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Buying a Condo

Discussion in 'Financial Aid' started by mlonier, Mar 22, 2004.

  1. mlonier

    mlonier Member
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    Anyone out there bought a condo at the beginning of Med/Dental School? I've done some of these rent vs. buy comparisons and they say buying will cost me 3 or 4 grand less per year than renting. That's assuming 5% appreciation per year, which may be too generous for a condo. Plus you lose 6 or 7 % when you sell. So is it really worth the hassle to possibly come out 5-10 K ahead if all goes well. Looking for all opinions, good and bad. Thanks
     
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  3. mpp

    mpp SDN Moderator
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    A few things to consider,

    1. Do you want to own your own place and be responsible for repairs, etc.? A little less required for condo ownership as compared with a house but you still have to deal with leaky faucets and broken garbage disposals.

    2. Do you have enough for a downpayment so that you don't have to pay for PMI?

    3. What are the expectations for the value of the property to increase? We are definitely in a high-side for real estate prices...this doesn't mean it that it can't go higher, but it is not guaranteed...especially the case for brand new condos which sometimes go down in value once the 'newness' wears off.
     
  4. jhug

    jhug 1K Member
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    good points...the down payment is a biggie...20% of the amount of the loan. If you can do it that will shave a lot off what you have to pay over a few years. House payments are also tax breaks (the interest anyway)
    you will most likely get a condo for less, but it will sell for less...
    all in all, if you can do it financially, i think it is a good idea.
     
  5. mpp

    mpp SDN Moderator
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    While you are in medical school and your income is low or zero, your taxes will also be low and unfortunately the tax deducations on mortgage interest really doesn't help out that much when there are no taxes to deduct from.

    But if you can afford it, it can definiely be in your financial favor and it is nice to own your own home, paint it how you like, let your dog have its way, etc., etc.
     
  6. organic

    organic Senior Member
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    I read from somewhere that, when you calculate your monthly payment, you should take property tax, repair fees, insurance, and extra costs into considereation. to make it simple, multiple your monthly morgage payment by 140 %, that is really how much you are paying.

    example

    monthy morgage 1000 dollars

    but you have actually pay 1400 dollars per month for maintaining a home
     
  7. mlonier

    mlonier Member
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    Thanks for all the great replies!

    Just a few other things to add...
    1) I don't have much for a down payment. I'm looking in the 100K range for condos and would only have about 5% of that to put down.
    2) In the area I'm looking, it's very likely property values will continue to rise.
    3) I can rent a better place than I can buy for the same monthly cost. (considering mortgage payment, ins., association fees and property taxes Vs. rent and ins.)
    4) If I buy, I'll be selling in 4 years.
    5) I won't be working, so no tax advantage. Although, I was told it may be possible to deduct the interest at a later date when I have an income again. Any truth there?

    The only reason I'm even looking into buying is b/c a family member is telling me I'd be stupid NOT to buy.
     
  8. funkless

    funkless Apatheist, Anestheologist
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    Please take this for what it's worth. I'm not a CFP or CPA or anything else...

    I think that, for you, buying might be a mistake for now. When you sell in four years, you'll probably see that you:

    1. Didn't get to take advantage of the tax break. (No income = no tax = no tax break.)
    2. Didn't build any real equity. (The first couple of years your payment goes almost completely toward the interest)
    3. Borrowed money to pay that interest, and will now have to pay interest on the money you borrowed to pay against the interest on your condo. (phew!)
    4. Could have been living in something larger without the maintenance hassles.

    Even if the property values are rising in your area, the appreciation won't happen quickly enough for you to make any real profit when you sell in four years. Not when you consider that your selling costs will probably come to 7%.

    Your family member is right, it is almost universally true that owning is better than renting. However, that maxim presumes that the buyer is working and relatively stable location-wise. You're neither.

    Hope this helps. Any questions, drop me a line.

    --Funkless
    [email protected]
     
  9. edmadison

    edmadison 1K Member
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    You can have the paperwork done in both of your names, but the person who pays the interest/taxes is the one who gets the tax write-off. And you can't just "give them" the payment and have them pay it. That's tax fraud.

    I know people who have bought a place and rented out a room. This is cool if it's to a friend. If you are renting it out, you are bound by housing law so be careful (god help you if you are a landlord in NYC).

    Ed
     
  10. organic

    organic Senior Member
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    I agree with Funkless' opinion regarding to your situation
    1) if you pay downpayment less than 25%, you have to pay private morgage insurance (PMI)
    2) buying a house for only 4 years, I'd say, isn't worth it. You will be paying ONLY the interest for the entire first year. It is hard to garantee that in 4 years, you will have a net gain from ownership of the property. The worse thing is that you HAVE to sell after 4 years. It is against the investment principle.


