Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

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ERdoc_
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Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by ERdoc_ » Wed Sep 12, 2018 9:34 pm

Hey Boglehead fam,

Im currently in my first year of residency training, in san diego CA. Im 27, married, no children. We are currently renting, but im looking into investing in a home for profit. However I know there are many factors, I have read the various blogs on white coat investor etc, which seem to advice against buying while in residency but there are a few factors that I think can make it a game changer for me. Would love all of the insight you guys have to offer.

Facts:
-200K in federal loans at 5.8% interest (low minimum monthly payment)
-55k combined annual salary (wife full time student with small part time job)
-Current rent is $1500 (great deal for our city / apt size) most around 1800 for what we have.
-No car payments etc, low bill costs currently
-In two years as a physician I should be starting around 300-350K in my field with ~30-50K signing bonus
-$9000 in savings and $1500 in retirement


Pros:
-Looking to buy a fixer upper and flip it two years from now (for sale >rent)
-San Diego market seems to be great right now, I see small homes being sold so highly all around me with minor touch ups in our neighborhood (a lot of gentrification going on). See this boglehead link viewtopic.php?t=237410
-My stepfather is a electrician/plumber/contractor, I used to work a lot of jobs with him on my off time. Myself , cousins, father, grandfather all come from a long line of construction work, essentially over the two years we would do all of the labor ourselves, so no labor cost, wife is big into DIY design and interior design.
-Parents offer to lend me all of the down payment money for the home (interest free, no rush to pay back).
-No more renting (looking to have mortgage at ~ same as rent)

Cons:
-First time buyer
-No idea about additional costs to consider yet (property taxes, hidden costs, etc) that may sink me

Just want to hear some insight, ive been adhering to a lot of the teaching from whitecoatinvestor/boglhead experience, but with this possibly investment, im nervous/excited. My family is pretty handy (step dad has flipped a few homes for a profit back near LA), but this would be all on me they would not bail me out.
Thank you!

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Sasquatch
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Sasquatch » Wed Sep 12, 2018 9:48 pm

Isn’t residency training super rigorous? How would you find time to run subs much less swing your own hammer.

Talk with your CPA about tax treatment for sales of this nature. I have zero experience with flipping but we did light industrial buildings and on short term turnarounds you may be classified in the eyes of the IRS as a dealer. That was my only personal experience YMMV

https://www.bpbcpa.com/real-estate/inve ... e-messing/

cmr79
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by cmr79 » Wed Sep 12, 2018 9:56 pm

This seems like a stay the course situation. You're afraid of missing out on the hot real estate market, sure, but there appears to be a lot more downside (time, financial, stress) here than upside. If you really want to get involved in real estate, why not wait until you're established as an attending, know where you're likely to be for more than the next 2.5 years and can afford to make the investment yourself without relying on family?

Focus on your most important job right now: being a resident. A big part of that is not taking on too much and getting burnt out, and the first year is probably the highest risk time for that.

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Watty
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Watty » Wed Sep 12, 2018 10:19 pm

Sasquatch wrote:
Wed Sep 12, 2018 9:48 pm
Isn’t residency training super rigorous? How would you find time to run subs much less swing your own hammer.
+1

Even if you have X hours per week to to work on the house then will likely be at the wrong time since a contractor might need to meet you at 10:00 AM on Tuesday when you have other commitments.

jbmitt
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by jbmitt » Wed Sep 12, 2018 10:26 pm

Put your focus on your training. You career as a good doctor will be much more lucrative than as a first time flipper.

Nissanzx1
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Nissanzx1 » Wed Sep 12, 2018 10:37 pm

I'm nervous for you and your family that you are even considering this given enourmous debt and shoe string savings.

There are literally 100 reasons why this is an abysmal idea in your situation.

Use your resources to focus on your family, career, and eliminate your debts.

This is the type of thing that you could do 10 years from today. Today this represents incredible risk.

