Quitting my job, and going to school. What to do with my $?

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Topic Author
milkandrelish
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Joined: Fri Aug 16, 2013 1:43 pm

Quitting my job, and going to school. What to do with my $?

Post by milkandrelish »

Hi All,

TL;DR: I'm quitting my job to attend school. What smart financial decisions can I make now?

I'm almost 25, and I'm about to quit my job in advertising this summer (most likely mid-June). I'll be moving in with my parents for 1 year while I finish the pre-requisites necessary to apply to Physical Therapy School and apply + attend PT school as soon as possible thereafter (3 year doctoral program).

I'm wanting advice on how to best plan for school and living costs over the next 4 years. Most likely, I won't be able to have even a part-time job for most of the next 4 years because of the rigor of school.

I just purchased a home last July, and have a hefty $2.5K/month mortgage payment but I will be able to rent the house out for around $3K/month (after costs for a property manager, hopefully). Other than this, I have no outstanding debt.

Assets I'm currently working with:

-About $30K in a high-yield savings account.
-About $7K in a traditional Rollover IRA
-About $4K in my employer's 401K

Over the next year while I live with my parents, my only costs will be my mortgage, auto insurance, gas, some food, and my cell phone bill (I must be missing something here, but can't think of anything else). I need to be prepared for small repairs to the house as well. My only income will be the rent from my home.

I will need to take out loans for PT school, but was wondering what I can do to minimize debt and survive the next 4 years. Any advice is appreciated!
Last edited by milkandrelish on Wed Mar 18, 2015 6:17 pm, edited 2 times in total.
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Raymond
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Re: Quitting my job, and going to school. What to do with my

Post by Raymond »

milkandrelish wrote:...I just purchased a home last July, and have a hefty $2.5K mortgage but I will be able to rent the house out for around $3K (after costs for a property manager, hopefully). Other than this, I have no outstanding debt...
(emphasis added)

Did you mean $2,500 or $25,000 or $250,000?

Is the house you propose to rent out in the same area as your parents' house? If not, are you prepared to be a long-distance landlord?

Maybe I'm not seeing it, but do you really have enough left over after the possible monthly rental of $3000 minus your PITI payment to live on?

Just a thought, but what about selling the house, paying off the mortgage, and using any remaining proceeds to support yourself through school?

Have you discussed your plan with your parents? I imagine you are not going to show up on their doorstep one fine morning - "Surprise! Hi, Mom and Dad, I'm here to stay with you for the next twelve months!" :P
"Ritter, Tod und Teufel"
Jack FFR1846
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Re: Quitting my job, and going to school. What to do with my

Post by Jack FFR1846 »

I went back to school after working. Costs are more than you expect. Sell the house and put everything into readily available vehicles like a money market account.

PTd is pretty selective. You're already accepted? (a friend is in the program)
Bogle: Smart Beta is stupid
investor1
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Re: Quitting my job, and going to school. What to do with my

Post by investor1 »

What are the ERs on the funds in the 401k and IRA? Maybe it'll make sense to roll one into the other.
DSInvestor
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Re: Quitting my job, and going to school. What to do with my

Post by DSInvestor »

In the years while you're not earning income, you will be able to convert your Rollover IRA and Traditional 401k assets to Roth IRA for no tax cost.
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DSInvestor
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Joined: Sat Oct 04, 2008 11:42 am

Re: Quitting my job, and going to school. What to do with my

Post by DSInvestor »

milkandrelish wrote: Over the next year while I live with my parents, my only costs will be my mortgage, auto insurance, gas, some food, and my cell phone bill (I must be missing something here, but can't think of anything else). I need to be prepared for small repairs to the house as well. My only income will be the rent from my home.
What about homeowner's insurance? Will the HO insurance increase if the home is no longer occupied by you? Do you have umbrella policy? I'm not a real estate expert but I wonder if there things that you must do and disclose to make sure you're adequately protected regarding your mortgage, insurance and potential liability.

I think there may be different requirements for the mortgage for owner occupied vs rental property.

Do I need to Notify my Mortgage Company if I rent out the house?
http://budgeting.thenest.com/need-notif ... 26314.html

Is your home a house or a condo/townhouse. If it is a condo, the condo association may handle all the maintenance around the exterior of the property and common areas but you may get hit with special assessments. If house, who will be taking care of exterior maintenance - mowing the lawn, cleaning the gutters, snow removal and other preventive maintenance tasks?
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Topic Author
milkandrelish
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Joined: Fri Aug 16, 2013 1:43 pm

Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

Raymond wrote:
milkandrelish wrote:...I just purchased a home last July, and have a hefty $2.5K mortgage but I will be able to rent the house out for around $3K (after costs for a property manager, hopefully). Other than this, I have no outstanding debt...
(emphasis added)

Did you mean $2,500 or $25,000 or $250,000?

