MD & DO Buying a house vs Renting Debate

[Tom&Jerry]

After much consideration and some research I think it will be best for my money to have my parents put a 20% down payment on a 70k house, live in it though medical school and in the mean time charge someone basically the mortgage payment to live in the other bedroom. Rent is about $600-$700 for similar units. So I was looking to charge around $500 considering they will have to live with someone else they don't know. Housing prices are extremely low in the area as everyone is trying to sell at the moment, it seems things can only go up from here. And then either sell what I can at the end of the 4 years or continue renting out to med/nursing students or undergrads. Its a fairly new house that was just recently renovated.

I assume if I can have someone pay rent 3/4 years that I am there, I would net $18,000 in rent, plus another $24,000 I would save in paying rent myself. That's a $42,000 swing from renting. Now say I put max $2,000 in maintenance a year I'm still up $34,000. So if I need to sell at the end of 4 years, I can sell for 40k and still be better off than if I rented. I know there is added stress, and I may have to pay rent and mortgage at the same time due to away rotations but I it still doesn't come close. The house right now is for sale by owner so I don't need to worry too much from those fees. This also doesn't take into consideration IF the housing market in this area goes back up again.

Is there anything else I need to consider before going through with this?

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[libertyyne]

Considerations:
1)Taxes
2) Repair bills
3) Rental Certification/beuracracy.
4) Insurance
5)Time comittement
6) Roommate Headaches.


The worst of all of this is the random stuff that breaks that requires you to either pay someone to fix it in a timely fashion or DIY. the time required from that will detract from your schooling.

But seems likes a reasonable plan otherwise.

 

[curbsideconsult]

6) Roommate Headaches.

^ Except they're not just your roommates, they're your tenants and you have legal obligations to them.

 

[Tom&Jerry]

^ Except they're not just your roommates, they're your tenants and you have legal obligations to them.

I do agree. Considering how much I will be saving and this is calculating I get to spend at least 1 year by myself I don't see myself getting too frustrated. Taxes definitely reduce the $ I have to work with as approx taxes are about 2%, so that's about 24,000 grand less.

I'm so 50/50 about this at the moment, any other insight or personal experience is greatly appreciated

 

[Tenk]

This is a good idea assuming a few things:

1) the house is fine as is and is not a fixer upper. You will not have time or energy. Period.

2) the local real estate market is decent. Hard to predict what it will be in 4 years but if it is currently crap, that may be a bad investment.

3) you know the person you are going to rent to. I would actually advise you live there solo until you find someone in med school who is your bff and you WANT as a roommate rather than settling for someone. There is a ton of apartment and housing movement the summer of ms1 as people switch roommates. I moved myself from single to roommate and it worked out great.

Just my thoughts. Wish I would have had the money to do this going in.

 

[Cranjis McBasketball]

After much consideration and some research I think it will be best for my money to have my parents put a 20% down payment on a 70k house, live in it though medical school and in the mean time charge someone basically the mortgage payment to live in the other bedroom. Rent is about $600-$700 for similar units. So I was looking to charge around $500 considering they will have to live with someone else they don't know. Housing prices are extremely low in the area as everyone is trying to sell at the moment, it seems things can only go up from here. And then either sell what I can at the end of the 4 years or continue renting out to med/nursing students or undergrads. Its a fairly new house that was just recently renovated.

I assume if I can have someone pay rent 3/4 years that I am there, I would net $18,000 in rent, plus another $24,000 I would save in paying rent myself. That's a $42,000 swing from renting. Now say I put max $2,000 in maintenance a year I'm still up $34,000. So if I need to sell at the end of 4 years, I can sell for 40k and still be better off than if I rented. I know there is added stress, and I may have to pay rent and mortgage at the same time due to away rotations but I it still doesn't come close. The house right now is for sale by owner so I don't need to worry too much from those fees. This also doesn't take into consideration IF the housing market in this area goes back up again.

Is there anything else I need to consider before going through with this?

On paper I want to do this but seems too risky. What if you don’t find tenants? What if you can’t seem to sell the house? I wanted to do it but then just realized I don’t want to be tied up in something with so much unpredictability in my life for the next 10 years, along with the debt

 

[Redpancreas]

This sounds really good in theory but the issue is looking for someone to take the mortgage and someone to ultimately buy. I’m assuming you get the $24,000 from 500*12*4years and that’s the value of what you pay. What about during the 3 month summers periods when they’re not going to want to stay? Also what if they want to move out all of a sudden? Being that you’re not some fancy leasing company, how do you stop them from doing that? I guess you can have them sign year contracts and have them pay up-front or else have the contract say they have to continue paying for a year’s worth of time until they move out...good luck finding someone to take that though.

I think Tenk’s idea is good where you start living there initially and scope out students who you trust. Also you could recalculate a situation where you find someone to stay and pay mortgage for the hot times and just assume worst case scenario that you’re going to take the hit and pay yourself. Also if housing prices are cheap in the surroundings, $500/month isn’t really going to be that appealing. Consider dropping it. I’m paid that much to rent a decent 2 bedroom apartment in multiple areas for undergrad, medical school, and now residency.

