Buying a house during residency

[Jixapotato]

Hey guys! So I'm going to graduate from medical school and am going to start residency in July!
As title suggests, I am looking to buy a house during residency, and was wondering if this is a good idea.
Here's my situation:
-I don't have student loan debt
-I am in an area where average home cost is around 250k-300k (in Arizona)
-I plan to use a physician loan mortgage, probably going to put 5%-10% down depending on price and rate, for a 30y mortgage
-I am staying here for 3 years of residency, and very likely another 3 years somewhere in town for my fellowship training.

So here's my question, do you think this is a good idea? should I aim for a condo or a house? Open to any suggestions! TIA!

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[Raryn]

Generally a poor idea for 3 years. A marginally profitable idea for 6. Problem is there are no guarantees you'll stay in the area for fellowship.

 

[gutonc]

Generally a poor idea for 3 years. A marginally profitable idea for 6. Problem is there are no guarantees you'll stay in the area for fellowship.

Or that the market won't tank and you wind up underwater when you have to sell.

I would suggest using one of the rent/buy calculators to get a rough sense of the rental/purchase market and see what it comes up with.

Also keep in mind that, unless you've got a spouse/partner with more free time on their hands, the routine upkeep/maintenance/repairs on a house are something that will be a major hassle with a resident schedule.

 

[DokterMom]

Any special reason why you wouldn't be better off renting? If you don't have kids who need great schools or dogs who need a yard, you'll be much better off letting someone else handle the maintenance headaches. You could even rent a house if you were sick to death of apartments...

Three years is rarely enough to secure break even, let alone a decent return. And you'd hate to be tied to an area for fellowship or an attending job just because you couldn't sell well.

 

[Raryn]

Or that the market won't tank and you wind up underwater when you have to sell.

I would suggest using one of the rent/buy calculators to get a rough sense of the rental/purchase market and see what it comes up with.

Also keep in mind that, unless you've got a spouse/partner with more free time on their hands, the routine upkeep/maintenance/repairs on a house are something that will be a major hassle with a resident schedule.

The New York Times calculator is my favorite:

Is It Better to Rent or Buy?

The choice between buying a home and renting one is among the biggest financial decisions that many adults make.

www.nytimes.com

 

[gutonc]

The New York Times calculator is my favorite:

Is It Better to Rent or Buy?

The choice between buying a home and renting one is among the biggest financial decisions that many adults make.

www.nytimes.com

Mine too. But a lot of people have b****ed about the assumptions it makes in the past.

 

[Jixapotato]

Mine too. But a lot of people have b****ed about the assumptions it makes in the past.

The New York Times calculator is my favorite:

Is It Better to Rent or Buy?

The choice between buying a home and renting one is among the biggest financial decisions that many adults make.

www.nytimes.com

So I did the calculator to the best of my abilities (using newest data for rent/home price growth etc. interestingly in my area the rent grows faster than the home price) and if I stay for 9 years, it tells me to buy if the rent > 760$, and if I stay for 3, to buy if rent >2000$. So I guess it really depends on how long I plan to stay. In the second scenario, is it feasible to be away and leave your house as a rental home (managed by a 3rd party company)?

I am certainly worried about the time requirement for house maintenance, and I try to look for low-maintenance homes (1 floor, smaller lawn space, no pool, newer house etc.), and this is why I am considering a condo...

Thank you for your advice guys!

 

[Raryn]

So I did the calculator to the best of my abilities (using newest data for rent/home price growth etc. interestingly in my area the rent grows faster than the home price) and if I stay for 9 years, it tells me to buy if the rent > 760$, and if I stay for 3, to buy if rent >2000$. So I guess it really depends on how long I plan to stay. In the second scenario, is it feasible to be away and leave your house as a rental home (managed by a 3rd party company)?

I am certainly worried about the time requirement for house maintenance, and I try to look for low-maintenance homes (1 floor, smaller lawn space, no pool, newer house etc.), and this is why I am considering a condo...

Thank you for your advice guys!

