The Sunday Best (7/26/2020)

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The Sunday Best is a collection of articles I’ve curated from the furthest reaches of the internet for your reading pleasure.

Every week, I scan hundreds of headlines, read dozens of posts, and bring you the best of the best to save you time and mental energy.

Financial Independence (FI) is a primary focus, but it’s an awfully broad topic. I tend to approach FI and early retirement from a fatFIRE perspective and through the lens of a physician, so expect to see those biases in the selected articles.

Related topics that have become recurrent themes include early retirement, selective frugality, tax issues, travel, physician issues, and of course, investing.

For more great articles, take a peek at The Sunday Best Archives. Now let’s get to the best… The Sunday Best!

 

 

The Sunday Best

 

He beat me to it by about 16 months. An update on how one active investor has been managing his life and money during some turbulent times. From Stop Ironing Shirts, a Fifteen Months Into Early Retirement Q&A.

 

We bounced back rapidly and nearly completely from that recent market downturn, but I doubt the heightened volatility is behind us. Fred Leamnson of Your Money Geek helps guide us through the uncertainty. 5 Ways to Protect Your Investment Portfolio in a Downturn.

 

One way to protect a portion of your portfolio is to keep assets in your “security bucket.” Passive Income MD shares a list of assets that qualify. Asset Allocation (Part 1): The Security Bucket

 

If you had $3 Million, how would you invest it? Would real estate be a part of that portfolio? Leif from Five Year Fire Escape says “yes.” How to invest 3 million dollars – The BEST phase of your life.

 

Our friend living A Purple Life (think red pill and blue pill) has nowhere near $5 Million, but living frugally, she feels she’s got all she needs. Congrats are in order! $500,000 at 30: I Hit My FIRE Number!

 

She saves money in a lot of different ways. Patients and physicians alike have found that they can save money by utilizing telehealth services. How Telemedicine Can Save You and Your Practice Money.

 

Are you struggling to save as much money as you’d like to be saving? Wealthy Mom MD has some tips for you in both blog and podcast form. Dr. Bonnie Koo explains How to Stop Overspending.

 

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Just as you can change your spending habits, you can also change up your career. Dr. B.C. Krygowski dishes on dozens of doctors who have done so. Physicians in Transition: Doctors Who Successfully Reinvented Themselves (A Book Review).

 

Are the physicians who change careers or retiring early to blame for a physician shortage? The Doctor Weighs In with a look at the bottleneck at the beginning of the physicians’ journey. Does the US Have a Physician Shortage or a Physician Training Shortage?

 

You know what almost rhymes with shortage? Mortgage. And Mortgage Rates are Insanely Low, reports Ben Carlson of A Wealth of Common Sense. Now would be a great time to consider refinancing your balance with any of our recommended mortgage lenders in your state.

 

Would you pay down your mortgage if you could with these insanely low rates? One couple at Making Sense of Cents considers the pros and cons and ultimately makes the choice that feels right for them. Pay off our mortgage or not? A glimpse into a couple’s final decision.

 

I was asked for some of my favorite quotes, purchases, hobbies and more in this wide-ranging interview. Band of Bloggers: a Physician on FIRE Q&A.

 

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I’m Still Not Considering a Mortgage

 

Mortgage rates, as outlined above, are incredibly low right now. If one were in the market for a new home, which we now are, it would seem to make a lot of sense to plan on taking a mortgage out for that next home purchase.

Borrow money at 2.5%, keep our money invested at a higher return, and pocket the difference. Sounds pretty straightforward, and for most, it’s the right decision.

Yet, we are planning to pay cash.

Why?

 

Cash is King

One, cash is king. With low supply and high demand, the housing market is very competitive in many markets this year. Back in March, I was certain it would be the opposite, and I’m guessing it will cool off over the next year, but there’s no way to know for sure. I’ve been wrong before, obviously.

A cash offer on a home is obviously going to be preferred by a seller. There’s no risk of the sale falling through due to failure of the buyer to secure a mortgage loan or from a home appraising too low for the bank to accept. Being able to make a cash offer gives us an advantage over most other potential homebuyers.