I have a family member who is a physician and about 58. He's up to his eyeballs in debt and schemes this type of thing daily. He will be broke until he dies, sadly. He's convinced that things must be complex/sophisticated/leveraged to be worthwhile. Please please please be smarter than the average Doc.

hawkfan55
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by hawkfan55 » Wed Sep 12, 2018 10:40 pm

I would highly recommend you focus on your priorities, spouse and residency. Residency can be very time consuming.
Renting for what you consider "a great deal" is ideal. You won't have to pay real estate taxes. Not buying a property now will give you more flexibility when fielding offers as to where you might want to establish your practice. You can also spend more time learning your craft. Your future patients will thank you! You will have plenty of time to invest in real estate. Enjoy San Diego! 8-)
Forum Library of Investing Advice: https://www.bogleheads.org/wiki/Main_Page

Basis
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Basis » Wed Sep 12, 2018 10:51 pm

I can appreciate your verve for this house flipping possibility. I’ve learned over the years to appreciate the sky that I’m under. Remember, sometimes the enemy of good is better...

So try this:

Exchange the verb “flipping” with “moonlighting” and the word “contactor” with “physician.”

What would you tell the contractor poster about his/her pursuit of a side physician business?

Would it not be: “I respectfully suggest you leave it to the experts”?
You see what you know.

sasecool
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by sasecool » Wed Sep 12, 2018 10:53 pm

Yikes yikes yikes!

I agree with all that was said, especially the training part.

That being said, what I would do with your "extra cash" in this particular order:

If there is a match at your institution, take advantage of this. Put in the minimum amount to get the match. Put funds in roth style... perfect for your situation.

#2: if your student loans are subsidized, you can hold off on paying that back for 1-2 years without capitalizing interest, otherwise do income based payment to prevent capitalization of interest. If you're thinking about working for a non profit, consider the loan forgiveness program. File now to figure out which ones you may qualify for.

#3 whatever you have left, try to build an emergency fund and deposit into your 401k equivalent.

If you follow this, you will get more reliable returns in the long run compared to flipping a house which is a lot more risk and work for someone who is wrapped up in residency.


I speak from experience on this. I am now 2 years into my career as a doc. I wish I would have saved even a little into my 401k. I also wish I paid more into loans so as to have prevented compiling interest. I'll be fine with those loans etc, but that's quite a bit of money I'm paying more interest on now.

Pickup a copy of white coat investor.. it will change your world.

ERdoc_
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by ERdoc_ » Wed Sep 12, 2018 11:09 pm

Thank you everyone for the unanimous advice!

I definitely have been trying to do those "wise" things from white coat investor and most young professionals alike.
(I.e
- Sold my cars and bought simpler/ reliable cars with no monthly payments
- Contribute 5% to my rothIRA (there is no match for 401K at my institution)
- Save 15% of my earnings

I guess with so many other individuals in my family doing well with properties, and growing up working construction and handy man type stuff, and having the significant help I saw it as a potential solid 2-3 year investment and throw the profits (potential) and future signing bonus straight at my 200k debt(again not knowing anything about the burden of property taxes/ additional hidden fees I may not be able to afford)
- I do find myself with random weekdays off (we are not on call in the ER) and I think I could be doing cabinets, tile, landscaping etc slowly over two years, but again maybe there are other ways to profit on the side

Thank you all so much for the input

Keep it coming If there if you have any more 2cents , positive or negative experience.
Thank you!

Oddball
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Oddball » Thu Sep 13, 2018 12:19 pm

I actually think it is a good idea expect I don't know how are you are going to afford the cost of the rehab. Having a handyman background and family to help (are they also in the area and happy to help you out?) are both great to help you out, and I am assuming your wife is also on board and will help with the work. But with a combined income of $55k and paying ~$1500 a month for the mortgage, plus whatever you are paying on your student loans and living expenses you are going to have to put a lot of the rehab materials on credit. This is assuming you are talking about a full on gut job. No capital gains taxes (up to $500k) if it is your primary residence and help with the down payment are both really nice bonuses.

