Sell House?

[NuttyEngDude]

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Well, the last post on this topic was before the recent real estate (albeit small) recovery. After this cycle, I will be moving away with no intentions of returning so I see no reason not to sell. My loan is not underwater. But the "greedy" side of me is thinking of renting it in the short term with designs to sell it later. hmm...

I'm wondering if any of you homeowners may chime in with your thoughts? Selling if accepted? No? Any reason not to? Any of you thinking of renting it out?

related or helpful threads:
http://forums.studentdoctor.net/index.php?threads/rent-or-buy.255319/#post-3303169
http://forums.studentdoctor.net/index.php?threads/homeownership-the-app-process.777200/#post-10329972

 

[Elewynne]

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[Chip N Sawbones]

Sell. I've got a house in another state I'm currently leasing out on rent-to-own. I tried selling before I started med school, but the house had some problems and I couldn't find a buyer in time. You'll be passing up the rent money, but if you sell you'll have money to buy a new house in your new location, so you won't be paying rent of your own. If you put the money from the sale of the house into your med school tuition it will still work out well. Student loan interest rates are higher than a mortgage and if you can keep your total student loans under ~45,000 a year you can avoid the steep origination fees in grad plus loans.

Luckily my tenants have been fairly low maintenance, but if you get tenants that want constant repairs done on the house you'll be spending all your rent income on plumbers and electricians since you won't be able to do the work yourself. You also won't know if they're trashing the house until their lease expires a year later. Med school is hard enough without additional worries brought on by owning a rental. The only exception would be if you have potential tenants that you already know and can trust not to cause headaches or to ruin the house while you're gone.

 

[NuttyEngDude]

Thanks Chip, very good points. I was thinking of sitting on the cash and making a lump sum payout after the 4 years of med school. This should theoretically make the med school loan a low interest loan (1-2% maybe? if you're counting those miscellaneous fees). Of course if it's left in the property and the market booms, that could easily be another 20% or so within the time of med school assuming how easy it would be to liquidate. Do you think it would be better to pay off as you go, or just try to pay it at the end of the schooling/start of residency?

Also, not sure if buying a house is ideal, you're only going to be in that spot for 4 years max, assuming your rotations dont have you going odd places. You wouldn't recover your loan fees in that time unless the market is rising eh?

 

[Isha2018]

Thanks Chip, very good points. I was thinking of sitting on the cash and making a lump sum payout after the 4 years of med school. This should theoretically make the med school loan a low interest loan (1-2% maybe? if you're counting those miscellaneous fees). Of course if it's left in the property and the market booms, that could easily be another 20% or so within the time of med school assuming how easy it would be to liquidate. Do you think it would be better to pay off as you go, or just try to pay it at the end of the schooling/start of residency?

Also, not sure if buying a house is ideal, you're only going to be in that spot for 4 years max, assuming your rotations dont have you going odd places. You wouldn't recover your loan fees in that time unless the market is rising eh?

Buying for 4 years, depending on your family size, is almost always a better deal than renting a comparable unit. Unless you purchase a POC house that always needs repairs, you should be able to do better financially with your own home. Plus, if the market does go up [due to regime change in Washington], you'll benefit even more. Not to mention, you would not have the IRS itemized deductions at all with a rental.

My wife and I sold our first home back in 2008 when the market was sky high! What a windfall of cash! However, not so much now 🙁 Anyway, we will be selling our current home when we move to either California (Pomona area) or Fort Worth, TX for DO school. We considered hiring a rental management company to rent our house out at a 7-10% management fee. But, doing the math made us nervous because we don't want to be stuck with the fee plus repairs when we're living very meagerly in med school with four kids to boot.

We plan on at least selling the home for what we paid for it back in 2008. We will use the equity for a very substantial down payment on the next home. With a family of six, I refuse to rent because the rental rates are far higher than a fixed-rate mortgage. For example, southern California monthly rental rates for a 3/2 house are $1200-$2600. That's insane, considering my current mortgage is about $600/month! I come from California, so I'm prepared to suck it up, but I KNOW I can buy a house for under $200,000 and keep my mortgage under $1000/month. I would even stoop to buy a mobile home. For $40k +$400-$600/month in lot rental+HOA fees, I could get a nice, large mobile home within 10 minutes of WesternU-COMP. CA has lots of mobile home parks because of the great weather and retired folks (not to be confused with 'trailer parks.' No hating!) Many of these parks are now open to families and others under 55 y.o.

