Buying a house after residency. Your thoughts?

[OptionMirror]

Hey everyone,

I just had some questions regarding buying a house after residency. I have done some research and read some forum and just wanted to ask you guys for your opinion.

So this upcoming year, my projected year 1 compensation is about 252K (224k base annual salary with 25k sign in bonus and bunch of other smaller bonuses on top of that). I might make more as we do have extra duties that doesn't not count into the salary. My current medical school loans is about 156k with 6.8% interest (so sad all I been doing in residency after paying about 40k+ is paying off the interest). Otherwise, I don't have any other expenses. I live in California, single, 0 dependents and with all the taxes, I think the tax deduction is about 33%

As far as the location. I'm expecting to stay the area for at the very least 3 years until I make partnership. I'm familiar with the area since I grew up there. I'm actually moving back home and the clinic I'm going to be working is where my pmd worked at when I was a kid ahah.

I was originally going to rent an apartment at first which priced around 1600-1800/month (not counting utilities and other fees) in the area. But after consulting with my parents (who I think have their finances down, nothing is better than being retire and still getting money), they really highly advised me to buy a house as its provides a number of benefits (i.e. investment, tax deduction, mortgage are pretty similar or even lower, privacy etc).

What got me thinking even more was after doing some house searching, we found a pretty sweet deal. There's a house built in 2005. Currently it is listed on the market as Short sale. It was originally sold for 707k but currently is 400k. It's about 4000 sqft. 5 bedroom. Area is pretty decent and about 5-10 mins from the hospital and 15 mins from my clinic.

As far as the down payment, I don't have any money for it. But my parents were actually willing to help me out with it and eventually I can pay them back. So after doing a number of online calculation, I was thinking the monthly mortgage after down payment be around 1600ish. If you include property tax, utilities, etc I'm looking around 2000-2500.

As far as my loans, I looked at the repayment plan and it's highest repayment plan is about 2100 and lowest being 852. I'm thinking about doing the 2100.

So all in all I'm expected to pay around 4000-5000 for rent and loans (more or less depending on if I have extra cash). Assuming, I make around 8kish a month (after deduction and insurance stuff), I'm left with around 3-4 k for living which isn't bad (as I was only living with 800-1000 a month during residency).

Of course there's moving cost and things to fix up. But I'm lucky to have a big family who are all experience handiman (DIY type of people) who can help out. My parents actually built a small house in back of their house lolol.

Not sure what's your guys thought on this. It's kind of scary because I never actually bought anything this expensive. And I don't really know what's going to happen in the future. Though a minor thing, I'm still soulmate searching so its hard to know if I will settle in that area permanently.

Thank in advance, sorry it was soo long.

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[RangerBob]

A lot of advice I've heard for people in your situation is to rent for at least the first few months to get an idea of whether you like the new job/setting, and to get to know the area better/become a predatory buyer. If you grew up there and already know the area and where the nice neighborhoods are, which schools are good, which parks you want to live by, actual commute time/traffic by location, then that helps a lot, though sometimes there's still a benefit to becoming a predatory buyer (so you can jump on a great opportunity if it falls in your lap, potentially like this one). Still, it's possible you may end up hating your coworkers/work environment, or the hours, etc. Sounds like you know the clinic since you went there as a kid, but it's likely quite different as my pediatricians used paper charts and paper everything, and they've also long since retired, and likely many of the staff have I'm sure. Just something to think about.

I don't know much about short-sales, but the homeowner stills owns the property (unlike foreclosure) and the bank is agreeing to sell the home at a loss. It hasn't yet gotten to the point of a foreclosure, so usually the house is in better condition. The owner generally still occupies the home, so usually the utilities/yard/etc are still being used and hopefully somewhat maintained. Considering the home you're looking at was built in 2005, it should hopefully still be in very nice condition (but you can be surprised at what people can do to homes!). Still, if someone is short-selling, they may not have had the funds to fix any problems that had come up in the prior year or two, so if you pursue the home, I would get a really thorough inspection (as in, hire an actual HVAC specialist, electrician, siding expert, roofer, etc. Whether consolidating all their information will count as a full home inspection or not is up to the mortgage company, and you could still get a general inspector, but if you really want to be sure you're not walking into any timebombs, I'd hire someone who's actually fixing/maintaining these things on a regular basis).

You will likely have to spend some money to replace some things/bring the place up to snuff, but if you've got a family of DIYers than that helps out a lot. Just hire professionals for the really important stuff (roofing, HVAC, pluming, etc.)

