Buying a condo/house/apt. in residency (PA)

[tootsweet]

My husband and I will both be residents next year and would love to buy as we'll be in one spot for at least 4 years. We'll need at least a 3 bedroom as we have a baby and need the option of having a room for a live-in nanny if needed. We're over 500,000 in student debt and don't know where to start ..or if buying would even be possible. Any advice appreciated. We'll be in Philly so any specific info on real estate or loan programs, etc. appreciated. Would love to hear stories of others who's managed this....or from those who've failed too! I know there is a distinct possibility of being denied because of all our debt ;(

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[Excelsius]

If I am correct, as long as you do not have to make minimum payments on your student loans, they are not counted in your DTI (debt to income ratio), so they should not affect your ability to get a loan. Having said that, you definitely need income to qualify for any loan. The DTI usually caps at 50% max, meaning that all your monthly minimum payments (mortgage included) should make up less than 50% of your household income. You can use a mortgage calculator available everywhere online to see how much payments will be for a given loan amount and get a picture of how much you would qualify for. You also need good to excellent credit, of course, which amounts to FICO score above 700 and no recent bankruptcies.

Right now there is a federal tax credit of up to $8k for first time home buyers (and also a little less for others) that expires in April, so be sure to take advantage of that as well as your local buyer programs. It takes a month or more to close even after you decide to buy a place. I would suggest that you buy at least three, but preferably four or more bedrooms, you, your husband, and your infant live in a single room, and rent the remaining two or three bedrooms to other students. The rent alone should cover not only the entire mortgage payment, but also generate cash flow for you. If you're worried about financial aid qualifications, you could start a corporation and keep all your income there (and pay yourself a salary, whenever you need one). This will keep your taxes close to zero and won't affect financial aid. Nevertheless, you need to do a lot of homework before you decide what's good for you. Talk to a CPA and your financial aid office.

 

[thedrjojo]

so my wife and i are also trying to buy at this time... the problem or challenge is trying to find a lender who will ignore student debt (not all will) and most places require a history of pay which we dont have yet but the guy i am working with approved us pending my contract... he is actually based in the cherry hill area so i can pm you his contact info... based on two resident salaries you should qualify for enough loan to get a 3-4 bedroom place... since my wife is a 3rd year she cant be counted towards the loan so we wont qualify for as much as we want... good luck and let me know if you want his info.. he works at jp morgan... then you just need to find a place and get it done.

 

[Pilot Doc]

would love to buy as we'll be in one spot for at least 4 years. (

That's a pretty short time frame for owning a house.

If you can't rent the type of place you want, buying's a good option, but renting is VASTLY underrated for residents. And the benefits of home ownership, particularly financial, are highly overrated.

 

[Pembleton]

If you can't rent the type of place you want, buying's a good option, but renting is VASTLY underrated for residents. And the benefits of home ownership, particularly financial, are highly overrated.

I agree. Home ownership is such a headache and a hassle. I regret it almost everyday.

 

[edmadison]

I agree. Home ownership is such a headache and a hassle. I regret it almost everyday.

There's a similar discussion going on now in the finance forum. Anyone who is seeking to buy a house really needs to consider many issues. It's funny, I've been around here for > 8 years and how people view this questions has changed greatly because the way we look a real estate has changed greatly.

So what are the pros of home ownership:

1) You build equity. Well if you’re only going to be in the house for 4 years, you really aren’t. If you buy a 200K house, putting 40K down and get a 6% 30 year fixed mortgage, you will pay just over $8,600 in principal four years that’s $180 per month. At the same time, you’ll pay just over 37K in interest! Those numbers are for a great mortgage. If you’re putting less than 20% down or have other issues (poor credit), your interest rate will likely be much higher.

2) You get a great write-off on your income taxes. Well, many will have an income so low that this will have a minimal impact and even those that do make good money, the value of deducting the interest and taxes is only good as far as it exceeds the standard deduction. So if you have a modest income or a modest house, you’ll likely see very little benefit here.

3) Independence. This one I won’t argue with you. It’s awesome to be able to pain your walls whatever color you want and not to have loud neighbors in the next apartment. The question is what is this worth.

Cons of home ownership:

1) You are locked in. Whenever you are looking to sell at a certain time, you will be the victim of the market. This can go well or very poorly, but the potential downside is huge. If you must move on a certain date or face housing payments in two locales, you will have to price your house to move unless you are in a hot market. Of course, you can always rent the house out, but that raises a whole host of new problems.

