Better to rent or buy?

[ALMD2B]

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I was wondering with the < 50K salaries we will be making come this July, does anyone have any experience with house and/or condo buying and/or renting???

I am assuming that I will be putting $0 down and mainly be paying student loans and other miscellaneous expenses.

Any info would be appreciated.

A.

 

[Blade28]

Aren't some of your student loans deferable until after residency, though?

 

[tangents]

student loans can be put off during residency, it is based on salary, and location.

Buying is always a great option if things are affordable, talk to other people that you know who own (not only MDs) and they can give you the scoop, or go to a local bank in the area you want to buy, and ask to consult with someone there. Banks are very pro-MD in terms of giving good deals etc. Look around. Mortgage brokers are another good option, they shop around for you and get the best deal available.

Always better to put money into your own investment rather than someone else's pocket.

 

[DrDawg]

I've heard that Bank of America offers good rates to residents.

 

[funkless]

There's no single answer. Need more details. PM me if you want. I'll give whatever insights I've gathered going through the process myself.

--Funkless

 

[toft32]

Being a home-owner for 3.5 years after renting for a few, I can only suggest buying. Unless, of course, you're in an area (Chicago, S.F., etc...) that prohibits first-time home buyers from even considering purchase (unless you have a money tree).

Like an earlier post, why pay someone else for rent, when you can pay yourself and generate some great equity? Trust me, it'll be key for purchasing your next home. Real estate over the past many years has been a really good investment. Think about purchasing a townhome or something if you don't feel you'll have the time or don't like to do exterior home maintenance.

The sooner you get into the market, the cheaper it'll be and the more equity you'll earn.

Good luck!

 

[DrQuinn]

Agree with all of the above.

Defer your loans, apply for economic hardship, and buy real estate! You will be glad you did. I bought a condo at the start of my residency and the value has gone up $100k.

Q

 

[swinger]

Would you all recommend buying even if I don't stay in the same city after residency?

I'm from NYC, but most likely will be out of state for at least 3 yrs. Haven't decided yet if I'll specialize or do PC. I guess if I specialize it will be 6 yrs at min. But even if I stay for only 3 yrs, do you think it's worth buying? Will I lose money if I sell after 3 yrs?

I can probably qualify for economic hardiship deferment. My debt will be aroudn 200K.

Thanks!

 

[Celiac Plexus]

Would you all recommend buying even if I don't stay in the same city after residency?

I'm from NYC, but most likely will be out of state for at least 3 yrs. Haven't decided yet if I'll specialize or do PC. I guess if I specialize it will be 6 yrs at min. But even if I stay for only 3 yrs, do you think it's worth buying? Will I lose money if I sell after 3 yrs?

I can probably qualify for economic hardiship deferment. My debt will be aroudn 200K.

Thanks!

If you're only going to be someplace for 3 years, then renting is decent option. If you are going to be someplace 5+ years then buying is a better option. Exceptions abound but this is a nice guideline. In the 1.5 years since I bought my place, it has appreciated about 40K but I think that this is the exception. Most places will not have this type of appreciation, and costs from buying and selling will not be offset by a mere 3 years of appreciation.

Most banks bend over backwards to give MDs loans. I bought a place and got a 3.25% loan.

Deferring your student loans is easy. I used Sallie Mae and did the whole thing online in about 20 minutes. Getting forebearance is even easier, but talk to your med school financial aid office for more/better information.

good luck.

 

[doc05]

Would you all recommend buying even if I don't stay in the same city after residency?

I'm from NYC, but most likely will be out of state for at least 3 yrs. Haven't decided yet if I'll specialize or do PC. I guess if I specialize it will be 6 yrs at min. But even if I stay for only 3 yrs, do you think it's worth buying? Will I lose money if I sell after 3 yrs?

I can probably qualify for economic hardiship deferment. My debt will be aroudn 200K.

Thanks!

I think it also depends on where you'll be doing residency. Obviously, certain areas have less potential to appreciate in the next 3 years. Even good areas like NYC have experienced slight drops in value over the short term.

