after the match...

[stargirl50]

Are you guys gonna start looking at houses in the cities you'll call home?

I really, really don't want to rent anymore but with the current, um, situation in the housing market I'm not sure what the smart thing to do would be. What are your plans?

 

[ozzie20]

can only speak of my personal preference, I don't want to be forced into selling a house 4 years later because I took a job somewhere else. Don't know what the market will be like 4 years from now, could be better, could be worse, so no buying for me.

 

[Pilot Doc]

I really, really don't want to rent anymore

Long debate rent vs. buy. Regardless, chances are you can afford to rent someplace much nicer than you did in college and med school.

 

[DO4lifer]

ive accumulated enough debt through medical school...don't need a mortgage on top of that.

renting is easy/flexible. dont like the neighborhood, you can move. residency over, you can move. less financial strain and less hassle. 👍

 

[nutmegs]

love owning, but bought 2 years ago. we did a smart thing by buying well within our means and a house that is (and will still be in 2 years) VERY attractive to young professional couples - in a city with plenty of residents and grad students.

 

[pillowhead]

Are you guys gonna start looking at houses in the cities you'll call home?

I really, really don't want to rent anymore but with the current, um, situation in the housing market I'm not sure what the smart thing to do would be. What are your plans?

what exactly you do you dislike about renting?

if it's living in crappy, noisy, overpriced apartments (which I did throughout med school), find a condo or duplex or even a house depending or where you live in a nice quiet neighborhood to rent. People are desperate to rent out their places right now because it's not like selling is a great option.

I love renting. I spend zero time on maintenance and my monthly payment is only slightly more than what I would spend on condo fees, home maintenance, homeowners insurance, and property taxes....NONE of which actually builds any equity. I have a super landlord who takes care of any problems immediately rather than me having to find maintenance guys or figure out how to do it on my own. I don't care THAT much when my dog pisses inside or if I leave a mark on the wall because ultimately, it's not my place. And I have the freedom to move every June without any commitment/penalty or at any time during the year with only a few months rent penalty. what's not to like?

i graduated in 2007 at the height of the housing boom and pretty much everyone i'm in residency with and everyone i graduated with from medical school bought property. everyone told me i was crazy to rent. now they almost all regret buying and i'm very happy with my setup (i think my landlord is too). don't rush to take on tons of financial responsibility and commitment when you don't have to.

 

[Pilot Doc]

home maintenance, homeowners insurance, and property taxes....NONE of which actually builds any equity.

Not to mention interest, which is the lions share of your mortgage payment, builds no equity and is often of limited tax benefit.

 

[pgg]

Not to mention interest, which is the lions share of your mortgage payment, builds no equity and is often of limited tax benefit.

Regarding interest, just thought I'd throw this out there - mortgage rates in the 4-5% range are extraordinary. Honestly, a 15-year mortgage at 4.5% (which it seems everybody is offering, provided you've got good credit and at least something to put down) is the sort of deal you should absolutely pounce on if you see a house you like in an area you'll be in for a while.

 

[huktonfonix]

Regarding interest, just thought I'd throw this out there - mortgage rates in the 4-5% range are extraordinary. Honestly, a 15-year mortgage at 4.5% (which it seems everybody is offering, provided you've got good credit and at least something to put down) is the sort of deal you should absolutely pounce on if you see a house you like in an area you'll be in for a while.

While the interest rates are great, I disagree that you absolutely must buy. A house is like any other type of investment. If the value goes down, you've just lost money. Buying will depend on your other investment options, the market youre looking to buy in, etc... In some situations it may be better to rent and invest your money elsewhere. Now, if youre sure that youre staying in the area and anticipate values increasing long term, it sounds like a great deal.

 

[Pilot Doc]

mortgage rates in the 4-5% range are extraordinary.

Home values falling faster and farther than anytime in living memory - with no end in sight is also extraordinary.

If for some reason, you HAVE to buy a house, this is arguably a good time. But it's certainly not an obvious time to jump in the market.

 

[SaintFrances]

​

"Be fearful when everyone is greedy and greedy when everyone is fearful." - Warren Buffet​

 

[Pilot Doc]

Generally good advice - and timing the bottom of a bear market is always hard - but I would at least wait until the bad news stops accelerating, which hasn't happened yet.

 

[stargirl50]

Thanks for all the responses guys-- I've enjoyed reading them. So much to think about.

 

[Southpaw]

If anyone should be buying right now, it should be us. We'll have a steady income once we start residency. We'll get the best rates out there. We'll likely live in areas of high turnover due to residents coming and going. And because of the market, everyone wants to sell badly so you can get some great deals if you look hard. I'm definitely looking to buy. Absolutely no doubt about it.