2) You are responsible for your repairs. New roof? 10K, New furnace 5K. I just put a new roof on my house, I must have had the worse building inspector in the state of Kansas.

3) Real estate fees and closing costs. When you go to sell that 200K house, you will instantly lose $12,000 in real estate fees. You likely lose another $3-5 on the front-end, back-end or both.

There certainly are other pros and cons. I’d look at it this way, if you can rent a good house or apartment that is close to meeting your needs for close to what your mortgage payment would be – go with the rental.

Ed

 

[thedrjojo]

yeah, it isn't until maybe 7-8 years at a place that you gain much advantage, unless you think that the currently low prices will spin around and when you need to sell they will get better(con #1)... we are planning on being in our place for atleast 7 years, possibly 9 if things go our way for fellowship, and even more if possible (or conversely, it will be right near a medical school so could make a nice rental)...

it also brings up Condo/townhouse vs Home, which we considered and plan on going to condo/townhouse to eliminate some of con #2.

But it is good discussion and stuff to consider.

 

[Excelsius]

There's a similar discussion going on now in the finance forum. Anyone who is seeking to buy a house really needs to consider many issues. It's funny, I've been around here for > 8 years and how people view this questions has changed greatly because the way we look a real estate has changed greatly.

So what are the pros of home ownership:

1) You build equity. Well if you're only going to be in the house for 4 years, you really aren't. If you buy a 200K house, putting 40K down and get a 6% 30 year fixed mortgage, you will pay just over $8,600 in principal four years that's $180 per month. At the same time, you'll pay just over 37K in interest! Those numbers are for a great mortgage. If you're putting less than 20% down or have other issues (poor credit), your interest rate will likely be much higher.

2) You get a great write-off on your income taxes. Well, many will have an income so low that this will have a minimal impact and even those that do make good money, the value of deducting the interest and taxes is only good as far as it exceeds the standard deduction. So if you have a modest income or a modest house, you'll likely see very little benefit here.

3) Independence. This one I won't argue with you. It's awesome to be able to pain your walls whatever color you want and not to have loud neighbors in the next apartment. The question is what is this worth.

Cons of home ownership:

1) You are locked in. Whenever you are looking to sell at a certain time, you will be the victim of the market. This can go well or very poorly, but the potential downside is huge. If you must move on a certain date or face housing payments in two locales, you will have to price your house to move unless you are in a hot market. Of course, you can always rent the house out, but that raises a whole host of new problems.

2) You are responsible for your repairs. New roof? 10K, New furnace 5K. I just put a new roof on my house, I must have had the worse building inspector in the state of Kansas.

3) Real estate fees and closing costs. When you go to sell that 200K house, you will instantly lose $12,000 in real estate fees. You likely lose another $3-5 on the front-end, back-end or both.

There certainly are other pros and cons. I'd look at it this way, if you can rent a good house or apartment that is close to meeting your needs for close to what your mortgage payment would be – go with the rental.

Ed

You do have some good points, but your view is overall too negative, I think.

1. Can you build a lot of equity in few years? Probably not. However, we are almost at the bottom of the barrel in terms of home prices. This means that you can pretty much expect the price of your home to at least not go down. It will go up, even if little. The market is already rebounding, despite the shadow inventory that has been around for a while. Banks are not going to flood the market. So in terms of the price, now is the time to buy (in some locations the best time was more than a year ago)
2. If you're single, tax deductions can help even with a low income, especially if you explore self-employment ventures and incorporation
3. As far as independence goes, I don't really think this is that big of an advantage. There is still the association rules you have to comply with, you can still have loud neighbors, etc., etc. Plus, when you are not making much money, social independence should be the last thing on your list and financial independence the first (if you want to get ahead, that is).
4. If you do move, you can expect to get at least as much money as you bought the home for (see #1). And if you buy a place that needs a little work and over the years you do a little here and there (repaint the walls, replace cupboards, etc), the price can go up tangibly even if the market prices remains stagnant. Many people still flip homes and make a lot.
5. If you get a condo, you do not have to deal with roof or any other major repairs, including plumbing. Often, some utilities are covered as well.