If you move again after 3 years, you might be able to sell at a profit, or at least break even (which is still better than renting, plus you should take into account the tax benefits) -- or you might be able to use your place as income property while you wait out the market before you sell.

Keep in mind that buying property, esp. in a new area, can take a long time, so you should start looking now so that you can make your move right after match day.

 

[jvarga]

Be careful when buying a house during residency! Although it has the potential to turn into a good investment, it has been known to frequently cause major problems. Take into account that there are many uncertain variables that need to fall into place in order to make it a good investment.

First, there is the obvious variable of current property value. Say you purchase today for $100,000. There is no way to know if the property will increase, decrease, or retain its value in the near future. Who's to say the property won't be valued at $75,000 (or $200,000 if your lucky) in a couple of years? This is determined by numerous variables that could easily occur in a short period of time (i.e. state of the market, natural disasters, termites, neighbors, location, etc), very few of which you could possibly foresee.

Second, you would have to overcome the taxes and realtor fee for each transaction (when you buy and then when you sell) in order to make a profit. Going back to the $100,000 home, let's say 15% (on average) went to taxes and realtor fee (that's $15,000) at the time of purchase. After residency is over in 3-5 years, you will have to pay this fee again if you sell the house. Assuming that the house retained its value, you would have to pay another $15,000 at the time of sale (this is highly dependent on your local regulations and your individual agreement with the purchaser). That means that you are now $30,000 in the hole, even though the property did not lose its value. Add to this the yearly taxes you have to pay on the property and the required insurance, and this number will easily rise significantly to over $40,000 over a 3 year period. If you rented an apartment for $500 over 3 years, you would have payed a grand total of $18,000. Compare that to the >$40,000 that you would have payed by purchasing. That means you would have actually payed half the money by renting!!! Remember, we haven't even touched home repairs, maintenance, etc, that you wouldn't have to worry about if you had rented.

Third, the most "variable" of the variables. Remember that when you relocate, you will have to sell the house. This means you will have to find a willing buyer and most buyers will actually purchase for less than the current property value (this is highly dependent on the state of the market and the desirability of your property). Nothing is more stressing than having to move to another city/state when your property has not been sold.

Even though it may sound like I discourage purchasing, I don't. I purschased a property when I was in med school (yes, I was lucky to have financial support from family to make this possible) and continue to live there today. This move has saved me a good amount of money. I am, though, one of the exceptions, not the rule. This is why I always preach caution when considering a purchase during residency. If you plan to stay in the same city after residency is done, then it may very well be a smart choice. However, if you plan to stay for a short period of time 3-4 years, you may be better off renting. I would recommend you consult a local financial advisor prior to making this decision, since they will be more informed about your local variables.

 

[Celiac Plexus]

Second, you would have to overcome the taxes and realtor fee for each transaction (when you buy and then when you sell) in order to make a profit. Going back to the $100,000 home, let's say 15% (on average) went to taxes and realtor fee (that's $15,000) at the time of purchase. After residency is over in 3-5 years, you will have to pay this fee again if you sell the house. Assuming that the house retained its value, you would have to pay another $15,000 at the time of sale (this is highly dependent on your local regulations and your individual agreement with the purchaser). That means that you are now $30,000 in the hole, even though the property did not lose its value. Add to this the yearly taxes you have to pay on the property and the required insurance, and this number will easily rise significantly to over $40,000 over a 3 year period. If you rented an apartment for $500 over 3 years, you would have payed a grand total of $18,000. Compare that to the >$40,000 that you would have payed by purchasing. That means you would have actually payed half the money by renting!!! Remember, we haven't even touched home repairs, maintenance, etc, that you wouldn't have to worry about if you had rented.

When I bought my place, I paid zero dollars. Nothing down thanks to a nice MD loan from the bank. The seller paid the closing costs too. Even if I had paid the closing costs, it would only have been about 2,000 dollars. I used a buyer's agent, not a real estate agent, and the fee for this service was about 500 dollars which I was able to capitalize into my loan. The buyer's agent was instrumental in getting the seller to pay closing costs, so the 500 dollar fee was well worth it. My total up-front cost for buying a new apartment: zero dollars... just my signature on some papers.