Of course, if I get into TCOM in Forth Worth, I'll benefit from the beautifully low and stable property values I've enjoyed here in Texas. My house in Fort Worth would be palatial compared to the one I'd be able to afford in CA. 😉

 

[NuttyEngDude]

Thanks Isha,

I think I see your point of view from a family point of view. But for a single person, would the IRS itemized deductions matter if you have no income?

Most if not all of the early home payments go into interest so you're really building any equity. So isn't the money being "wasted" similarly as if you are paying rent? It seems it would be ideal if you know you arent going to move after the four years are up and will continue to live (or rent out) that house eh? But all this changes if the property value goes up by a good percentage, making buying the hands-down correct decision, otherwise you lose out a bit through loan and administrative fees, plus there's repair, maintenance and the hidden "nesting costs," of owning a home, right? Or am I looking at this wrong?

 

[katiemaude]

I'm in the same position. Right now I am thinking to sell but I have to meet with realtors in the next couple of weeks. The listings for similar houses in my area don't look too promising - there are a lot of short sales for comparable homes priced ~$30K less than what I need to break even. There are also homes that are significantly more updated and priced at about ~$5-10K more than what I need. I have to get my hands on recent sales to see what the reality is. If I don't sell, I guess I have to rent it out, and that's going to require at least $5K in updates to pass code as a rental. (That's what I think... Haven't talked to a contractor yet.) But I really don't want the added headache. I'd rather take a $5K loss and get it off my books.

 

[Isha2018]

Thanks Isha,

I think I see your point of view from a family point of view. But for a single person, would the IRS itemized deductions matter if you have no income?

Most if not all of the early home payments go into interest so you're really building any equity. So isn't the money being "wasted" similarly as if you are paying rent? It seems it would be ideal if you know you arent going to move after the four years are up and will continue to live (or rent out) that house eh? But all this changes if the property value goes up by a good percentage, making buying the hands-down correct decision, otherwise you lose out a bit through loan and administrative fees, plus there's repair, maintenance and the hidden "nesting costs," of owning a home, right? Or am I looking at this wrong?

For a single person, renting is probably a better deal, especially if you could rent a 2-bedroom apt with a roommate and share expenses. True, if you have no income, you wouldn't need to itemize. It's so nice to have repairs taken care of by the apartment owner. I miss those days, somewhat.

I guess you could buy a house and rent out your unused rooms to roommates, but that could be a headache.

Thanks for giving me the single person's perspective. It sounds so much cheaper! Oh well, my wife and kids are my wealth! 😀

 

[Darth Doc]

Assuming I get in this year (I had a late MCAT, so everything's a little behind for me), we would have to sell. I do not want to live here the rest of my life although I love my house. We would take a $30k hit according to a real estate agent I talked to, and that would probably have to be either a short sale or a bank loan to cover the difference. Once I get the acceptance letter, I'm taking it to the bank to have a discussion about options. The nice thing in my case is that the loan is held by a local bank and the vice-president I dealt with is the father of one of my kid's friends. The bad thing is that there are several unsold homes in my neighborhood. I don't know how well the house sale will go. We could rent, but I'd rather cut ties and go.

Good luck with your decision.

 

[Isha2018]

I'm curious if the mortgage lender will give me any trouble about approving a new home loan after I quit my job to move for medical school. It may be hard to get a loan with no current full-time employment. Perhaps I should secure a nursing job prior to moving, stay there for some months, and then matriculate into DO school. If it becomes an issue, I guess I could have my parents or in-laws co-sign. Does anyone who purchased a home just prior to med school have any insights on this?

 

[Chip N Sawbones]

Thanks Chip, very good points. I was thinking of sitting on the cash and making a lump sum payout after the 4 years of med school. This should theoretically make the med school loan a low interest loan (1-2% maybe? if you're counting those miscellaneous fees). Of course if it's left in the property and the market booms, that could easily be another 20% or so within the time of med school assuming how easy it would be to liquidate. Do you think it would be better to pay off as you go, or just try to pay it at the end of the schooling/start of residency?

Also, not sure if buying a house is ideal, you're only going to be in that spot for 4 years max, assuming your rotations dont have you going odd places. You wouldn't recover your loan fees in that time unless the market is rising eh?

I don't think you're going to earn enough interest by sitting on the cash to justify taking out more student loans than you have to. Stafford loans are what, 8% plus a 1% origination fee? I can't remember exactly and I don't want to look it up, because it's too depressing for me to think about. Unless you have a proven talent for picking winning stocks you won't be able to earn a higher return than that. For sure you shouldn't borrow any more in Grad Plus loans than you absolutely have to, as their interest rates are a point higher than Stafford loans and I think they have a 3% loan origination fee. Your local real estate market may vary, but I doubt that we'll see a 20% nationwide real estate boom in the next four years. There are already too many unsold houses out there, and lots of underemployed construction workers ready to meet any new demand. There also probably isn't going to be any giant surge in the economy any time soon that will give more people money to buy houses.