I would further add these points:

1. Mortgage rates are some of the lowest in history. This can add up to a lot of money.
2. Home prices are the lowest they're ever going to go. The market is already going up.
3. There is an $8K federal tax credit and many state and local governments offer additional $10K or more each for first time buyers.
4. Do not forget cash flow. Like I said, buy a place near a school, rent the rooms to students. Even if you live there, just stay in one room and rent the other two or three. Depending on your arrangements, you can have not only free mortgage covered by the rent, but have extra several hundred dollars of income a month.
5. When you move, you don't have to sell. You can rent all the rooms. It would help if you know someone who lives near the property and can look after it once in a while or if you're within driving distance (even if 200 miles) to check up on it once a year or so when your tenants change.
6. Renting is a waste of money, especially in this economy. In some cases you will be paying more in rent than in mortgage for a bigger, better place. So you're already losing money right there, especially compared to the above point #4.

Done right, you can't go wrong with getting a place. I would just say that you should be careful and not buy a place you can't afford. If you can't easily afford 2-3 bedroom place with more than one bathroom, you should reconsider buying or buy in a different location.

 

[lowbudget]

Very good economic arguments presented above. But I will say in order to capitalize on them, it will require effort on your part: finding a house, closing, finding housemates to rent out to, etc. If you're not up for it, don't do it until you are ready.

In 4 years you will move... because the house you buy on a 40k x2 salary will pale in comparison to what you want when you are making your attending salary x2 when you get out. Put it simply, you will grow out of your house.

Any economic advantage will be eaten up by transaction costs plus/minus market variations in pricing..

If you rent out your house, your property will depreciate... renters don't take care of things the way an owner would... worse yet, they actively destroy the place which again eats away any economic advantage.

If you have the time/patience/effort to actively manage your rental property, go for it because you're bringing in a 3rd stream of income. But if you're not up for it, it's money best left on the table.

There's no harm in waiting.

 

[Pilot Doc]

Generally agree with excelsius for the narrow case of an entrepreneurial person interested in investing a lot of time in a home. From personal experience, I can say that really doesn't fit the lifestyle of two residents with kids

My only major disagreement is the "we've definitely hit bottom" premise. That's far from clear, and even if we have hit bottom, there's no telling how quickly it'll go back up. House prices are still on the high side historically based on personal income, there are an enormous number of people who are underwater on mortgages, and even if we are 1 year from the bottom, that will put a residency length ownership period in the red with typical transaction costs.

As for condos ... yes, you do have to pay for the roof - it's comes in the form of an assessment. The

 

[EM2BE]

Also, you can look into residency relocation loans to help you get started (and they ignore student debt).

 

[Bobblehead]

How is the OP planning on paying for the mortgage on a 3 bedroom that they "need" in addition day-to-day living expenses and childcare expenses including the "live-in nanny" on 2 residents salary in Philadelphia? With $500,000 in student loan debt are there savings and a down payment for home ownership?

A couple of Google searches show the PGY1 salary at Drexel to be approximately $46,000. UPenn apparently pays roughly the same. So that's a household income of roughly $92,000 for two PGY1 residents plus whatever cost of living increase the hospital provides for the next academic year. Before all the theoretical discussion of housing prices in Philadelphia over the next 4 years, I'd suggest the OP figure out whether the household budget works in this 3 bedroom with live-in nanny price range.

 

[thedrjojo]

How is the OP planning on paying for the mortgage on a 3 bedroom that they "need" in addition day-to-day living expenses and childcare expenses including the "live-in nanny" on 2 residents salary in Philadelphia? With $500,000 in student loan debt are there savings and a down payment for home ownership?

A couple of Google searches show the PGY1 salary at Drexel to be approximately $46,000. UPenn apparently pays roughly the same. So that's a household income of roughly $92,000 for two PGY1 residents plus whatever cost of living increase the hospital provides for the next academic year. Before all the theoretical discussion of housing prices in Philadelphia over the next 4 years, I'd suggest the OP figure out whether the household budget works in this 3 bedroom with live-in nanny price range.

Valid points but not entirely taking it all into consideration. The $500,000 in student debt (average medical debt is not up to $200K per person, so 500K is a bit of a stretch) can be forbore during residency, making repayment of it not an issue at this time. There is also the points that you will be paying rent at this time anyway for a place to live, so you need to figure the difference of cost per month of rent vs owning (which is typically close to a wash... the added cost from owning is in the downpayment and maintance, with the tradeoff of eventually building equity)... as for the downpayment, while mostly the 0% down option went away (possible to find in some states) there are still the 3.5% down FHA loans. At 92K a year, assuming no debt besides student loans, they could probably look in the 250-300K home range, but I don't know realestate in the philly area so you'd have to see how far that goes there...

