Another rent versus buy - moving from MCOL to VHCOL

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4Health
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Joined: Tue Nov 11, 2014 7:06 am

Another rent versus buy - moving from MCOL to VHCOL

Post by 4Health »

Relocating from a MCOL area to VHCOL (Bay area) and I am interested in obtaining everyone's honest perspective on rent versus buy. I have used the various calculators and I am still struggling on what to do.

Age: 33 (me), 34 (spouse)
Income: $250k (me), $190k (spouse) - my salary will rise to ~$310k by 5 years, spouses will rise slowly.

Budget:
Rent + utilities: $5500 (for 1200-1400 sq ft, 3 bed, 1 bath)
Day care for 2 kids: $3900
Student loans: $3000 month ($110k remaining), $24k at 3.5%, the remaining at 0% interest
Food: $1000
Discretionary: $1000
529: $400
Internet: $45
Cell phone: $145


Savings:
Cash: $94,403
Tax deferred accounts (me): $121k
Tax deferred accounts (spouse): $141k
529 (kid #1): $23k
529 (kid #2): $9k


Please be brutally honest as we need as much advice as we can get. Thanks
Last edited by 4Health on Mon Aug 07, 2017 11:42 pm, edited 1 time in total.
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Watty
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by Watty »

With a big move like that I would rent for a year regardless of the "rent vs buy" numbers.

That will give you a year to decide if you really want to stay there and to learn more about the area and the local housing market.

Be sure to check on the tax details of the zero percent loan. I would be concerned that the below market interest could be considered taxable income and when they forgive the loan it would all be taxable. After taxes it might not be as good as it sounds.
Tal-
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by Tal- »

Watty wrote:With a big move like that I would rent for a year regardless of the "rent vs buy" numbers.

That will give you a year to decide if you really want to stay there and to learn more about the area and the local housing market.

Be sure to check on the tax details of the zero percent loan. I would be concerned that the below market interest could be considered taxable income and when they forgive the loan it would all be taxable. After taxes it might not be as good as it sounds.
Agreed! And even then, I think you should probably be renting for several years...

Even with your crazy-strong income and robust professions, buying a 1.3M house represents a huge risk to your finances. And, I don't see how it's a risk that you need to take.

Also, I don't think you can consider the interst-forgiven loan as part of the down payment. As part of closing on a house, the bank asks where you got the down payment.
Debt is to personal finance as a knife is to cooking.
rob65
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by rob65 »

You'll get great advice here, but http://whitecoatinvestor.com/ is also a good place for you to look. There are some financial issues that are unique to physicians. The site founder frequently posts on this site.
Dyloot
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by Dyloot »

Have you considered living in Marin and driving in to the City?
jadestruck
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by jadestruck »

Always first check out your work for a year before you commit. What if you don't like your work environment/colleagues etc or your path to partnership. Once you buy a home, your employer is sure you will not leave the job and that can hamper salary negotiations in the future. :moneybag
curmudgeon
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by curmudgeon »

Tough call. If you wait a year or two, mortgage rates will probably be somewhat higher. But if the area is new to you, it can be really hard to buy wisely, even aside from the question of job satisfaction. I've know lots of people who really liked SF as a place for a couple to live, but were ready to head to the burbs when it came time to raise a family.
ks289
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by ks289 »

Good luck in your new job.
I think this is a tough decision, because your budget is a little tight not only from your mortgage, but also daycare and student loan expenses. If you hit your savings target of maxing all of your tax deferred accounts plus $3-4K per month, you'll be ok if you remain employed and maintain/increase your incomes long term, especially if you get that down payment loan forgiven. There is a lot of uncertainty in healthcare however. Also a comment on your budget line for housing (mortgage + utilities): you may be also wish to include maintenance costs, which some would recommend budgeting 1% of your home value annually.

We were in a similar situation a decade ago (dual physician household, I was completing fellowship) and decided to immediately buy a home which was at the top of our budget. While it has worked out so far, it was helped by being able to double our combined starting income within four years. It has been hard keeping expenses under control while working hard and raising kids too.
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JDCarpenter
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by JDCarpenter »

Add me to the rent for a year crowd. learning the commute times in various areas is important, particularly if either of you has to make morning rounds or gets sucked into administrative roles involving 7 a.m. meetings (DW has both...). Plus, there is always a chance that the job isn't what you think it is.

We rented for more than a year both times DW started in a new practice and it worked well to enable a better feel for the areas we were looking at. (BUT, we both declined HCOL, much less VHCOL opportunities; for us, life was/is too short. Don't know what impact that would have had on us--probably make us even more cautious?)
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Zubs
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by Zubs »

I've been in the SF bay area for almost 10 years now. Unless you are familiar with SF I would definetly rent at first. Most SF public schools are below average for the area as well. Each area of the city is a little bit different.