Three things:

1) The reason years are so important is because of fixed costs. Buying/selling a house leads to a huge number of them, particularly closing costs each way. If you divide them out over 3 years, it's pretty unlikely you've saved enough in rent to make up the difference. Dividing them out over 5+ years in most markets is the break-even point. There's areas of the country where it could be 1 year (cheap houses, more expensive rent) and other places where it could be 10 years (expensive houses, relatively cheaper rent).

2) Planning on renting out a house if you move way is a common plan, but also one that can lead to a lot of headaches. I personally never want to be a landlord - I don't want to be stuck dealing with a 3am phone call for an overflowing toilet and I don't want to pay anyone a significant amount of cash flow to do the same.

3) Condo is definitely easier, but things can still break. You can do things like buy a home warranty to decrease your possible expenditure, but if your washing machine breaks, you're still going to need someone to be able to be physically present in the house in the middle of the day to let the people trying to fix it in and watch them. Do you want to be prepared to deal with that while you're on an ICU night shift?

 

[SLC]

We purchased in residency, but we were in a market where it was cheaper to pay a mortgage than to rent on a month to month basis. So we saved a lot of cash every month that way.

We also rode the home price increase wave of the economic recovery. Residency was in a medium sized city about 45 mins from a very expensive major metro area with a booming finance sector, so last year when we sold, we did so at a handsome profit, our home sold for roughly $100k more than we purchased it for.

If I were entering residency today, I wouldn’t buy. I see too many predictions that we’re about to enter another economic downturn or recession. There’s a real chance you could get burned bad in that scenario, and lose a lot of cash (or get stuck holding a mortgage that you can’t offload). Either way it’s a lot of risk, and I don’t think the time is right at this moment.

 

[DokterMom]

2) Planning on renting out a house if you move way is a common plan, but also one that can lead to a lot of headaches. I personally never want to be a landlord - I don't want to be stuck dealing with a 3am phone call for an overflowing toilet and I don't want to pay anyone a significant amount of cash flow to do the same.

Three other important points to consider for this scenario (having been there):

1) Your capital (down-payment and any equity) are still tied up in this other asset, so you won't have it to apply toward your new home.

2) Even if you're able to rent your old place out at a positive cash flow, your prospective new lender will discount your rental income by a pretty sizable chunk to allow for Realtor's commissions, an empty month every so often and maintenance costs.

3) Even though the income stream is discounted heavily, the full debt counts against you in your lending ratios.


Bottom line, owning this other property will be an albatross around your neck that hampers you from buying a better house when otherwise, you would finally have the money to do it.

 

[AdmiralChz]

This is asked so frequently it almost should be a sticky. 2 threads with good stuff on it from the last couple of years:

Buying vs renting house during residency

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forums.studentdoctor.net

Mortgage/rent payment in Residency, especially intern year

I'll make this quick. I just matched at a program in Pittsburgh and will make 52k/year. My calculations tell me I will bring up (after taxes) $1350 bi-weekly. I will have a wife that will be UNABLE to work and we are assuming it will be for the entire first year +. I have looked at a number...

forums.studentdoctor.net

In general, I certainly wouldn’t advise buying a house only for 3 years for reasons detailed above. If you want to argue your point to do it with everyone just do it and let us know how it works out for you - you don’t need to convince us, just yourself.

 

[VA Hopeful Dr]

We purchased in residency, but we were in a market where it was cheaper to pay a mortgage than to rent on a month to month basis. So we saved a lot of cash every month that way.

We also rode the home price increase wave of the economic recovery. Residency was in a medium sized city about 45 mins from a very expensive major metro area with a booming finance sector, so last year when we sold, we did so at a handsome profit, our home sold for roughly $100k more than we purchased it for.

If I were entering residency today, I wouldn’t buy. I see too many predictions that we’re about to enter another economic downturn or recession. There’s a real chance you could get burned bad in that scenario, and lose a lot of cash (or get stuck holding a mortgage that you can’t offload). Either way it’s a lot of risk, and I don’t think the time is right at this moment.

Same, though we lucked out in catching a massive local real estate boom. Bought in 2011 for 220k, sold in 2014 to 270k. Home value now is around 400k. Most places, 3 years isn't enough to make much back.