For most people, buying a house in med school will not be ideal. As you said, in four years you won't recover the loan fees and closing costs, so you might as well rent and let your landlord root around in the crawlspace fixing the frozen pipes in winter. Exceptions can be made for people who want to own and live in an area with a growing real estate market, though. Another exception would be for someone that is willing to live in a fixer-upper house and fix it up. That's what I'm doing now. I don't have much time to work on my house, but I think I can get everything done before I graduate, which should earn me a nice profit when I sell.

 

[NuttyEngDude]

The sweat equity is a good idea, but I am pretty sure I wont have time for it. It also might not be the best use of resources. ie. that time could be spent on the new career, at least in my case.

You provide some good insight, especially regarding the loans. Thanks Chip! I guess I better start boxing things 😉

 

[Chip N Sawbones]

Yeah, I don't really have time for working on my house either. I can manage half a day here and there, and I'm hoping to get a lot done during Christmas, Mardi Gras and summer breaks, but that's it. I knew med school would keep me busy, but I slightly underestimated just how busy it would be. It is nice having something useful to do when I need a quick break from studying, though.

 

[Elewynne]

Sorry to semi-necrobump this, but I'm wrestling with what to do for med school housing come August.

 

[NuttyEngDude]

So you're saying your monthly payments would be lower if you buy rather than rent? What about down payment? i'd be inclined to buy at this point and "try my luck" reselling when I need to.

If you use a rough estimate of $500/month for buy vs $1000/month rent, you come out $12k ahead after 2 years in terms of savings just from the monthly payments just by buying, subtract out closing costs for this on your loan and it seems you come out ahead unless I'm missing something (like PMI, taxes, etc).

 

[Chip N Sawbones]

Sorry to semi-necrobump this, but I'm wrestling with what to do for med school housing come August. I'm likely going to a school in the Philadelphia area, where renting a house or apartment for my husband and I plus our two dogs will appear to cost us a minimum of $1,000/mo plus utilities. Looking at homes for sale, however, there appears to be an absolute glut of really nice looking places which are reasonably priced ($50k-150k) - if we purchased something in this range I'm guessing our monthly mortgage would be anywhere from $300-700. The option of paying up to 1/3 less a month for our own home rather than renting makes it really tempting for me to want to buy a place for med school there, but I wanted second opinions. We're not sure if we'd want to stay in the area for my residency or not at this point.

In this case buying could be a good option. Nowadays lots of people have been foreclosed on and can't buy houses. That mean's there's an artificially high demand for rental units, so rental prices in some areas have gone well over the cost of a mortgage. I'd plan on moving to the area a few months before school starts so you have plenty of time to find out which neighborhoods are good. Make sure you're not comparing apples to oranges, ie a $1000 rental in a good area against a $50,000 house in the bad part of town. When you go looking at houses, try to pick one that will be easy to sell, with no weird architecture or odd floorplans, even if the house of your dreams would actually be unusual. You really don't want to get stuck with a house that you can't sell after med school.

 

[wholeheartedly]

Also don't just compare rental to mortgage monthly costs. I know you'll factor in other expenses like a down payment, closing costs, homeowners insurance, possibly PMI, and all that. But you also want to factor in surprises, which is difficult because they are surprises.

Like the 3000 I spent on repairs after rainwater flooded in through my basement window one year, the 1000 deductible after my pipe burst the next year cuz previous owners apparently didn't disconnect the hose during the winter, another 1000 deductible a year and a half later when another pipe corroded through and flooded my basement. Then 10,000 to repair a foundation issues discovered when drywall was down. Plus new hot water heater and some other stuff. This was on a nice house, built in 1984 that inspected well.

So adding all of that up and dividing it by the months I've lived in it, not including routine maint. and stuff, that comes out to about an extra 300 a month, giving me no financial advantage over renting.

That said, have my own space to do with as I please, don't have to worry about bugging the neighbors or neighbors bugging me, have a huge fenced in yard for my two mutts, and a huge garden to grow all kinds of fresh veggies. So factoring in my quality of life improvement. I feel like I almost break even.