 

[theonlytycrane]

It'll be a headache if you don't find a respectful roommate (or if you do, but then they move out so you're looking for new roomies after m1/m2/m3).

 

[DBC03]

I feel like this could be a great idea, but also want to know if there are HOA fees - this sounds super cheap, and we’re getting ready to move to a ridiculously cheap area.

My husband and I are renting our house out right now and it’s been a great experience. But my cousin rented their house out and it was a disaster. I think this could work if you rent to another medical student who you get along with. There are pros and cons - and most have been addressed. We’re considering doing something similar, but my husband is super handy and can do all repairs and he can also handle the minor details of renting.


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[Durty-Trixxx]

3) you know the person you are going to rent to. I would actually advise you live there solo until you find someone in med school who is your bff and you WANT as a roommate rather than settling for someone. There is a ton of apartment and housing movement the summer of ms1 as people switch roommates. I moved myself from single to roommate and it worked out great.

This is really the key point. If the OP is lucky to have a tenant who is also a med student or grad student or such, it will probably work out.

However, you get some average working stiff in there who likes to play music until 2am and invite over all his pot-smoking buddies, it could turn into a real nightmare. I know rent is a one-way money pit, but I never regretted living alone in my own apartment during med school. It's worth it's weight in gold to be able to have 100% control over your living space.

 

[The Knife & Gun Club]

Just my 2 cents but I have a good friend who did this and it has worked out great for her.

It’s a buyers market down here, so she chucked a low ball estimate at a few places and just waited to see what sticks.

Of note though, she’s got some money so it wouldn’t be the end of the world if she couldn’t find a tenant. So as long as you have a decent financial cushion from your parents then I’d say that’s fine.

 

[Certified Corsair]

Just my 2 cents but I have a good friend who did this and it has worked out great for her.

It’s a buyers market down here, so she chucked a low ball estimate at a few places and just waited to see what sticks.

Of note though, she’s got some money so it wouldn’t be the end of the world if she couldn’t find a tenant. So as long as you have a decent financial cushion from your parents then I’d say that’s fine.

Depends on what you're trying to buy or where you live. My parents keep getting mail from people asking them to sell their house. We've had two in our neighborhood sell for close to 500k and they could easily get the same for this house, which would be almost 18% more than what they would have gotten a year ago, or possibly a year from now.

Real estate is clearly in a bubble right now which will pop at some point. If it's worst case scenario and the house you bought is undervalued when you try to sell, you could rent it out a for any given duration until the market gets better. But this just adds more stress/burden to the owner (assuming it's a med student) if you're trying to make a profit at the end of the day, or just net zero.

Like OP, I've looked into buying as well because I can afford a down payment and avoid PMI, but it's nice to know these possibilities ahead of time before putting in that deposit.

 

[The Knife & Gun Club]

Curious what you all think about how this debate would change if OP (or anyone) had cash on hand to buy the house outright - no mortgage.

Would it be better to have the money in a house that you'll have to sell in 4ish years, or invested in some safe investments like index funds?

 

[DBC03]

Curious what you all think about how this debate would change if OP (or anyone) had cash on hand to buy the house outright - no mortgage.

Would it be better to have the money in a house that you'll have to sell in 4ish years, or invested in some safe investments like index funds?

Someone please answer this! We’re probably moving to a VERY cheap location and we’ll have money to purchase a house outright. We’ll likely save $30,000 over four years - including all extra fees for purchasing the place - compared to renting. Right now that’s the plan, but I’m interested in what might be a better strategy.


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[libertyyne]

Curious what you all think about how this debate would change if OP (or anyone) had cash on hand to buy the house outright - no mortgage.

Would it be better to have the money in a house that you'll have to sell in 4ish years, or invested in some safe investments like index funds?

You will reach different answers based on different assumptions like rate of return on investment, tax burden on selling , housing market risk factors and possible rate of return.

how much money are we talking about? And are you taking out loans for school?

 

[Durty-Trixxx]

Someone please answer this! We’re probably moving to a VERY cheap location and we’ll have money to purchase a house outright. We’ll likely save $30,000 over four years - including all extra fees for purchasing the place - compared to renting. Right now that’s the plan, but I’m interested in what might be a better strategy.

Should make sense if you know for sure you'll be spending all the clinical rotations in the nearby area. Might even make more sense if you decide to stay for residency. Plus, you can take out a home equity loan for unforeseen expenses instead of maxing out student loans.

 

[DBC03]

Should make sense if you know for sure you'll be spending all the clinical rotations in the nearby area. Might even make more sense if you decide to stay for residency. Plus, you can take out a home equity loan for unforeseen expenses instead of maxing out student loans.

All clinical rotations are in the area (except for any away sub-Is, but my husband would have to be in the area for work). I have a scholarship that would cover nearly all of tuition, but I hadn’t thought of the home equity thing - that would actually be a better idea than taking out any government student loans to cover unforeseen expenses. This all depends on us successfully selling our house. That is not going as well as we hoped... I am nervous about putting all of our money in the market for four years because we willl want to use that later. The housing market where we are moving doesn’t tend to fluctuate, but we might be able to get a foreclosure to prevent losing too much in case of a downturn.