The price of the home is actually really good for CA. If I remember correctly, it's recommended to spend no more than 30% of your gross income on housing, and I think they mean pre-tax there. In your case, if you're looking at ~$8k/mo, and the house is closer to $2-2.5k, then that's doing pretty good, particularly in CA where it's almost impossible to spend less than 30% (I can't afford my childhood home anymore--it's very plain, but worth over $1.5 million, yet over here in the Midwest it'd be worth $200-300k max.) .

If you do go for it, hopefully you can negotiate a lower price, but I know when my parents sold their home they got something like 14 offers within the week or two, most of which were above the listing price, so who knows how many other people are eyeing this property. The Bay Area really needs to get their act together on housing...

 

[DrMidlife]

never let one for-sale house change your underlying strategy for initial homeownership, no matter how awesome the opportunity. there will always (ALWAYS) be more opportunities.

impulse real estate investment is for very experienced and liquid real estate investors.

 

[keifernny2]

A huge percentage of docs quit their first post residency job within 3 years. The advice to rent is because you don't want to be $50-100k underwater on a house when you want to sell. If this deal is really sweet enough to allow you to avoid this trap, then you're golden.


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[Mman]

My quick and simple advice.

1) Rent for at least a year. You never know if you will end up hating the job. Too many people take jobs that sound perfect (pay, location, coworkers, whatever) and find out later it wasn't what they hoped for. If so, you'd much rather be renting than owning. Far easier to bail on short notice if you need to. After a year and you still love the job and plan on staying, then buy a house.

2) Save up an emergency fund to give yourself financial flexibility. Maybe don't target 6 months initially, but within the first year you should have at least saved up 3 months worth of expenses.

3) Start paying those loans, saving for retirement, and saving for house downpayment. While things look rosy to you right now thinking what the future probably will be, you have no savings and a big 6 figure debt at a fairly high interest rate. If the job goes south, you add on mortgage debt, and it can spiral ugly very quickly.


As already mentioned above, don't throw out a perfectly good strategy because you found a particular house. The potential downside is far higher than the potential upside. There will always be another house.

 

[sweetlenovo88]

8k a month? You said 252k a year before taxes. Even with federal income tax and the high california state income tax (which is deductible when you itemize) you should be making much more. You mentioned deductions. Maybe you are fully funding your retirement at 58.5k a year and that is what you mean by deductions.

 

[QofQuimica]

My thought on buying a house right out of residency? Don't. Just don't.

Go start the job. See how you like it. Wait to buy the house until you make partnership, assuming you still even WANT partnership with that group in a few years when the time comes. Things happen. Jobs change. Managers change. Employers change. Initially coming out of residency, flexibility to change jobs/locations is way more important than owning a house. I've moved twice already in the two years since I've been out (working for the same employer in two different cities because the university unexpectedly lost its contract at the first site after I'd been there for a year). I'll be moving for the third time since graduating residency to start fellowship next summer. To say I'm glad I didn't buy a house right out of residency is the understatement of the decade.

 

[dpmd]

Why the **** are you getting a 5 bedroom house as a single person? Do you realize how much this is going to cost to maintain? My 2k sq ft house is costing me 800 bucks a month in gas and electric. Granted where you are may not be as hot but still it is twice the space to cool and heat. I guess if you were planning on getting roommates it would help but then you have roommates to deal with.

 

[Plastikos]

Wait. As you stated, you dont know for sure where you'll end up in the end and not being married yet means almost anything can happen. Its nice you know the area, but a 4k sq ft house for a single person is wild, and short sales are no fun either, they take forever and are fraught with multiple deal ending landmines. They will probably not be excited about someone with no net worth or assets when there will probably be many well funded suitors to choose from instead.

Sounds like there is a cheap place behind your parents. Use that or a small apartment, sock away for retirement, pay down your loans and let life come to you.

 

[mestielest]

Long loans and mortgage usually being an stress factor on people. I think paying your med school loan, saving some money for future and also spending for your joy some of them until one-two years is sensible.

Take care!

 

[hatfielj]

Do not buy a house now. Are you expecting to have a significant other and get married some day? She/He will want to have a say in where you live and what house you buy. Also, houses are very risky investments. And they are expensive to maintain. When you have that much debt at such a high interest rate, you really should be focused on getting rid of that and building up savings before even considering buying a house or doing any sort of investing. I've learned this lesson the hard way. Start saving, budgeting, living below your means, and paying off all your debt. Once you're pretty debt free and have a bunch of cash on hand, then you can start worrying about how to invest it