Is the house you propose to rent out in the same area as your parents' house? If not, are you prepared to be a long-distance landlord?

Maybe I'm not seeing it, but do you really have enough left over after the possible monthly rental of $3000 minus your PITI payment to live on?

Just a thought, but what about selling the house, paying off the mortgage, and using any remaining proceeds to support yourself through school?

Have you discussed your plan with your parents? I imagine you are not going to show up on their doorstep one fine morning - "Surprise! Hi, Mom and Dad, I'm here to stay with you for the next twelve months!" :P
Sorry, I meant my monthly mortgage payment (including property taxes and insurance) was $2.5k/month. I just refinanced and owe $377K @ 3.675% over 30 years.

I don't have enough to live off of after the $3K, but I will be taking out student loans and will have to drain my savings... I'm not very familiar with student loans but I've been told there are some provisions for living expenses.

And yes! I did tell my parents, and after some convincing, they're okay with me living with them for a year.

Regarding selling the house: I just purchased in July... the home is in an area that is set to appreciate (it's in Westchester, CA) where Google is moving in, a football stadium might be built, and the area is being called "Silicon Beach". It's also right next to a college, so it's easy to rent out. I'd rather not sell the house unless it becomes my only option. I can see myself moving back into the home and living in it after PT school.
Topic Author
milkandrelish
Posts: 44
Joined: Fri Aug 16, 2013 1:43 pm

Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

Jack FFR1846 wrote:I went back to school after working. Costs are more than you expect. Sell the house and put everything into readily available vehicles like a money market account.

PTd is pretty selective. You're already accepted? (a friend is in the program)
I'm not accepted, but I am working hard on the pre-reqs. I've done a lot of research, and think I'll be in a good spot to get into a program if I work hard over the next year.

I'm trying to avoid selling the house at this point.
Topic Author
milkandrelish
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Joined: Fri Aug 16, 2013 1:43 pm

Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

DSInvestor wrote:
milkandrelish wrote: Over the next year while I live with my parents, my only costs will be my mortgage, auto insurance, gas, some food, and my cell phone bill (I must be missing something here, but can't think of anything else). I need to be prepared for small repairs to the house as well. My only income will be the rent from my home.
What about homeowner's insurance? Will the HO insurance increase if the home is no longer occupied by you? Do you have umbrella policy? I'm not a real estate expert but I wonder if there things that you must do and disclose to make sure you're adequately protected regarding your mortgage, insurance and potential liability.

I think there may be different requirements for the mortgage for owner occupied vs rental property.

Do I need to Notify my Mortgage Company if I rent out the house?
http://budgeting.thenest.com/need-notif ... 26314.html

Is your home a house or a condo/townhouse. If it is a condo, the condo association may handle all the maintenance around the exterior of the property and common areas but you may get hit with special assessments. If house, who will be taking care of exterior maintenance - mowing the lawn, cleaning the gutters, snow removal and other preventive maintenance tasks?
These are all good points. I haven't looked into this. I believe there will be a slight change in insurance cost. I will also ask my mortgage company about renting out the house. I just closed on a refinance today, so I'll give them a few days breather to ask :beer

It's a home, not a condo. I have a gardener that will take care of the exterior landscape, and will hire a property manager to take care of the tenants and anything that pops up.
DSInvestor
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Re: Quitting my job, and going to school. What to do with my

Post by DSInvestor »

milkandrelish wrote: These are all good points. I haven't looked into this. I believe there will be a slight change in insurance cost. I will also ask my mortgage company about renting out the house. I just closed on a refinance today, so I'll give them a few days breather to ask :beer
If you just refinanced, you should have all the mortgage documents. Go over the mortgage docs and see if there are requirements or restrictions for residency or for renting the property.

Also maybe pick up a NOLO book on being a landlord. You need to know your rights as a landlord and also understand the rights of your tenants. If tenants do not pay, what rights do you have? How do you evict? do you have the means to continue paying all the bills?
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123
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Re: Quitting my job, and going to school. What to do with my

Post by 123 »

In four years a lot of wear-and-tear can run down a rental property. If rented out it won't have the pristine condition you currently enjoy when you're ready to return. Going back to school can change your values and priorities. My thoughts would be that you'll be open to a lot more opportunities and have fewer distractions if you don't have a mortgage or rental complications to concern yourself with. Should an economic downturn occur in those four years and you become unable to rent the property you'd be in a position to lose it due to foreclosure.

