'T BUY." He repeated it three times. None of us took the advice. Half of us should have, but you only know which half in hindsight.

                      That being said, your question was "forever home" versus the $300,000 home. I would start smaller, given the two options. Start investing and saving, and you'll be able to afford a larger home in a nicer neighborhood when you've had lots of time to figure out exactly what you want and where you want to be.

                      Best,

                      -PoF

                       

                      Comment


                      • #12







                        For me, I don’t think it makes sense to buy a$300k house to buy a bigger$5-600k house in 5 years. That’s around the break even point on a house, so I think either rent for a few years or just buy the big house now with a big down payment and grow into it. The only advantage a starter house gives you is an idea of what you really want in a house but financially I don’t think it makes sense.
                        Click to expand…


                        Thanks that’s what we are concerned about too, whether we would break even when we sell the house. It’s hopefully better than renting though, since the monthly payment would be what I am paying for rent now.
                        Click to expand...


                        It ultimately will come do to your preference.  That break even point is generally thought to be around 5 years as Johanna alluded to.  However, I'm sure this calculation is highly dependent on many variables (closing costs, housing market going up/down, ability to sell in 5 years, maintenance, utilities, etc).

                        To give you my experience, my wife and I bought a house for $250k 5 years ago at the start of residency, thinking we'd work in the same area afterwards (fortunately worked out).  This was at rock bottom of the housing market and very much a buyer's market.  Now, we're going to be looking for a house in the $500-600k range.  We'll end up selling our current house for around $300k (in today's market), so this seems like a good profit but comes closer to a wash sale after paying realtor fees, maintenance (furnace/AC just went out   ), and upgrades needed to sell it again.  However, let's say you buy a big house and don't have kids, then that empty space looks really lonely.  Tons of moving variables, so I think you'll have to decide what you want because you know all of the variables and your preferences most.  Financially, like the others have said, you're in a good situation, so go with what you want to do.

                        Comment


                        • #13
                          I commend you as a recently out of training doc for having no debt and 300k in savings.  I would just do it.  Invest the 300k less any emergency fund. Go to Vanguard open an account and do it.  Pick a diversified mutual fund. Is the 300k in a retirement account? I would rent at least another year until I knew my job was ok.  Also how stable is your spouses job?  I would not buy a large house thinking you may have kids one day.  Sometimes they don't happen or if you have problems you might end up with multiples. Family size can change what type of house you need.

                          Comment


                          • #14
                            Agree don't buy until you know you are going to stay at the job.  My former employer tried to get me to buy a condo the entire time I was there so I would be locked into a mortgage and have to accept whatever buy in offer he made me.  If you need to invest in real estate consider the crowd funding sites or buying rentals.  I have done much better with my rental investments than my primary homes.  Why because I don't let emotions enter the picture on investment properties but on your primary residence it's hard to be objective.

                            Comment


                            • #15










                              For me, I don’t think it makes sense to buy a$300k house to buy a bigger$5-600k house in 5 years. That’s around the break even point on a house, so I think either rent for a few years or just buy the big house now with a big down payment and grow into it. The only advantage a starter house gives you is an idea of what you really want in a house but financially I don’t think it makes sense.
                              Click to expand…


                              Thanks that’s what we are concerned about too, whether we would break even when we sell the house. It’s hopefully better than renting though, since the monthly payment would be what I am paying for rent now.
                              Click to expand…


                              It ultimately will come do to your preference.  That break even point is generally thought to be around 5 years as Johanna alluded to.  However, I’m sure this calculation is highly dependent on many variables (closing costs, housing market going up/down, ability to sell in 5 years, maintenance, utilities, etc).

                              To give you my experience, my wife and I bought a house for $250k 5 years ago at the start of residency, thinking we’d work in the same area afterwards (fortunately worked out).  This was at rock bottom of the housing market and very much a buyer’s market.  Now, we’re going to be looking for a house in the $500-600k range.  We’ll end up selling our current house for around $300k (in today’s market), so this seems like a good profit but comes closer to a wash sale after paying realtor fees, maintenance (furnace/AC just went out  ? ), and upgrades needed to sell it again.  However, let’s say you buy a big house and don’t have kids, then that empty space looks really lonely.  Tons of moving variables, so I think you’ll have to decide what you want because you know all of the variables and your preferences most.  Financially, like the others have said, you’re in a good situation, so go with what you want to do.
                              Click to expand...


                              This reflects well my thinking process. I don't expect to make a profit when I sell the smaller house in 5 years, but hopefully breaking even, and it would have saved the rent and also the extra cash-inflow to put into a portfolio. Hopefully the extra cash invested in a portfolio, along with the lessened property tax and utility bills would perform better than how much the bigger 500k house appreciates to in the same time period.

                              Comment

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