1. Invest in a duplex
The route to long-term financial prosperity involves both thinking outside the box and a willingness to take on some degree
of reasonable risk, even when others are unwilling to do so. The traditional "safe" route followed by most professional school
graduates is to take a job, rent an apartment and pay the bills as they show up in the mailbox. And there's nothing terribly
wrong with this strategy—for one thing, it lets you file the "EZ" version of your income tax forms in April.
The downside? Well, every month you spend following this well-beaten path, you delay contributing to your future financial
well-being. Rather than maximizing your savings, you immediately begin paying interest to lenders. Rather than contributing
to your personal wealth, you begin paying rent to a landlord. All the money you're bringing in goes back out and into the
bank account of "the Man" (yes, I grew up in the '70s)—and "the Man" probably never broke a sweat over organic chemistry or
spent long days keeping pet owners satisfied.
So how is it that an early foray into the residential real estate market can help the fledgling veterinarian? Consider the
financial benefits of a strategy that many immigrants to the United States have used to obtain their piece of the American
dream: the owner-occupied two-family home.
While the concept might seem foreign or complicated to a neophyte property investor, the process is actually elegantly simple.
In an economic period such as now, when mortgage rates are very low, purchasing a small house can actually pencil out to be
as cheap as renting—sometimes even cheaper. Extrapolating that reality forward a bit, it's quite possible for a single person
or couple just starting out to acquire a modest two-family house.
The young owner rents out the unoccupied half of the building, which allows him or her to make the mortgage payments almost
entirely out of rental income. The owner then makes extra payments toward mortgage principal from his or her own income, which
builds up equity in the property quickly. That equity can later be borrowed against to retire student loans ahead of schedule.
You don't have to be a lawyer or investment whiz to do this. And there has never been a time like the present. Here are just
a few reasons why the purchase of an owner-occupied two-family duplex can work out well in today's wacky world of failing
banks, incomprehensible derivatives and credit default swaps:
> Take interest in property. Interest rates on residential properties are extremely low on a historical basis. (I bought my first house after graduating
from veterinary school in the '80s and got a conventional mortgage at about a 10 percent rate—and we had to pay points to
get a rate that low!)
> Get great rates. Interest rates on rental property mortgages can be significantly higher for mere "investors." But owner-occupied duplexes
often qualify for rates far closer to those for single-family personal residences.
> Not so risky business. Banks see veterinarians, even those with significant student debt, as very good credit risks. This is especially true if you
walk into a bank with a clear and well-thought-out business plan on how you intend to use your duplex to reduce your monthly
expenses relative to renting. Banks are now desperate to make good loans to high-quality borrowers.
> Take advantage of the perks. There are a number of tax advantages to owning a two-family home compared to owning a single-family house—especially compared
to renting a house or apartment.
> Enjoy short-term gratification. Even if you're not sure you plan to live in a specific region of the country for a long time, a duplex purchased at the right
price can generate significant income even in the short term. Then you can sell it later. You can use the profit to pay down
that pesky student loan.