 

[Buckeye Anes]

While the interest rates are great, I disagree that you absolutely must buy. A house is like any other type of investment. If the value goes down, you've just lost money. Buying will depend on your other investment options, the market youre looking to buy in, etc... In some situations it may be better to rent and invest your money elsewhere. Now, if youre sure that youre staying in the area and anticipate values increasing long term, it sounds like a great deal.

I agree that obviously if you buy and the housing values decrease you lose money, however if you rent you are definitely losing money. I think now is a great time to buy as interest rates are rock bottom and most feel the market will turn around in the next couple years.

 

[huktonfonix]

I agree that obviously if you buy and the housing values decrease you lose money, however if you rent you are definitely losing money. I think now is a great time to buy as interest rates are rock bottom and most feel the market will turn around in the next couple years.

Explain how you are "losing money". Obviously not every example applies to every market and situation, but consider this. If you rent in the current market you can either a)get a better place for the same monthly, or b) the same quality of place for cheaper. When you buy you have closing costs, additional fees inspection, etc...depending on terms, property taxes, maintenance fees if condo, etc... Now if the current values drops, you have gone negative in equity or if the price is level or minimally increases then you still may take a loss when you sell due to the selling expenses. If you rent and have a better way of investing the money that you save ( i.e. something that will likely turn a profit rather than a loss), that may be a better option for some people rather than buying. Now tax benefits do come into play into play, but all these things need to be considered when deciding whether to buy or rent. Remember, a house is an investment and should be treated as all other investments.

 

[Pilot Doc]

I agree that obviously if you buy and the housing values decrease you lose money, however if you rent you are definitely losing money.

The money you spend owning a house over 4 years is almost all lost.

A $150K, 100% financed house at 30 years, 5% will give a $800/month payment for principal only. Easy $1000/month counting taxes and insurance. Nearly $50K over 4 years.

At the end of 10 years, you will have about $10K in equity. 6% realtor commission on a $150K house is $9K, leaving you at break even.

So at that point, your $50K is down the drain just the same as if you rented. There's no way you're going to make that up in appreciation and you might lose more money if prices drop further and don't recover fully in 4 years.

Rent, on the other hand, is a sure thing.

 

[pgg]

Home values falling faster and farther than anytime in living memory - with no end in sight is also extraordinary.

If for some reason, you HAVE to buy a house, this is arguably a good time. But it's certainly not an obvious time to jump in the market.

Have to disagree with the "living memory" bit. This downturn is extraordinary in that it's so widespread, but big local drops have always been happening. In just my own living memory 🙂 I remember my parents buying two houses as rentals/investments in the Phoenix area right at the last peak in the mid-late 1980s. That housing market tanked, and they were underwater on both of those mortgages for a long time, but they nearly always had renters, never struggled to make the payments, have enjoyed the tax benefits for over 20 years now, and now the houses are worth quite a bit more (even accounting for recent lost value).

I bought the house I currently live in 2.5 years ago when I started residency. I would probably have to take $20-30K to the table if I sold it now, but I have no intention of selling it. In 10 or 15 or 20 years, maybe ... but not now.

Real estate remains a good long term investment, for the simple reason that if you can have a renter pay all or most of your mortgage and owner costs, you're essentially paying very little month-to-month ... while enjoying tax benefits and the near-certain knowledge that over a period of decades the home's value will probably match inflation and you'll wind up with a valuable asset.

I wouldn't buy a house if your investment horizon was just a few years though. If you have money to invest (and anesthesiologists these days should, unless they're blowing it all on bling) the pits of a recession when everyone is gloomy have historically proven to be the best times to buy in.

 

[Southpaw]

The money you spend owning a house over 4 years is almost all lost.

A $150K, 100% financed house at 30 years, 5% will give a $800/month payment for principal only. Easy $1000/month counting taxes and insurance. Nearly $50K over 4 years.

At the end of 10 years, you will have about $10K in equity. 6% realtor commission on a $150K house is $9K, leaving you at break even.

So at that point, your $50K is down the drain just the same as if you rented. There's no way you're going to make that up in appreciation and you might lose more money if prices drop further and don't recover fully in 4 years.

Rent, on the other hand, is a sure thing.

You are correct in that buying a house is an investment, and with every investment there is risk. With rent, there's no risk. Just guaranteed loss.

Take that $1000/month and give it in rent. Four years later you just gave $48,000 to someone so they could make a profit. By renting you earn money for someone else.

