Housing for 4 years: To Rent or Buy?

This forum made possible through the generous support of SDN members, donors, and sponsors. Thank you.

daveyjwin

Senior Member
15+ Year Member
Joined
Jun 9, 2005
Messages
301
Reaction score
7
I recently matched into am Emergency Medicine Residency at Henry Ford Hospital in Wyandotte, MI, and getting paid approx $47K/yr. It's cool, I'm excited and down with it, it's 4 years (with yearly raises of ~$2-3K/yr), and it starts in early June. I'm from Michigan, so I'm kind of familiar with the area, but it's like 90 minutes from all my family and whatnot, and I'm currently going to school in Florida, which is kinda far away.

Anyway, so I'm looking at places to live in the area, and I've come to a crossroads of sorts. There are lots of options in where to live in the area of the hospital, but the ones that interest me most are the ones close to downtown, so I can walk to the hospital and downtown area with ease. The question I've come here to ask, as you can probably guess by the title, is whether I should be looking to Rent or to Buy.

Now, a little background on my sources of information and input. As may be well known or not, the real estate market in Michigan sucks. However, my mother is a long time real estate agent/mogul or sorts who made a fair amount of money ($200K+/yr) in the early 2000s, but has since left the business due to lack of, well, business. My older brother is a successful lawyer who got royally screwed to the tune of foreclosure and $80K, by the housing/mortgage ****up of recently. They are my primary sources of information on this conundrum, so I thought I'd come here for more input/info.

Let me preface this by saying that I don't really understand any of the financial stuff as I have been neck deep in Medical stuff for the past 4 years, and I've never had to deal with it before. So, anyways, here's the brief version of what I understand: If I rent a place, and spend approx $800/month on an apartment/rental/flat/whatever, that equates to ~$40K over 4 years, which, while hassle free (i.e. apartment living), is essentially just giving my money to someone else. However, I was looking at Condo's in the area, and there are some in the $100K-120K range which would equate to ~700/month +fees = $1000/mo, and I could purchase them. In fact, they are generally nicer, and in better location than the apartments I was looking at (i.e. more walkable, downtowny). As I understand it, if I put $48K over 4 years into an $100K apartment, , even if were to take a loss on the condo (say sell it for $80K), it would still be as if I had only spend $20K on rent, and come out $20K ahead of if I had rented. And that's only if the market goes down. If the market goes up, and I can sell for $120K or more (keep in mind these are riverfront condos in a downtown area), I make the difference back in cash.

So, to me, it seems buying a condo seems to be the better idea. However, my brother is vehemently against it, due to his getting ****ed over so badly.

So anyway, here's what my brother says:
I really, really don't think daveyjwin should be *buying* anything. what are the concrete benefits of buying and then selling in 4 years versus just renting for 4 years? if he's lucky he'll be able to sell something in four years for what he bought it for today. if he's not super lucky, then he gets stuck with a huge pain in the ass. it's not like he'll be able to accumulate any significant equity in four years; the only way he comes out on top here is if the property value goes up in four years, and I don't think anyone's predicting that (it's not like he's going to be wanting to put a bunch of money and effort into big renovation projects or anything). Renting is flexible, cheaper, easier and there's zero risk of being stuck with declining property values, sewer assessments, street assessments, maintenance costs, property taxes, insurances and on and on. there also not really throwing around $0 down home loans like they used to. I don't see the point of owning a house for four years just for sake of owning it.
to which my real estate mother replied:
Here is the scoop….

I’ve done the numbers considering the income tax advantages for someone with zero write-offs with Daveyjwin. With the tax schedule buying with a total monthly payment of $1200 equates out to a rent payment of $852 per month. With an income of $47,000 per year and basically no deductions he is better off bottom line financially to purchase. Even if there is little to no appreciation whatsoever in four years, he is still ahead. Renting he would have a higher tax liability, no deductions and be throwing $10,200 per year or $40,800 over four years out the window.