 

[Elewynne]

Thanks for the input guys, good points all around. The estimator I used for the monthly mortgage payment included everything, taxes, insurance, interest & principal... I'll definitely need to keep in mind the future sellability of the house, with our current home we're likely going to run into that very problem (unusual house & location). I don't want to duplicate it knowing we're quite likely going to sell in 4-8 years.

 

[Elewynne]

Also don't just compare rental to mortgage monthly costs. I know you'll factor in other expenses like a down payment, closing costs, homeowners insurance, possibly PMI, and all that. But you also want to factor in surprises, which is difficult because they are surprises.

...So adding all of that up and dividing it by the months I've lived in it, not including routine maint. and stuff, that comes out to about an extra 300 a month, giving me no financial advantage over renting.

That said, have my own space to do with as I please, don't have to worry about bugging the neighbors or neighbors bugging me, have a huge fenced in yard for my two mutts, and a huge garden to grow all kinds of fresh veggies. So factoring in my quality of life improvement. I feel like I almost break even.

Also a very good point. I figure if we can save as much as $300-700 a month with the mortgage vs. renting that will definitely alleviate some of the student loan pressure; but some of that savings would have to go into a house emergency fund. That isn't a problem now with us both working but home emergencies will definitely sting a lot more as a poor student!

 

[wholeheartedly]

Also a very good point. I figure if we can save as much as $300-700 a month with the mortgage vs. renting that will definitely alleviate some of the student loan pressure; but some of that savings would have to go into a house emergency fund. That isn't a problem now with us both working but home emergencies will definitely sting a lot more as a poor student!

Exactly, I went from full-time and no school to 0.75 and grad school and that's when those things started to hurt.

 

[Chip N Sawbones]

Also a very good point. I figure if we can save as much as $300-700 a month with the mortgage vs. renting that will definitely alleviate some of the student loan pressure; but some of that savings would have to go into a house emergency fund. That isn't a problem now with us both working but home emergencies will definitely sting a lot more as a poor student!

It certainly does. The tenants I had in my house in Alaska decided to quit paying rent for two months and then move out unexpectedly after trashing my house (see what I mean about not renting houses out if you can possibly avoid it?). They also siphoned all the heating oil out of the tank and left the place to freeze, ruining the water heater, water softener, well pump, toilets and every pipe in the house. Since student loans are basically a fixed income, I now get to spend that much less over the rest of the semester so I'll have the money to go up there and make repairs.

 

[wholeheartedly]

Plus there's the whole logistical headache of dealing with some of this stuff as a busy student. Although if you have a spouse that'll hopefully make things easier.

 

[wholeheartedly]

It certainly does. The tenants I had in my house in Alaska decided to quit paying rent for two months and then move out unexpectedly after trashing my house (see what I mean about not renting houses out if you can possibly avoid it?). They also siphoned all the heating oil out of the tank and left the place to freeze, ruining the water heater, water softener, well pump, toilets and every pipe in the house. Since student loans are basically a fixed income, I now get to spend that much less over the rest of the semester so I'll have the money to go up there and make repairs.

Geeze Chip, that sucks.any recourse? Want me to kick some butt for you?

 

[NuttyEngDude]

That said, have my own space to do with as I please, don't have to worry about bugging the neighbors or neighbors bugging me, have a huge fenced in yard for my two mutts, and a huge garden to grow all kinds of fresh veggies. So factoring in my quality of life improvement. I feel like I almost break even.

Good points, and even this is not a guarantee, if you have a PITA housing association or that rare bad seed neighbor or if a neighbor is actually a rental unit with lots of turnover, etc. Just more stuff to think about 😛

It certainly does. The tenants I had in my house in Alaska decided to quit paying rent for two months and then move out unexpectedly after trashing my house (see what I mean about not renting houses out if you can possibly avoid it?). They also siphoned all the heating oil out of the tank and left the place to freeze, ruining the water heater, water softener, well pump, toilets and every pipe in the house. Since student loans are basically a fixed income, I now get to spend that much less over the rest of the semester so I'll have the money to go up there and make repairs.

Very sorry to hear this. 🙁

 

[Chip N Sawbones]

Geeze Chip, that sucks.any recourse? Want me to kick some butt for you?

Okay, if you can find my former tenants I'll give you a commission on any of the back rent you recover. Kicking butt would probably be a helpful step in the process.

I talked with a lawyer and he said once I've done the repair work I can try to go after the tenants for back rent and damages. Realistically I'm not expecting to get anything. I've since found out that my tenants already have an eviction on their record, which might mean their previous landlord is already trying to collect from them. If so, any money that could be legally extracted from the tenants would go to the previous landlord first. If the tenants skipped town completely I won't be able to find them, which would be a necessary step. I don't know how much a lawyer's commission in all this will be, but I know it won't be cheap.

