Buying A House

[Surgeon Guy]

For all currnet residents, is buying a house a good or bad idea during residency? I don't mean a huge house, but just a small 1,000 sq. ft. home for less than 100k. With a 30 year mortgage and a bit over 6 %, it comes to about 600 a month (less than most apartements). Also, the value should increase over time, so I can sell it when I am done with residency, and even collect a small profit. Do many residents do this?

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[BADMD]

For all currnet residents, is buying a house a good or bad idea during residency? I don't mean a huge house, but just a small 1,000 sq. ft. home for less than 100k. With a 30 year mortgage and a bit over 6 %, it comes to about 600 a month (less than most apartements). Also, the value should increase over time, so I can sell it when I am done with residency, and even collect a small profit. Do many residents do this?

Don't forget about insurance and property taxes. That added another 50% onto my mortgage. It will be more if you have to pay PMI.

The decision to buy a house is going to be based on many factors, many of them personal. It may make sense economically and not personally or even the other way around.

 

[mlw03]

i would think it depends on where you are, how much you're willing to commute, etc. i doubt many residents at programs in manhattan are buying homes, but i'd think plenty of residents at midwestern programs can afford a small home. depending on where i end up, i certainly plan to do what you suggested and buy a small home. even if the price stays pretty much flat over the 4 years of residency and you resell at about the same price, you only "pay" for the fees associated with selling. and as you said, the mortgage can often be less than rent on an apartment. but again, i would think the biggest determinant of feasibility is location and the local real estate market.

 

[Old_Mil]

Also, the value should increase over time, so I can sell it when I am done with residency, and even collect a small profit. Do many residents do this?

Don't assume this. There are many real estate markets where values are flat or dropping precipitously...do some research (which doesn't involve a realtor).

 

[Pilot Doc]

even if the price stays pretty much flat over the 4 years of residency and you resell at about the same price, you only "pay" for the fees associated with selling. and as you said, the mortgage can often be less than rent on an apartment.

Not true. With a typical 30 year mortgage your principal will just pay the realtor commission. So at that point you're net even ... you think

What else have you spent on the house
- Insurance
- Property taxes
- Maintenance and repairs (potentially significant)
(the above three things are a reaosn why rent may exceed mortgage costs)
- Interest, which will compose a large majoritiy of your monthly payments

Interest and taxes are deductible, but this benefit is greatly overblown. Your first year, you'll only have six months of income and likely won't pay enough taxes to save anything. Past that, you will only gain tax benefit to the extent that your itemized deductions exceed the standard deduction. With the house a resident could afford that's not likely to be much. If you have a high earning spouse, the situation favors the house a bit more. If you have a low/no earning spouse and kids, the taxes favor renting even more.

There are some great reasons to buy a house - pride of ownership, lack of good rental options, etc but financial advantage and the silly notion that rent is "throwing money away" is NOT one of them.

 

[samtang]

Buying a home is a very wise investment.
1. Any updates you make to the home during the course of ownership increases the value.
2. Tax benefits
3. Cheaper than renting.
4. First time home owners can put as little as 2% down in most states with an FHA loan.


I bought my first home (1,000 sqft. 2bed/2bath top floor condo) when I started med school with a $21,000 stipend, for $74,000 and now it is worth ~200,000. My 30 year mortgage is about $550 plus $125 in condo fees (external maintenance) bringing it to a total of $675 which is much cheaper than renting in my area ($1100 avg).

 

[PeepshowJohnny]

One thing to consider is that if something goes wrong in a property you own, it can be a massive pain to fix.

Let's say your central air breaks in the sweltering August heat of your Intern year. If it's an apartment, you get on your landlords ear and complain until they fix it. If it's your house, its your responsobility. You'll have precious little time to fix it yourself (if you even know how) and if you have to hire someone to fix it, you'll have to find someone who'll agree to work on it when you're off working, and of course it has to be someone you trust in your house when you're gone.

Of course, you can always hang out in the hospital where it's nice and cool, but who wants to be at the hospital when you don't have to be?

 

[f_w]

- If you are going to be in the same place for more than 3 years, buying is the way to go.
- You can't assume that your home will appreciate these days. Make your financial assumptions based on the scenario that the value will remain flat.
- Don't get tempted into an ARM because you 'will sell it in 5 years anyway'.
- You need to either have an emergency fund or a line of credit to cover a roof-replacement or AC/heat blowup.
- Depending on your state, BoA might offer you a 'doctors mortgage' with 100% financing, no PMI. Comparison shop, a local bank might beat them for your business.
- Don't underestimate the cost of heating/AC.
- Property tax and hazard insurance is typically part of the quote for your mortgage. Make sure your mortgage includes an escrow service for taxes and hazard insurance (some discount mortgage companies don't include this).

 

[Old_Mil]

http://www.housingbubblecasualty.com/

 

[Pilot Doc]

A house offers the possibility of financial gain or loss. It entails risk and offers reward. On the whole, compared to other investments, it's a good risk/reward balance, particularly over the long term.

