Buy or Rent or Invest (While in School)

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ClockworkDoc

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Hi all,

I just got in to a med school in Omaha. Housing prices are pretty cheap (<$100k). I have ~28k cash on hand. Would you suggest that I use this money for tuition (benefits being less principle), invest in a condo or house (with a large down payment, mortgage would be cheap, maybe free with a roommate), or should I do something else (your suggestion).

Thanks for the help.

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I think this is one of the better rent vs. buy calculators on the web:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1

You will need to take into consideration your overall financial position including your retirement savings, taxable savings, emergency fund and outstanding educational/consumer debt.

Also there are intangible issues. For example, are you planning on staying in town after school in which case owning may make more sense than if you knew you were planning to move after you graduated. Are you dying to tear up a wall, redo your bathroom and paint your ceiling purple? You may derive some intangible benefits from owning your own place in place of renting.
 
How much debt do you have right now?

I would buy a house with a 5/25 mortgage but use some money to pay down the principle on high interest loans.

Or I would put it in the ETF FXI and collect 250% in a few years (this is not investment advice).
 
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$0 debt, I had time off from school to pay it off.
 
What's the appreciation in that area? I actually bought a home, albeit undervalued, for $82k. It was worth $95k, and after a total renovation (new kitchen, floors, tiles, bathroom) it's worth $115k. And I only put down $10k.

If you can find something good definitely buy it. For school debt, theres a period where you can pay down your balance before the interest that is accumulated actually compounds.
 
What's the appreciation in that area? I actually bought a home, albeit undervalued, for $82k. It was worth $95k, and after a total renovation (new kitchen, floors, tiles, bathroom) it's worth $115k. And I only put down $10k.

If you can find something good definitely buy it. For school debt, theres a period where you can pay down your balance before the interest that is accumulated actually compounds.

Not to dredge up an older thread, but I'm in a very similar situation. Why would it matter if you paid during this grace period? Wouldn't it make more sense to to not borrow the money in the first place, so you weren't accruing interest for years (regardless of when it compounds)?

On a similar note, are their lower risk investments that get more than 6.8%? Or should I just use most of my savings to reduce my initial principle and save a bit for rainy day/use during residency interviews?
 
Hi all,

I just got in to a med school in Omaha. Housing prices are pretty cheap (<$100k). I have ~28k cash on hand. Would you suggest that I use this money for tuition (benefits being less principle), invest in a condo or house (with a large down payment, mortgage would be cheap, maybe free with a roommate), or should I do something else (your suggestion).

Thanks for the help.


Put it on BLACK!
 
in your area it is worth buying instead of renting

but don't use all of your cash - try to get in with only 5-10% down and keep the rest of the cash in liquidity (MMF/CDs) -

don't pay for loans because the interest rates are so low
 
its all about paying down the high interest rate loans and and investing in a higher rate investment vehicle. That being said; do something that you enjoy. If you want to buy and fix a house thats great. A mutual fund is good too.
:luck::luck::luck:
Be sure to look at the trade off between paying off a $200,000 school loan at 4% VS Investing the money at 8% and paying off the minimum... Oh course you need to leverage your money as much as possible as far as taxes etc.

I heard of one guy who took a real estate course and then sold these people's house for $400,000 while they were on vacation... He kept the money, and then had a $400,000 crack party!!!! (Crazy Dave...) :smuggrin::smuggrin::smuggrin:
 
I heard of one guy who took a real estate course and then sold these people's house for $400,000 while they were on vacation... He kept the money, and then had a $400,000 crack party!!!! (Crazy Dave...) :smuggrin::smuggrin::smuggrin:

Yea, that's what I recommend too, or at least put it on red, that's way better than black everyone knows.
 
Well, it just depends on how long you plan to stay in Omaha and what the housing prices are doing there. I think now is a good time (or in a couple months) to buy a home @ a low interest rate, and at a good price. I'm pretty confident there will be no recession, and if there is one, it shouldn't last very long. As the old saying goes, buy low, sell high.

That being said, I'd put some money down, maybe 10%, and keep the rest in a high-yield savings account.

The only caveat is, make sure you plan on living in the home at least 3 years. That's usually what it takes to break even (or make money) on a home after all your costs (Realtor fees, etc).

