Buy cheap house(350k) or rent?

[ERRES2288]

We need advice and having trouble making decisions. Which option would you pick?

Wife and I both physicians 1 year out. Moving to somewhat rural area no family or friends in area. No kids yet. Combined income 700k, up to about 1m in 2 years assuming make partner.

700k in student loans
450k in stocks/retirement

Option:

A. Rent 2k/m- minimal options. Not very nice and a “downgrade” from where we live now.

B. Buy 350k- spec “cookie cutter” home. Would rather live in this than options available to rent but don’t love idea of buying something we don’t love and will want to upgrade from.

C. Build- 1milion- met with builder. What we want to do. Build custom home on big lot. Worried that there aren’t many lots left in only desirable neighborhood in area. Feeling a lot of FOMO.

Advice ?

[SiR99]

The safest thing for you to do is rent for 1-2 years and see if you both like your jobs and the area. At the same time you can pay down your student loans. This is what I would do, it gives you the freedom of easily moving if you decide to find another job or move to a bigger city.

I would not build a 1 million dollar house in a rural area where I had no family or friends and just started a new job. You will be stuck in a big mess if you don't like your job or the area you are living in. Also, when it comes time to sell the house, there will be very few people who will even consider buying it.

[jhwkr542]

Can you buy the lot without building? Here's the concern: you have nothing tying you to the area. In my experience, in our specialty and location, people who stay long term have ties to the area. Those that don't tend to go back home. Not always but generally. I'd at least rent just for a year to see if you even can live there. Then build. I wouldn't do B. You make enough that B and C wouldn't ruin you. But it would be an inconvenience. Renting would also let you save up quite a bit. Might be worth clarifying your plan on the student loans.

[Tim]

Buy the lot. Developers will sell, although they want to generate business. The land won’t lose much value if any. Hold off on a house contract.

I bought a lot in a development restricted to 4 developers. Whoa, I used a different one. The allowed developer put up his sign. Swapped for a lot with my builder in another location.

The point, builders make deals in their best interests.

[ERRES2288]

Can you buy the lot without building? Here's the concern: you have nothing tying you to the area. In my experience, in our specialty and location, people who stay long term have ties to the area. Those that don't tend to go back home. Not always but generally. I'd at least rent just for a year to see if you even can live there. Then build. I wouldn't do B. You make enough that B and C wouldn't ruin you. But it would be an inconvenience. Renting would also let you save up quite a bit. Might be worth clarifying your plan on the student loans.

Unfortunately the only lots left are ones that are owned by builders and so just buying lot is not an option. This is adding to the FOMO

For student loans one of us is academics and will try to do PSLF 5 years left. Other refinanced 3.1% 20 years. Both at 350k. Have not been extra. We have a lot extra at end of month and just been investing it.

[mamaham]

Without knowing more details, I’d rent for at least a year and reassess next year.

Are you moving here for geographic arbitrage or are you into living in rural areas? If you are moving from big city, always lived in city, I definitely would not buy until you make sure you like it. How far away are families? If they are far, you may want to be closer when kids come. So building wouldn’t make sense. Also with kids rural area may not make sense with opportunities. my brother in law got a great offer in rural area where family is but decided against it bc of his girls. Wants them to have good schooling and opportunities.

I wouldn’t build an expensive home in a rural area. I guess it depends on rural area. My in laws are rural and there are always very nice homes for sale that no one can afford to buy and they sit.

additionally, everything is inflated right now, just tell the FOMO to set back for now and watch and wait to see what happens

[wideopenspaces]

Why are you moving to this area? Have you lived in rural locations before? I just don't know why you'd tie an albatross to your neck (in the form of a basically unsellable 1M home) without a VERY good reason.

[ERRES2288]

Moving for geographic arbitrage. Jobs are good. Family several states away but don’t live by them currently. I guess I just needed to hear from others it’s stupid to build big house even though it’s what we want. If there were nice places to rent that is what we would do. But all the places are old homes, run down, old neighborhoods.