Renting offers no possibility of financial gain or loss. You pay the bill every month just like your telephone and in return you receive a place to live with insurance, maintenance, taxes paid, etc. If the heat breaks or prices drop (or rise) it's your landlords problem.

The issue as a resident is your risk tolerance and the benefit of reward. What if the a/c breaks? What if you have to let the plumber in at 9am for three days straight, etc? What if you make $20K when you sell the house? Will it change your lifestyle now that you have the big attending job? Renting is a vastly underrated option for residency.

 

[Pilot Doc]

Buying a home is a very wise investment.
1. Any updates you make to the home during the course of ownership increases the value.
2. Tax benefits
3. Cheaper than renting.
4. First time home owners can put as little as 2% down in most states with an FHA loan.


I bought my first home (1,000 sqft. 2bed/2bath top floor condo) when I started med school with a $21,000 stipend, for $74,000 and now it is worth ~200,000. My 30 year mortgage is about $550 plus $125 in condo fees (external maintenance) bringing it to a total of $675 which is much cheaper than renting in my area ($1100 avg).

I disagree with your post strongly

1. Updates to the house will increase the value, but only very marginally in most cases. You'll retain about as much money by purchasing a new car
2. Tax benefits are much overblow for a typical resident. See post above.
3. Comparing mortgage vs rent is a poor comparison of expense. Rent includes a number of services that mortgage does not, most notably responsibility for maintenance and repairs

As for your example, I'm glad you made so much money on your condo. The reason your mortgage is so much less than your rent is that rents have likely climbed since real estate values tripled where you live. I suspect rents were a lot closer to your mortgage when you bought a condo for $74K.


You presumably offer the example of your condo as some encouragement to buy. Given that your condo has roughly tripled in value over the 8 or so years of your md/phd. Do you expect that to happen again over the next 8 years? Will it be worth $600,000 in 2015?

The real estate market over the last 10 years has been exceptional and driven by loose credit that is going away. We'll likely return to a more typical pattern of slow, steady appreciation that will barely cover a realtor's commission over 3-5 years

end soapbox

 

[mgdsh]

Most residencies are 3-4 years if not more. IMO rent is nothing but a waste. You are basically paying someone else's mortgage for them, and sure real estate fees and things like upkeep of the house can add up, but no one said you have to sell the house the day residency ends. You can always keep it for sometime. If you desperately need money at that point while you're getting settled as an attending you can always borrow against your house. I wouldn't normally give that advice to most people, but most people don't have the stability and income level that a starting attending does.

 

[EM_Rebuilder]

I highly suggest buying. If you are a 'typical' resident with no spouse and only you measly income, certainly keep the purchase price small.

Buy something in a relatively desirable neighborhood and try to get something that needs some minor repairs (or more major if that is your thing). Anyone that is a half way human being should be able to patch holes, repaint, change out some light fixtures, do some flooring (or pay to have new floors installed), etc (places like Home Depot even have little weekend classes for this type of thing... its NOT rocket science!). These are the little things that can put you MUCH in front of the profit curve when times comes to sale. And yes, residency keeps us busy, but it will not take that much time to do such repairs as I mentioned and they do not all have to be completed the first week you live there. Another thing, DO NOT use a realtor. The match gives us PLENTY of time to go and check out a new town. Talk to residents/coordinator about the 'decent areas of town' and where do most residents live. Then look at the newspaper, spend a week in town driving around those areas looking for signs. Avoid the internet as usually the stale stuff ends up there... a newspaper online classfied is ok... but places like realtor.com is laden with overpriced stuff. You will be able to find a For Sale By Owner home if you look... which should be priced under the 'market price'. (FSBO, the owner should be priced cheaper...saving 6% off the realtor take... and you have to do a bit more leg work since the realtor doesnt take you to dinner in her new caddy). When its time for sale, place a FSBO sign in your add, hit up craigslist and the newspaper...price it under the 'market' by 5% or so and you will sale it quickly. Be cautious buying forclosures or HUD stuff if you have no experience. They are more apt to need major repairs...

The last thing, I already mentioned, keep the price low. If you go and buy a 250K stamped out house in town in a large city in Texas....good luck 'making money' on that in 3-6 years. If you buy the 75K decent neighborhood that needs some updating....good chance you can get 100K out of that. Also, these crazy priced home areas such as California, I would be very cautious at buying a home as I understand prices start at 400K+ for something safe and thats a headache you do not need.

I have bought 2 homes. Both, I found within 24 hours of visiting my new area. Lubbock, TX and now Jackson, MS. I did quite a bit of work on my home in Lubbock...but still relatively basic. Paint, patch, change out light and water fixtures, laid some ceramic tile and woodfloors, replaced a few doors..I am more handy that the typical person, but again, this stuff really isn't rocket science... got it all ready for sale, put pictures on a website, placed it on craigslist, put a sign in the front yard, called an ad into the paper and left town. Planned on coming back the next weekend to have my own 'open house', but I got a call, fellow offered to pay my asking price, I canceled the newspaper ad before it even came out.

