Buy or rent?

[dudeliness]

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So just curious to know what people are planning in doing for living arrangements. Obviously there are pros and cons either way you go, but I'd like to discuss.

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[wholeheartedly]

ah my favorite topic...... so I own a house now, not as a med student... and it's been, well.... an interesting adventure. This will be a long post.

There are several things to consider here. Your market, length of time you'll have to live there, i.e. are you planning on staying in the city for residency and going into a specialty where it's not incredibly different to match there and even then you can't bank on being able to stay so will you want/be able to rent the place out when you leave, are you single or going to share homeowner responsibilities with someone?

Do you have enough money to put down a decent down payment, set up a household, and have an emergency fund left over (I'd say at least 10k) to cover those unexpected repairs etc that creep up. Things like buying hoses, window treatments, lawn mower, etc adds up pretty quick.

Will you want to invest time in having a house or is a condo/townhouse type setting where stuff like snow removal and lawn care aren't things you have to worry about a better option for you.


I've owned my house for 4 years. I had an inspection before buying and no major issues were found aside from needing more insulation in the attic and the previous owners had installed a couple outlets and reversed polarity in them. After moving in I discovered that the previous owners neglected to mention they had a pretty bad rodent problem, so getting rid of that was my first adventure (and I'm not afraid of a little mouse here and there).

The next adventure was returning home from vacation to find one of the downstairs bedrooms was partially flooded. The bottom of the window was ground level and during an unusually heavy rainstorm water came through the framing area. I live at the top of a hill and have a sump pump and the place is pretty low risk from natural water issues, but there's a big tree out there and the ground slopes towards the house a bit there so it came together just right. That's not covered by insurance. So 3,300 out of pocket for repair and prevention (re-grading/landscaping) measures.

The next adventure was the following summer when I hooked a hose up to the north side of the house and suffered my second flooding issue. The pipe to the faucet had burst at some point, best they could figure was that the previous owner had left a hose hooked up during the winter after it froze, because pipes down typically burst like that in the middle of the summer and I'd never used it before. That was covered by insurance.

However, while the wall was down we discovered some cracking and bowing in the foundation. No immediate risk of collapse or anything, but something that would need to be disclosed when I sell and since the walls were down I decided to address that problem as well.

Then this January I came home from vacation to a pipe spraying water to the ceiling. That one had corroded through, when water ran through it, it banged some and rubbed against a pipe right next to it and wore through eventually. Did I mention my house was built in 1984?

None of these things were things that could have been predicted by an inspection, but all took time, supervision of contractors and repair people while balancing school and work schedule, etc.

So I might (probably) just have really bad luck, but it is something to consider. Even one of my coworkers with a new construction has had major issues. His was with the foundation being put in poorly and the slab shifting so much his garage door fell off I guess. Another coworker who just bought a house had their dryer break down 3 weeks in and then had a gas leak last week in a nice, newer place.

That said, I'd still consider owning in medical school, but it's going to depend on the mix of where I get in, what rental options are available for my dog, pricing, etc.

tl dr : owning a house can have unpredictable issues, and can be a real pain.

 

[Chip N Sawbones]

Where are you planning on going to med school? In places like Florida that were hit hard by foreclosures, rents are extremely high compared to the cost of buying a house. In the right area if you have enough for a down payment, you can probably cover the cost of the mortgage by renting rooms to your fellow med students. This is especially true if you have the patience to wade through the process of getting loans to buy a foreclosure, or the cash for a quick purchase. Real estate prices have pretty much stabilized, so its unlikely that you will lose money from your house depreciating. However, as Wholeheartedly said, there will be lots and lots of unexpected costs. As this is going to be your first house, it's likely that it will be older and cheaper, and will therefore have more things wrong than a newbuild will. Renting has the advantages of a fixed cost and the flexibility to move without trying to sell a house, which will always take longer than you'd like.