The biggest issue is length of time in the place, if it is financially worth it... my situation (7 years + probably more) I think makes it worth it for us, but just 4 years for them, that is debatable.

 

[Pilot Doc]

The 500K figure is acutal data from the OP's post, but I agree, not probably a loan issue per se. What it does call into question is adequate financial reserves to own and maintain a home.

Let's run some budget numbers (tax estimates from turbotax.com)

$92K
- $18,000 home payment (roughly 200K house)
- $6,000 fed taxes (mortage + taxes as only deduction, child care credit included)
- $3000 PA state tax
- $1000 Phil city income tax
- $24,000 nanny

That spends $52K/year before food, clothing, transportation, health insurance, life insurance or utilities. Asking whether two residents can afford a nanny and a 3BR house is not unreasonable.

 

[thedrjojo]

The 500K figure is acutal data from the OP's post, but I agree, not probably a loan issue per se. What it does call into question is adequate financial reserves to own and maintain a home.

Let's run some budget numbers (tax estimates from turbotax.com)

$92K
- $18,000 home payment (roughly 200K house)
- $6,000 fed taxes (mortage + taxes as only deduction, child care credit included)
- $3000 PA state tax
- $1000 Phil city income tax
- $24,000 nanny

That spends $52K/year before food, clothing, transportation, health insurance, life insurance or utilities. Asking whether two residents can afford a nanny and a 3BR house is not unreasonable.

I appologize for this error... insert foot into mouth...

some residencies do provide health insurance 100%...

but again, your numbers are excellent and the OP should definately consider... that 24K for nanny really hurts the ole budget

 

[Parts Unknown]

My only major disagreement is the "we've definitely hit bottom" premise. That's far from clear, and even if we have hit bottom, there's no telling how quickly it'll go back up. House prices are still on the high side historically based on personal income, there are an enormous number of people who are underwater on mortgages, and even if we are 1 year from the bottom, that will put a residency length ownership period in the red with typical transaction costs.

Agree. And let us not forget that interest rates are likely to be bumped up over the next few years, which will resume downward pressure on home prices yet again. It's a good recipe for ending up underwater.

In many ways the best time to buy is when interest rates are sky high and home prices are in the dumps. If/when interest rates drop you can refinance and enjoy the upswing in your equity.

 

[sam1999]

In many ways the best time to buy is when interest rates are sky high and home prices are in the dumps. If/when interest rates drop you can refinance and enjoy the upswing in your equity.

This is kind of worst example I have seen. First of all whether interest are super low like in past 2 years or high like in late 70's or early 80s there is no grantee if and when they are going to move in opposite direction.

Not many people able to afford 15% interest, and it is like shooting yourself in the foot with a hope one day interest rate will go down and you can refinance. Have you heard of sub-prime mortgages? Banks were offering very low interest rate then reset after few years and buyers were hoping their interest rate will go down or remain same at reset.

As for housing is concern it is generally believed housing prices have hit bottom in most parts of the country and they will likely not going up any time soon plus one looses almost 10% in real estate buy/sell transaction so why rush to buy a house in order to get $8000 credit for 3-4 years of residency time period.

 

[Pilot Doc]

This is kind of worst example I have seen.

It's simply a risk/benefit calculation to take out a 17% mortgage. A much better one for docs, though, is to be careful with your money and develop the ability to be a cash buyer in markets like these. 17% interest and low prices is a great time to buy with cash.

 

[Parts Unknown]

Not many people able to afford 15% interest,

They can when prices drop to accommodate. That's the basis of my point.

Have you heard of sub-prime mortgages? Banks were offering very low interest rate then reset after few years and buyers were hoping their interest rate will go down or remain same at reset.

Yes, I have studied the subprime issue extensively. You are talking about ARMs that are offered during a period of historically low interest rates. I am talking about fixed rate mortgages offered during a period of historically high interest rates. Really it was just an example of how going against the conventional wisdom can be a good move. That's a common theme in investing.