I’m recommending a condo purchase, no maintenance and hopefully little to no improvements besides cosmetics. We are looking specifically in town and near the hospital so if he didn’t want to sell it in four years, he could keep it as an investment property and lease it. He could depreciate it and write off the expense.

I will have Darlene pull everything in threes building we have identified. Daveyjwin wants me get the lock boxes and you and I can go and look for him. He will have to get a mortgage pre-approval based on his employment contract, hopefully with zero to little down. He plans on coming home end of March to look and will hopefully have his pre-approval. If he closed by end of April, his first payment would be in June and he would also qualify for the 1st Time Homebuyers Credit of $8,000 as well.

There is a method to my madness ….

So, at this point, I'm very confused as to what to do. One family member is in support of it, one against, and they both seem to make good points. So please, tell me, what should I do?

Members don't see this ad.
 
Let me preface this by saying that I don't really understand any of the financial stuff as I have been neck deep in Medical stuff for the past 4 years, and I've never had to deal with it before.

I stopped reading here but will make an effort to reply to the other parts of the post as well. Let me say this in no uncertain terms, I applaud your admission. Most people think they know more than they do. EM isn't exactly a lightweight specialty and you'll be plenty busy learning more medical stuff in the upcoming 4 years.

You MUST understand the "financial stuff" before you contemplate a house purchase.

In following paragraphs you invoke the usual "renting is throwing money away" mantra by stating "essentially just giving my money to someone else". When you buy you give money to your town in the form of property taxes, to the utility companies, to the HOA, to the contractor you need to hire to fix problems you can't fix yourself, to the contractor you need to hire to replace the items you were assured were going to last at least 4 years when you bought the place (furnace, roof, windows, pipes, etc.). And unless your time is free, you're certainly giving up a part of yourself for home ownership.

I think your mother should put her money where her mouth is and draw up a legal contract where she will MONETARILY guarantee that you will be assured of "no maintenance and hopefully little to no improvements besides cosmetics". Also she should be 100% responsible for vetting, renting out and maintaining the subsequent rental property as the property manager were it to become such as you "could keep it as an investment property and lease it". Also during vacant months, or in the event the property rents for less than the monthly maintenance she will cover all additional expenses for the property.

Since you're coming in with zero down and she's counting on the $8,000 to cover closing costs and the 3.5% down payment you'll need for an FHA loan she should come up with any differences you may need. Also, make sure she can cover the 6% sales costs if you decide to sell the place in 4 years, just in case appreciation in downtown Detroit doesn't cover the transaction costs at that time.

In the event this all works out and you earn a considerable amount of money from the sale of the property you can then return any surplus to her, or if she agrees, use it for your next purchase.

Spend the next 4 years, learn some EM and use the free time to educate yourself about the financial realities of owning a home.
 
I think there is something wrong here.

Purchase price should not be more than 20 years of rent. But 20 year figure applies to the area like roaring economies and area like coasts.

I live in area where prices as a whole has only fallen 10% and economy is still ok than many parts of the country. When I bought my place its monthly fees (including taxes and association fees) was less than rent (same place) and I paid 12 years worth of rent. I bought it when prices were only going up.

Now you will be living in Detroit. Prices there are like 15 or 20 years low. I hear many stories in paper that in many Detroit areas houses are selling below 1950 price. Without knowing any thing I would think you should be paying less than 10 years rent if you want to buy one. You are saying rent is $700 so purchase price should be like $84K.

In this price range you will have only very minimal tax deduction benefit as prices is low so tax + interest payment will not save you much beyond standard deduction.

I really don't know why sane people who can complete medical school are droolling over $8000 credit. You will loose almost 10% or more in purchase and sell costs which will be $10000 for your $100K condo. Some costs are fixed like inspector cost, loan origination fees, appraisal etc so lower the price higher the effect in terms of percentage.

After completing your residency you may not want to live in that $100K condo. Time is more valuable than potential/hypothetical profit of few thousands which by the way you can easily make by doing some moon lighting.

If I am not wrong in Detroit unemployment is like 25% and it not going to improve much as cars are dying industry and all new car manufacturing is south. I will only agree with some who want to buy is even they are paying cash and price is a deal.

