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[deleted630732]

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Great info thanks everyone!

 

[backside_attack]

Owning a home is equity; paying rent is throwing away money. Think of the investment you're making. When you leave for residency, you'll likely be able to sell it and break even (the market in TX is fairly stable, depending on where you are) but doubtful you'll profit from a house sale after only 4 years. You can, however, rent it out if there's a market for that (military families are great for house rentals!). Owning a home is great - get in now before interest rates rise again - but don't look at the fancy number they give you when you're approved for a mortgage. Spend close to your current rent so that you're not house-poor and make compromises to have a more affordable home. This is not your forever home, so decide how important it is to you if it doesn't have granite or a great back deck.

I'm not going to school in TX but during my interviews there I was told that it was fairly easy to get IS tuition after the first year, house buying was never mentioned but perhaps it was an assumption. I would get in touch with your school's financial aid office to ask about the terms for re-qualifying you after one year and investigate from there.

 

[redraider88]

Check your inbox. The TX housing market is great compared to rent.

 

[bc65]

I'm very nervous about the prospect of owning a house so any help/reassurance would be greatly appreciated.

You are right to be worried. I would advise against it. It will take up a lot of your time and energy ( lawn care, repairs, etc ) which would be better devoted to studying. You are by no means guaranteed to make money or even break even. It's more likely that you will lose money. However, if you will get a big break on you tuition, and you have to buy a house to get the tuition break, then it might be worthwhile. See below.

Owning a home is equity; paying rent is throwing away money.

Not true at all. If you own a home, you will be spending money on real estate taxes and on mortgage interest payments. You will pay for repairs, maintenance, and much more for water and utilities, and maybe garbage depending on the city. You will lose out on the gains you could have gotten from investing all that money in index funds. In general, real estate increases in value only at the rate of inflation. When you sell you will pay a 6% commission to a real estate agent. So unless your house appreciated by at least 6%, you'll lose money.

When you leave for residency, you'll likely be able to sell it and break even (the market in TX is fairly stable, depending on where you are) but doubtful you'll profit from a house sale after only 4 years.

This is true, but there's no guarantee that you'll make money even after 7 years, but I agree that the longer the time frame, the more likely that will be the case.

You can, however, rent it out if there's a market for that (military families are great for house rentals!).

Being an absentee landlord can be a nightmare. It does work out for some, but you should avoid this if possible.

 

[ProfMD]

The general wisdom, as I understand it, is that buying only makes financial sense if you plan on owning the place for at least 5 years. This is to offset closing costs and mortgage interest if you hope to break even. Now, this calculation may be different if you factor in savings on tuition.

I would echo what @bc65 said. Owning a home can be a money pit. When you rent, if something goes wrong, you call the landlord. When you buy, it is all on you - the time, the money, everything. Also, I have never been a landlord, but I know people who have, and it can be painful.

 

[redraider88]

The general wisdom, as I understand it, is that buying only makes financial sense if you plan on owning the place for at least 5 years. This is to offset closing costs and mortgage interest if you hope to break even. Now, this calculation may be different if you factor in savings on tuition.

I would echo what @bc65 said. Owning a home can be a money pit. When you rent, if something goes wrong, you call the landlord. When you buy, it is all on you - the time, the money, everything. Also, I have never been a landlord, but I know people who have, and it can be painful.

Depends on the price of the house. Ours was a little over 100K so the buy/sell costs will be about 12K. Between that and property tax it's still much cheaper than paying rent. But there is some risk involved and we're in a great housing community.

 

[bc65]

Depends on the price of the house. Ours was a little over 100K so the buy/sell costs will be about 12K. Between that and property tax it's still much cheaper than paying rent. But there is some risk involved and we're in a great housing community.

Mortgages are supposed to be less than the rent. Remember, in addition to mortgage costs, you have to pay real estate tax, and insurance, and take care of maintenance and repairs, lawn care, and higher utility and water bills than you would if you just rented an apartment.

I have lived in the two hottest real estate markets in the country. Lots of people have lost money in both of those areas if they weren't lucky.

Transaction costs are at least 6%, often they will total 8-10%. You'll have to make up that loss, plus the excess monthly upkeep, just to break even.

The interest you pay every month is a straight loss. You will probably recoup that in appreciation in the long run,but in the short run, you can lose.

Also, don't forget the opportunity costs. If you put your down payment and monthly expenses into the stock market, and rent instead, you'll almost surely come out ahead

Meh, it really depends on savvy.

You can typically buy a house with a major issue - leaking roof, mold, termites, anything with more than a day's worth of repairs needed - for a very deep discount even with repair costs factored in.

I have real world experience with buying and renovating a house, and owning one. I doubt that you have actually done this.