With buying you build credit, you have a tax deduction, and you have a home. We will all have stable jobs, something most can't and won't be able to say for a while. If you don't like the idea of using a real estate agent, then sell your own home, or rent it out using a property management company. Or rent it out yourself. Inspections cost a couple hundred bucks. Closing fees stink. So buy a home where the closing is paid buy the seller, or shared by the seller. Certainly not a hard thing to find in this economy.

Even in areas where cost of living is high (with exception of NYC, Chicago, SF, Boston, etc.), every single resident has said the worse situation they've heard is that people are selling for that they've bought for. Meaning they've neither lost nor made. So what they did gain by buying is helping out their credit and getting a tax deduction.

Rent or buy, I certainly don't care. I know that I'll buy because this economy is perfect for it. Even if it weren't I'd probably still buy. I'm the buying type of person. I see no value in paying rent, flushing money down a drain every month, and earning profit for someone else.

That is, unless you're renting from me. Then it's a perfect situation for you.

 

[Pilot Doc]

Take that $1000/month and give it in rent. Four years later you just gave $48,000 to someone so they could make a profit. By renting you earn money for someone else.

By that logic, every trip to the grocery store is money down the drain. You should buy a farm and grow your own food - not make someone else rich buying their produce.

The value of money is that you can spend it - which necessarily involves someone else earning it. There's nothing wrong with that.

I could rebut the rest of your argument, but I've fought this battle every year for the better part of a decade and I grow weary. For those of you not blindly looking to make real estate agents and title companies rich, do a search of my old posts.

 

[Southpaw]

By that logic, every trip to the grocery store is money down the drain. You should buy a farm and grow your own food - not make someone else rich buying their produce.

The value of money is that you can spend it - which necessarily involves someone else earning it. There's nothing wrong with that.

I could rebut the rest of your argument, but I've fought this battle every year for the better part of a decade and I grow weary. For those of you not blindly looking to make real estate agents and title companies rich, do a search of my old posts.

A decade huh? So $1000/month for a decade, in rent. That's $120,000 you've given to someone else, allowing them to make profit off of you. Compare that to a $200,000 home you could've bought a decade ago, which would've appreciated with inflation at minimum. Put that $120,000 in to your investment, and it seems to me you'd be a lot better off.

 

[pgg]

The money you spend owning a house over 4 years is almost all lost.

A $150K, 100% financed house at 30 years, 5% will give a $800/month payment for principal only. Easy $1000/month counting taxes and insurance. Nearly $50K over 4 years.

At the end of 10 years, you will have about $10K in equity. 6% realtor commission on a $150K house is $9K, leaving you at break even.

So at that point, your $50K is down the drain just the same as if you rented. There's no way you're going to make that up in appreciation and you might lose more money if prices drop further and don't recover fully in 4 years.

Rent, on the other hand, is a sure thing.

Well, it's a sure loss. 🙂

Also, if you actually do the math instead of just making up numbers, 10 years of payments on a $150K 30-year loan @ 5% would give you a loan balance of $122K. You'd have $10K of equity in 4 years.

 

[Southpaw]

By that logic, every trip to the grocery store is money down the drain. You should buy a farm and grow your own food - not make someone else rich buying their produce.

Real estate can and should be used as an investment. Food is not. Atleast make an apples to apples comparison.

 

[Southpaw]

Well, it's a sure loss. 🙂

Also, if you actually do the math instead of just making up numbers, 10 years of payments on a $150K 30-year loan @ 5% would give you a loan balance of $122K. You'd have $10K of equity in 4 years.

Also, always pay a little extra every month on your mortgage. Paying even an extra $20 to $50 every month can take years off of your payments.

 

[Buckeye Anes]

You are correct in that buying a house is an investment, and with every investment there is risk. With rent, there's no risk. Just guaranteed loss.

Take that $1000/month and give it in rent. Four years later you just gave $48,000 to someone so they could make a profit. By renting you earn money for someone else.

With buying you build credit, you have a tax deduction, and you have a home. We will all have stable jobs, something most can't and won't be able to say for a while. If you don't like the idea of using a real estate agent, then sell your own home, or rent it out using a property management company. Or rent it out yourself. Inspections cost a couple hundred bucks. Closing fees stink. So buy a home where the closing is paid buy the seller, or shared by the seller. Certainly not a hard thing to find in this economy.

Even in areas where cost of living is high (with exception of NYC, Chicago, SF, Boston, etc.), every single resident has said the worse situation they've heard is that people are selling for that they've bought for. Meaning they've neither lost nor made. So what they did gain by buying is helping out their credit and getting a tax deduction.