 

[Excelsius]

The inverse relationship between prices and interest rates usually hold, but under normal economic conditions. We are facing a Great Recession, whereupon both interest rates and home prices are very low. I don't agree that one needs to wait until the interest rates go up to buy a home on the assumption that the home prices will go down as a result. Instead, what you need to look at is the unemployment rate and the economy overall. As the recovery proceeds, both home prices and interest rates are going to climb. Is this really any surprise? In December, the interest rates on 30 year FRM were around 4.7% compared to over 5% now. Same thing has happened with home prices. This is not the market where you wait for higher interest rates to buy a home. You might just miss the boat - and it is passing by.

This is being overanalyzed. If the rent already costs just as much or even more than buying a home, it will be difficult to go wrong with buying a place now. And like I said, if you do this right, you will make extra money whether you sell the home in two years or ten. Home prices are so low now that even the bleakest estimates I have seen say that prices won't go down more than 3-5%, if they go down at all. If you're assuming some sort of economic armageddon, then you're never safe to buy anything anyway because you just might lose all your assets and income, even if you're a doctor. But that assumption is a stretch.

The local market is also very important. Last month I saw a listing in SoCal for a 5 bedroom house going for $80k. I checked the records - this place was worth over $240K in 2005. At $80K, even if there is an unlikely economic disaster and you lose as much as 10%, that's still only $8K and totally worth the gamble. The OP can look at several local markets and pick an area that has been devalued most. This will make the mortgage much more manageable and the risks negligible. It's better to drive an extra 30 minutes or so to work than having to pay twice the amount in mortgage payments. But again, this depends on a lot of factors that must be considered. Not all locations are worth buying. Depends on your intentions, e.g., you'd need to look at local vacancy percentages if you intend to rent it out...

 

[Parts Unknown]

The inverse relationship between prices and interest rates usually hold, but under normal economic conditions. We are facing a Great Recession, whereupon both interest rates and home prices are very low.

But home prices are not very low by historical standards, just low compared to the height of the bubble.

I don't agree that one needs to wait until the interest rates go up to buy a home on the assumption that the home prices will go down as a result. Instead, what you need to look at is the unemployment rate and the economy overall. As the recovery proceeds, both home prices and interest rates are going to climb. Is this really any surprise? In December, the interest rates on 30 year FRM were around 4.7% compared to over 5% now. Same thing has happened with home prices. This is not the market where you wait for higher interest rates to buy a home. You might just miss the boat - and it is passing by.

This is being overanalyzed. If the rent already costs just as much or even more than buying a home, it will be difficult to go wrong with buying a place now. And like I said, if you do this right, you will make extra money whether you sell the home in two years or ten. Home prices are so low now that even the bleakest estimates I have seen say that prices won't go down more than 3-5%, if they go down at all. If you're assuming some sort of economic armageddon, then you're never safe to buy anything anyway because you just might lose all your assets and income, even if you're a doctor. But that assumption is a stretch.

The local market is also very important. Last month I saw a listing in SoCal for a 5 bedroom house going for $80k. I checked the records - this place was worth over $240K in 2005. At $80K, even if there is an unlikely economic disaster and you lose as much as 10%, that's still only $8K and totally worth the gamble. The OP can look at several local markets and pick an area that has been devalued most. This will make the mortgage much more manageable and the risks negligible. It's better to drive an extra 30 minutes or so to work than having to pay twice the amount in mortgage payments. But again, this depends on a lot of factors that must be considered. Not all locations are worth buying. Depends on your intentions, e.g., you'd need to look at local vacancy percentages if you intend to rent it out...

Does the NAR and/or Carleton Sheets have you on retainer?

 

[Excelsius]

But home prices are not very low by historical standards, just low compared to the height of the bubble.



Does the NAR and/or Carleton Sheets have you on retainer?

Again, no. Even if you are looking at the historical trends, current prices are almost at the base of what the prices have always been, barring a 20 year period inclusive of two world wars and the Great Depression.

 

[Parts Unknown]

Again, no. Even if you are looking at the historical trends, current prices are almost at the base of what the prices have always been, barring a 20 year period inclusive of two world wars and the Great Depression.

Well if prices are dropping back to historical standards, then we are back to negligible inflation-adjusted appreciation (see graph below).

When appreciation once again becomes negligible, the house-as-investment investment angle vanishes for everyone not willing to become a landlord. That's most people.

Which leaves us with equity. Given that most residents will stay 3-6 years before moving on, that's pretty close to the break-even point for generating equity, and said equity gets eroded by transaction costs and maintenance. Not to mention the uncertainty of selling. To top it off, most residents have had only a few years of relatively meager earnings, and cannot financially withstand significant unexpected problems with selling. A colleague of mine is having to scrape together $5,000 he doesn't have because his home appraisal was significantly less than the selling price.

