Buy home or pay down loans or invest?

[ironmike2000]

Current MS4, matched into EM, starting this summer.  Non-trad, second career.  I have ~$240k student debt.  Must relocate for residency so I just sold my home.  Should net around $100k from the sale.  Assets include $150k IRA, $15k Roth and $15k in brokerage account.

I am struggling with the best option for me.  I could buy a home with the proceeds and end up with quite a small mortgage payment.  The NYT rent vs. buy calculator says to buy, however I could rent, freeing up the cash to either pay down loans or invest.  Because I am older with no kids, my goal is to be very aggressive with loan payback after residency.

Moonlighting eligible starting in year 3, could increase income up to $100k per yr for years 3 and 4.  Not currently married...

I am grateful for thoughts the Forum has on this situation...

 

Thanks

[jfoxcpacfp]

Not enough info to be really helpful. How old are you? What are your long-term goals? What is the rental market where you are moving, i.e. how much would you expect to pay in rent? What would a home cost? Is living there long-term a possibility?

Have you considered buying a duplex and living in one side, using other to cover a chunk of your monthly payments? You've saved quite a bit (at least, I suppose, but don't know your age). However, it's mostly in an IRA which will close the back-door technique to you after you begin moonlighting. You have a golden opportunity to convert to a Roth the first 2 years of residency while you're poor, but you'll need $ to pay the tax bill. Don't know the situation on your loans, either. Will you refi? Is PSLF a possibility? I'm leaning toward renting or the duplex and using your cash to shore up your financial position, starting with the Roth conversion.

[Zaphod]

ironmike2000 wrote:

Current MS4, matched into EM, starting this summer.  Non-trad, second career.  I have ~$240k student debt.  Must relocate for residency so I just sold my home.  Should net around $100k from the sale.  Assets include $150k IRA, $15k Roth and $15k in brokerage account.

I am struggling with the best option for me.  I could buy a home with the proceeds and end up with quite a small mortgage payment.  The NYT rent vs. buy calculator says to buy, however I could rent, freeing up the cash to either pay down loans or invest.  Because I am older with no kids, my goal is to be very aggressive with loan payback after residency.

Moonlighting eligible starting in year 3, could increase income up to $100k per yr for years 3 and 4.  Not currently married…

I am grateful for thoughts the Forum has on this situation…

 

Thanks

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Get a decent apartment and get FI asap while its easiest. No time like being single without many obligations to get super ahead (and by all means you're already doing great). You will have less say when any of those above situations occur.

[G]

Rent!  Even if you do lose a few dollars in the end--it's a small price to pay for your sanity.  The last thing you want to do is deal with a clogged drain, etc, on your only day off of the week--particularly if you have a moonlighting gig wedged in there to fit RRC work requirements.  WCI has at least a few posts about this (be sure to read comments as well) if you search the blog.

Also, don't count the moonlighting eggs before they hatch.  I was able to moonlight a few days a month my senior year, doubling my income.  I really enjoyed the extra cash flow at the time, but in retrospect, my free time was worth more than any cash.  Of course, this is all said after 10+ years with attending salary!

[Hatton]

I agree with Johanna that you need to provide more info.  I agree with Zaphod that this is a perfect time to become financially independent before you have life events to side track you.  I agree with G that you should rent.  Some of that 100k profit from the home sale should be used for an emergency fund.  More info needed about your situation to comment on loans and specific investment advice.

[ironmike2000]

Thanks everyone for the comments and thoughts.  I agree that, in hindsight, I did not really provide enough detail.  Asking for more info definitely made me think about everything, and I noodled on it over the weekend.  I also did some additional reading on the forum.  What I think is probably the smartest is to first pay off the accrued interest ($23K) on the loans before it capitalizes.  I like the idea of keeping a fund for emergencies, I could invest and use it to pay off more accrued interest in the future.  That will certainly keep me ahead as best as possible.  My goal is the hit the principal hard as soon as I can when done with residency and have it paid off within 2-3 years.  I am going to start looking at the rental market too...

I'm not clear on the benefit of converting the Roth, what do you mean?

Thanks everyone for the help!

 

MB

[Hatton]

Johanna said that about a Roth conversion.  She means I think that your income will be low as a resident so do it now with some of the cash you have.

[ironmike2000]

Or is she talking about converting my IRA to a Roth?  Seems like that could be beneficial to me in the lower tax bracket that I am in now??

[Hatton]

Yes

[jfoxcpacfp]

ironmike2000 wrote:

Or is she talking about converting my IRA to a Roth?  Seems like that could be beneficial to me in the lower tax bracket that I am in now??

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Yes, you and Hatton1 were talking about the same thing.

[yspower]

I also have 229k Direct loans and my plan is to be on REPAYE during my 6 yrs of training (Radiology) and refinance afterward to pay off aggressively within 2-3 yrs. If I have cash flow I will pay down loan accrued monthly so I can only bring the principle amount when I finish residency and if I have leftover cash, I will put it into IRA ROTH post-tax saving account during residency while we are considered low tax bracket.

Any other feedback for newly resident? I appreciate it!

[jfoxcpacfp]

yspower wrote:

I also have 229k Direct loans and my plan is to be on REPAYE during my 6 yrs of training (Radiology) and refinance afterward to pay off aggressively within 2-3 yrs. If I have cash flow I will pay down loan accrued monthly so I can only bring the principle amount when I finish residency and if I have leftover cash, I will put it into IRA ROTH post-tax saving account during residency while we are considered low tax bracket.

Any other feedback for newly resident? I appreciate it!

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It looks like you have thought it out pretty well or are you looking for feedback about what a new resident should do in general? Financial Survival as a Resident will help.

[yspower]

Thanks for the link, Johanna!

Speaking of IRA ROTH account, do you have any index fund vehicle you can recommend to residents? I heard about low cost Vanguard to start with that can provide an average of 6-7% annualized return on saving. Was curious if you have any other thought on your mind.

Also, my residency program doesn't provide an employer match for 403b. So, I thought I will just try to max 5.5k/year for IRA ROTH during residency and pay extra on student loans to prevent interest accrued during 6 yrs. If I still manage to have leftover extra (which I doubt and not sure, currently), I may put it into 403b. But, I am not sure if it is worthwhile to put even minimal cash into 403b after maxing out IRA ROTH each year without employer match at my program. Should I just focus on maxing out IRA ROTH each year and paying down student loans VS. do everything (max out IRA ROTH, paying down loans and put any leftover cash flow into 403b)? I am a single at the moment with age of 26.

[jfoxcpacfp]

yspower wrote:

Speaking of IRA ROTH account, do you have any index fund vehicle you can recommend to residents? I heard about low cost Vanguard to start with that can provide an average of 6-7% annualized return on saving. Was curious if you have any other thought on your mind.

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Sorry, I don't recommend funds, I recommend portfolios dictated by a personal financial plan totally devoid of any emotional attachment.

yspower wrote:

Should I just focus on maxing out IRA ROTH each year and paying down student loans VS. do everything (max out IRA ROTH, paying down loans and put any leftover cash flow into 403b)? I am a single at the moment with age of 26.

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Unless you pick up moonlighting work putting you into a higher tax bracket, I probably would recommend you forego the 403b. Really don't know enough for specific advice, though.