The people selling houses, and their brokers, know what houses are worth. If it was such a bargain, they would be renovating themselves. You think you just invented fire, or the wheel? The time, effort, and opportunity costs of the renovation are factored into the price. There are almost never any bargains if the house is on the open market. If the owner doesn't know what it's really worth, the broker does.

Once you start renovating a house, you have no idea where it will end up. You may end up having to tear it down and spend a year or more rebuilding it. Do you have the time and money for that? You're supposed to be in school or residency.

The money that you can earn by renovating and flipping a house is usually not that much, and in order to break even, let alone make money,you need money, time, and expertise. Many contractors don't know what they're doing. For the owner, renovating a house is almost a full time job.

The bigger problem,which I don't think I emphasized, is that as a med student, you need to be in class all day, and on call, and as a resident, you'll be in the hospital all day. If something needs fixing, you won't be able to be there all day waiting for the plumber to show up. And he won't show up at all, so you'll need to stay home anther day. Repeat for the termite guy, and the plumber, and the guy to fix the washing machine. And the roofer.

But hey, go ahead, buy the house. Maybe you'll be lucky and make 10 or 20,000. Big deal. Trust me, that 's small change compared to the aggravation and lost time. And you're just as likely to lose 20,000.

If the market is bad when you want to sell, you'll be a long-distance landlord, which is its own special hell.

 

[bc65]

How are you running to ad hom so quickly?

Why so harsh? Because I get very annoyed when people give bad financial advice that will get unsuspecting med students into all kinds of trouble.

If you don't know the basics of scoping or how repairs are actually performed, or how to run the hoi polloi that finds itself in day labor or lightly skilled trades, yes, you can and probably will get hosed in attempting a rehab.

Then why are you recommending this course of action to clearly inexperienced med students?

As you yourself pointed out, you have expertise in this area, which few med students will have. If they had experience, they wouldn't be posting here. You admit to putting in 150 hours of work on this house. Do you think med students or interns will have that kind of time to put into fixing up a house, in a city they don't know, with no idea where or how to hire contractors and subs?

especially if you are working with BELFOR.

I have no idea what BELFOR is.

I bought a house for 61k for exactly this reason, in a not-terrible neighborhood. I put about 3k in materials in it, paid 3600 for the mitigation and clearance, and probably 150 hours of legwork. New flooring, new painting, cleaned the yard, updated kitchen and bathroom hardware from the 1970s. Sold it through a realtor the next year for 102k.

Even here, you acknowledge a cost of 67,600. You sold it for 102. Less 6% commission, 92k. So you netted 25k. Subtract from that your taxes, and net interest cost, and add back the cost of renting an apartment.

Granted, that's an impressive return for 9 months on a cash investment of only 62 * 20% + 6600, or 19k. But we haven't factored in the "150 hours" of work, nor the fact that no med student or intern will have time for any of that, nor the fact that you could easily have lost that much or more if the market turned.

So there's enormous opportunity for financial disaster, given that we're talking about someone with either no income or a very low income, no knowledge of the area, a short time horizon, and no experience in real estate or contracting. So yes, you're giving terrible advice which might get people into big trouble. And all for what, $25,000? They'll earn that in a few weeks as an attending. Why try to learn a new profession ( contracting and real estate investing ) when they should be in school?

So yes, I'm very angry when bad advice is proffered.

I'll also point out that different cities have different markets. I'll take your description of your market at your word, but it's very different in every city I've ever lived in. Here, everyone knows exactly what it costs to fix up a house. There's not a single agent or broker or buyer who doesn't know exactly what everything costs. Plus, the simple stuff is usually all done before houses go on the market, unless it's a tear-down, and even those get painted and staged. Where I live, $60,000 wouldn't even be a down payment. In fact, $250,000 wouldn't be enough for the down payment on a small townhouse. That said, I can tell you that the profit on a major remodel here for a contractor with experience who flips houses is between 10 and 15%. That's it. And many of them can and do lose money on some of their houses.

 

[swivelj]

Not to derail the topic of buying vs. renting..... but to the OP, IIRC don't most (if not all?) Texas schools give a 1k scholarship that then qualifies you for in-state tuition costs?

I know my school does and there are for sure more that do this.

 

[ProfMD]

I bought a house for 61k for exactly this reason, in a not-terrible neighborhood. I put about 3k in materials in it, paid 3600 for the mitigation and clearance, and probably 150 hours of legwork. New flooring, new painting, cleaned the yard, updated kitchen and bathroom hardware from the 1970s. Sold it through a realtor the next year for 102k. Lived in the house for about 9 months, place would have rented for $1200 easy.

This is the limiting factor for med students and residents. And, I don't know about others, but I didn't have much extra cash lying around for materials, mitigation, etc when I bought my first place.