If you're going back to school your life has changed and what may have seemed at the time as a reasonable housing option at the time you purchased it may no longer be as attractive. I'd get out of it to free up my future.
The closest helping hand is at the end of your own arm.
Saving$
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Re: Quitting my job, and going to school. What to do with my

Post by Saving$ »

1. I'd advise you read your mortgage docs rather than calling. Most likely when you signed you agreed that the home would be owner occupied for at least the first 12 months of the mortgage. People who fully intended to meet the requirements of the mortgage have things change. I would however, never advocate signing the mortgage if at the time you do not intend to meet the requirements. The good news is that the mortgage company's primary interest is in receiving their monthly payment.

2. Your insurance will increase when you change from a homeowner policy to a rented premises policy. You may even need to buy fire + liability policy. You may also need to purchase renter insurance to obtain the liability portion of your coverage.

3. You say you can get $3k/month rent. We will go with that.
Your mortgage is $2,500. Does that include PITI? Let's go with that. Plus increase in insurance, which we will estimate at $100/month. Plus yard service we will estimate at $250/month. Property management company usually charges 10%, so $300/month. Your expenses total $3,150/ month.
So from a monthly cash flow position, you are $150 in the hole, and you have not yet accounted for vacancy or maintenance. Even if you can rent immediately, there are 1-2 week periods between tenants, tenants sometimes cannot move in right away, etc. 10% vacancy is a good rule of thumb for even a hot rental area.

4. You listed your expenses as mortgage, auto insurance, gas, food and cell invoice. You will probably also have the other costs listed in item 3 above. What about cost of your per-requisite classes, health insurance, auto maintenance, auto tags, clothing, shoes, incidentals....
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Jazztonight
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Re: Quitting my job, and going to school. What to do with my

Post by Jazztonight »

I'm here to encourage you in your school and career goals. If you are motivated, willing to relocate to get into whatever is the best program that accepts you, and work your butt off, I predict you'll do very well.

When I was your age I quit my job to begin 3 semesters of science and math pre-requisites at a local community college so I could begin a new career. When I was in the middle of that phase of my plan, I applied to 11 professional schools. I got into two before I withdrew the rest of my applications because I'd been accepted at the school of my choice. Then it was a 4-year doctorate program, which I must admit was really hard for me; I persevered and did what needed to be done, and here I am, fully retired, after a 37 year career in health care.

You have a plan. You know what hard work is. You have a supportive family. You have a number of alternative options.

My advice? Live within your means, keep your expenses and loans as low as possible, and stay at the top of your class if possible (note: I didn't but that did not matter in my case 8-) ).

And try to meet professionals in your field, ask them for advice, and seek out mentors. Volunteer at hospitals if possible; often these kinds of things lead to future employment.

Good luck from one Boglehead to another.
"What does not destroy me, makes me stronger." Nietzsche
Topic Author
milkandrelish
Posts: 44
Joined: Fri Aug 16, 2013 1:43 pm

Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

Saving$ wrote:1. I'd advise you read your mortgage docs rather than calling. Most likely when you signed you agreed that the home would be owner occupied for at least the first 12 months of the mortgage. People who fully intended to meet the requirements of the mortgage have things change. I would however, never advocate signing the mortgage if at the time you do not intend to meet the requirements. The good news is that the mortgage company's primary interest is in receiving their monthly payment.

2. Your insurance will increase when you change from a homeowner policy to a rented premises policy. You may even need to buy fire + liability policy. You may also need to purchase renter insurance to obtain the liability portion of your coverage.

3. You say you can get $3k/month rent. We will go with that.
Your mortgage is $2,500. Does that include PITI? Let's go with that. Plus increase in insurance, which we will estimate at $100/month. Plus yard service we will estimate at $250/month. Property management company usually charges 10%, so $300/month. Your expenses total $3,150/ month.
So from a monthly cash flow position, you are $150 in the hole, and you have not yet accounted for vacancy or maintenance. Even if you can rent immediately, there are 1-2 week periods between tenants, tenants sometimes cannot move in right away, etc. 10% vacancy is a good rule of thumb for even a hot rental area.

4. You listed your expenses as mortgage, auto insurance, gas, food and cell invoice. You will probably also have the other costs listed in item 3 above. What about cost of your per-requisite classes, health insurance, auto maintenance, auto tags, clothing, shoes, incidentals....
1-2. I just got an email back from the lender, actually, and they said that there is no change with them and no need to notify if I rent out the home. For Insurance, it looks like I would have the option to add rental insurance ( I need to check this out and learn more ). I just contacted my insurance provider to find out more.

3. I was using 3K as a figure after costs to the property. My total payment, including PITI, is just shy of $2,500. Currently, I should be able to rent out the house for between $3.2-$3.4K. I found a reliable property manager who charges 5% ($175 min). Yard service is $30/mo. Let's say the extra insurance is $100/month (probably a bit less than this) netting about $400/month from the rental seems realistic. 10% vacancy is something I'll need to keep in mind.