If you really want to live in laxuary condo vs apartment complex, you may want to talk to that condo owner if they are willing to rent to you. or you can sign rent to own agreement where you will rent Ist for agreed upon time and then you will buy. I think (think as never done it myself) purchase part is kind of vague where you will be see at the end of your lease if you are still interested in buying.
 
Another point to consider - possible upside vs. possible downside.

The apt is pretty straightforward. About the only risk is losing your lease and having to move. The finances are totally predictable.

As for the house/condo, there are lots of potential downsides: maintenance problems, condo assessments, time spent away from work/sleep.

What's the upside balance? Let's say the market takes back off and you make 10% on your condo. You've generated 7K in equity which basically pays the real estate agent and you're left with $10K in profit. $10,000 sounds great ... guess what - you're an attending now, though. How much does $10K when you're staring a 6 figure job balance the headaches and potential downside all throught residency.
 
As I understand it, if I put $48K over 4 years into an $100K apartment, , even if were to take a loss on the condo (say sell it for $80K), it would still be as if I had only spend $20K on rent, and come out $20K ahead of if I had rented.

Your math is wrong.

Rent cash flow is:
Rent: $800 * 48 months = $38,400
Total: $38,400 out of pocket

Own cash flow is
PITI + fees: $1000 * 48 months = $48,000
Proceeds from sale = -$80,000
Payoff Loan = $93,000 (Assuming 6.5%, 30 yrs, 0% down)
Real Estate 6% = $5000
Total: $66,000 out of pocket.

So in this case owning will cost you almost $30K MORE than renting. There will be some tax benefit from the mortgage deduction (harder to estimate) but even so you're still looking at $20K + down the drain. Unless your condo appreciates (which seems exceptionally unlikely in Detroit), renting will be cheaper.
 
Being able to deduct mortgage interest isn't really going to help that much since it might not even be more than your standard deduction at the price you are looking at. Speaking as a person who bought a place in med school and another now in residency, you don't buy a place short term for financial reasons. If you find a place you have to have, and you can't rent something equally nice then go for it knowing that you have a high chance of losing money. I got lucky on my first place (a condo that has increased in value, and is in a desirable location for renters, so has remained occupied by paying tenants for almost the entire time we have been gone), but even then I had to get a new AC unit, repair some damage from leaks (took a ton of time, or could have cost me thousands of dollars), and by the time you add in property taxes and ever rising association fees I put out more than I could have rented a place for (thankfully it is about the same that places are renting for, so the losses I declare on my taxes aren't that big). I may not get lucky on the place I have now, but because I am married and selected a less expensive place, we are prepared to own it even if it stays empty as long as we earn at least the same we are earning now (if I become disabled it gets a little harder, and if we both can't work we are screwed unless our other place is profitably rented or sells for a good price, but the chances of that are low). It is worth it to me even if we lose some money because I like to do home improvement things whenever I want, I really wanted pets that need a yard, and I like not having to worry about paying for damages that might occur (because it isn't like I have to fix every baseboard my dog gnaws on if I don't want to).

There are some sites that will do a rent versus own calculator so you can see the numbers more accurately and decide accordingly. Google it and see.
 

That was awesome...thanks. I discovered that (using the default rates and amounts), buying at the lowest end of the market in our neighborhood vs. our current rent pays off for us in year 31. If our rent were to magically double, it still wouldn't pay off until 5 years after I finish my training. No deal! Obviously I have no idea how realistic the calculations are but it's certainly illustrative even as just a thought experiment.
 
You had me at "Buying a condo in Detroit".

Uhhhh, no.

Rent.
 
That was awesome...thanks. I discovered that (using the default rates and amounts), buying at the lowest end of the market in our neighborhood vs. our current rent pays off for us in year 31. If our rent were to magically double, it still wouldn't pay off until 5 years after I finish my training. No deal! Obviously I have no idea how realistic the calculations are but it's certainly illustrative even as just a thought experiment.