Good luck!
 
Be sure to look at the trade off between paying off a $200,000 school loan at 4% VS Investing the money at 8% and paying off the minimum... Oh course you need to leverage your money as much as possible as far as taxes etc.

If only this $200,000 of 4% student loans existed these days. 6.8 is the best you will get besides the slim chance of getting some perkins loans.
 
Well, it just depends on how long you plan to stay in Omaha and what the housing prices are doing there. I think now is a good time (or in a couple months) to buy a home @ a low interest rate, and at a good price. I'm pretty confident there will be no recession, and if there is one, it shouldn't last very long. As the old saying goes, buy low, sell high.

That being said, I'd put some money down, maybe 10%, and keep the rest in a high-yield savings account.

The only caveat is, make sure you plan on living in the home at least 3 years. That's usually what it takes to break even (or make money) on a home after all your costs (Realtor fees, etc).

Good luck!


Well what do you guys think if you are planning to only stay in the home for 2 years? True you might not make money on the investment, but your expenses may still be less than the money you would have paid in rent. In addition you can probably get more space in a home than you would have in an apartment. Can you guys help me see what are the major risks with this strategy?
 
Well what do you guys think if you are planning to only stay in the home for 2 years? True you might not make money on the investment, but your expenses may still be less than the money you would have paid in rent. In addition you can probably get more space in a home than you would have in an apartment. Can you guys help me see what are the major risks with this strategy?

Sounds like a bad plan to me, use one of the Rent vs. Buy calculators and you will probably find that at 2 years you will lose money (unless the market is hot...which it isn't in most places right now).

If you take out 100000 at 6% (no down payment), in 4 yeares you will have only put 6k into the house, the other 25K+ will be in interest, plus whatever you pay in taxes, upkeep, insurance and don't forget the 7% or so that you will lose off the top if you go through an agent to sell the house.

Being conservative you break even between 3-5 years in the home when comparing to renting. You would get more space...but there is a trade off.
 
I bought in Omaha when I started medical school and am now a 4th year. I can say that the Omaha housing market, while cheap, is not that great. I will be in my house 5 years when I sell it this spring (I took a year off to do research between 2nd and 3rd years). Houses in my neighborhood are up about 12% over the ASKING price over the 5 years, but they do not seem to be selling fast and I don't know how that compares to the SELLING price. If my house sells when I match and move, I hope to make a few thousand dollars ($2000-10000) after commissions and fees. In the end I won't really make any money on the house. I'm just lucky I didn't have any major expenses (furnace, roof, etc.) over the past few years. The Omaha housing market did not go through the boom of the past few years, however the "bust" is milder, it seems.

That said, assuming I can sell my house and can cover the realtor commission, I made the right choice for me, since I am married with children and my wife has a job--I like the space, yard, privacy, etc. However it would have been cheaper (by thousands of dollars) to just rent--even renting a house. Just as housing prices are very cheap, so are rents. I don't think I'd advise buying if you are single, and maybe not if your married, depending on your situation. I don't know much about the condo market in Omaha, but I don't know anyone who lives in a condo. With cheap housing prices, my guess is that the condo market is very soft.

PM me if you have questions or if you want to buy my house after the match. It's a nice house!
 
mutterkuchen-well stated, thanks.

yeah...if the housing market has cheap houses...it means the houses didn't go up in value much when all the other housing markets went up...which also means you can't expect much increase in value of your home over the time that you own it either...that is about the same as the market I am looking at. On the bright side though...you can afford a decent house a less cost and have some space as you mentioned.

I think we are going to buy even though we just hope to break even in the end after 4 years. I am married and have two little boys who need the space to run around and....be boys.
 
Personally I asked myself the following questions:

Do I want to deal with the stress of a house?
Will I be there for 4 years?
How would I deal with renters to help offset the mortgage price?
How will the housing be when I decide to sell?

In the end I decided it wasn't worth it. Doing two years of rotations I will be all over the place. How could I ever manage a house with all the other stuff I have to do? I couldn't.

It would probably make sense financially. But not on my stress level and overall the financial benefit probably would not be worth being a landlord from hundreds of miles away after doing a 12 hour day during rotations. Not something I'd want to deal with.
 
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