As far as taxes go... When I add the mortgage payment, plus property taxes, plus my "condo association fee" the final amount is almost exactly what I would pay for rent. If I was renting, not only would I lose the opportunity to build equity, but I would lose a valuable tax deduction since almost all of my mortgage payment is interest at this point.

As far as repairs, the association takes care of everything. If I have a problem, I just call them up and it gets taken care of.

I don't think that I am an "exception" either. If you expend some energy in the househunting process, you can get a great deal for yourself. Talk to banks about MD loans, consider a buyer's agent, and consider buying a condominium if possible since these are potentially low/no maintenance propositions.

good luck.

 

[NinerNiner999]

Look carefully at property value trends before you buy, as mentioned previously. Some areas will always appreciate in value. Don't worry about a three-year limitation. RENT your home after you leave residency, make a profit, and declare it as a leverage asset when you buy a real home after residency - it will get you even better mortgage rates and bolster your income (not to mention continue to appreciate in value as a second mortage property). My advice - buy it and hold on to it for as long as you can if you do it in a good location. Returns on real estate near large cities can be higher than any investment after 20 years or so...

 

[swinger]

Thanks everyone for your suggestions. You all are making me want to buy!

Celia Plexus, would you mind telling me how much you pay on your condo per month? Any other fees?

My parents won't be able to help out at all. I'm wondering if I'll be able to make the monthly payments.

 

[toft32]

One of the best things you can do, if you only plan on staying in the area for 3 - 5 years is do a 3 or 5 year ARM loan. This will get you a significantly lower payment. We did this through medical school and have been able to save a ton, while building great equity in our home. We're actually paying about $100 less/month than if we were renting.

Also, yes, most banks are very nice to medical personnel, so loans with zero down are likely. Realtor fees are not typically paid by the buyer, so don't worry too much about that. Real estate taxes and mortgage interest are writeoffs! What a huge tax benefit.

So again - I encourage to buy! Probably a townhome or condo in your case. You'll enjoy home ownership and the great benefits that go with it.

 

[Pilot Doc]

This is one of my pet peeves.
<soapbox>

I owned a house during med school - I made great $ on it. I have rented all throughout residency; ownership is a bad idea for most residents. I see lots of med students rushing to buy as soon as they match. It's often misguided and based on myth. Some misconceptions:

1) INVESTMENT POTENTIAL. As metioned above, houses sometimes appreciate, sometimes they don't. Over the short term (i.e. a residency) appreciation is the ONLY way you build significant equity. Almost all of your mortgage payments go to interest in the early years, very little pays off principal. The details will vary with your loan but at the end of five years, if the house does not appreciate, a 6% (typical) real estate commission will take all your equity.

2) TAX BREAKS: Everbody can deduct 1 of 2 things from their taxes: itemized or standard deductions. All you need for a standard deduction is a heartbeat - everybody gets it, and it's substantial - several thousand dollars depending on your family. If you itemize (which you must to deduct interest) you lose the standard deduction and start from zero. Example: Jim Renter and John Homeowner. Jim gave $100 to charity last year, he could itemize and deduct $100 or take the standard deduction for $5000. He takes teh $5k. John paid $6000 in mortgage interest, plus $100 to charity. He itemizes and deducts $6100. That $6000 in interest netted him a $1100 deduction worth about $300 in his pocket. (Oh, and for the first year, when he was only employed six months, he didn't even get that because 6 months of interest from graduation to December of intern year didn't exceed the std deduction.)

3) MAINTENANCE. WHo will be home to let the plumber in? Who's mowing the grass? Do you have $5,000 or $10,000 to spend when your air conditioning breaks / roof leaks/ basement floods, etc. Celiac plexus makes good points about the wisdom of purchasing a condo that handles most maintenance. Still, condo building occasionally have to levy major assessments for unplanned expenses.

4)"THROWING MONEY AWAY" A house eats money: insurance, taxes, maintenance, major repairs, interest on the loan (see#2), realtor fees upon sale, etc. You are in the hole from the moment you get the deed and dependent on appreciation to dig you out.