My situation is that I bought a foreclosed house in bad shape last summer. I spent six months redoing practically everything inside and out, and it's for sale now. Once it sells I'll have made a really nice profit. However, the last inspection turned up some fairly serious problems with the foundation, so that's going to knock about 10,000 off my net profit. I'm planning on buying another foreclosed house when I get to New Orleans for medical school, since I'll have the cash for a quick purchase. This next one won't be in such bad shape, and I'll rent out rooms if I can. Buying a house will mean I'll have to borrow a lot more on student loans, but I can pay back a big chunk of them when I finish medical school and sell the house.

 

[dudeliness]

Well first of all thank you, chip n sawbones and wholeheartedly, for your input. It's something the wife and I have been thinking a lot about and it's really good to hear outside perspectives even though, in the end, it's a decision that we'll have to make, and live with, ourselves.
We'll be starting school out in Oregon at western university. Homes are pretty inexpensive, but rent seems a tad high. There are 4 bed 3 bath homes (anywhere from 2000-3000sqft) within a mile of school and they're going for $150-$175k. If we want to rent a 3 bed place it's going to cost at least $1000 a month. I think the difficult thing would be to have enough time to get places inspected and find the house that we like and that checks out in the "possible repairs" area too. It just hurts to think of paying $1000+ per month into something and have nothing to show for it in the end.
Then again, since we are a family with a 3 yr old, we won't really be able to rent out extra rooms until we move. Plus when we move we'll have to decide if we want to sell, try to rent it out, or just keep it. I'm going into the military so we are probably not going to be in a position to buy another house after school for a number of years what with residency and active duty dictating where we live.
Even with knowing about the extra hidden expenses that can come up, and the possible complications of being saddled with the house after we move, it still seems like a good idea. Then again, we don't have a lot of money so everything will have to be financed and we still have yet to see if we can swing that with the bank. Lol

 

[wholeheartedly]

Yeah, it's pretty tough to stomach a pretty big discrepancy between rental and mortgage payments. The nearby big city here has a lot of short sales and foreclosures and just people desperate to sell, some of the homes are listed in rental listings for 1300-1400/month but the mortgage with 10% down would be like 800-900.

When doing the number crunching, keep in mind that unless you have special circumstances, like some military programs I think, you'll have to pay PMI or primary mortgage insurance if you don't put at least 20% down so that's another good chunk of change. Homeowner's insurance isn't cheap either.

Expenses aside, for most homebuyer's the vast majority of your mortgage payments the first few years are going toward PMI and interest, not principle.

 

[Chip N Sawbones]

Lebanon wouldn't be such a bad place to buy a house, what with the new hospital being built and Western possibly expanding the school. A lot of the houses there were older though, which means potential issues with lead paint, inadequate wiring and poor insulation. You are correct in that finding the right house in good condition for the right price is a real chore. Any house you do buy will end up being a compromise in some way.

On the other hand, you can't look on renting as paying money and getting nothing to show for it in the end. You need a place to live, and that is worth spending money on, just like you need food. I'd guess that if you crunch the numbers buying will be somewhat better from a purely financial standpoint, but it's up to you to decide if the benefits of owning are worth the hassles.

 

[mspeedwagon]

In your shoes, I'd buy. Lebanon has quite a bit going for it and the houses are cheap. While, I don't know where I'll end up, the odds of me being able to buy in the place I'd most like to end (NYC) is probably not a reality, if I do end up anywhere other than NY or CA, I'll likely buy. I figure it's a good way to invest $200k long-term, especially if you can get multiple bedrooms and rent one out.

 

[kimposibl]

Lebanon wouldn't be such a bad place to buy a house, what with the new hospital being built and Western possibly expanding the school. A lot of the houses there were older though, which means potential issues with lead paint, inadequate wiring and poor insulation. You are correct in that finding the right house in good condition for the right price is a real chore. Any house you do buy will end up being a compromise in some way.

On the other hand, you can't look on renting as paying money and getting nothing to show for it in the end. You need a place to live, and that is worth spending money on, just like you need food. I'd guess that if you crunch the numbers buying will be somewhat better from a purely financial standpoint, but it's up to you to decide if the benefits of owning are worth the hassles.