My wife and I are pondering this exact decision as I'm starting med school this fall. I left most of the values as default, but edited any that I thought would be different for me. (Lowered the house value, upped the down payment percent, changed appreciation values and investment interest rates, etc.).

For my wife and I, it supposedly would take 18 years to make home buying financially worth it!
 
maybe i placed in some crazy data... like currently having no return on investments since we have no investments besides our savings... and that my current rent is several hundred over what the payment will be... but it is only 2 to 5 years til buying pays off... i know my current rent is crazy high but jeez... i was doubting buying some but now buoya.
 
As I understand it, if I put $48K over 4 years into an $100K apartment, , even if were to take a loss on the condo (say sell it for $80K), it would still be as if I had only spend $20K on rent, and come out $20K ahead of if I had rented.

PilotDoc is correct, your math is wrong.

If you sell for a $20K loss, that INCREASES your overall cost, so instead of decreasing $48K ro $20K it increases it to $68K. (PilotDoc's math is more accurate)

To be fair, buying vs renting is more than a financial decision. Renting in not guaranteed -- your landlord might decline to renew your lease and you'd have to move. Also, as mentioned in this thread, there is no guarantee that you can sell your house right when you want to. Your residency will finish June 30th in 4 years, and you might be "stuck" with your house for a few months afterwards while you try to sell it -- and if you have to rent something somewhere else the costs could be huge.

The thought that "rent is throwing money away" grew out of the boom years. I owned a condo for 3 years for my residency, and watched it appreciate by $40,000 -- "free money" for me. Those days are long gone.
 
It's analagous to saying that buying food is throwing money away and that everyone should own a farm.

Home ownership in USA is supported very strong lobby (builders, realtors, local city government, and politicians etc). Why you should own a house and always a very good answer is because interest is tax deductible. Even socialist countries don't have tax deduction for the interest part.

Now a day most real estate brokers came with new idea that you should own a house because you have live somewhere which will lead to increase in rent. WRONG, with every recession rent decline. It was true in 2000-02 recession when home prices were actually going up despite recession.

With condos in many cases condo fees plus real estate taxes are about the same as rent.
 
always a very good answer is because interest is tax deductible.

That rationale can make a lot of sense for attendings. It rarely makes much sense for residents.

Your first tax year of employment, you only have 6 months of income and 6 months of mortgage payment. You are very unlikely to exceed the standard deduction.

Subsequent years you might, let's take a married couple with one child earning $50K and spending $1K/month on interest/prop tax, $2500/yr on other taxes and no other deductions.

Standard deduction for a married couple is $11,400. Your total deductions will be $14,500, so that $12K in mortgage interest reduces your taxable income by $3000. Taxes on that, at 15%, are $450. You spent $12000 to get $450 back on your taxes, thats about 4 cents on the dollar. Makes no sense at all.

Your last year of residency will improve somewhat - you'll have half a year of attending salary - state income taxes alone will likely put you over the standard deduction and you'll be at a 25% marginal rate. In that case the $6K of mortgage interest will net you $1500 back.

So over a 4 year residency, the tax saving of a house will amount to $3000. ($0 + 500 + 500 + 500 + 1500)

Not a reason to buy a house.
 
Pilotdoc: You misunderstood my point. I was trying to emphasize advertisement by the people who are in home sale business. I was implying tax deduction is considered to be the biggest factor than any other financial measure.

It is true in first 10 years of 30 year mortgage, your interest will be higher than in last 10 years and you may not even deduct interest in those last 10 years as it will be so small. Don't forget AMT which can mismatch your itemized deduction calculation.
 
Last edited:
from my previous calculations, owning a home/condo would make sense if you would stay put in one area for minimum 6 years, 4 years is too little time to see any benefits over renting, also you have to include closing closts when buying/selling...
currently just as it is a buyers market, it is a renter market, landlords are desperate, try to get them to sign a 2-3 year lease at dirt cheap rates, detroit rent should not cost 800, you must be out of your mind, try to find a huge house for less then 500 and negotiate,... and 2-3 year lease would guarantee you not being kicked out as aPD referred
 
The current dogma is stay in your house for 5 years or lose money (from what the real estate agents told me). It used to be 4 years, but things aren't what they used to be. Don't forget that selling your house/condo will net you less than you think. Closing costs, agent fees, etc are probably going to be paid by the seller (ie, you!), unless some miraculous housing turnaround occurs.

