Heading back to school. What would you do?

[Anonymous]

My husband and I make about 190K per year, I contribute about half. I'm leaving my job this summer to pursue a professional degree in a field that I love but will leave us in quite a bit of debt. I should be able to leave this degree and make a much higher salary, but that won't be for several years.

We're moving to a moderately priced city to do this. We have property here that we should easily be able to easily rent out and make about $100-200 on every month (hopefully more), but we still owe $200K on. We have a 6 month old that we've saved enough to pay for child care for the next 6 months to a year. We also have about $50K in savings, not including retirement. But, we haven't put very much into our baby's college savings.

We hope to purchase a home in the new city. We plan to be there about 5 years. I was hoping to purchase a no more than $200K home, but it looks like home prices are increasing and we may need to shell out more. Homes in this city are quite awful and will need at least minor renovation (more than just a paint job) to make it even remotely something that we'd want to live in.

So, here's my question.

1. Do I really need to put 20% down? I'd like to have some actual cash in savings for emergencies.
2. Can we somehow convert some of the renovation budget into the new mortgage?
3. If we don't find something we love, would it make sense to just rent a place?

Apologies. I've always been anxious about money, and we put 20% down for our current home about 8 years ago, so not doing that also worries me a bit. But I hate to rent b/c I equate it to just throwing money away. And I'd love a home, a real home (not just a condo) for our DC.

TIA

[Anonymous]

Did you factor in regular upkeep and appliance repair/replacement on your rental income? What will you do if it is vacant for a while or your tenants don't pay? If money is that tight, it may make more sense to rent in the new city. I assume you are definitely coming back to DC after your degree, or you would consider selling your house now. I think renting makes sense in certain cities -- check out the rental market before you decide.

[Anonymous]

No, we don't plan to return to DC, but hope to rent it out in the long run and use it as actual income. Condo fees are exorbitant now, but the HOA plans to decrease them in the coming years , so that should help. I was hoping to sell the condo and put that money towards DC's college in about 18 years. We also don't plan to keep the property in the new city for more than our time there.

[Anonymous]

Have you factored in vacancies at your condo?

[Anonymous]

Anonymous wrote:Have you factored in vacancies at your condo?

Yes, I have enough in a separate account to cover a few months of vacancies if needed (but we're in such a prime location, and after observing the other units in the building renting really easily, that I don't see us having to use it)

[Anonymous]

A professional degree? You might get advice on here as to whether it's worth it ~ and you may not want to hear that, depending. Nevertheless, will you share?

[Anonymous]

What is this expensive grad degree that will double your earnig potential? I'd be wary ...

[Anonymous]

I would, but I don't want this thread to be about why that degree is no longer worth it, blah blah blah. I don't know that it would double my earning potential, but I certainly wouldn't earn any less.

[Anonymous]

Sell your condo. It's a pain to have a rental property that's in another city, especially with a small child and school and lots of other things to keep you busy.
And I would for sure rent in your new city, at least to start. You can think about buying when you have a bit more money and you know where you'll want to live.

What city are you moving to?

[Anonymous]

Carefully do the math on a house purchase. Calculate transaction costs (for purchase and sale), realtor's fees, and maintenance costs. Unless the real estate market is truly booming where you're buying, or you are going to put a large amount of "sweat equity" into your home, it probably doesn't make economic sense to buy, rather than rent.

[Anonymous]

Rent in the new city.

[Anonymous]

I will be honest with you, your plan sounds really shakey especially with an infant. I would think long and hard about whether now is the time to pursue a new career that will put you in deep debt when you have such a young child. I recommend you read the threads about people who are tens of thousands of dollars in debt due to student loans and the pressure they are under. It sounds horrible. If the answer is still "yes", then I would try to limit my financial exposure as much as possible. Rent, don't own, night school and work during the day, sell DC house to pay tuition, etc. Now is the time to create a spreadsheet with income and potential costs. Take that spreadsheet to a financial advisor and walk through all of your options. I would also talk to a lot of people in the field you want to get into to get a realistic picture of what it is like to make sure you aren't glamorizing it. The reality is that you are putting your family in a precarious financial position so make sure it is worth it.

[Anonymous]

My family buys foreclosed houses in St. Louis (built between 1885-1900) that are just falling apart. If you can get quotes for the work you need done, you can borrow over the amount of the home. We typically buy a house for $40k, add $50k for renovations, and take a total of $90k as our loan from the bank. Sometimes we put 20% down, sometimes we just put $10k down. It depends how the numbers come out when the bank runs it. Go in and talk to a banker and have them play with the numbers with you.

[Anonymous]

I echo others that if you're not planning to return to DC, you should sell your DC property. Now is a decent seller's market.

You claim you're going to make $100-200 a month and that you won't have vacancies because it is a desirable neighborhood. But how much are you hoping to make in rent? Let's say you plan to rent this place for $2400 and think you will net $100 a month. If you have a single month of vacancy, it will wipe out your net for two years.

You should also factor in that renting out property remotely is difficult. Sometimes you have a wonderful tenant and nothing breaks and everything is great. Other times you have a crappy tenant or a lot breaks and you end up either spending a ton of time and money arranging to fix it yourself or you hire a management company, which cuts your profit substantially.

All that being said, sometimes its nice to own rental property even if all you're doing is breaking even. Basically, someone else is paying down your mortgage for you. BUT unless you have a very high net worth, it is easy to have way too high a percentage of your investments in real estate. Real estate investments are good for diversifying but don't historically have as good returns as the market. Given your current salaries and the fact that you're interested in purchasing in your new city, I am highly skeptical that its appropriate for you to have so much of your money tied up in real estate.

Regarding your question on renting: Do you intend to stay in the city where you are going to school? If not, you should probably rent. The break even point on home ownership being better than renting turns on a huge number of factors (there is a great calculator at the New York Times' site you should check out), but generally you want to own the house for at least five years to break even. If you're enrolling in a phd program that is sure to take at least that long, fine. But otherwise, I'd be wary.

And even if you plan to be there for 6-8 years, you mentioned putting additional money into renovations, which never pay themselves off fully, so you need to calculate the portion of the renovation cost you will not recover into your rent/buy analysis.

[Anonymous]

Essentially you are going to drain your savings dry went you should be building it up.

Echo PPs, I don't care what this supposed professional degree is, it's not worth debt and leaving a good paying field.