Cadet133

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Ok so I'm just trying to think in advance. So I just finished residency and signed an offer for a position to be making 330,00 a year. After taxes, insurance deductions etc Ill be taking home 190k a year. Now I signed an offer for 2.5 years. And I really want to buy a house. I understand you should rent a house first to test the water and make sure you like the job etc etc. Now in the the event that I buy a house I kind of want your opinion on this.

My understanding is that most people don't buy a house and sell it less than a year after buying because they don't have enough equity. But lets compare renting vs buying. Lets say I rent a house 1.5k a month for 2.5 years, that equals to 45k that goes right down the drain that I will never get back. Total net loss 45k...…

On the other hand, lets say for example I use a physician loan with 3.75% interest with no down payment and buy a house for 250k. Monthly mortgage is about 1.5k a month and tax is about 5.5k per year Closing cost that buyer pays is about 3k. Now lets say 2.5 years from now I want to sell it. Lets say house value went down and it is now with 240k and I decide to sell it for 240k I've put in about 45k into the house through mortgage from monthly payments. Take out the closing cost from the original purchase. Take out the 16k in taxes that I paid. Take out the 10k difference in the value that I lost and the 15k in interests Take out 14k in commission fees from selling the house. I have a net loss of about 15k vs the 45k if I were to rent a house.

Am I getting this wrong. If so can someone steer me to the right direction if so?
 
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Ok so I'm just trying to think in advance. So I just finished residency and signed an offer for a position to be making 330,00 a year. After taxes, insurance deductions etc Ill be taking home 190k a year. Now I signed an offer for 2.5 years. And I really want to buy a house. I understand you should rent a house first to test the water and make sure you like the job etc etc. Now in the the event that I buy a house I kind of want your opinion on this.

My understanding is that most people don't buy a house and sell it less than a year after buying because they don't have enough equity. But lets compare renting vs buying. Lets say I rent a house 1.5k a month for 2.5 years, that equals to 45k that goes right down the drain that I will never get back. Total net loss 45k...…

On the other hand, lets say for example I use a physician loan with 3.75% interest with no down payment and buy a house for 250k. Monthly mortgage is about 1.5k a month and tax is about 5.5k per year Closing cost that buyer pays is about 3k. Now lets say 2.5 years from now I want to sell it. Lets say house value went down and it is now with 240k and I decide to sell it for 240k I've put in about 45k into the house through mortgage from monthly payments. Take out the closing cost from the original purchase. Take out the 16k in taxes that I paid. Take out the 10k difference in the value that I lost and the 15k in interests Take out 14k in commission fees from selling the house. I have a net loss of about 15k vs the 45k if I were to rent a house.

Am I getting this wrong. If so can someone steer me to the right direction if so?

Hi, it will all depend on the individual market you’d be looking to purchase and sell in as well as Tax strategy. Below are some numbers based on the figures you mentioned. Now, generally your mortgage interest is tax deductible and you can take depreciation etc to help offset the income taxes you’ll face. It may be a smart move but you should discuss with your financial planner that can map out how the tax/depreciation may give you a leg up on over all $ saved through income taxes before you decide if it’s the right choice. Hopefully this helps!

$240k(sales price) - $14,400(Realtor commission) - $24k (mortgage interest 2.5yrs)- $13,750 (property taxes 2.5yrs) - $10k (loss in value) = $62,150 loss (not including seller paid closing costs/property maintenance for 2.5yrs/HOA fees)

Cheers,
Blake
 
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Cadet133

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Hi, it will all depend on the individual market you’d be looking to purchase and sell in as well as Tax strategy. Below are some numbers based on the figures you mentioned. Now, generally your mortgage interest is tax deductible and you can take depreciation etc to help offset the income taxes you’ll face. It may be a smart move but you should discuss with your financial planner that can map out how the tax/depreciation may give you a leg up on over all $ saved through income taxes before you decide if it’s the right choice. Hopefully this helps!

$240k(sales price) - $14,400(Realtor commission) - $24k (mortgage interest 2.5yrs)- $13,750 (property taxes 2.5yrs) - $10k (loss in value) = $62,150 loss (not including seller paid closing costs/property maintenance for 2.5yrs/HOA fees)

Cheers,
Blake

But what about the mortgage that I paid for 2.5 years?
 
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cpants

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But what about the mortgage that I paid for 2.5 years?

What about it? The amount of principle you pay off in 2.5 years will probably be less than the 10k loss in value you are accounting for. You will essentially have no equity.