Would it be that crazy to just buy the 350k home? At least it’s new. Let’s say we hate the jobs and leave in a year and market stays flat. How much would we lose in transaction costs?

[CordMcNally]

What do you consider a somewhat rural area? Rural is different to different people. A $1M home in an area I would consider rural would never sell in the future. Plus a $1M house in a rural area is usually pretty extravagant. I like the idea of buying the lot and then slow playing a house build after you get settled.

You make enough that buying a $350k home isn't going to sink you or really be a big mistake in the grand scheme of things.

[Hank]

Check Zillow. Rent a $250K to $500K house for a year or two. See if you make partner and see if you want to live here long term.

I all but guarantee you can buy land and have a house built for $1 million in or near this town if you really want to a year or two from now. Probably better to buy one of these $1M house already built from someone in this neighborhood. You might have to pay $1.2M if the market continues to grow. You also might be able to pick it up for $900K or $750K if things turn south.

[ERRES2288]

Thanks for input everyone. I think we will give it another month or so to see if anything we like becomes available to rent.

If not, then I think we will just buy one of the cheap spec homes.

[Random1]

I would not spend a Million dollars on a house in a location you are not 100% familiar with for 3 reasons. Number 1 that would put you in debt , 1.7 million dollars. Number two, there may very well be a good reason there are no other million dollar houses in the area you are looking at, because maybe very few other people in the lower cost of living area can not afford a million dollar house. And number 3 which is most important, many just dont like a "different" way of life, such as the local dinner being the best cuisine in town.

[artemis]

Moving for geographic arbitrage. Jobs are good. Family several states away but don’t live by them currently. I guess I just needed to hear from others it’s stupid to build big house even though it’s what we want. If there were nice places to rent that is what we would do. But all the places are old homes, run down, old neighborhoods.

Would it be that crazy to just buy the 350k home? At least it’s new. Let’s say we hate the jobs and leave in a year and market stays flat. How much would we lose in transaction costs?

You might lose $20k in transaction costs - but believe me, that is a lot less than you will lose if you build a million-dollar home in an area that doesn't support those home prices!

If you MUST buy, buy the OK spec house. You will have little trouble selling it later - and you might just discover that you don't need or even want a Big Doctor House later. Money in the bank/market trumps money tied up in a house.

Edited to add: You might read up on Physician on FIRE's experience about buying and then selling one of the fanciest homes in his town. As I recall, he lost $250,000 when he was forced to sell his "forever home."

[White.Beard.Doc]

Moving for geographic arbitrage. Jobs are good. Family several states away but don’t live by them currently. I guess I just needed to hear from others it’s stupid to build big house even though it’s what we want. If there were nice places to rent that is what we would do. But all the places are old homes, run down, old neighborhoods.

Would it be that crazy to just buy the 350k home? At least it’s new. Let’s say we hate the jobs and leave in a year and market stays flat. How much would we lose in transaction costs?

Best case scenario is you purchase the 350k home, it goes up in value and you trade up when you are ready.

Worst case scenario, inflation is bad, mortgage rates go up to well over 6%. Few families are buying homes due to high mortgage rates, and you decide to change jobs and move away, but now you are stuck with an empty house at a distance from your new location, it has not sold, and there are multiple expenses to be covered and it ends up being a significant financial setback.

I wouldn't buy anything until you have a strong sense that both you and your spouse are happy in this location and are happy to stay with your current jobs.

[CordMcNally]

I would not spend a Million dollars on a house in a location you are not 100% familiar with for 3 reasons. Number 1 that would put you in debt , 1.7 million dollars. Number two, there may very well be a good reason there are no other million dollar houses in the area you are looking at, because maybe very few other people in the lower cost of living area can not afford a million dollar house. And number 3 which is most important, many just dont like a "different" way of life, such as the local dinner being the best cuisine in town.

What I’ve found is that people who can afford a $1M home in rural areas typically build their home and don’t buy.