Rent or buy, I certainly don't care. I know that I'll buy because this economy is perfect for it. Even if it weren't I'd probably still buy. I'm the buying type of person. I see no value in paying rent, flushing money down a drain every month, and earning profit for someone else.

That is, unless you're renting from me. Then it's a perfect situation for you.

My point exactly. Well put.

 

[pillowhead]

Also, always pay a little extra every month on your mortgage. Paying even an extra $20 to $50 every month can take years off of your payments.

it's not just purely a financial decision. as a resident, esp. as an intern, you will not want to use your four days off a month to mow the lawn, clean the gutters, etc. if you move to a new city for residency and end up hating the area, having a house with a mortgage will be like an albatross around your neck esp. if the economy doesn't pick up. if you need a new roof or your basement floods, how are you going to pay for that? how are you going to make time to meet up with contractors in the middle of the day to get the job done? try explaining that to your PD.

sure, lots of residents own a house or property and they do okay and are happy with that choice. i also know many people who wish they hadn't. it's not as black and white as you'd like to make it and the decision to buy or rent is also influenced hugely by the area you're living in and your current financial situation. if you already have 200,000 of med school debt, perhaps taking on another 200,000 for a mortgage for a 3 year anesthesia residency isn't a great idea. unless you are absolutely 100% certain that you are going to stay in the same place for longer than the duration of your residency (and most residents are not in the position to make that claim), buying a place is most definitely not clearly superior to renting. the costs of possible depreciation if the economy doesn't significantly improve, along with closing costs, reselling costs, mortgage interest, insurance, maintenance, and property taxes for three or four years can easily exceed the cost of renting a place for three or more years. for me personally, the FREEDOM of not being tied down to a place and not having to worry about any of the above is also worth quite a lot of money. so is the TIME I save by not having to worry about any of the above. During residency, you may find yourself more concerned with time and convenience than money.

 

[mstudent12345]

The answer is a personal one.

To me I would say if you are training in a place you plan to be long term and you have the cash then buying gives you stability and a long term investment.

If you plan to be somewhere for 4 years then buying is a major risk, especially in the current climate. 4 years from now you may or may not make money, but you will have to sell. If the market is still in a rut you might be stuck leaving you with either taking a major loss or having the equity for your next down payment all tied up. Either way you are screwed.

 

[Southpaw]

From a time and convenience factor, renting is much more convenient. No argument there.

I see no problem in buying in place where you'll live for 3 years. If you break even you've atleast least given yourself a tax deduction and helped your credit. Additionally, you own the home, rent it out for a few years, let the renter knock the principal down for you so you can sell at a profit.

But I agree with you, rent/buy is a personal decision. I rented in college and gave my money so that someone else could profit. I'll never do it again. If you're smart and savvy, there is still lots of money out there to be made in real estate.

 

[pgg]

4 years from now you may or may not make money, but you will have to sell.

Why will you have to sell?

In the absolute worst case, the pay raise you get going from resident to attending could cover the mortgage of that house (and then some) even if you couldn't find a renter and it sat empty. Not desirable, but not financial ruin or bankruptcy or foreclosure, either. Meanwhile, you can rent for a while at your new location.

A new attending anesthesiologist ought to be able to cover the mortgage for the small/modest home he bought for residency with what, a couple of shifts' worth of pay? Why sell? Keep it, rent it, profit in 20 years.

 

[Pilot Doc]

Well, it's a sure loss. 🙂

Also, if you actually do the math instead of just making up numbers, 10 years of payments on a $150K 30-year loan @ 5% would give you a loan balance of $122K. You'd have $10K of equity in 4 years.

Meant to put 4 years (= length of residency) for which I did do the math. Thanks for pointing out my typo in a respectful and professional manner.

 

[mstudent12345]

True the extra salary could cover the mortgage, but do you really want to try to find tenants and deal with repairs in a city you no longer live. And if you can't rent that mortgage payment is so much money you aren't saving or putting towards the new house.

In addition, the debt that you carry on that house will count against you when you apply for your new mortgage, not to mention the equity is not available for you as a down payment.

Overall if you move, figure you need to sell or have MAJOR downsides; in either case you will likely easily wipe out any gains as compared to renting.

Why will you have to sell?

In the absolute worst case, the pay raise you get going from resident to attending could cover the mortgage of that house (and then some) even if you couldn't find a renter and it sat empty. Not desirable, but not financial ruin or bankruptcy or foreclosure, either. Meanwhile, you can rent for a while at your new location.