👍👍👍

It's always better to buy than to lease, as a home is an investment (same thing w a car. WHY DO PPL LEASE CARS?) As a med student, I don't think you should buy unless you want to start a family, in which case, that's more money you'd have to save up. You don't want to have to pay for child care and child supplies while paying a mortgage then having to pay your med school loans but its been done so don't mind my pessimism.

You'll find that once you buy a house, its a never ending expenditure, as wholeheartedly explained. You'll want to redecorate this or fix that or replace this. The nice thing about a lease is that the landlord can take care of all that broken stuff for you. Otherwise, you'd have to replace things yourself, which costs $$$$. And you won't have to worry about repainting that wall because you can't do it. If you buy a genuinely nice, fixed up place, which will undoubtedly be expensive, I would recommend getting a roommate for the first couple years to help you pay down your mortgage. Then save up that rent money and put it into a fund for kids or whatnot. And that's my 2 cents.

Happy home-finding!

 

[Chip N Sawbones]

👍👍👍

It's always better to buy than to lease, as a home is an investment (same thing w a car. WHY DO PPL LEASE CARS?)

I know a lot of people who bought houses just before the real estate market fell on its face who would disagree. There are definitely some risks to buying a house as an investment. I don't think the OP will have to worry about property values in Lebanon declining, but between closing costs, property tax, home improvements and insurance, buying a house can be an expensive investment, and potentially a losing one. In the OP's case I'd guess that buying will be better than renting from a purely financial standpoint, but I'd definitely want to crunch all the numbers before doing either one.

Leasing cars makes sense if you want to always be driving a new car. After driving a leased car for two years or so, its relatively easy to switch to a newer leased car. Lease payments are lower than purchase payments, so you can get a nicer car for the same monthly cost. If you buy a new car, its worth much less the second you drive it off the lot. If you bought the new car on credit, you're immediately upside down in a loan. You don't build equity through a lease, but you do get to drive a nice car for less hassle and lower monthly costs. As for me, I'll keep buying cheap crappy cars like my current ride, a 1989 Toyota truck with the legendary 16 1/2 RE engine (a 22 RE engine running on three cylinders).

 

[deleted307836]

I also think it's risky, even fallacious, to view your primary residence as an "investment." It's a place to live, and unless you plan on doing some serious rehabbing to the interior/exterior to raise its value, it's difficult to automatically say that renting is "throwing money away" in comparison.

For a single persion without kids starting med school... I think it could make sense to buy a small condo in a good building that is also close to school in some situations. Other than that, no way would I want to deal with the hassles of owning a single-family home while in medical school (or ever, really...)

 

[xffan624]

The horror stories haven't deterred me.

I am seriously considering buying a house. Just looking at the house prices in my school area compared to the rentals. it doesn't seem to make much sense. I am starting school, but my boyfriend will be working. I also have about $40K saved from working the last couple years. I will qualify for the VA Home Loan as well.

I am also mentally done with living in apartments. I've been doing it for 10 years. I want a yard where my cat can go outside. The last complex I was in, they threatened to call animal control if I let him outside again.

My boyfriend also has the handyman abilities. He has said he wouldn't mind doing some maintenance on the weekends to cut down on costs.

 

[dudeliness]

Just like xffan, we are so sick of renting. In the past six years of marriage, the last three of which we have had our daughter, we have always lived in a basement apartment. We're so ready to stop being "trolls" (living under people) and would LOVE to have our own place.
I think I'm going to fill out some paperwork with our bank and see if they would approve us for a loan. All this is pure speculation until I know if they'll even give us a loan while we're in school with no income besides the HPSP monthly stipend. I have heard about the VA loan, but don't know if that's something that's available to us before ever having done active duty.
If we are able to get a home, I think the basic idea I've been getting is that it's probably better to get as new a home as possible and keep it as modest as possible to keep the debt down.

 

[wholeheartedly]

I'd also disagree that it's always better to buy than lease. That's going to be highly individual, market, duration specific.