 

Simplicity

Two, it makes the process simpler. There is a lot of paperwork involved in qualifying for and applying for a mortgage. I’ve gotten several mortgages in the past, and there were a lot of hoops to jump through and fingers to cross when the appraisal comes in.

Now that we’ve had no W-2 income for nearly a year, I can only imagine that the process would be that much more difficult. With cash, you just find out what you owe at closing and pay it.

 

Cost Savings

Three, closing costs will be significantly reduced without a mortgage. The average closing costs range from 2% to 5% of the purchase price of a home, according to Zillow.com.  On a $400,000 home, that’s $8,000 to $20,000, and a number of those costs can be attributed to obtaining a mortgage.

Paying cash, we’ll still pay for a title search and title insurance, and we’ll want a home inspection. However, we can skip the appraisal, application fees, origination fees, and other miscellaneous fees the lenders sometimes tack on.

Yes, there are “no-closing-cost” offers, but someone is paying those costs. Usually, it’s the buyer in the form of a higher interest rate, but it could also be that the seller is paying some or all of the costs in a buyer’s market. We are not in a buyer’s market.

 

Because We Can

Finally, we’ll be paying cash for our next home simply because we can. We’re in a fortunate position now, having saved well and invested wisely. Paying cash isn’t going to hinder our financial future since we’ve already met our investment goals.

In fact, paying cash probably makes our financial future a little brighter. If we were planning on using a mortgage, I might be more inclined to consider the rare home in our market in the $600,000 and up range, which would really be more home than we really want or need right now. We made that mistake once, and I’d rather not make it again. Never say never, though. I’ve made mistakes before, obviously.

 

Long story short, we’re still looking for our lake home, and we’re planning to buy it outright, as we’ve done with our last two home purchases. The math may argue against that plan, but I still think a cash purchase is the better decision for us. I’ll be interested to hear your thoughts below in the comments.

p.s. If I had an existing mortgage with an interest rate of about 3.5% or higher, I would definitely look at refinancing. You could easily save thousands of dollars.

 

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WCI is having a sale on all courses with a free bonus course included with your paid tuition this week!

In honor of Financial Literacy Week, if you buy either the Fire Your Financial Advisor or the 2020 Continuing Financial Education course, you will not only receive 10% off, but also receive the Physician Wellness and Financial Literacy Conference - Park City course for free.


 

Have an outstanding week!

-Physician on FIRE

 

14 thoughts on “The Sunday Best (7/26/2020)”

  1. Thanks for the shout out. Am totally for a cash purchase of housing. We beat out two other offers with our last house buy and I suspect the owners grabbed our within minutes of it coming in because it was a cash offer. Also, forgot to comment on last weeks Sunday best that I used to think I was a big spreadsheet person, but you take the cake! 🙂

    Reply
    • You know, I really should have put together a spreadsheet comparing the savings on closing costs with a cash purchase versus the potential loss of future investment returns by not carrying a mortgage.

      I’ll do better next time. 😃

      Cheers!
      -PoF

      Reply
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. Just downsized from my lakeside condo to a more modest one as I move away from inflated lifestyle and toward FI. Closing soon with cash purchase, my first ever. Feels like an important financial milestone to me.

    Reply
  4. I put in a full asking price cash offer for a house a few months ago. It was easy – they just wanted to see a copy of my Vanguard statement (without policy number). There were over 5 offers for the house, mine was the only cash offer. Realtor called me told me there was an offer higher than mine and did we want to raise our offer. We told them no, felt like we were getting taken advantage of. House just completed escrow at the higher price. Hope they like it.

    Reply
    • You make a good point, Bill. As a cash buyer, you’ve got a better chance at being given the opportunity to match any other higher offer than includes a mortgage (or other contingencies like having to sell one’s own home).

      Sorry you didn’t get the home, but it sounds like you weren’t overly interested at that price or it would by you moving in.