A new attending anesthesiologist ought to be able to cover the mortgage for the small/modest home he bought for residency with what, a couple of shifts' worth of pay? Why sell? Keep it, rent it, profit in 20 years.

 

[Southpaw]

True the extra salary could cover the mortgage, but do you really want to try to find tenants and deal with repairs in a city you no longer live. And if you can't rent that mortgage payment is so much money you aren't saving or putting towards the new house.

property management company

In addition, the debt that you carry on that house will count against you when you apply for your new mortgage, not to mention the equity is not available for you as a down payment.

no money down doctor's loan

Overall if you move, figure you need to sell or have MAJOR downsides; in either case you will likely easily wipe out any gains as compared to renting.

Look, this is simply NOT true. Figure you'll pay AT MINIMUM (and very likely, much more) $1000/month for 4 years of residency. That's $48,000 gone, goodbye, see ya later, buh bye. No tax deduction, no help with your credit, nothing. Gone!

Now show me a resident who bought 4 years ago, who lives in an area of HIGH turnover with residents coming and going, WHO LOST $48,000!? It's NOT going to happen.

Look, I really don't care if people rent or buy. But the opinions on the rent side here (other than the one who wanted the convenience and no-hassle of renting) are really uninformed. Rent vs. Buy will very likely be the most costly decision you make during residency. Atleast make an informed one. Understand the renter's market, understand that you can buy with no downpayment as a doctor, realize you can buy houses where seller's will share or pay the closing costs (you CAN negotiate this), research using property management companies to rent your place if the market is bad when you want to sell, etc. etc. Really, this is a huge decision, just please make an informed one.

 

[huktonfonix]

property management company



no money down doctor's loan



Look, this is simply NOT true. Figure you'll pay AT MINIMUM (and very likely, much more) $1000/month for 4 years of residency. That's $48,000 gone, goodbye, see ya later, buh bye. No tax deduction, no help with your credit, nothing. Gone!

Now show me a resident who bought 4 years ago, who lives in an area of HIGH turnover with residents coming and going, WHO LOST $48,000!? It's NOT going to happen.

Look, I really don't care if people rent or buy. But the opinions on the rent side here (other than the one who wanted the convenience and no-hassle of renting) are really uninformed. Rent vs. Buy will very likely be the most costly decision you make during residency. Atleast make an informed one. Understand the renter's market, understand that you can buy with no downpayment as a doctor, realize you can buy houses where seller's will share or pay the closing costs (you CAN negotiate this), research using property management companies to rent your place if the market is bad when you want to sell, etc. etc. Really, this is a huge decision, just please make an informed one.

You're entitled to your opinion and it certainly holds true in CERTAIN AREAS OF THE COUNTRY. I just wouldnt want someone say in Los Angeles reading this post getting a rosy picture and making a decision that may not be right for them. It is very difficult to find a no down payment loan in a higher end market on a residents salary. In some higher end areas a condo will cost about 8-10 times your annual salary. Until fairly recently noone would offer you a no down mortgage at those numbers. Now while it is true that exceptions are made for physicians because of earning potential, who knows what you'll be doing in a few years. If you are fortunate enough to find a no down loan, good luck getting it at the current excellent interest rates. Its just not going to happen. It is possible to do seller financing, in which you may not require a down payment, but again most sellers wont offer you a rate less than they are paying.

And yes, you can negotiate the closing costs, but you cant count on this when you SELL the house and will likely have to pay the closing costs.

Again, Im not saying everyone should rent. Im saying they should take all facts including area, potential down payment, interest rates, possible maintenance fees, closing fees, tax benefits, before deciding. Again its an investment, and if you think you could use the money you save each month renting vs buying (assuming youre choosing an equivalent property) to invest in something with a higher return, why not do that?

 

[Pilot Doc]

You could easily lose $48K owning a house when all the costs are considered. Ownership involves a number of non-recoverable costs that rental does not. (I should know - I've owned two houses.)

Insurance
Property tax
Interest - the deductibility value is much overblown and can be essentially nil in some cases
Homeowner's Fees
Garbage/Water/Etc - often included in rent
Maintenance and Repairs - potentially substantial $5K+
"Improvements" - one of the best things about owning a house is that you can change it. Most people do - painting, new carpet, etc. It's a fun way to spend your money, but you get little or none of it back frequently
6% realtor fee - you will frequently not have the time to sell it yourself as a resident.