-X
 

Good lord, that was depressing. Evidently NYC rents make it profitable after 7 years to own-- assuming maximum taxes. Wow.

I would also caution you to think about RESALE VALUE. Think long and hard about what the typical buyer in your area wants-- i.e. in Detroit I'd wager most people dream of large single family homes with yards and trees, so a New York-style glass tower unit on the 30th floor won't move quite as quickly as a similarly priced mini-manse.
 
So far, I'm kinda leaning towards renting for a year, then keeping an eye out for good condos while I'm actually up there, and can look at them, instead of having to rely on relatives to decide for me. It'll also give me a year to get my **** together financially, and get the possibility of a down payment of $5K or more together. In all honesty I wouldn't even be worrying about potentially buying if it weren't for the fact that the Condo's are located so perfectly (3-5 blocks from both the hospital and downtown), and the apartments/rentals are all less than ideal (5-30 minute drive).

I appreciate all the sage advice, so keep it coming if anyone has anything else to add.
 
So far, I'm kinda leaning towards renting for a year, then keeping an eye out for good condos while I'm actually up there, and can look at them, instead of having to rely on relatives to decide for me. It'll also give me a year to get my **** together financially, and get the possibility of a down payment of $5K or more together. In all honesty I wouldn't even be worrying about potentially buying if it weren't for the fact that the Condo's are located so perfectly (3-5 blocks from both the hospital and downtown), and the apartments/rentals are all less than ideal (5-30 minute drive).

I think this is a very wise choice. Renting in the area will give you a boots on the ground view of what it's really like to live in a certain area. What may be acceptable to a relative could be a complete deal breaker for a relative and vice versa.

Since you mention location, which I think really is the absolute crucial deciding factor, keep your ear to the ground about people renting out their condo. There should be someone out there that's bought, moved and is looking to rent their place out, etc.
 
In all honesty I wouldn't even be worrying about potentially buying if it weren't for the fact that the Condo's are located so perfectly (3-5 blocks from both the hospital and downtown), and the apartments/rentals are all less than ideal (5-30 minute drive).

THAT is a perfect reason to buy. You want something you can't rent.

But, as mentioned above, I bet you could find a "for sale" condo that would take rental. Call every one and make an offer. Someone will take you up on it.
 
Now, a little background on my sources of information and input. As may be well known or not, the real estate market in Michigan sucks. However, my mother is a long time real estate agent/mogul or sorts who made a fair amount of money ($200K+/yr) in the early 2000s, but has since left the business due to lack of, well, business.

So, at this point, I'm very confused as to what to do. One family member is in support of it, one against, and they both seem to make good points. So please, tell me, what should I do?

It is none of my business but you may want to ask your mother if she needs your help as you pointed out she left business due lack of business.


I like the idea which others have suggested. If you really like the location then I would ask these property owner if they willing to rent you. Rental lease can be very flexible esp. in this economy.

For example you can sign 1 year lease where you are committed to 1 year plus 1- 3 extra years as optional where you can move if you want to but owner has to commit to you. I think in this economy people will really like someone like you, stable job for 4 years (unless you do something stupid and get fired or hospital go bust, both rare but do happen) plus long term commitment. You may even get break on the rent too. I have heard in situation like this owner might be willing to rent you his/her condo for 1 year but for 11 months rent. This is Detroit and I don't know situation on the ground but from the press it does not seem very rosy outlook there.

By the way in general what I heard you don't want to live near downtown in Detroit. Why do you like there apart from distance?
 