You might just miss the boat - and it is passing by.

This is the logic used to inflate bubbles. Simply put, the best time to buy a house is when you have a down payment, adequate cash reserves, and no idea when you are ever going to move.

 

[sam1999]

Problem with such chart is it assumes that there has been no home improvement is last 40 years. Same is true if you plot very long term like 100 year chart. Before 1940's few home has running water in the house so comparison is murky just because of 2 WWR or great depression but also home amenities etc. Very old home often had one bathroom for whole family and now a days very cheap new home constructed after WWRII has at least 2 + baths.

 

[sam1999]

Yes, I have studied the subprime issue extensively. You are talking about ARMs that are offered during a period of historically low interest rates. I am talking about fixed rate mortgages offered during a period of historically high interest rates. Really it was just an example of how going against the conventional wisdom can be a good move. That's a common theme in investing.

Again, lets say

Ist, you sit here, wait and hope there will be inflation and interest will shot up when there is massive deleveraging is happening for last 2 years and will continue to do so for time at least many more years.

2nd, Can someone or computer program predict when and if interest rate will shot up with inflation and how high they will go and how long will it take them so that you luck one can refinance. We well might be talking about waiting for another 5 - 10 years.

By the way using term refinance is very easy but do you know how much it cost just to refinance? Banks are money making machine they make money either way.

Lets say you want to buy a house and can afford it as well. Do you think it is prudent to lock in interest rate when these long term fixed rates are almost 50 years low?

 

[Excelsius]

Well if prices are dropping back to historical standards, then we are back to negligible inflation-adjusted appreciation (see graph below).

When appreciation once again becomes negligible, the house-as-investment investment angle vanishes for everyone not willing to become a landlord. That's most people.

Which leaves us with equity. Given that most residents will stay 3-6 years before moving on, that's pretty close to the break-even point for generating equity, and said equity gets eroded by transaction costs and maintenance. Not to mention the uncertainty of selling. To top it off, most residents have had only a few years of relatively meager earnings, and cannot financially withstand significant unexpected problems with selling. A colleague of mine is having to scrape together $5,000 he doesn't have because his home appraisal was significantly less than the selling price.



This is the logic used to inflate bubbles. Simply put, the best time to buy a house is when you have a down payment, adequate cash reserves, and no idea when you are ever going to move.

Strongly disagree with your last statement. If we were to simplify, it would go more like this: You buy when the market is low and sell when it is high. End of story. If you just want to spend some cash, then yes, you can buy anytime you have the cash.

These are tough times, and no one can rest on the laurels of their salary, not even doctors. Anyone who is still trying to make it financially, will use this economic downturn to invest - be it in stocks or real estate. And I am also unsure why you so readily exclude landlordship. It would be a wise financial decision to buy a large home and rent at least one of the rooms. Your total price will come down to likely less than what a single bedroom will cost and your profitability will begin from month one. So the question here is not if buying a place is profitable, but rather whether you can make it profitable. Some of my financially astute friends who are already professionals with sufficient income made a killing during this recession. Yet many others, even those with very sizable salaries, lost their life savings. I assure you, financial success is not something you're going to achieve on your physician salary alone (which might or might not be there by the time you start practicing) and a pessimistic approach to financial opportunities is not the best step.

 

[Excelsius]

Problem with such chart is it assumes that there has been no home improvement is last 40 years. Same is true if you plot very long term like 100 year chart. Before 1940's few home has running water in the house so comparison is murky just because of 2 WWR or great depression but also home amenities etc. Very old home often had one bathroom for whole family and now a days very cheap new home constructed after WWRII has at least 2 + baths.

Even though I don't think it really matters that much when you're investing and looking at overall trends (how can we quantify running water supplied by the government? or fiber optics in a neighborhood?), I still think it's a good observation.

 

[Parts Unknown]

Strongly disagree with your last statement. If we were to simplify, it would go more like this: You buy when the market is low and sell when it is high.

That is fine if you subscribe to idea that your house is a tool for speculative investment, which was one of the driving forces in the housing bubble. I do not subscribe to this view, preferring the stodgy old notion that a house is a roof over your head and a method for building long-term equity.

