The Cost of Buying 2 Homes in 2 Years.

This post is written a few months ago, prior to the transactions of selling 1st home and buying 2nd home have taken places. Actual figures approximate estimates below & will be updated once all finalized.

Say what? DWM purchased 2 homes and sold one in 2 years? My highly esteemed mentor WCI would have shaken his head at my decision if I had asked him, which is why I didn’t this time*.

Financially, buying a home as MS4, then selling it & immediately buying a 2nd home as PGY2 are 

the most financially costly and unwise moves one could take bedsides

attending medical school on 7% student loans.

 

Yet mentally, emotionally, & spiritually, this is the single best decision I have ever made for Mini & myself since her inception.

Perhaps Dr. Wise Money is not as Money Wise as you thought.

I hope though, for this and other major forks in the path of life, to be Life Wise.

After all, money is a means; life is an end.

Monetary costs:Dec2015_300x250_b

  • Closing costs of 1st home (BBVA doctor’s loans), May 2014: $5,733.74
  • Refinancing costs of 1st home (Conventional loans), January 2015: $495
  • Costs of living in 1st home, May 2014-May 2016: $25,697
  • Mortgage payments: $1,088.69 for 9 months, $975 for 15 months. HOA’s: $480/ Property taxes: $3,700/ Home insurance: $720/ Rural metro: $74
  • Grand total, living in 1st home for 2 years: $31,925, $1,330/mo. (Zillow zealously says my 1st home rents for $1,500/mo.)
  • Closing costs of 1st home sales, May 2016: nominal**
  • Closing costs of 2nd home purchase, June 2016: estimated $6,000
  • Costs of living separately, June 2016 and on:
    • Child care: estimated $300/mo
    • Utilities & household expenditures that used to be shared to various degrees: estimated $200/mo more
    • Higher mortgage due to higher LTV & more expensive home. (2nd home will be our home for at least the next 4 years. If I stay in town for my attending job, which I plan to, it will be our home forever as we don’t need to upgrade above it.)

set for life ad 2

So I basically rented my 1st home for $1,330/mo the last 2 years, then now starting over in regards to home equity and living with Mini on our own as a single parent. The financial damage is not as bad as I thought, though if it were just Mini and me 2 years ago, we would have happily lived in a $500/mo condo to save money ($830/mo à $19,920/mo) for a down payment to buy our dream home today. That is a nice chunk of down payment which I don’t have today.

The past is in the past. Let it go.

In order to come up with the closing costs & 5% down payment, I’m borrowing short term from family members and my Roth IRA. That will get me from my current debt free status to $10,747 on credit card debt (as I plan to pay my family back immediately with Chase Slate Balance Transfer check after closing on my 2nd home). I will also be down in my Roth space by $10,300, irrecoverable Roth space.

While I certainly have no qualms about carrying 10k 0% credit card debt (I used to carry 100k during medical school), I am indeed sad about losing 10k in Roth IRA space.

I can’t put price tag on the collective & individual happiness of Mini & me.

You won’t either, right?

300x250_10_143Un-quantifiable benefits:

  • Mini always wanted a pool. 2nd home has a pool; 1st doesn’t.
  • Both Mini & I love visiting family & friends. 2nd home allows for a permanent guest room.
  • We both love meeting new people. 2nd home allows for an Airbnb room.
  • We get to sing & dance throughout the house whenever we’d like.
  • Mini gets to have lots of playdates and sleepovers.
  • No one will say his peace & quite is disturbed by excited & giggling girls.
  • I get to throw parties like I used to a decade ago! Potlucks, pool parties, movie/board game nights.
  • No one will interrogate me about why I didn’t put things back in the refrigerator as they were found.
  • No one will tell me to put up with his mess & wait for him to get organized for a decade (granted the 8 moves in 10 years are not conducive to staying organized.)
  • I get to do chores when I want & the way I want. I won’t be told that my efforts were subpar & the chores I completed need redoing.
  • I get to live a minimalist existence. Materially, I need nothing beyond some clothes, my 4 year old laptop, my iPhone & a few essential pieces of furniture.
  • There will be space, not filled with stuff in my home.
  • I no longer have to bear the unbearable hoarding & dumpster diving.
  • Mini’s dad gets his peace & quiet. He has sacrificed a lot trying to be supportive to Mini & me. He now gets to have 1,730 square foot to himself & the serenity of our neighborhood (no sounds other than birds chirping and javelinas grunting) as he has always wished for.

 

What more need I say?

peace
Yes, I believe these peaceful & joyful eyes would return.