My wife and I own a duplex and lived in the "crappy" unit a couple of years while we rented out the nicer unit. This past spring the tenants in the nicer unit moved out so we upgraded to that unit and gutted the living room/dining room/kitchen/electrical/flooring in the crappy unit. It is a small ~900 sq foot 2 bed and we had already redone the bathroom a couple years before so we didn't touch that. Over ~3 months we gutted it down to the studs, replaced all the drywall, new kitchen cabinets (new layout for the kitchen), new countertops, had the electrical redone in the whole unit, installed new LVP flooring. Hired an electrician and guys to install the countertops, but everything else we did ourselves with a couple of friends (one good buddy is a carpenter).

Granted, the electrical was by far the most expensive thing but are you ready to head to Home Depot a couple times a month to drop say $3000 on flooring, $4000 on cabinets, $1000 on light fixtures, $500 on drywall, replacing windows/door, etc, etc....

If you didn't have a big pay bump coming up I would say try it and you can get the costs all back and then some when you sell a couple years later, but it is risky. Given the upcoming pay bump, I would wait until you can cash flow the expenses and then do it. Or if your family is going to help with the rehab costs also then I would say go for it, but that is really dependant on how your relationship with your family.

PolarBearMarket
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by PolarBearMarket » Thu Sep 13, 2018 2:28 pm

There's a few things that we haven't talked about here:
ERdoc_ wrote:
Wed Sep 12, 2018 9:34 pm
-200K in federal loans at 5.8% interest (low minimum monthly payment)
Assuming some of these are unsubsidized, this effectively makes your post-tax risk-free rate of return >5.8%. Most people, if they had that risk free rate, would not be flipping houses. You will probably get better risk-adjusted bang for your buck by paying down your student loans that investing in a house, even when leveraged with a mortgage. Plus paying off loans doesn't require a bunch of work on your days off.

Alternatively, if you have the credit necessary for a reasonable APR on a house, you should have sufficient credit to refinance these loans for a lower rate.
ERdoc_ wrote:
Wed Sep 12, 2018 9:34 pm
-In two years as a physician I should be starting around 300-350K in my field with ~30-50K signing bonus
With this salary, you should be able to pay off your loans in a few years, then you could venture into this more risky territory if you choose.
ERdoc_ wrote:
Wed Sep 12, 2018 11:09 pm
- Sold my cars and bought simpler/ reliable cars with no monthly payments
- Contribute 5% to my rothIRA (there is no match for 401K at my institution)
- Save 15% of my earnings
Before I would put any money toward a house, I would max that 401K. Even with out a match, it's still tax advantaged, which is a lot more than you can say for house flipping.

Pigeye Brewster
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Pigeye Brewster » Thu Sep 13, 2018 8:35 pm

This may be one of the few flipping themes that HGTV hasn't run yet... :beer

SoAnyway
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by SoAnyway » Thu Sep 13, 2018 9:03 pm

Relax and slow down, OP. I recognize that's hard, esp. for an ER doc. I also appreciate that residency pay isn't great, and your and your family's background in construction makes this flipping idea seem like easy money. (You already know how to swing a hammer, etc.) That said, you have a great idea, but the timing isn't right for you. Learning the parts of the flipping business you don't know involves a LOT of time and effort and practice - and hopefully learning from the mistakes made while in practice (just like training to be a doc).

I agree with those upthread that say for now, you should focus on your training and becoming the best darn ER doc that you can; THAT will do more than anything for your family's future. Once you're out of residency and into a secure, high-paying position, you can decide whether/how to pay off remaining debt, pursue the RE side gig if it's still of interest to you, whatever.

You ARE correct: It might very well be the case that you and your DW are the next HGTV "Fixer Upper" couple, but at this point in time, what you're proposing would only distract you. To put it another way, I don't know any doc who aims for "mediocrity". You don't want to be the mediocre ER doc with a mediocre RE flipper side gig, right?

BTW, good on you for already consulting and following the WCI guidance.