The pessimism is very salient around here. It really defeats the purpose of getting a place if you're already looking at it as a losing proposition. As such, a lot of the caution is based on either poor personal experience (probably fomented by lack of financial experience) or perhaps the mentality that as a doctor your salary alone is somehow going to be sufficient to make you wealthy. The only objective advice here was the link to that calculator, but I think that while it is accurate, it is still controlled by the user and it can be completely misused. What's the point of using a calculator if you already think that buying is worthless unless you stay there for 6 or more years? Remember, garbage in, garbage out. And using the default values, as some here seemed to do, just doesn't make any sense if you're trying to base your decision of buying vs renting on the output...

I won't spend a lot of time on this, but here are a few quick points:


  • The average mortgage rate is 5%, not 5.5% as used by the calculator
  • The appreciation of 3.5% of your home is not really an appreciation. Why? Because it is almost the same as inflation and therefore assumes that your home does not appreciate in value. Last year the inflation was higher than 3.5%. Additionally, there are talks of possible superinflation. This could easily bump that percentage close to 10% combine with real appreciation. This is an important number and knowing it for your local market is important.
  • 6% sale commission? I don't think so. Are you really disabled so that you can't sell your home? That's the main reason why you'd pay someone $12K or more to do it for you, especially in this market.
  • The calculator also has a default of 5.5% investment return. Well, how many of you here who are relying .on a single website to buy a home actually invest, let alone get a consistent 5.5% return? I doubt that most do this. And if the only thing you do is pay someone to do this for you, make sure you subtract that from your hypothetical earnings too. Not to mention that most financial adviser who take on the little-guy-investor are usually pretty bad and can't get the sort of returns that the wealthy get from more expensive advisers.

As you can see, you are already pretty much defeated by the time you even get to the calculator. I'll just conclude this that those who really want to make money, will. You'll do whatever it takes, like renting out one or more of your rooms and letting it pay your mortgage, finding highly devalued neighborhoods where rent to mortgage ratio is especially low and commuting that extra 10 minutes, etc, etc. I completely agree that if you are going to buy just any place without extensive research and with the hope that you'll simply make money on the equity, then no, you shouldn't buy. Not only that, but if you are really far removed from finances, I would caution you about buying a place even if the calculator tells you to do it, because as you can see, the calculator is really you and if you're misinformed, so is the calculator. Just because you know E=d(m)c^2 doesn't mean you can calculate actual values if you don't have some a priori knowledge already.
 
Last edited:
I think Pilotdoc and blonddoc are right.
There's no absolute rule/correct info on the internet, or anywhere else, that will tell you whether to rent or buy.

However, I think that buying in Detroit right now if you are only staying 3-4 years would be risky, financially speaking. Also, you'll have to deal with crap like maintenance which will be a pain in the a-- as a resident. You'll just be so tired and have little free time - you won't want to deal with it. ER resident hours aren't as bad as surgery or many IM programs, but for sure in the first year or so you'll probably be working a lot, even many 30 hour shifts, depending on your program (I'm assuming you have to rotate on trauma surg, IM, etc.). That will be a major pain if something breaks in your house or condo...who is going to let in the repair guy,call him/her up to get an estimate, etc. Also, trying to sell after 3-4 years could be a big pain if the economy is still bad in Michigan. I went through a lot of the mental gymnastics you're going through right now (last year, when I moved out West for fellowship) and still decided not to buy even though the real estate market is down here. You know, it's still down (1+ years later) so if I HAD bought, wouldn't be getting much appreciation right now.

I think the main reason to buy as a resident or fellow is if you are going to be in the same area for quite a while (I'm thinking like 5-10 years, maybe closer to ten). For 3-4 years, probably aren't going to get enough equity to make buying worthwhile. Certainly I think not enough to make the hassle of being an owner worthwhile...if you have a spouse with flexible work hours, or who doesn't work, that might be less of an issue.

I think for a single person, it would be better to rent an apartment or condo. I agree w/the above posters, too. I can certainly understand wanting to live downtown, close to work, and I actually agree with your plan...suburbs are not fun if you are single, and neither is a long commute to work as an intern or lower level resident. It decreases your sleep time!
Just find someone who is willing to rent out his/her condo...they'll be glad to have you there I'm sure.
 
Top