 

[wholeheartedly]

...

I'm broke so I could definitely use the money, but I'd feel bad taking it off someone in line to be waaay more broke than me. Plus that whole assault thing not going over well with adcoms....

*edit: when I win the lotto, I'll hire you a private investigator to track them down for you.

 

[katiemaude]

Goodness, these rental nightmare stories are giving me pause. I've since gotten a few estimates from Realtors and come to the sad realization that even in the best case scenario, I will be coming to the table with $10K to sell my house. (I bought in 2006.) I cannot believe that 8 years later, I have basically no equity in a house that cost well under $200K and was not new construction. But oh well...

I still think I want to list the house and try to see if that "best case" comes to fruition. I would rather pay $10K, keep my credit record intact, and not have to deal with the headache of a rental from 1,000 miles away. (Of course if I have to rent, I would hire a property management company - and take a hit of $200 a month minimum, plus any repairs and unpaid rent). I cannot come up with $20K+ that is apparently more realistic. So what else can I do???? Wouldn't a short sale hurt my credit and hinder my chances of getting loans?

 

[Chip N Sawbones]

A short sale will hurt your credit. It won't hurt as much as a foreclosure, but it will hurt nonetheless, maybe enough that you can't get grad plus loans. No matter what you can get Stafford loans, but those are no longer enough to cover tuition at most OOS or private schools. My advice is that you talk to your mortgage company, tell them you want to sell the house and discuss what options you have. The good news is that banks don't like short sales and foreclosures any more than you do, so they will probably be willing to work with you to avoid one. To help with your negotiating position, let the bank know you're not afraid of getting foreclosed on, even if you are. Short sales are complicated processes for everyone involved. The buyer, seller, and your mortgage company (or companies if you took out any home equity loans) all have to come to an agreement on the price. The negotiations can easily take a long, long time, discouraging buyers who want to move in quickly. As a result, houses under short sale almost always sell for a good deal less than they would if they were conventionally owned and they still sit on the market longer. If you have to go this route, try to get the bank to approve a sale price in advance to help simplify the process for the buyers.

Depending on what school you go to, taking the hit to your credit rating might not be so bad. It will be very bad if you go to one that's expensive enough that you need to use Grad Plus loans to pay for tuition or living expenses, since those loans do have a required credit score. On the other hand, if you've been accepted to a nice cheap state school, you could pay tuition with Stafford loans that do not require a credit check, and by the time you're done with residency and ready to buy a house again the damage to your credit rating will have blown over.

 

[Darth Doc]

Goodness, these rental nightmare stories are giving me pause. I've since gotten a few estimates from Realtors and come to the sad realization that even in the best case scenario, I will be coming to the table with $10K to sell my house. Wouldn't a short sale hurt my credit and hinder my chances of getting loans?

We will be selling and have to take a loss, even if we sell for what we owe, to pay for the real estate agent. I've talked to our lender, a local bank, and they will lend us the difference on a 5-7 year term at the same interest rate we currently have on the mortgage.

Yes, a short sale will hurt your credit. Depending on your lender, you may be able to work things out the way we have.

 

[NuttyEngDude]

Does anyone know if you can start paying back some of the loan early? For example, if my house sells midway through MS1, can I start paying back some principle early while simultaneously withdrawing? I am concerned about all that compound interest early on...... or am I over-thinking it?

 

[Darth Doc]

Does anyone know if you can start paying back some of the loan early? For example, if my house sells midway through MS1, can I start paying back some principle early while simultaneously withdrawing? I am concerned about all that compound interest early on...... or am I over-thinking it?

Federal student loans do not have a pre-payment penalty. If you're getting a different type of loan, you would have to look at the contract. I would keep an emergency cushion at least, though.

 

[Chip N Sawbones]

You'll need to crunch the numbers on whether it's better to pay off existing loans or to avoid taking out new ones. Stafford loans have a 1% origination fee. Grad Plus loans have a 3% fee and interest a point higher than Stafford loans, so if you happen to sell the house at the end of your MS1 year you might be better off keeping the loan from your MS1 year and paying as much cash as possible for MS2. I don't know. All I know for sure is that I've barely started med school and I'm already paying $12.81 a day in interest on my student loans! 🙁 That's more than I spend on an average day's food, beer, gas and ammunition combined!

 

[NuttyEngDude]

Thanks guys, definitely going to have to work my excel muscles.