      Cheers!
      -PoF

      Reply
  5. I have not had a home mortgage for 19 years and it is great. I second your thought on not having a mortgage simply because the interest rate is low. The only reason to have a mortgage is because you can’t afford to buy the house without asking someone else to help you. Once you graduate from needing help to buy stuff, it is very hard to go back. It is like moving out of your parents house, once you do it, you don’t want to go back. Having independence is the way to go. We are building a house currently and we do not intend to get a mortgage. Even if they offered zero percent interest, we would still be obligated to make a payment every month. I like never making payments. I don’t need to take any money out of my retirement plan to cover house payments.

    Dr. Cory S. Fawcett
    Financial Success MD

    Reply
    • I agree, obviously.

      It’s wonderful to be able to have one less thing (or payment) to deal with. Although, at 0%, I can’t say I’d turn that down. I’d take the loan, set up automatic mortgage payments, and keep enough in my checking account as a floor to always cover the monthly payment.

      I just learned the term “delayed mortgage financing,” in which you buy a home with cash (mainly for the leg up as a cash buyer) and within weeks of closing, secure a loan with the house as collateral. If fees can be minimized, that’s not a bad option for one who’s not completely debt-averse.

      Cheers!
      -PoF

      Reply
  6. I’m intrigued by the FIRE blogger planning on making 500k last for 70 years. Her goal is to live on 20k/yr. Adjusting for inflation, I lived like that as a student; it seemed just fine in my 20s, but I’m sure I wouldn’t want to do that in my 40s, and I wager I won’t want to do it in my 60s. I mean, part of my plan in school was to join as many clubs as possible for the free pizza. And I thought Sam Adams was the highest end stuff to wash down that za. Tastes change.

    Not having/needing a car helps. Not having a kid is also huge.

    Her plan is to do medical tourism if a health issue arises. She doesn’t mention insurance, but will probably qualify for subsidized Medicaid plans. In my community, that severely limits options.

    Another backup plan is to get another job. I didn’t research what she does, but I wonder if getting a new job is easy when she is 50. Obviously for physicians, things are complicated.

    Finally, good for her for posting her SS numbers. But, she won’t be collecting much from that trust fund.

    So, either I’m unnecessarily curmudgeonly or she is irrationally optimistic. Or both.

    Reply
    • Excellent points all around, G.

      I would agree that the lifestyle she plans to continue living would be untenable for most, but that doesn’t mean it can’t work for her. I have met her, and she is a delightful person. She’s also making 6-figures now, and I’m guessing she’ll be earning money in some capacity post-FIRE, allowing her to inflate the lifestyle if desired.

      I mainly wanted to feature her post to show how some people won’t need a multimillion dollar nest egg to be financially free.

      Cheers!
      -PoF

      Reply
  7. Thanks for the mention PoF! I can’t stress enough how great getting an assistant has been (It’s in the article). 100% recommended to everyone who has a little money to spare.

    De-leveraging is definitly worth it once you have a lot of money in motion. I don’t plan on being totally mortgage free for quite a while though because housing here is so expensive! Detached housing around me starts at $850K (for something tiny) so I can’t leave that much money on the table. $300K sure, that’s a rounding error. j/k 😛

    Reply
    • I’m going to need an assistant to help respond to all the comments today!

      Some housing markets make cash buying virtually impossible for all but the very wealthy. You clearly live in one of them, although we are talking Canadian dollars, right? Last I checked, the Loony was worth 75 cents, so there is that “discount.”

      Cheers!
      -PoF

      Reply
  8. If it’s stability you’re looking for, nothing beats paying cash hands down. That cash will buy you a place to live in perpetuity.

    But from a capital allocation perspective, most people would agree you can find places with a better return on that cash. Totally depends upon your local real estate market however.

    I just had a friend that sold her lake house for $3.1 million after buying the property for $1.25 about 7 years ago. That’s some stock market like capital appreciation right there!

    Those kinds of big swings aren’t predictable of course. Some areas will appreciate much more than others. But putting $$ into un-leveraged real estate isn’t always a bad idea.

    Reply

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