I think a townhouse can be a good option for someone with an intensive schedule. You have a bit more independence, ownership, and less outdoor maintenance, etc.

As far as the investment part goes, the first few years the bulk of your mortgage payment is PMI and interest and very little principle that you're actually putting toward the house. It'd be one thing if I lived in my house for 4 years an had say 1000/month payments that all went toward knocking down my principle so I'd have like 48,000 put toward the house, but the reality is it's a couple hundred a month that actually goes towards principle and I was paying extra towards the principle for the first few years.

Even if the market picks up and you half what I've sunk into unexpected repairs as they might not be typical and maintenance costs, I'm still not likely to come out ahead of where I'd been if I'd rented a place for 200/month more for the same 4-5 year time span.

The value to me was: I wanted privacy with no random maintenance ppl whenever, I wanted independence (I'm an artist and didn't want a limit of being able to only hang 2 photos per wall). I wanted control to paint, decorate, be noisy. I wanted a dog, a yard, and a garden. So even though I won't come out ahead and might come out behind, I only regret it when dealing with water in my basement 😛

Also, I think it's a lot easier to handle a house when you have a partner to share the responsibility with (and while I'm clueless about somethings, I do ok with a tool belt)

 

[wholeheartedly]

If we are able to get a home, I think the basic idea I've been getting is that it's probably better to get as new a home as possible and keep it as modest as possible to keep the debt down.

Well, not necessarily as new as possible, but definitely find out the age of the mechanicals, age of the roof, and things like that. Some newer houses went up fast and some slightly older houses are built more solidly. Make sure to get an inspection with a good inspector, as lots of questions, and if something doesn't look right trust your gut and walk away. Oh, and ppl might not agree with me, but overreact a bit. If you see a crack, assume it's bigger. If they find rodent droppings somewhere, assume you have a major infestation, even though a mouse here or there is not big deal. That just me though...

In the summer I've got a fire pit, volleyball net, big grill and plenty of space for friends and a huge garden for all kinds of veggies. Whenever something negative happens with the place, I remind myself that's why I love it so much

 

[dudeliness]

Cool. Thanks again for all your posts everybody. It's great to have people to bounce thoughts off.

 

[Chip N Sawbones]

Just like xffan, we are so sick of renting. In the past six years of marriage, the last three of which we have had our daughter, we have always lived in a basement apartment. We're so ready to stop being "trolls" (living under people) and would LOVE to have our own place.
I think I'm going to fill out some paperwork with our bank and see if they would approve us for a loan. All this is pure speculation until I know if they'll even give us a loan while we're in school with no income besides the HPSP monthly stipend. I have heard about the VA loan, but don't know if that's something that's available to us before ever having done active duty.
If we are able to get a home, I think the basic idea I've been getting is that it's probably better to get as new a home as possible and keep it as modest as possible to keep the debt down.

It sounds like buying is the right option for you. If you have good income now I would try to get prequalified for a loan now and never mention that you're planning on going to medical school. Banks don't like loaning money to people without income anymore. I couldn't get a home equity loan on my house without proof of income even though I own the house outright. You can't get a VA loan until you've been active duty military.

 

[sazerac]

One topic I haven't seen mentioned much is the closing costs of selling a home when you are done. If you buy a house for undergrad, move, buy a house for med school, move, buy a house for residency, move, and then buy to settle down someplace, all you will have to show for your "investments" is a very wealthy real estate broker.

If the decision is being made purely on financial grounds, the New York Times has an easy to use buy vs rent calculator -

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

As we have seen in prior posts in this thread, there are a lot of non-financial extenuating circumstances like pets, home maintenance skills, desires to modify, home sale skills, etc that will also affect the decision of whether to buy or rent a house.

 

[tkim]

If you can't sell the house after you leave the area, like some people, including me, have experienced after residency, you'll have to rent it out.

Being an out of state landlord sucks. I'd give hefty thought against buying while in med school or residency, unless you know for a fact that you are going to stay in the same area for both, or beyond, in order to have enough time to build equity against paying the closing costs at sale. True you do benefit from mortgage interest deductions at tax time, but on balance this might be offset by the closing costs you pay when selling.