 

[pgg]

True the extra salary could cover the mortgage, but do you really want to try to find tenants and deal with repairs in a city you no longer live. And if you can't rent that mortgage payment is so much money you aren't saving or putting towards the new house.

In 6 months, I'm finishing residency and moving 3000 miles. I'm keeping the house I live in now to rent. A management company will take care of the details for about 10% off the top. The likelihood of the house sitting empty for any significant period of time (given the nature of the house and its location) is just about zero. Ultimately, after figuring in principal, interest, taxes, insurance we'll probably pay a few hundred/month that's not covered by the renter.

Let me ask you this - if you could buy a house today, pay just 1/10th of the mortgage each month, and after 15 or 30 years own it outright, why wouldn't you?

In addition, the debt that you carry on that house will count against you when you apply for your new mortgage, not to mention the equity is not available for you as a down payment.

I'll manage. 🙂 Of course, my post-residency move is to a place with a lower cost of living, not San Diego or NYC ... YMMV.

Overall if you move, figure you need to sell or have MAJOR downsides; in either case you will likely easily wipe out any gains as compared to renting.

Still looking for the all-caps MAJOR downsides, or even one that outweighs the advantage that is a bunch of renters buying me an asset that will be likely be worth many hundreds of thousands of dollars in 30 years.

Buying a home with a 3-5 year must-sell investment horizon carries a lot of risk. I agree with you there.

Buying a home with the intent to keep it for decades, even if you only live in it for a few years up front, is an entirely different scenario.

 

[huktonfonix]

In 6 months, I'm finishing residency and moving 3000 miles. I'm keeping the house I live in now to rent. A management company will take care of the details for about 10% off the top. The likelihood of the house sitting empty for any significant period of time (given the nature of the house and its location) is just about zero. Ultimately, after figuring in principal, interest, taxes, insurance we'll probably pay a few hundred/month that's not covered by the renter.

Let me ask you this - if you could buy a house today, pay just 1/10th of the mortgage each month, and after 15 or 30 years own it outright, why wouldn't you?


Still looking for the all-caps MAJOR downsides, or even one that outweighs the advantage that is a bunch of renters buying me an asset that will be likely be worth many hundreds of thousands of dollars in 30 years.

Buying a home with a 3-5 year must-sell investment horizon carries a lot of risk. I agree with you there.

Buying a home with the intent to keep it for decades, even if you only live in it for a few years up front, is an entirely different scenario.

If you are able to find a better investment for your money, than thats why I wouldnt neccesarily want to buy. As you mentioned it does heabily depend on the market you are in also. Also a point is that if you think of it as a "home" thats something comepletely different than a house. Some people want to have the feeling of owning their own house and being able to do whatever they want to do with it. However, traditionally you can find a good fund that increases by 8 percent or so a year (until recent years of course). I doubt the real estate market will show that over the long term.

 

[pgg]

If you are able to find a better investment for your money, than thats why I wouldnt neccesarily want to buy. As you mentioned it does heabily depend on the market you are in also. Also a point is that if you think of it as a "home" thats something comepletely different than a house. Some people want to have the feeling of owning their own house and being able to do whatever they want to do with it. However, traditionally you can find a good fund that increases by 8 percent or so a year (until recent years of course). I doubt the real estate market will show that over the long term.

The stock market is volatile lately, but historically times like this are a great time to be methodically investing every month to take advantage of dollar cost averaging. I do; everyone should if they can.

Historically, real estate values have tracked inflation over the long run. The goal of owning rental property isn't (well, shouldn't be) to make money through 8% appreciation. It's to make money because someone else is buying that asset for you over many years, and because that asset is extraordinarily unlikely to lose value over many years. It's hard to get a better ROI than when someone else is investing their money (rent) for you.

Another advantage with renting a house is that over time, you will increase the rent, but the mortgage payment stays constant. Even if you don't have positive cash flow in the first 5-10 years, you will later. Show me a mutual fund that pays you every month while continuing to increase your stake in said fund. 🙂

 

[Southpaw]

You could easily lose $48K owning a house when all the costs are considered. Ownership involves a number of non-recoverable costs that rental does not. (I should know - I've owned two houses.)

Insurance
Property tax
Interest - the deductibility value is much overblown and can be essentially nil in some cases
Homeowner's Fees
Garbage/Water/Etc - often included in rent
Maintenance and Repairs - potentially substantial $5K+
"Improvements" - one of the best things about owning a house is that you can change it. Most people do - painting, new carpet, etc. It's a fun way to spend your money, but you get little or none of it back frequently
6% realtor fee - you will frequently not have the time to sell it yourself as a resident.