5) CHEAPER THAN RENTING. Rent covers many things that a mortgage payment does not. (See #4) It's an apples and oranges comparison.


So why buy a house? Because it's someplace you want to live and it makes you or your family happy. That's a great reason. But don't think that buying is a slam dunk financial advantage over renting. There is the real possibility to be really burned buying a house.

</soapbox>

 

[funkless]

Some misconceptions:

1) INVESTMENT POTENTIAL. As metioned above, houses sometimes appreciate, sometimes they don't. if the house does not appreciate, a 6% (typical) real estate commission will take all your equity.

3) MAINTENANCE. WHo will be home to let the plumber in? Who's mowing the grass? Do you have $5,000 or $10,000 to spend when your air conditioning breaks / roof leaks/ basement floods, etc.

4)"THROWING MONEY AWAY" A house eats money: insurance, taxes, maintenance, major repairs, interest on the loan (see#2), realtor fees upon sale, etc.

5) CHEAPER THAN RENTING. Rent covers many things that a mortgage payment does not. (See #4) It's an apples and oranges comparison.

PREACH IT

Owning a house can be a wonderful thing. It can also be quite the albatross.

--Funkless

 

[GeneGoddess]

I'm going to second that! I bought a condo in '99 and LOVE being a homeowner. HOWEVER, I'm also a handyma'am type and enjoy fixing things around the house. And let me tell you, disasters have happened: a valve behind the shower broke (ugh...leaks!), the washer/dryer, built-in-microwave, and dishwasher busted, rats ate away some a/c lining insualtion (condensation created ANOTHER leak), replacing various plumbing fixtures that break/wear out, appliance maintainence (I'm going to need a new fridge, annual a/c maint, stove element doesn't work), and various upkeep that you don't DO in an apt (paint, new carpet, a/c filters, weatherstripping). Seriously, it is EXPENSIVE to own a home.

AND, not every home goes up in value! My condo was built in the early 80's and sold for $80-100K. Then the economy tanked and they dropped to $20K (really). Over the next TEN YEARS, they slowly climbed to the low $30's. The upswing started, and I bought for $40K in '99. Last year, they were selling for $90-100K, but now they are about $80-90 (STILL below the original selling price, not even counting inflation...or how much property taxes, insurance, and maint fees cost over those 20 years). Even if someone bought new and sold last year, they STILL would have taken a loss...even after TWENTY YEARS!

Don't buy a home JUST because you think you will make money. No investment is guaranteed.

 

[beriberi]

Home ownership is risky and can be a burden, but don't believe everything you read on SDN--especially what jvarga writes.

If the buyer and the seller paid 15K everytime a house changed hands (on a 100k house), than real estate would be even harder to get into than Derm. Typically, the transaction cost of the house is around 7-8%--usually 6% (to the r.e. agents) paid by the seller and 1-3% paid by either the seller or buyer (closing costs).

If buying really cost 4-5x as much as renting, then how could anyone own a rental? ON AVERAGE, the cost of mortgage, insurance, maintainence is less for a house than an equivalent rental. That is how people become rich by owning a lot of rental properties. Certainly, there are cases which this is not true, BUT THE OVERWHELMING MAJORITY of the time, buyers make money, renters lose money.

 

[jvarga]

I couldn't agree more...you shouldn't believe all that you read on SDN (yes, beriberi that includes your own wise advice). As I clearly stated in my post, all that I mentioned is an example and the numbers are subject to change based on your local regulations and individual purchase agreement. My point, though, has been widely reiterated by other posters, so I will leave that as is. However, the one point you should take out of all of this is to meet with a financial advisor that could examine your individual case and offer the most appropriate and expert recommendations.

 

[Pilot Doc]

THE OVERWHELMING MAJORITY of the time, buyers make money, renters lose money.

Your point is valid. (Although I think you overstate it.) My point is that renting is an expense that is regular and predictable. Ownership is unpredictable. It requires substantial liquidity to absorb outlays that will only, if ever, be recouped upon sale of the house.