 

*I have run my major financial decisions by WCI since I met him (@ whitecoatinvestor.com) since I was a finance-naïve MS3. Not consulting WCI on something that costs more than $100 is atypical of DWM. **Mini’s nana is buying my 1st home, we are not using a realtor. I proposed to walk away with zero equity as Mini’s paternal side of family has been extremely generous with helping with the down payment and refinancing of the home.

A Mother’s Love & Pride Collide: DWM’s Letter to MWM

This is a letter I wrote to MWM after watching her long-anticipated Aladdin (a school play performed by Sunrise Drive Elementary students), during which I felt my heart was wrenched.

 

Started young :)
MWM has always demonstrated focus and attention to detail, starting as early as toddler-hood.

 

Dearest sweetie pie,

I love you. I realized that sometimes I seem to have a lot to tell you, but it all comes down to “I love you.”

Last night, I felt sad when I saw that you didn’t seem to be having fun at your show Aladdin.

I noticed that you weren’t singing much or even dancing with the group. I noticed that you were pre-occupied. You had this pensive look on your face instead of dancing and singing like you did when you practiced at home.

This little girl, who you mentioned was totally out of line and disrupting the group’s performance, seemed to be having the time of her life, without a care for anyone around her. (Which is not necessarily the right thing to do, and in fact, it is wrong to be so inconsiderate to others.)

But as your mother, I’m selfish. I wanted to see my daughter have a great time, without a care for what others are doing or what they think of her.

I love you, please remember that.

MWM is happy and loving.
MWM is happy and loving.

 

I’m not telling you that I wish you behaved differently. I’m in fact very proud of you for your awareness of the entire group’s cohesiveness and you know whenever another member of the crew says a word wrong in his/her assigned line(s) because you know all the lines in the play by heart.

The qualities you possess, such as noticing details, knowing not only your part but also all the other member’s roles & lines, courage to step up and tell others when they are doing something wrong, make you an amazing leader.

I can’t be prouder of you! But my love for you conflicts with my pride in you.

On one hand, as your mother, I wish that you were not worried about others: what they did right or wrong. On the other hand, I am so proud that you are even aware of what’s going on around you, and to the degree that you take the entire group’s performance on your own shoulder, especially as one of the youngest performers in the group.

Do you understand what I mean?

While everyone is inspired and proud of Martin Luther King for his accomplishment and sacrifices, I’m not sure how many mothers actually want Their own sons to be MLK…

Again, I’m not asking you to change who you are. I just want to let you know what I meant last night.

I love you, that’s all.

 

First oil painting lesson in group class 5-13 yo. She was 4 :)
First oil painting lesson in group class for 5-13 yo. MWM was a tall 4 year old, so I snicked her in. She painted for 3 hours on Sundays, and this first oil painting took her 9 hours total to complete.

 

  • Do you sometimes feel selfish as a parent?
  • Do you sometimes wish that your kid is not as kind, as compassionate, as conscientious as they are?
  • Do you wish that they take on less weight on their shoulders and enjoy their lives a little more?
  • Do you wish that your kid will never enter medicine like you or your partner?
  • What would you say to your kid if you see that their enjoyment is sacrificed by their concerns for others?

 

Share your parenting insights below; thank you!

Living Richly Today: A More Relatable Dr. Wise Money

IMG_1976
Finger Rock Trail, Our backyard, 5 minutes from our house.

When my colleague/collaborator White Coat Money published my guest post: How I Contributed $23.5k to Roth IRA/Roth 403b in 2015 as PGY2, he began the post with this editorial caveat:

The following post describes a task that requires significant financial discipline and willpower to achieve.  I don’t expect most WCM readers to follow guest author Dr. Wise Money’s lead.

 

White Coat Investor also commented on the Dr. Wise Money’s Way, “My general recommendation for attendings is 20% of gross income toward retirement. But anything you do as a resident is great. [Dr. Wise Money] is a crazy super-saving resident who will be very wealthy, very quickly.  She saves far more as a resident than I ever did, but she also paid off her student loans as an intern. Interesting story that.”

These comments make Dr. Wise Money a bit radical and un-relatable to many PGY’s.

The truth is, Dr. Wise Money does not differ much from any other resident or fellow. In other words, there’s a Dr. Wise Money in every one of us.

IMG_1902
Our neighborhood wash. The beauty of nature surrounds us, for free!

 

  • I chose a career in medicine, knowing well that there’s much easier way to make much more money in other professions.
  • I believe the rewards of serving others go far beyond financial gain.
  • My medical education was costly, financially and personally; I would have trained for 10 years beyond my college degree to become an attending radiologist.
  • I spend money on what I care about, without blinking an eye.
  • I skimp on things I don’t care for, without ever feeling that I’m depriving myself.
Tucson Botanical Garden is wonderful place to relax and have fun with family and friends.
Tucson Botanical Garden is a wonderful place to relax & have fun with family and friends.