If you working in the city I would look into the peninsula or Marin county. There are new ferry services starting as well!
Carefreeap
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Location: SF Bay Area

Re: Another rent versus buy - moving from MCOL to VHCOL

Post by Carefreeap »

Another long-time Bay Area resident and homeowner who thinks renting for a year is a good idea. We only rented for 3 months and it worked out o.k. but we never had to deal with schools. That said, the town where we live had its schools rated 8 vs 10 yet the people who owned our house before us for 20+ years were a doctor and a teacher and their sons became a doctor and a teacher. Therefore I think there are some real benefits to raising kids in a middle income area vs high priced area like Burlingame or Palo Alto where expectations may be unrealistic.

I will say that one really smart move we learned from the Washington DC area is NO BRIDGES!
Every day I can hike is a good day.
randomguy
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by randomguy »

Zubs wrote:I've been in the SF bay area for almost 10 years now. Unless you are familiar with SF I would definetly rent at first. Most SF public schools are below average for the area as well. Each area of the city is a little bit different.

If you working in the city I would look into the peninsula or Marin county. There are new ferry services starting as well!
Peoples attitude is that the local schools are either horrible or the best every. Most of the time they are in the middle. San franciso has a ton of great schools (9+ on great sschools). They have some horrible ones (<5). And you have some mixed schools (call them the6-8s). When you look at the mixed schools, you will find that the difference between them and the 9/10s is all about the student body. You look at the test scores for the whites/asians and you are getting the same 9/10s but you through in the tract of ESL studenst getting 3 adn 4s and you end up with a average rating. For example lets look at: http://www.greatschools.org/california/ ... _ethnicity

The school is a 7. Lets look at the math scores. The average is 52%
Hispanic (51% of the school): 37%
Asian (33%): 78%
White (9%): 81%

The white/asian kids are doing fine. Not so much for the hispanic. Compare that to a 10 school: http://www.greatschools.org/california/ ... ry-School/

Asian (39% ) : 86%
White (32%) : 80
Hispanic ( 11): 66%

Top end isn't dramatically different. Bottom end it. And I bet if they numbers were linked to family income, you would see even an even stronger link.

New job. New Area. Rent for a 6 months to a year. Even if you wanted to buy, you have no clue where to.
Dyloot
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by Dyloot »

Zubs wrote:I've been in the SF bay area for almost 10 years now. Unless you are familiar with SF I would definetly rent at first. Most SF public schools are below average for the area as well. Each area of the city is a little bit different.

If you working in the city I would look into the peninsula or Marin county. There are new ferry services starting as well!
I don't think it's just the schools... I think you really need to want to raise your kids in SF. Personally, I'd live in Marin County and commute in every day.
J_Markov
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by J_Markov »

I'd think the budget you have seems tight. Did you calculate other expenses such as vacation, cars, etc...? Unless you're already tied to the Bay area for family reasons, I would personally rent for a couple of years just to make sure you like the new job.
Topic Author
4Health
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Joined: Tue Nov 11, 2014 7:06 am

Re: Another rent versus buy - moving from MCOL to VHCOL

Post by 4Health »

Thanks for all of the replies. We actually lived in SF during residency with both kids so we are very familiar with the city. We want to live inside the city for several reasons (walking/biking to work, walking for errands, friends, restaurants, parks, etc...). We are dreading the lottery system for school when our oldest starts in 2018.

I think based upon everyone's input and my own hesitation about buying for a variety of reasons that I we will rent until we are certain that both of our jobs will work out. I think paying off the student loans in the next one to two years and then seeing if our kids get into acceptable public schools will be the determining factors of whether it is financially wise for us to purchase.
somekevinguy
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Re: Another rent versus buy - moving from MCOL to VHCOL

Post by somekevinguy »

Reading your post was like reading about nearly our exact situation. Moving from mcol area back to the Bay Area (where we did some training) as well. Dual physicians, same age, wife just finished fellowship, I've been practicing a few years, reasonably similar finances (although somewhat different with combined income ~600, done paying off loans, and my job comes with some generous housing supplements if we buy a home), sounds like similar jobs-Kaiser with the 175k home loan and an academic position.

Ive been grappling with the same question. We know the area well, have family in the area, think we've basically landed our dream jobs, and interest rates are only going to go up but the prospect of committing 1-3M for a home is just crazy and daunting. We made the same decision (I think) and will rent first too before making a purchase.
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