Edit: STOP looking at/reading/thinking about RE ads and HGTV. When you get the urge to do so, I suggest you instead pick up one of those gojillion medical journals that you "haven't gotten around to".... :wink:
Last edited by SoAnyway on Thu Sep 13, 2018 9:19 pm, edited 3 times in total.

bubbadog
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by bubbadog » Thu Sep 13, 2018 9:06 pm

jbmitt wrote:
Wed Sep 12, 2018 10:26 pm
Put your focus on your training. You career as a good doctor will be much more lucrative than as a first time flipper.
This! ^^^^^^

Pigeye Brewster
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Pigeye Brewster » Thu Sep 13, 2018 9:14 pm

"Resident Physician House Calls" :beer

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cheese_breath
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by cheese_breath » Thu Sep 13, 2018 9:22 pm

Watty wrote:
Wed Sep 12, 2018 10:19 pm
Sasquatch wrote:
Wed Sep 12, 2018 9:48 pm
Isn’t residency training super rigorous? How would you find time to run subs much less swing your own hammer.
+1

Even if you have X hours per week to to work on the house then will likely be at the wrong time since a contractor might need to meet you at 10:00 AM on Tuesday when you have other commitments.
+2 You're already in debt and you want to take on something as risky as house flipping while your career goes into the toilet? It doesn't always work out as great as it used to for Tarek and Barbie.
The surest way to know the future is when it becomes the past.

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sergeant
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by sergeant » Thu Sep 13, 2018 9:50 pm

Beware "Blah, blah, blah, 5 income streams from real estate" advice. Go back to WCI. What does he recommend?
Lincoln 3 EOW!

Grt2bOutdoors
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Grt2bOutdoors » Thu Sep 13, 2018 10:26 pm

Let me know where you practice, I'll be sure to "avoid" you. I want as I'm sure most if not all patients want a doctor who is focused and only focused on the patient at hand. The house, thoughts of a house, thoughts of flipping, dealing with subcontractors, city planning board, permits, how much $$ you think you might/could/couldn't make on this project, yada, yada are the last thing I want you, my potential physician, to be thinking about while my ticker is going haywire.

Focus on your profession. The biggest immediate boost to your net income will be your employment in the short run. Saving/investing and then if you want to "take on" a more time consuming investment like a "flip" will get you to the finish line come retirement (whenever that might be).
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Erwin007
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by Erwin007 » Thu Sep 13, 2018 10:44 pm

Maybe this is whey the ER residents at the hospital where I did my orthopedic surgery residency couldn’t reduce a simple distal radius or ankle fracture—they were too busy flipping home in their off time instead of learning how to be an ER doc. Seriously, this is a bad idea. I know ER residency is easy compared to a surgical residency, but between a spouse and the constraints of residency, the last thing you’ll want to do is spend a bunch of time and energy doing renovation work. You can thank us later.

SoAnyway
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by SoAnyway » Thu Sep 13, 2018 11:07 pm

Erwin007 wrote:
Thu Sep 13, 2018 10:44 pm
Maybe this is whey the ER residents at the hospital where I did my orthopedic surgery residency couldn’t reduce a simple distal radius or ankle fracture—they were too busy flipping home in their off time instead of learning how to be an ER doc. Seriously, this is a bad idea. I know ER residency is easy compared to a surgical residency, but between a spouse and the constraints of residency, the last thing you’ll want to do is spend a bunch of time and energy doing renovation work. You can thank us later.
Erwin, your point in red above is 100% correct. No need for the surgeon snark that precedes it. I have tremendous respect for surgeons - and for ER docs. To you both - Please take to heart the earlier post from the perspective of the vast majority who aren't doctors of any specialty, i.e. from patients. Someday, you'll be one yourself. Just sayin'.

EDIT: WCI, if you're reading, I know you're crazy busy but please weigh in.

daveydoo
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Re: Flipping a home Resident Physician flipping a home while in debt? help me weigh my pros and cons

Post by daveydoo » Fri Sep 14, 2018 1:14 am

Giant "no."

You ER docs... :D
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

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