 

  • I’m a planner. I plan my career; I plan vacations; I also have goals and plans for my personal finances.
  • I’m a go-getter. I got into medical school, survived it, matched where I wanted, and now training hard to become a competent radiologist. I apply my proactive approach towards my career to my financial life.
  • I’m a collaborator. Just as I would share any radiological feature & sign to make an imaging diagnosis, I’d also share monetary tips to achieve financial success.
  • I’m a maximizer. I like getting the most accomplished with the least amount of energy & time. Most of us in medicine are over-achievers. We like getting the job done, well and efficiently.
  • Yes it seems extreme that I can retire at age 38, or 3 years after completing fellowship. Fact is anyone can retire way earlier than they expected if they focus on what matters most/brings them the most happiness.
set for life ad 2
Protect your loved ones & yourself by insuring your single largest asset: your ability to earn.

What do you think? Is Dr. Wise Money still a crazy saver who defers gratification 100% till retirement? Do you see DWM in you? What makes you happy? Do you notice yourself spending money on things you later regret? Have you ever sit down and inspect where your money goes? Find out if you are spending on what matters the most to you.

 

Website Round-Ups: Ethical Fashion, Global Style Picks

I shared a neat little coupon code from Threads for Thought I found in my email at the end of my post last week. That got me thinking.

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Revised Pay As You Earn (REPAYE) or Refinance?

376660_10101750186069893_383044409_nThis is an in-depth discussion about whether to go for Revised Paye As You Earn (REPAYE) or refinance your student loans with private banks like DRB or LinkCapital.

Reader wrote:

“My current thought is if someone wants to stay and pursue non-profit jobs with PSLF route, they have to consider the marriage or a partner with income if you will be on REPAYE/PSLF. When you no longer receive subsidy benefit (that’s when my AGI is 155k for 230k loans), it is better to switch to IBR/PAYE at that point. If your income or combined income is over 300k, then it is better to switch to standard or graduated plan to pay the minimum cap to get the full benefit from PSLF forgiveness at the end. These are my current thoughts if one wants to go for PSLF and try to pay the minimum monthly as much as possible considering the marriage factor for those who are on REPAYE. But, then one will be only limited to 503c organizations when job hunting comes. In addition, the salary difference b/t academic and private in radiology is likely at least greater than 50k plus from what I heard in average.

Since I am open to both academic/private for a job, I will likely start with REPAYE/PSLF (since I am a single) for ~6 yrs of training and hopefully I will know where I will end up during the fellowship year. Then, decide whether I want to pursue PSLF if I will end up in academic. If I get a job at PP, then I know it is time to finance ASAP at that time.

I have a follow up question…

Would you pay extra payment to prevent the interest accrued over these 6 yrs of training or pay the minimum only during these 6 yrs when you are not sure whether you are going to get a job at either academic or private place? I heard about Obama’s proposal on maximum gov can forgive is around 57k two years ago and nobody can guarantee how the gov will execute PSLF program for the next 10 yrs. Should I try to pay the extra amount only to prevent interest accrued over 6 yrs of training under REPAYE and save any leftover cash flow into IRA ROTH? What is your stance on this if you were in my shoes?

One more point…It seems like refinance with bank right now may not be a right idea due to two things: I still consider academic/private jobs AND difference in amount of saving being on REPAYE for 6 yrs (~25k total saving over 6 yrs under REPAYE) vs. refinance now (~22k total saving for 6 yrs under 4.5% fixed rate). So, in fact, it will be better off to stay on REPAYE just during residency and if I end up in academic, then I will switch to standard or graduated plan to finish 120 payments for PSLF route OR if I get PP job, then refinance asap at that point. What do you think?

I really appreciate your time reading and commenting on this, DWM!”

Email drwisemoney@gmail.com to get personal referral & this bonus!
Email [email protected] to get personal referral & this bonus!

My response:

you got it. there are more variables to consider when you are on REPAYE as it is the most complex IDR. but that’s life; life changes and change is the only constant.

  1. yes PSLF can diminish or vanish all together, but hopefully those who are already signed up will be grandfathered in. ie. government may cap or get rid of forgiveness for those who have not signed up for PSLF yet, but if you are already in the program, the fed should not change the terms on you… (that’s the hope, not a promise…)
  2. your 2 questions are thoughtful but can only be best answered in hindsight. I say this because, I would have a totally different approach during training if I Knew I’m for sure getting a job that’s 1/4 the available jobs in the radiology job market, i.e. 503c W2 jobs. I will pay the very minimum, switch back and forth between programs to minimize my monthly & total lifetime payment and maximize forgiveness.

if I Knew that I’m working PP out of training, I would pay my student loans aggressively even during training so that I minimize how expensive my education could become when all is said and done (all the interests over the life of the loan).