The house I bought just outside of Jackson, MS in the country needs much less work than before but I certainly fell like I stole it compared to other homes I looked at in the area (do go browse realtor ads and drive by homes on your own... as a comparison). My home was built in the 80s and needs some mild updating (they just redid the kitchen before they moved out). I am slowly working at adding carpet and have some tile work to do. I am very confident I will come out with a profit in 4 years....


Good luck finding a home...

 

[MossPoh]

It is interesting when I compare this to most europeans. They are in awe at the fact we buy as much as we do. It really is a decision up to you...economically viable now may NOT be in a few years...who knows. Stuff happens between now and then. It is possible to lose money on a house, especially with unforseen circumstances. (Replacing roof, cracked foundation, broken AC units, burst pipes in winter, and on and on and on) While these don't usually happen, they probably will at some inconvinenet time and cost a lot of money and stress. (except the foundation..that is a bit extreme)

Also, even if it is a small house...furnishing can get real expensive real fast. Especially if you have a significant other that has expensive taste.

If you have kids those cheap small houses may not be in a great school system...added pain in the ass.

The current housing market is pretty sketchy to say the least. So, if you do buy a house, just do your research and make sure it is in a nice up and coming area.

 

[Pilot Doc]

Good luck getting your money out of a house in Jackson as everyone moves to Madison and Brandon.

Seriously, I don't think Jackson (or Lubbock) is typical of the market that most residents live in. The number of residents who can buy a home in a reasonable area for $75K is quite low.

 

[EM_Rebuilder]

Good luck getting your money out of a house in Jackson as everyone moves to Madison and Brandon.

Seriously, I don't think Jackson (or Lubbock) is typical of the market that most residents live in. The number of residents who can buy a home in a reasonable area for $75K is quite low.

I use Jackson loosely, I am in the country on 3 acres south and west of the big city.....

And you are probably correct on the market aspects. If you have no other income other that residency income, it would probably get very difficult to afford something too high off the 100 mark....

 

[Blade28]

Seriously, I don't think Jackson (or Lubbock) is typical of the market that most residents live in. The number of residents who can buy a home in a reasonable area for $75K is quite low.

Yeah...$75k? Even here in Atlanta, one of the last major cities in the US (excepting perhaps Phoenix) with reasonable housing costs, a 2-bedroom condo/house in a decent area of town will run at least $175k.

 

[Pir8DeacDoc]

I certainly miss the days of affordable housing. Went to med school in eastern NC and could afford a very nice condo a mile or so from the hospital for the mid 80's. Now in New Hampshire something similar is mininmum 175 to 200K and that doesn't even factor in the property taxes which are nasty around here. I've recently decided to buy something but I'm not sure how much house I can afford on a resident salary. If you can buy a nice condo with good location in your area for less than 100k it seems a good buy. It's when you start having to spend almost twice that much that it gets a little more tricky.

 

[Puffle]

I think one benefit of not buying a house now, is that you can use all those benefits that they give to first time home buyers when you buy "the real deal." (Like being able to withdraw from your IRA without penalty to make a down payment.) Also, with housing market in it's current state of entropy, who knows what kind of market you'd have sell that hypothetical house? I've seen a lot of my more senior residents and fellows get stuck paying two mortgages (or mortgage + rent) for more than a few months right after finishing, because whoever hires you will want you to start July 1, and won't wait for you close on your old house.

 

[Bertelman]

II would be inclinced to recommend buying a house, but if you are going into surgery I may be more hesitant. I bought for med school, made a decent profit with some moderate repairs (like EM described above). I lucked out and bought in what became a desirable neighborhood, but also put a fair amount of time and $$ into the repairs and improvements. Note that I didn't necessarily do the repairs because I though I would make money. I just enjoy doing that stuff. The difference is that if you really don't enjoy doing that stuff, in the limited free time of your residency, you won't spend the time to paint that spare bedroom. If it's something you enjoy doing, might as well make a few bucks doign it. Point is, I wouldn't count on making much cash unless you plan on some significant improvements, and buy accordingly. Find a home with a good "shell", that with some minor surface improvements, and maybe a new deck or bathroom renovations, will net a profit if you do the work yourself.

In your case, though, I'm not sure you would have that kind of time during your surgery residency. Also, my med school and my current residency, for which I also bought a home, allowed me to apply for a 5yr ARM. If I had gone for the traditional 30yr note, I would have been spending a bit more each month, probably over $100 more per month in my current home. This affects the home you get, the neighborhood, thus any appreciation.

Factors to consider:
1) your market (CA v. NE)
2) your residency program (surg v. psych)
3) your motivation (do you own more than 2 screwdrivers?)

 

[Annette]

Another thing to consider- shoveling snow at 4:30 in the am before you head off to work for the next 30 hours!