Most of the items you listed are included in my current mortgage (not doctor's loan as I'm not yet a physician), and my mortgage is around $100 less than what my equivalent is being rented. I'm saving >$1000 per year by buying. If I sold right now I'd make a nice profit, even in this economy.

Realtor fees are nowhere close to 6% in my area, but I'll concede that they do vary dependent on location. And like huktonfonix said, buying in LA/SF/Boston/NYC/Chicago or any other extremely large market would be a huge challenge and likely unprofitable.

However, because of the nature of the current market, there is ample opportunity out there. Many sellers are offering to pay the costs of closing due to the difficulty with selling in this market. Prices are prime to pick up a great deal (A friend of mine just picked up a property for <150K, which was originally listed for ~190K). Regardless, if anything I just want people in our position to be knowledgeable on the issue and make an informed decision. Is buying for everyone? No. But I do believe buying is a great investment which 99% of America does, and does well, prior to making 200K per year as a physician.

 

[huktonfonix]

Most of the items you listed are included in my current mortgage (not doctor's loan as I'm not yet a physician), and my mortgage is around $100 less than what my equivalent is being rented. I'm saving >$1000 per year by buying. If I sold right now I'd make a nice profit, even in this economy.

Definitely not the norm in the places Ive lived in. Hell, I'd buy too if I got that kind of deal.

 

[Pilot Doc]

Let me ask you this - if you could buy a house today, pay just 1/10th of the mortgage each month, and after 15 or 30 years own it outright, why wouldn't you?

Because the marginal utility of that cash for a resident is much greater than a retired attending

Because it consumes your scarce time

Because it exposes you to large and unpredictable capital expenditures (furnace, etc.)

Because it ties up your capital in an illiquid asset when you have limited liquidity

Because it puts your seemingly deep pockets on the line as a landlord

Because although real estate investing is a great path to wealth, there is nothing magic about doing it as a resident. You can just as easily start as a junior attending.

 

[pillowhead]

Because the marginal utility of that cash for a resident is much greater than a retired attending

Because it consumes your scarce time

Because it exposes you to large and unpredictable capital expenditures (furnace, etc.)

Because it ties up your capital in an illiquid asset when you have limited liquidity

Because it puts your seemingly deep pockets on the line as a landlord

Because although real estate investing is a great path to wealth, there is nothing magic about doing it as a resident. You can just as easily start as a junior attending.

well summarized.

and if you are unable to find a renter for a few short months a year as one doesn't renew his lease, you are still liable for that mortgage. better be sure you're in a position to find steady, reliable renters for long periods of time. even a couple of months of a rental property sitting empty will put you in the red. it can be harder to find renters for houses rather than apartments given that more people who can actually afford a house will just outright buy one rather than rent one.

 

[RxBoy]

Renting is way better than buying... Trust me I have been following the market for too long.

Anyways if you really want to figure it out this is all you need:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

200,000 House vs. 1200 rent. Assumptions: 5% rate of return on investments, 2% rate of inflation, 5.5% mortgage rate, 0.5% maintenance cost, 0.5% Renovation cost, 5% Buying fee, 6% selling fee. All of these numbers are skewed towards buying.

Now lets say you are a resident for 4 years...

Buying with Home Price appreciation of 3% (Very Unlikely in the upcoming market):

Buying with Home Price appreciation of 1% (Much More Likely):

Do you really want to take the gamble? Even at 3% your better off renting.

 

[pgg]

Now lets say you are a resident for 4 years...

Congratulations, you've shown that buying real estate with an investment horizon of 4 years is stupid. 🙄 I believe that's been mentioned once or twice upthread.

Again, despite the fads and myths perpetuated by Discovery Channel TV shows during the bubble, the advantage to investing in real estate is gradually acquiring a valuable asset paid for by someone else over a period of decades. Not putting yourself in a situation where you absolutely must sell it in 4 years.

For examples of valid and significant drawbacks to buying instead of renting, see Pilot Doc's last post.

 

[DO4lifer]

Renting is way better than buying... Trust me I have been following the market for too long.

Anyways if you really want to figure it out this is all you need:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

200,000 House vs. 1200 rent. Assumptions: 5% rate of return on investments, 2% rate of inflation, 5.5% mortgage rate, 0.5% maintenance cost, 0.5% Renovation cost, 5% Buying fee, 6% selling fee. All of these numbers are skewed towards buying.

Now lets say you are a resident for 4 years...