We’ve done a fair amount of house flipping, so we aren’t too worried about losing a ton - I think we could lose some money on it, but no more than what we would have lost just renting for four years.


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[libertyyne]

All clinical rotations are in the area (except for any away sub-Is, but my husband would have to be in the area for work). I have a scholarship that would cover nearly all of tuition, but I hadn’t thought of the home equity thing - that would actually be a better idea than taking out any government student loans to cover unforeseen expenses. This all depends on us successfully selling our house. That is not going as well as we hoped... I am nervous about putting all of our money in the market for four years because we willl want to use that later. The housing market where we are moving doesn’t tend to fluctuate, but we might be able to get a foreclosure to prevent losing too much in case of a downturn.

We’ve done a fair amount of house flipping, so we aren’t too worried about losing a ton - I think we could lose some money on it, but no more than what we would have lost just renting for four years.


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What does rent look like in the area?

What is total cost of house?

You can get a CD return rate of about 2.5 % these days with little risk besides inflation.

 

[DBC03]

What does rent look like in the area?

What is total cost of house?

You can get a CD return rate of about 2.5 % these days with little risk besides inflation.

Rent would be $750 to $1000+ per month, but we could purchase for less than $150,000 - even cheaper if we go for a smaller place or get a foreclosure. We figure we’re spending about $14,000 on mortgage payments each year and if we put that toward the remainder of my expenses, we could be completely debt free through med school.


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[raiderette]

Home equity loans are not eligible for tax benefits if used for purposes other than home improvement. Also, government student loans do not have to be repaid in the event of your death as opposed to home equity loans. Finally, student loans are sometimes paid by future employers.

 

[Durty-Trixxx]

All clinical rotations are in the area (except for any away sub-Is, but my husband would have to be in the area for work). I have a scholarship that would cover nearly all of tuition, but I hadn’t thought of the home equity thing - that would actually be a better idea than taking out any government student loans to cover unforeseen expenses.

I remember talking to a guy who went to med school in the early 90's. He worked as a hospital pharmacist in the 80's so he was able to save up enough money to buy a house before he started med school. Him and his wife then got a home equity loan that paid for about 75% of his total med school costs. Back then the main option for most health profession students was high-interest HEAL loans, so the lower interest on the home equity loan was a big advantage, even though he had to start making loan payments during school. Luckily, his wife worked full-time as a nurse at a nearby community hospital so her salary covered the loan payments and also the 25% remaining on his med school costs. He told me he finished his OB/GYN residency and sold the house and had zero debt !!

 

[libertyyne]

Rent would be $750 to $1000+ per month, but we could purchase for less than $150,000 - even cheaper if we go for a smaller place or get a foreclosure. We figure we’re spending about $14,000 on mortgage payments each year and if we put that toward the remainder of my expenses, we could be completely debt free through med school.


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the only other thing is closing costs and comissions. Plus taxes and upkeep.

 

[BombsAway]

the only other thing is closing costs and comissions. Plus taxes and upkeep.

Srsly, screw realtors. Tryna take 6% for the back breaking work of posting some pics of my house on zillow. Not today, ISIS.

 

[Certified Corsair]

Rent would be $750 to $1000+ per month, but we could purchase for less than $150,000 - even cheaper if we go for a smaller place or get a foreclosure. We figure we’re spending about $14,000 on mortgage payments each year and if we put that toward the remainder of my expenses, we could be completely debt free through med school.


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Just make sure that what you are paying each month is more in principle than taxes. No clue where you are but some places in the country aren't worth buying a house given a students position, depending on taxes. Midwest and the south are probably fine, but if you're on the east coast (especially the northeast... looking at you, NJ) you could see anywhere from $2000 in taxes a year to $6500, and with the growing interest rates right now that becomes a lot of blown money at the end of the year not becoming equity.

Just make sure you consider all of these.

 

[DBC03]

Just make sure that what you are paying each month is more in principle than taxes. No clue where you are but some places in the country aren't worth buying a house given a students position, depending on taxes. Midwest and the south are probably fine, but if you're on the east coast (especially the northeast... looking at you, NJ) you could see anywhere from $2000 in taxes a year to $6500, and with the growing interest rates right now that becomes a lot of blown money at the end of the year not becoming equity.

Just make sure you consider all of these.

Where I currently live (major hurricane zone), taxes are low ($1200 per year on our place), but insurance is over $2400 per year. I’ve heard taxes are relatively the same where we are heading (or lower) (think southern state non-metropolitan area), but insurance is dirt cheap. So we are looking at the difference in monthly rent vs taxes+insurance (no mortgage at this point).

This is a really important point for others looking into this. Also consider HOA fees, which can be over $600/$700 per quarter. That’s a lot of money each month that is kind of going nowhere (except maybe lawn care and structural insurance). Break down all the costs for comparison.


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