What kills you is the seller costs, which you did not factor in to your equation. Also no accounting for home insurance and maintenance costs.

Also, when you move and buy a new place you are going to have to pay fees associated with that purchase also.

Renting is usually the best deal if you are only going to be there for a few years.

When you go on vacation for 2 weeks you don't buy a car right? Sure financially over the long term, buying makes the most sense. But if you are in a short term situation you rent. Same thing.
 
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If you're at all handy I recommend buying a fixer upper, use it as a stress reliever for weekend projects (tiling a bathroom takes a weekend and is actually shockingly easy) and paint the interior/exterior (again, super easy and totally changes the feel). Couple that with good staging and in 2.5 years you could potentially turn a profit. My wife and I did that with our house during residency and when we sold at the end of residency it killed >50% of my student loans (realizing there is also some luck involved).
 

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During the first few years of a loan you will be paying mostly interest. So, Your $1500 payment will be something like $1000 interest and $500 toward paying down the home. Then add in seller costs.
 

NITRAS

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Look at amortization tables for 15 and 30 year mortgages. Very little of your payment is principle reduction.

A market hiccup or a jump in interest rates could leave you unable to sell when you want to. You lose very little by renting for 6 or 12 months. You’ll buy better because you know the market better. You’ll have more down payment.

Rent isn’t throwing money away.

Besides, even though I’m almost 2/3rds of the way paying off my house, I still pay as much in interest and taxes as I did in rent. (House is bigger though).
 
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Merely

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330k becomes 190k..wow that’s such bs that’s like HALF going to taxes
 
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VA Hopeful Dr

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330k becomes 190k..wow that’s such bs that’s like HALF going to taxes
Reading is hard

Ok so I'm just trying to think in advance. So I just finished residency and signed an offer for a position to be making 330,00 a year. After taxes, insurance deductions etc Ill be taking home 190k a year. Now I signed an offer for 2.5 years. And I really want to buy a house. I understand you should rent a house first to test the water and make sure you like the job etc etc. Now in the the event that I buy a house I kind of want your opinion on this.
So plugging in a few different numbers, all assuming single with no deductions (or the worse possible tax picture):

If OP lives in Iowa take home is 209k with just taxes or 36% overall tax rate.

Washington State gets 227k or 31%

Florida is 228k or also 31%.

So no, the tax rate isn't anything close to 50%.
 
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Merely

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Reading is hard


So plugging in a few different numbers, all assuming single with no deductions (or the worse possible tax picture):

If OP lives in Iowa take home is 209k with just taxes or 36% overall tax rate.

Washington State gets 227k or 31%

Florida is 228k or also 31%.

So no, the tax rate isn't anything close to 50%.

He said take home 190k tho
 

The White Coat Investor

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Ok so I'm just trying to think in advance. So I just finished residency and signed an offer for a position to be making 330,00 a year. After taxes, insurance deductions etc Ill be taking home 190k a year. Now I signed an offer for 2.5 years. And I really want to buy a house. I understand you should rent a house first to test the water and make sure you like the job etc etc. Now in the the event that I buy a house I kind of want your opinion on this.

My understanding is that most people don't buy a house and sell it less than a year after buying because they don't have enough equity. But lets compare renting vs buying. Lets say I rent a house 1.5k a month for 2.5 years, that equals to 45k that goes right down the drain that I will never get back. Total net loss 45k...…

On the other hand, lets say for example I use a physician loan with 3.75% interest with no down payment and buy a house for 250k. Monthly mortgage is about 1.5k a month and tax is about 5.5k per year Closing cost that buyer pays is about 3k. Now lets say 2.5 years from now I want to sell it. Lets say house value went down and it is now with 240k and I decide to sell it for 240k I've put in about 45k into the house through mortgage from monthly payments. Take out the closing cost from the original purchase. Take out the 16k in taxes that I paid. Take out the 10k difference in the value that I lost and the 15k in interests Take out 14k in commission fees from selling the house. I have a net loss of about 15k vs the 45k if I were to rent a house.

Am I getting this wrong. If so can someone steer me to the right direction if so?

You aren't counting everything. You're not coming out ahead in 2.5 years unless there is serious appreciation. Typical round trip transaction costs are 15% of the value of the home. So a $250K home you're talking about $38K. That's what you need it to appreciate in order to come out ahead. Only a very small percentage of your mortgage payments build any equity. The rest is thrown away (i.e. traded for housing) just like rent (and property taxes, and maintenance costs, and insurance costs etc).
 
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