    Also agree with Funkless-- ELECT John Kerry in 2004!!!!!!!!
     
  11. funkless

    funkless Apatheist, Anestheologist
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    Yeah, nice try, but I think that, should your parents claim a tax credit on a "second home," they'd be painting an "AUDIT ME" sign on their backs. I don't know, it would be pretty sweet. Maybe they should ask their accountant (or, pref. their atty.)

    Now, the rental idea is a great one. If you can find and purchase enough space for one (or, ideally, more) roommates, you can let them carry your note (and possibly pay against the principal!!!) Moreover, if you can entice one or more fellow med students to rent from you, you get carpoolmates and study partners as perks. (And you know that they'll be responsible and relatively quiet.)

    --Funkless:thumbup:
     
  12. edmadison

    edmadison 1K Member
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    Actually, you can deduct the cost for two residences. However, as I said before only the person paying the taxes and interest can take the deduction.

    Ed
     
  13. carcrazyguy

    carcrazyguy Senior Member
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    We are in the same boat. Buy vs rent??? We are buying a home using a 5yr ARM loan. Also considered an 80/10/10 loan on a house that is aprrox 90k our monthly payment is going to be just over $415 for the first 5 years. Then after that we will havet o refinance or sell. However when my wife gets out of school in 4 years we plan to move anyway.

    It is much cheaper than renting! And IF property values go up we make a little money. If values go down a little, O WELL we saved a little money while she was in school. And that is what the entire goal is!!!
     
  14. funkless

    funkless Apatheist, Anestheologist
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    Property value trends are pretty hard to predict, but you can count on interest rates going up sooner rather than later. Be sure to refi as soon as those rates start going up. You don't want to be caught with your pants down and your wallet open...


    --Funkless
     
  15. carcrazyguy

    carcrazyguy Senior Member
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    I agree. But our intrest rate is locked in for 5 years. And in 4 years when my wife finishes her schooling, we will be moving anyway. So if rates go up, oh well, we would be buying another house then anyway. My feeling is that I would rather save money for the next 5 years and maybe pay a little more after she gets out(and we can afford a litttle more anyway). Doing this 5 yr ARM loan will save us nearly $300 a month which is $14400 over the 4 years of school. So I think it will work out best for us.

    P.S. If the loan rate was not locked in or fixed for the 5 years I would not take the risk. I agree that the rates will rise.

    Just FYI our intrest rate is fixed at 4.244% for 60 months
    :thumbup:
     
  16. Fritz

    Fritz Senior Member
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    I am an MD/PhD student so maybe for me the situation is a little different. We just bought a condo for about 100K. It does not look that we are going to get any tax advantage because the interest is only about 5000 a year and the standard deduction is 6000.
    We put 5 % down and the rest we financed with a mortgage of 80% of the value and a home equity line of 15% of the value so we don't have to pay PMI.
    Considering that I am going to be in school for at least 6 -7 years, we thought that was a good investment.

    In your case I am thinking that maybe you should not discard buying a condo. If you live frugal enough you might be able to keep your condo during residency, even if you move somewhere else ( except for bay area, LA, NYC, Chicago). In residency you make approximately 40000, which is about 2300-2600 a month ( even more if you have family) after taxes. You could probably afford a 400 house payment until you can be comfortable selling your place.

    just my 2 cents.

    Good luck!

    Fritz.
     
  17. funkless

    funkless Apatheist, Anestheologist
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    Sounds awesome. Congratulations! :clap:

    My wife and I are closing on our dream house here in Memphis. We are locked in at 5.75% for a fixed 30-year mortgage. I start MS-I this August and we're hoping to stay in Memphis through residency. (And possibly indefinitely.) I'll bet dollars to donuts that the market rate is at least 10% by the time we move.

    --Funkless
     
  18. edmadison

    edmadison 1K Member
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    Don't forget that you get to deduct your property tax and your state income tax as well. This could well put you over the top.

    Ed
     
  19. Fritz

    Fritz Senior Member
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    for the first few years there is no property tax because it is new construction...
     
  20. funkless

    funkless Apatheist, Anestheologist
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    Really? We're expecting to pay property taxes our first year and our house is new construction, too.

    The only difference is that, until they get around to reassessing the property, we'll be paying taxes on the original assessment, which is from when it was just a chunk of undeveloped land. We're hoping to dodge about six months' taxes.

    Does your area handle it differently, or just reassess much less frequently?


    --Funkless
     

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