Consider the best and worse case scenarios to buying a house:

Best: you make 50% on the sale of your house at the end of residency. Say it gives you an extra $50-75K. So what - you're an attending now. You're not hurting for money anymore

Worst: Your house needs $10K of repairs your intern year. You have to scrounge for the money and your life is miserable trying to manage contractors on your post call days.

Though ownership, on average, is superior to renting, its potential for harm far exceeds its potential for good.

 

[avgjoe]

okay, so I'm in SF .. hoping to stay .. looking at 500k even for a 2 bed/2 bath condo. 🙁 You guys are mentioning that you give the realtor 15% when you buy/sell. What if me or my partner get our real estate licence? Can we just do all the paperwork when we sell our future home 5 yrs down the line and not have to pay the 15%?
Also, if we can afford to pay part of the down payment, should we do that or take advantage of the md 0% down benefit and just go with that? How much interest difference would there be?

 

[endodoc]

How can a New resident to the US get a home loan? I am perm. resident pending; if that helps.

 

[beriberi]

Nobody pays 15%. Ever. Especially not both the buyer AND the seller.

Many people can buy a house for virtually no initial out of pocket expense (no down payment, no up front closing costs.)

 

[yaah]

Realtors don't get money from buyers. They get money from the seller. The seller gives them the commission. When I bought my condo I didn't give the realtor anything in the way of compensation. Perhaps this is different in some situations - you may be able to hire a realtor for specific purposes and pay them, I don't know.

Mortgages work based on the buyer paying 20% down to avoid penalties, but you can supplement the original mortgage with home equity loans and additional mortgages so that you don't have to pay the penalties.

 

[djones]

Suntrust Bank offers an excellent 100% Doctor Loan program with no PMI required. The bank will lend up to $359,650 to Residents in AL, GA, FL, MD, NC, SC, TN, VA, DC. A 6 month, 1 year, 3 year, 5 year, 7 year and 10 year ARM is available. The minimum credit score is 720 and deferred student loan payments are not counted if they are deferred for at least 12 months. Questions:770-205-2119

 

[jvarga]

In order to make it clear for beriberi who has been having a hard time understanding this concept, I am one of the people who payed the 15%. However, if you read my original post, this figure includes realtor fee (7%) and taxes (8%). To those who can't add, 8+7=15%. Usually these expenses are handed to the seller, but, again, this depends on your individual purchase agreement. Whether you are aware of it or not, this is a practice that occurs, albeit not that frequently. This was an agreement that was reached during the negotiations and resulted in a better deal overall for my particular case.
Regardless of the specifics of any case, my recommendation remains the same..seek thee a financial advisor!

 

[Dr. Banker]

It is simple: 9 out of 10 times you are better off buying a home.
Go to www.mortgagesforphysicians.com and click tools. There is a rent vs buy calculator. Run the numbers for yourself. Here is one example:

Am I better off renting or owning?

Monthly rent $750
Monthly renter's insurance $ 15
Yearly rent increase 2%
Purchase price $150,000
Appreciation rate 2%
Your savings rate 2%
Your state + federal tax rate 32.50%
Years before sell/pay off loan 3 years
Loan amount $150,000
Term (years) 30
Interest rate 5%
Origination fee 1%
Upfront costs $200
Yearly property tax $1250
Yearly maintenance $700
Yearly property insurance $420
Selling costs (% of selling price) 6%

Regarding ownership for the 3 years
Total tax savings $9,262
Total maintenance $2,100
Selling price $164,107
Equity $21,092
Selling costs $9,846
Owning will save you $7,460 compared to renting over the 3 years, in today's dollars.
Ask yourself this: Would I rather rent an dump of an apartment for 3 years or live in a $150,000 home and save money?

If you have any questions about mortgages or the numbers just e-mail me.
By the way: Bank of America beats Suntrusts rates all day long on the Physicians zero down program.

 

[GeneGoddess]

That assumes that the selling price goes UP and the maintainence is low. I spend at LEAST $1000/yr on my tiny condo on just upkeep. And don't forget that a house will have a yard and exterior that a condo association pays for.