Please don't get me wrong, there are clearly better times and places to buy houses, just as there are worse times and places. But IMHO recommending that a freshly minted resident get into some potentially risky scheme to (perhaps) make a few thousand dollars in real estate is foolhardy at best.

Anyone who is still trying to make it financially, will use this economic downturn to invest - be it in stocks or real estate. And I am also unsure why you so readily exclude landlordship.

I am not excluding landlordship, I merely said that most people are not interested in it. You know why? Because being a landlord requires both work and headaches. Buying the place is just the first step. After that you have to find trustworthy tenants, draw up legal contracts, handle maintenance in a timely fashion, deal with damages, enforce rent deadlines, pay the note even when the unit is unoccupied, etc. etc. Frankly, your characterization of the process is rather flippant.

I assure you, financial success is not something you're going to achieve on your physician salary alone (which might or might not be there by the time you start practicing) and a pessimistic approach to financial opportunities is not the best step.

You call it pessimism, I call it realism. And don't worry, my finances will be just fine.

 

[Excelsius]

You can scavenge other contracts and make your own conglomeration of several points. Any lawyer will review it, if you want, for a couple of hundred bucks. With condos, all major maintenance fees are included in the association fee...

There is a level of risk involved with everything, even medschool. When you invest that $200K initially, you have no idea whether in the end you will be able to match into a field you want or whether the salaries will be there. But if you never risk (reasonably), you never gain.

But perhaps you're right - the average resident does not know about finances much to mitigate the risks. Given what has happened and how this crash was caused by those financially undereducated who lived well beyond their means, I think the educational system must have some sort of mandatory financial education, just like math and English requirements. This is especially true for doctors who start medschool right after college - that's a total of 11-15 years of continuous post-HS education without a single course in finance management. At the same time, those of us who do spend the extra time to learn about these things are better off because most people don't have business acumen. However, when those people can cause such significant crashes (by being duped), you can't help but wonder whether the advantages of complete lack of financial discipline are that great for the rest of us.

 

[BlondeDocteur]

My husband and I will both be residents next year and would love to buy as we'll be in one spot for at least 4 years. We'll need at least a 3 bedroom as we have a baby and need the option of having a room for a live-in nanny if needed. We're over 500,000 in student debt and don't know where to start ..or if buying would even be possible. Any advice appreciated. We'll be in Philly so any specific info on real estate or loan programs, etc. appreciated. Would love to hear stories of others who's managed this....or from those who've failed too! I know there is a distinct possibility of being denied because of all our debt ;(

Tootsweet-- you are not in a position to buy a house, let alone in an expensive city.

You and your husband will be making-- at most-- $100,000 PRE-TAX. Post-tax (depending on your situation) it will be $65-$70K. That's about $5500 a month.

A live-in nanny-- who truly lives in your household-- will require a salary, benefits, paid leave, etc. She will work 40 hrs/wk and then be required by law to be paid overtime. She will need health insurance and Social Security. You will have to find coverage on her days off & vacation. All of this will be at the very minimum $40,000/yr-- or, roughly $3500/month. Remember-- you have to pay *her* salary with *your* POST-TAX dollars.

Before you let yourself get totally snowballed in debt-- because that's an impressive debt burden-- think about doing everything you can to reduce those costs. You are certain you are staying in Philadelphia-- is that because you have family nearby? Can they help with childcare? Does your hospital have subsidized daycare? Glancing at Philly's craigslist, it seems reasonable to get a nice 2-BR apt for $1500/month. I would say that's far below any mortgage payment you'd be making for a 3-BR home in the city.

I know it's tempting, after our years of delayed gratification and hard work, to want to "cash in" on a comfortable, middle-class life once we hit residency. Unfortunately the reality is often that we need to continue a sparser, student-like existence until we get grown-up jobs with grown-up salaries. And even then, once you both are attendings, you will need to continue to live relatively modestly to pay down those loans.

 

[Pilot Doc]

Tootsweet-- you are not in a position to buy a house, let alone in an expensive city.

You and your husband will be making-- at most-- $100,000 PRE-TAX. Post-tax (depending on your situation) it will be $65-$70K. That's about $5500 a month.

A live-in nanny-- who truly lives in your household-- will require a salary, benefits, paid leave, etc. She will work 40 hrs/wk and then be required by law to be paid overtime. She will need health insurance and Social Security. You will have to find coverage on her days off & vacation. All of this will be at the very minimum $40,000/yr-- or, roughly $3500/month. Remember-- you have to pay *her* salary with *your* POST-TAX dollars.

