My fiancee and I don't currently own a home because it works out better for us to rent at the moment. We also don't believe that homeownership has the same value or added benefit that it once did. That said, we do plan to own a home one day. For our unique circumstance however, renting was the better option for now. I can also understand why some people buy.
http://whitecoatinvestor.com/10-reasons-why-residents-shouldnt-buy-a-house/
May as well peg the caller's household income as equivalent to a medical resident's income due to having nearly twice the average medical school debt for the scenario above.
Rent plus pay down student debt plus max out 401K / IRAs in index funds is a solid strategy. I can see why they want to buy, though, and the act of purchasing a home can be a very emotional decision. I hope they're successful in whatever direction they go with.
1) You don’t have a down payment.
Sounds like they had that figured out.
2) You don’t have any income
His income is double what medical residents make, and it will almost certainly only go up from there as he gets faster and produces more.
3) You have tons of debt already
True. They are also paying rent already...
4) Residency is only 3-5 years long
Does not apply to general dentists.
5) You can rent a house
They
are renting a house. We lived in a rental home for 1 year and it would have saved us $400 per month to have purchased it. Sometimes it is cheaper to buy than it is to rent, it really depends on the market.
6) New home buyers underestimate the costs of ownership
This is an assumption.
7) You won’t want to live in that house as an attending
Perhaps, perhaps not. I know some surgeons who make a lot of money and still live in their condo from residency because they like it and don't have kids yet. They are saving a lot of money, and I think that is a wise financial plan. But buying the condo (as two of them did) is a wiser plan in the right market.
8) Home maintenance costs either time or money
Anyone who doesn't know this simply should not purchase a home, ever.
9) Residents don’t get a tax break for owning a home
Renters don't either.
10) Budgeting is easier as a renter
Assuming that the rent is the same as the mortgage + general maintenance + taxes (which it sounds like it may have been) then they will probably be just fine and they will be building equity.
I don't even know how much debt they will have from buying the house- let's say $250K. $480K student loans + $250K mortgage = $730K total debt.
Yep, that is a lot of money. You would be surprised at how much the rental probably costs them. Remember, landlords usually add their own property taxes and maintenance costs onto the mortgage. This is why we would have saved ~$400 per month to purchase the home we rented for one year. In the end, after we calculated everything on a spreadsheet, it came out pretty even to rent in the area we live in now unless you live here for 4+ years, then buying has a clear advantage assuming the market holds. Even then, you never lose if you don't sell for less than you purchased, and markets typically recover.
$400 x 12 = $4,800 lost in one year of renting, but you have to factor in maintenance costs (we had two minor repairs which cost maybe $400 total) and property taxes (which were high in our area). That is why it is best to calculate this stuff on a spreadsheet.
Could still be a bad move to buy. What happens if the roof needs a repair? That's $5-10K right there. All repairs and maintenance will now fall on someone who is already $730K in debt.
Risk is a risky thing.
Additionally, if they own, they are now responsible for all other costs...HOA, landscaping, etc.
Depends on where they are. Our new rental home requires no landscaping (Arizona) and we have no HOA.
It truly depends on the condition of the house.
They should know, they are already renting it.
Not to mention the fact - what if they developed a need to move to another part of the country? Suppose the husband gets an extremely lucrative job offer somewhere else? If they sell this house, they lose 5% in broker commission fees and another 3-4% in getting the house ready for sale. If they decide to rent it out, then they need to find a trustworthy property manager/tenants.
It's only a lucrative job if they can justify leaving the house behind and taking a loss on it. Otherwise, a job in their area would technically be more lucrative even if it paid less.
The possibility of moving is always there, and you always risk taking a loss on a home no matter when you decide to buy. As I said though, those costs would factor into any decision to move. Any decision to rent their property to tenants would also be theirs to make and would require even more calculations, spreadsheets, and discussions. I have some friends who have been successful and happy landlords.