 

[djones]

It is simple: 9 out of 10 times you are better off buying a home.
Go to www.mortgagesforphysicians.com and click tools. There is a rent vs buy calculator. Run the numbers for yourself. Here is one example:

Am I better off renting or owning?

Monthly rent $750
Monthly renter's insurance $ 15
Yearly rent increase 2%
Purchase price $150,000
Appreciation rate 2%
Your savings rate 2%
Your state + federal tax rate 32.50%
Years before sell/pay off loan 3 years
Loan amount $150,000
Term (years) 30
Interest rate 5%
Origination fee 1%
Upfront costs $200
Yearly property tax $1250
Yearly maintenance $700
Yearly property insurance $420
Selling costs (% of selling price) 6%

Regarding ownership for the 3 years
Total tax savings $9,262
Total maintenance $2,100
Selling price $164,107
Equity $21,092
Selling costs $9,846
Owning will save you $7,460 compared to renting over the 3 years, in today's dollars.
Ask yourself this: Would I rather rent an dump of an apartment for 3 years or live in a $150,000 home and save money?

If you have any questions about mortgages or the numbers just e-mail me.
By the way: Bank of America beats Suntrusts rates all day long on the Physicians zero down program.

Actually, not true regarding Bank of America rates vs. Suntrust. I'd invite yu to compare. And, Suntrust offers 3 year Arms and less whereas BOA does not. Good Luck getting your loan closed on time at BOA.

 

[cytoborg]

Go to www.mortgagesforphysicians.com and click tools. There is a rent vs buy calculator. Run the numbers for yourself.

Thanks for the link, but I don't see a rent vs. buy calculator...do you mean the monthly payment calculator?

 

[skypilot]

A friend of mine just had a nervous breakdown when he realized that after taxes, condo fees, utilities and maintenance he wouldn't have any money left over for fun.

Renting is less of a hassle. Put any leftover cash into a retirement fund and try to enjoy your life during residency. Houses will still be affordable to doctors when you finish. 🙂

 

[Pilot Doc]

It is simple: 9 out of 10 times you are better off buying a home.

True. You'll also win Russian Roulette 5 times out of 6. The question here is not whether you are better off on average, but whether you can handle the consequences of a bad outcome.

Monthly rent $750
Monthly renter's insurance $ 15
Yearly rent increase 2%

OK - that totals about $27,500 over 3 years - very predictable expense.

Purchase price $150,000
Appreciation rate 2%
Your state + federal tax rate 32.50%
Years before sell/pay off loan 3 years
Loan amount $150,000, 30 years@ 5%
Yearly maintenance $700

Wow. A lot of assumptions up there
1) Appreciation - no predicting that, especially over three years
2) Maintenance $700/year. That would mean over 20 years, maintenance on that house would be $14,000. Think you can reroof a house, repaint multiple times, replace the heat and AC, replace all major appliances, and do minor upkeep for $14,000?
3) 32% combined tax rate? Your maximum federal rate will be 25%, and you'll might be paying 15%.

Regarding ownership for the 3 years
Total tax savings $9,262

At the quoted federal tax rate of 32.5% that saving requires deducting 9500/year. ($9500*3*0.325). However, the standard deduction for a married couple in $9700. Say you have $2500 in other itemized deductions - your total deductions will only exceed the otherwise available standard deduction by $2300. ($9500+$2500-$9700). Total tax savings = $2250 = $2300*3*.035. That's a down payment on a new roof!

Ask yourself this: Would I rather rent an dump of an apartment for 3 years or live in a $150,000 home and save money?

There's one of the few worthwhile points in this post. (except for the saving money part). Buy a house because you like living there!

If you have any questions about mortgages or the numbers just e-mail me.
By the way: Bank of America beats Suntrusts rates all day long on the Physicians zero down program.

Hmmm. sounds like someone trying to sell you a loan.

 

[sean wilson]

🙂

 

[avgjoe]

in which parts of the country are house values skyrocketing? in the bay area some places have seen almost 50% growth in 3-4 years.. good for the residents who bought at that time i guess! but now everyone's wondering whether it'll keep growing or if it's on it's way down (or going to stay the same).