But since no one truly knows whether they will get a 503c W2 job or PP job out of training, especially during MS4, PGY1 year, it is impossible to say which of the above 2 approaches to take.

personally I don’t like surprises, which is why I destroyed my 6.8% student loans before contributing to my Roth IRA/Roth 403b, even though I could have potentially increased my net worth faster by channeling cash towards index funds (7-8% long term return) rather than paying down student loans 6.8%. I like the Guaranteed return of paying my debt. So yes, if I were in your shoes, I’d put majority of my cash flow towards paying my student loans aggressively. but if you ask someone else, like WCM, he’d probably say the opposite. (You can ask him to answer your questions too so you consider both ends of the spectrum.)

Dec2015_300x250_bAnswer to your first question:
your calculations sound about right, “6 yrs (~25k total saving over 6 yrs under REPAYE) vs. refinance now (~22k total saving for 6 yrs under 4.5% fixed rate).”

As long as you take into account that with each successive year, you are making more AGI, getting less REPAYE subsidy, and effectively, your interest rate on REPAYE is rising each year. So personally, I like to reevaluate annually and refinance as soon as I see that my refinance rate is lower than the effective REPAYE interest rate. If you did the calculation to get your above total savings figure, you will know exactly during which PGY, your REPAYE interest exceeds refinanced interest (it is entirely possible for some PGY’s, not-married, not much moonlighting, that REPAYE interest is always lower than Refi until becoming attending).

Answer to your second question:
Evaluate how you want to balance between cash flow and interest savings.

Assuming REPAYE saves you more interests based on your calculations, 3k over 6 years.

REPAYE also ties up more of your cash flow, REPAYE payment climbs with your AGI, refinanced monthly payment stays the same @ $100/month with DRB, $0/month with LinkCapital.

For simplicity sake, let’s just assume your average annual REPAYE payment throughout 6 pgys is $3000/yr (clearly, for a typical single pgy, pgy1 REPAYE is near $0/mo and pgy6 REPAYE is probably above $300-400/mo).
compare this to the $1200/yr on DRB refinanced loans. This means you can direct additional $1800/year to index funds investment: you leverage your 4.5% interest refinanced student loan for the potential long term profit @7-8% from investment.

While I decided against leveraging my 6.8% student debt for a potential 7-8% investment return, I could have probably gone with leveraging 4.5% student debt for a potential 7-8% investment return. The greater the differential between the interest I pay and the potential interest I collect, the more likely I will go with the refinancing to a lower monthly payment route.

DFD DRBI suggest that you run an apple to apple comparison.
Run 2 parallel scenarios based on REPAYE vs. Refi.

PGY3 income (include your projected moonlighting)
on REPAYE vs. on Refi
Find out the following,

calculate your effective interest rate on REPAYE, compare to refi interest rate.

if REPAYE interest rate exceeds refi, then I’d go with Refi as PGY3 and not even bother the rest of the calculation/comparison. because this means Refi gets me the best of both worlds: more long term interest savings (due to lower interest rate) AND greater today cash flow (due to lower monthly payments.)

but if Refi interest rate exceeds REPAYE, then check the rest of the comparisons below.

  1. total minimum payments in 1 year on REPAYE vs. Refi.
  2. total debt balance at year’s end on REPAYE vs. Refi.
  3. assuming you put the difference between REPAYE & Refi minimum payments into index fund, earning you 7-8% long term annualized return. calculate how much total investment (principle & gain) you have at year’s end.
  4. compare your net worth (debts subtract from assets) at year’s end on REPAYE vs. Refi.

This way you can see the numbers and know which approach gets the bigger bang of the buck:
paying more towards student loans at a lower interest on REPAYE vs. paying less towards student loans (but investing the difference) at a slightly higher interest rate on Refi loans.

300x250_10_143Also, I ask you to run the numbers based on PGY3 income because likely our PGY1 REPAYE beats Refi on both financial considerations: interest savings with lower rates, & greater cash flow with lower monthly required payments.

Any time either plan beats the other (REPAYE vs. Refi) in BOTH interest savings & cash flow, the decision is clear, go with the double winner.

It’s when REPAYE or Refi each wins in 1 consideration, that’s when you need to do the projected calculations to see the numbers for yourself.

Hope this helps.

 

 

  • REPAYE or Refi for you?
  • Do you value cash flow or long term interest savings more?
  • Do you pay down your student loans more or invest more?

Share your insights, experiences, and questions below!