January ACap ReCap – Your Personal Finance Questions Answered
1. What should I do with my house when I move away for residency/fellowship?
If you are fortunate enough to own a home, deciding what to do with it when leaving town for your residency or fellowship can be a hard decision. Being a landlord goes beyond just collecting rent and making sure the financial numbers work out; it entails dealing with tenants, leaky faucets, broken air conditioners, and anything else that breakdown…as luck would have it, probably just as you’re studying for your board exams. You love your home, but you have to accept the fact that renters will not care for your house the same way you do. If you would like to rent your home, the following are some things to consider. Will your rental income cover the mortgage and expenses (I.e., property taxes, insurance, repairs, etc.)? Do you have family close by who can look after the property, or are you willing to pay for a property manager? Know that if a tenant knows you’re a remote landlord, there may be even more headaches. If you hire a property manager, are you prepared to pay out your first month’s rent (even if your property is already rented) and 10 percent of gross rents? Home ownership can be very rewarding, but give serious consideration to these items before adding another layer of stress to your already busy schedule.
2. My spouse and I are ready to start looking for our first home. How do you suggest we best prepare ourselves to become the most qualified candidates?
Congratulations on preparing to buy your first home and for being proactive in your preparation. There are a number of things you can do to not only make you a good candidate for a home loan, but also for when it’s time to sign on the dotted line. While interest rates are at all time lows, banks are getting very picky about whom they lend to with every document scrutinized and critiqued for “lendability”. Before you start, check your credit report to avoid any unpleasant surprises. You can check your credit for free every year (Google “FTC free credit report”). Next, start saving cash for a down payment. Keep your cash in a safe account such as a bank savings account. Make sure you have filed all your tax returns and have them readily available. The more organized you appear to your lender, the greater the chances you will be approved for a loan. TIP: Many young doctors are not aware that some banks have special loans for doctors which include low down-payments, special rates, and/or leniency on other debts such as student and business loans.
3. I have been offered a job in a different state; how much should I consider state income tax rates when deciding to accept a job offer?
Due to over saturation of certain medical specialties, many of my emerging physicians are looking out of their home state for jobs. Similar to investing, taxes should not be the single deciding factor when accepting a job offer out of state. Quality of life, real estate taxes, proximity to family, and anything else that are important to you should play a role in your decision. Additionally, just because a state has low or no income taxes doesn’t automatically make it more appealing because they may have higher property or sales taxes. In short, evaluate at all the costs associated with taking a job in a different state versus the potential benefits before renting that U-Hall truck.
4. I have acquired assets and opened many accounts over the years. How can I make sure my heirs know exactly where everything is if I were to unexpectedly pass?
It is very common for doctors to amass several accounts during their careers. Clients routinely come to me with several accounts such as: a 401k from when they worked between undergraduate and medical school, 401k from when they were residents, another 401k from when they did a fellowship in another city, and maybe a Roth IRA if they received good advice during that time. With so many accounts on top of a busy career, it’s no wonder that people get overwhelmed and stop managing their accounts. First it is important to understand that some of these accounts can be consolidated creating less paperwork and less accounts to manage. In addition to consolidating accounts, I also recommend people create a net worth statement listing all of their accounts, assets, account numbers, location of the account, and how the accounts are titled. A net worth statements is enormously helpful for when you are preparing your estate documents; if something were to happen to you, a loved one would know exactly where all your accounts are. If you need help creating your net worth statement, contact us at firstname.lastname@example.org and we will be happy to help.
Have a question or need advice on how to manage your retirement accounts? Contact ACap Asset Management at email@example.com or 818-272-8511.
Ara Oghoorian, CFA, CFP® is the president and founder of ACap Asset Management, Inc., a “Fee-Only” investment management firm located in Los Angeles, CA specializing in helping doctors and physicians make sound financial decisions. Visit us at www.acapam.com