 

[tkim]

One topic I haven't seen mentioned much is the closing costs of selling a home when you are done. If you buy a house for undergrad, move, buy a house for med school, move, buy a house for residency, move, and then buy to settle down someplace, all you will have to show for your "investments" is a very wealthy real estate broker.

If the decision is being made purely on financial grounds, the New York Times has an easy to use buy vs rent calculator -

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

As we have seen in prior posts in this thread, there are a lot of non-financial extenuating circumstances like pets, home maintenance skills, desires to modify, home sale skills, etc that will also affect the decision of whether to buy or rent a house.

It's a good calculator, but it doesn't include the sometimes high cost of home maintenance. In my situation, it didn't factor in the cost to replace a shower stall after a leak, ceiling repair, and the cost of replacing roof shingles, which came to $20K. So it absolutely cost me a lot more money to buy.

 

[xffan624]

It sounds like buying is the right option for you. If you have good income now I would try to get prequalified for a loan now and never mention that you're planning on going to medical school. Banks don't like loaning money to people without income anymore. I couldn't get a home equity loan on my house without proof of income even though I own the house outright. You can't get a VA loan until you've been active duty military.

Yeah prequal might be a good idea while I'm still in. I am active duty military...😀

 

[Chip N Sawbones]

One topic I haven't seen mentioned much is the closing costs of selling a home when you are done. If you buy a house for undergrad, move, buy a house for med school, move, buy a house for residency, move, and then buy to settle down someplace, all you will have to show for your "investments" is a very wealthy real estate broker.

Selling by owner is becoming a more viable option. Title companies have the forms you need to sell, and you can advertise pretty effectively yourself. If you can cut out the brokers that will eliminate the majority of your closing costs. I've gotten as many showings by putting ads on Craigslist as my broker has through the MLS. I've got a broker now, but he hasn't done much and his contract won't be renewed when it expires in two weeks.

 

[kimposibl]

I know a lot of people who bought houses just before the real estate market fell on its face who would disagree. There are definitely some risks to buying a house as an investment. I don't think the OP will have to worry about property values in Lebanon declining, but between closing costs, property tax, home improvements and insurance, buying a house can be an expensive investment, and potentially a losing one. In the OP's case I'd guess that buying will be better than renting from a purely financial standpoint, but I'd definitely want to crunch all the numbers before doing either one.

Leasing cars makes sense if you want to always be driving a new car. After driving a leased car for two years or so, its relatively easy to switch to a newer leased car. Lease payments are lower than purchase payments, so you can get a nicer car for the same monthly cost. If you buy a new car, its worth much less the second you drive it off the lot. If you bought the new car on credit, you're immediately upside down in a loan. You don't build equity through a lease, but you do get to drive a nice car for less hassle and lower monthly costs. As for me, I'll keep buying cheap crappy cars like my current ride, a 1989 Toyota truck with the legendary 16 1/2 RE engine (a 22 RE engine running on three cylinders).

Right, but what caused the housing market crash? Fraud. Inflated housing prices plus subprime mortgage loans caused the market to fail. Maybe after the event of the crash it will seem like a good idea to lease, but you're still not paying into anything other than a place to stay for the moment. I've seen many people displaced from their rented condos/homes because landlords want to move back, or want to sell the place or want to turn it over to property management. I find it highly unlikely that someone will stay in a leased place for long enough to raise a family, and the lack of stability is worrisome (at least IMO). You also get tax breaks for owning a home. And well there's nothing to get around property tax, home insurance, etc but all that is built into a lease as well, so you're paying all that no matter what, just for someone else in the case of leasing.

As for leasing a car, yes I know its for people who like to "drive new cars". But even after a 36 mo lease you've paid more in that time than what the car will be sold for in a used car lot (depending on what car, but I'm assuming most cars). Plus you have to get regular maintenance by a dealer, which is expensive. Its just impractical and I've only seen people who have money to spend lease cars. I too have an old car of which I am the 3rd owner....