4. Good point. I left out these expenses. Health Insurance I have until I'm 26 through my parents (both receive free health insurance, and now so do I). Knock on wood, I haven't had much in the way of auto expenses, and my vehicle is covered under an extended warranty for the next 5 years (did this on purpose). Also, I keep clothes for a long time... but this sort of stuff is certainly something to consider. Hopefully I would only have to use a small portion of savings on this sort of stuff. I think grad student health insurance can be covered by student loans, also.
Topic Author
milkandrelish
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Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

123 wrote:In four years a lot of wear-and-tear can run down a rental property. If rented out it won't have the pristine condition you currently enjoy when you're ready to return. Going back to school can change your values and priorities. My thoughts would be that you'll be open to a lot more opportunities and have fewer distractions if you don't have a mortgage or rental complications to concern yourself with. Should an economic downturn occur in those four years and you become unable to rent the property you'd be in a position to lose it due to foreclosure.

If you're going back to school your life has changed and what may have seemed at the time as a reasonable housing option at the time you purchased it may no longer be as attractive. I'd get out of it to free up my future.
I see your point, and agree that it would be a weight lifted off my shoulders to sell the home. On the other hand, I don't want to miss out on an opportunity to build equity in this property while producing a [very small] amount of income + at least in the next year or two I see these area appreciated significantly.

Re: wear + tear, I haven't had much experience with this as I've only rented out rooms. What is common wear + tear on homes? I fully expect to have to refinish floors + paint after I finish school to maintain the home's condition.
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milkandrelish
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Joined: Fri Aug 16, 2013 1:43 pm

Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

Jazztonight wrote:I'm here to encourage you in your school and career goals. If you are motivated, willing to relocate to get into whatever is the best program that accepts you, and work your butt off, I predict you'll do very well.

When I was your age I quit my job to begin 3 semesters of science and math pre-requisites at a local community college so I could begin a new career. When I was in the middle of that phase of my plan, I applied to 11 professional schools. I got into two before I withdrew the rest of my applications because I'd been accepted at the school of my choice. Then it was a 4-year doctorate program, which I must admit was really hard for me; I persevered and did what needed to be done, and here I am, fully retired, after a 37 year career in health care.

You have a plan. You know what hard work is. You have a supportive family. You have a number of alternative options.

My advice? Live within your means, keep your expenses and loans as low as possible, and stay at the top of your class if possible (note: I didn't but that did not matter in my case 8-) ).

And try to meet professionals in your field, ask them for advice, and seek out mentors. Volunteer at hospitals if possible; often these kinds of things lead to future employment.

Good luck from one Boglehead to another.
Thank you for this encouragement. It's always good to hear a 'success story' like this. A lot of people think I'm crazy for following my passions in my current circumstance, but I'm pretty dead set on this path.

I'm certainly taking your advice and working hard, doing well in class, and talking to/meeting as many PTs as possible. I'm looking forward to my volunteer hours.
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Raymond
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Re: Quitting my job, and going to school. What to do with my

Post by Raymond »

milkandrelish wrote:...Re: wear + tear, I haven't had much experience with this as I've only rented out rooms. What is common wear + tear on homes? I fully expect to have to refinish floors + paint after I finish school to maintain the home's condition.
I do not have any personal experience with this, since I've never been a landlord. However, from friends and acquaintances [who own rental properties], I've heard anything from holes kicked or punched into walls, cat and dog urine and feces soaking into the carpet, all the way to near-total interior destruction (the renter's twenty-something meth-addict son moved in with the renter, who proceeded to tear the house apart over a couple of weeks).

You mentioned, "It's also right next to a college, so it's easy to rent out." College students + beer + parties = you solve for X :P
Last edited by Raymond on Wed Mar 18, 2015 6:18 pm, edited 1 time in total.
"Ritter, Tod und Teufel"
Topic Author
milkandrelish
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Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

Got it, I guess if I keep the house I need to take a hefty security deposit and make sure that I make an air-tight lease agreement to keep the palace from degrading too much.
Topic Author
milkandrelish
Posts: 44
Joined: Fri Aug 16, 2013 1:43 pm

Re: Quitting my job, and going to school. What to do with my

Post by milkandrelish »

investor1 wrote:What are the ERs on the funds in the 401k and IRA? Maybe it'll make sense to roll one into the other.
I think I will be rolling the 401k into my Vanguard IRA. Currently, 100% of my IRA is in the Vanguard Total Stock Market Index. I will be re-allocating when the time comes.
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