Buying with Home Price appreciation of 3% (Very Unlikely in the upcoming market):

Buying with Home Price appreciation of 1% (Much More Likely):

Do you really want to take the gamble? Even at 3% your better off renting.

bravo. i'll PM you with all of my financial questions! haha 👍

 

[Southpaw]

I'm surprised someone who's been following the market so long would want to put their reputation behind something stating it takes 16 years to get into the green with real estate. That's analogous to me saying everyone makes 125k on homes after owning for 3 years b/c I saw a couple do it on HGTV last night.

Look, real estate is profitable. You simply need to understand the market. I believe most investments in life are profitable if you know what you're doing, and real estate is no different. My personal opinion is that there is no better time for physicians to start the process of home ownership than residency. But then again, physicians are renowned for being poor business people, so if you honestly believe it takes 16 years to get into the green, then by all means, rent away.

 

[RxBoy]

I'm surprised someone who's been following the market so long would want to put their reputation behind something stating it takes 16 years to get into the green with real estate. That's analogous to me saying everyone makes 125k on homes after owning for 3 years b/c I saw a couple do it on HGTV last night.

Look, real estate is profitable. You simply need to understand the market. I believe most investments in life are profitable if you know what you're doing, and real estate is no different. My personal opinion is that there is no better time for physicians to start the process of home ownership than residency. But then again, physicians are renowned for being poor business people, so if you honestly believe it takes 16 years to get into the green, then by all means, rent away.

That is precisely why the housing market is what is. People were taking out 0% down interest loans, flipping them, and reselling them inflating the real estate bubble. Suddenly home prices were double there true market value because anyone with a pulse could take out a 300k loan. Fast forward to today credit freeze, and now no one can get a loan. House quantities are building up and can't be sold. Result = Spiraling down prices of homes.

Someone did a regression analysis of housing value of the past 100 years here in the US and found that adjusted for inflation there is no House appreciation in value, just a succession of booms and busts. You make money when you buy at the lowest of the bust, and sell at the highest of the boom.

The best time to buy a house is when the bust overshoots (meaning the cost of the house is less then the cost in real market terms). When do you know this exists... When every average joe shmo Realtor in the US advises you NOT to buy a home, thats usually where the bottoming out exists. This is when people lost all confidence in the real estate market, and your time to pounce. It happened in early 80's and will happen again in 2 to 5 years. Unfortunately we're not there now, so like I said.. I would def. advise AGAINST any real estate investment. Its a gamble and the results are you might make a little to possibly losing A LOT. Why take the chance now fresh out of residency... wait for at least 2 years.

Ask all the suckers who invested in their 800k Cali homes 3 years ago how they feel.

Plus, rent for apartments/condo is on a huge downfall as well... and will probably even lower by July.

 

[lord_jeebus]

 

[RxBoy]

Congratulations, you've shown that buying real estate with an investment horizon of 4 years is stupid. 🙄 I believe that's been mentioned once or twice upthread.

Again, despite the fads and myths perpetuated by Discovery Channel TV shows during the bubble, the advantage to investing in real estate is gradually acquiring a valuable asset paid for by someone else over a period of decades. Not putting yourself in a situation where you absolutely must sell it in 4 years.

For examples of valid and significant drawbacks to buying instead of renting, see Pilot Doc's last post.

As for this response... You totally missed the point. If you had 200k in the bank right now and bought a home, yeah you probably will make money in 10 years but that is not what I was trying to prove. The problem is the LOAN. Market appreciation of home value has to exceed to the overburden of INTREST that you have to pay to borrow that money to begin with. On a 30 year loan, it takes 20 years until you start paying equal amounts of intrest + principle. That means the first 20 years your paying well over the majority of your payment into intrest. Home prices are still deflating, meaning we haven't even reached a bottom yet, let alone home appreciation. How will this offest the intrest you payed all those years? You'll dig yourself in a hole if you take out a loan and buy now, trust me.

 

[QofQuimica]

There have been a lot of good points pro and con in this thread, but I have been wondering about something. For those of you who plan to buy, where are you going to get money for the down payment? I assume you haven't been saving up ten or twenty grand while you've been in med school. (And if you were, please share your secret!) I think it might be possible to save up that much on a resident's salary after a year or two if you basically kept living like a med student and didn't have a family/tons of med school loans to pay back. But at that point, now you're down to three, maybe two years left in that location. Can one of the pro-buy people tell me what I'm missing here? Or are you just planning to try to buy the house with no money down?

 

[stargirl50]

My husband works, so we're not totally broke (like I would be if I were on my own) 😉 Started saving for a down payment a couple years ago.