Before you let yourself get totally snowballed in debt-- because that's an impressive debt burden-- think about doing everything you can to reduce those costs. You are certain you are staying in Philadelphia-- is that because you have family nearby? Can they help with childcare? Does your hospital have subsidized daycare? Glancing at Philly's craigslist, it seems reasonable to get a nice 2-BR apt for $1500/month. I would say that's far below any mortgage payment you'd be making for a 3-BR home in the city.

I know it's tempting, after our years of delayed gratification and hard work, to want to "cash in" on a comfortable, middle-class life once we hit residency. Unfortunately the reality is often that we need to continue a sparser, student-like existence until we get grown-up jobs with grown-up salaries. And even then, once you both are attendings, you will need to continue to live relatively modestly to pay down those loans.

BD, your posts are usually good and your overall point - they can't afford a house and a nanny - is reasonable. But the specifics you post are waaaaaaay off.

1) A live in nanny does not require benefits (unless there are PA or Philly laws I'm unaware of)
2) A live in nanny does not require paid leave, though most generally give it. It would be easy to contractually match both vacation and days off to the employers time off.
3) Live-in employees do not require overtime (http://www.nannynetwork.com/library/Parentlib/flsa.cfm)
4) She will not "need" health insurance, as Wal-mart and many other employers make clear
5) Net pay for a married couple with one child and $100K in income will be closer to 80K than 70K.
e.g.
$100K to start
-$1K philly income tax
-$3K PA income tax
- $11K federal tax (hrblock.com, includes child care credits)
- ~7500 Soc Sec

 

[BlondeDocteur]

I dunno, PilotDoc...

Most live-in nanny/au pair agreements-- if done legally and over-the-table, of course-- require the same formal contracts and benefits as do any other job. You absolutely need to pay Social Security and provide insurance for a nanny, and au pairs have strict hours restrictions above which they must be paid overtime or a second caregiver must be found.

At least in NYC.

And you're right-- it's $75,000 after taxes, with one child, so monthly income is $6200 instead of $5500.
http://www.paycheckcity.com/netPayCalc/netpaycalculator.asp

 

[Pilot Doc]

I dunno, PilotDoc...

Most live-in nanny/au pair agreements-- if done legally and over-the-table, of course-- require the same formal contracts and benefits as do any other job. You absolutely need to pay Social Security and provide insurance for a nanny, and au pairs have strict hours restrictions above which they must be paid overtime or a second caregiver must be found.

At least in NYC.

Au Pairs are a totally separate issue - that involves hiring a foreign national whose conditions of work are set by the feds.

Also, NYC is an unusual case with far more meddlesome regulations for the sale and purchase of labor than most places. The link I gave above mentions that the federal overtime exemption for live-in domestic employees doesn't apply there.


But setting that aside and talking about US citizens in most places in the US...

What makes you think that a job requires paid vacation or benefits?

What makes you think a legal job needs a formal contract?

Agreed that you have to pay Soc Sec (and medicare) which will be 7.65% of their salary out of your pocket as well as their pocket.

What makes you think a job requires health insurance?

There are lots of things that are customary, are smart and are needed to be competitvie, but they aren't required.

 

[BlondeDocteur]

I'm basing this all on New York nanny & au pair agencies, which stipulate formal contracts, insurance, & benefits. Anecdotally this is how 100% of our friends with live-in domestic help have proceeded too.

But I'm quite ignorant as to how much of this is just NYC, and how much of it is just "best practice" as opposed to required.

Unfortunately the labor market is ruthlessly efficient, which as you noted means niceties like formal contracts & benefits can often be scrapped.

 

[Pilot Doc]

What you see is partially a function of what the owners and clients of nanny agency wants and, more likely I think, the odd dynamics of the NYC labor market. (And, I suspect, the relative price of a 3rd bedroom in a NYC residence compared to health insurance)

In the midwest (e.g. http://www.tlcforkids.com/tlcdev/tlcnansearch.php) health insurance is not automatic. Dunno where Philly falls in that continuum. Also of note, you can legally deduct room and board from salary by federal law. So you could legally pay someone, say $285/week for 60 hours. ($7.25 * 60 - $150 for room & board.) Not to say it is fair to the employee, not to say it is wise for the employer, not to say that someone with the right to work in the US would take that job ... but it is legal.