Home own vs buy math (for MS4s)

[SocietyofHospitalMemecine]

Some moving parts here because interest rates are up and not many residents can do 20% down. Also 5% year over year increase is also an assumption. But I would like to fine-tune this document and provide it to incoming fourth years for the future. Too many residents buy houses in the city they’re moving to!





House: Own vs Rent (5 year training)

$200,000 purchase price

• 4.5% interest loan, 30 year mortgage
• 20% down is $160,000 loan

Interest cost over 5 years (interest is front loaded, minimal impact on principal)

• Year 1 $7,147
• Year 2 $7,028
• Year 3 $6,904
• Year 4 $6,774
• Year 5 $6,639
• Total = $34,492

Maintenance ~2% cost of house per year

• $4,000 x 5 years = $20,000

Home insurance

• $1,785 x 5 years = $8,925

Property taxes 1.57% (varies depending on state)

• $3,140 x 5 years = $15,700

Assuming a 5% growth year over year your home value at the end of 5 years $255,256

• Realtor cost 6% sellers fee = $15,315
• Equity from payment towards principal over 5 years is +$14,147
• Total cost of ownership = $94,432
• Potential $55,256 increase in value over 5 years assuming 5% growth each year
• Net total = -$39,176 (loss in money)
• Critical assumption is that there were no major repairs or renovations in the above calculations

Renting $1300/mo house x 5 years = $78,000 (renting a house may be most ideal for those with pets who say that’s why they want a house over an apartment)

Pros to home ownership

• Nice to own something to your name
• A yard (can still do this if you rent a house)

Cons to home ownership

• Repairs are always a risk (furnace, roof, leaky pipes)
• Increased obligations (tree, lawn, snow, sewer line, roof, appliances)
• Having to sell or rent out when residency is done
• Remember that time is your biggest commodity in residency

[bovie]

Some moving parts here because interest rates are up and not many residents can do 20% down. But I would like to fine-tune this document and provide it to incoming fourth years for the future.

You can fine-tune and simplify even more as follows:

”Don’t buy a house in residency.”

[Nysoz]

What bovie said. Owning a house may be the American dream, but it's not fun when you come home to a flooded basement or a water heater out after a 24 hour call.

Anyways if you're making this calculation, you also need to calculate the potential increase in value of the $40k down payment over 5 years if invested.

[Larry Ragman]

What bovie said. Owning a house may be the American dream, but it's not fun when you come home to a flooded basement or a water heater out after a 24 hour call.

So true, as many among us have learned. This past week we discovered a cracked hot water pipe (draining the tank) in the slab, under the kitchen. Ka Ching!

[Dont_know_mind]

I spoke to a woman in 2000 who sold her house for 600k as she was convinced by this sort of calculator. I saw her in 2010 and she was still waiting for prices to correct, so the buy vs rent calculation would make sense. She is still renting and the house would be around 3M today.

I bought a house in first year residency and sold it 10 years later for a 250k profit after costs.

No one knows what the actual capital return will be.

Let me make 3 further points:
1. If your buy vs rent calculator is true, why would anyone buy? But obviously people do buy, because all the houses in your area are owned by someone.
2. These buy vs rent calculators have inputs that can prove whatever you want it to prove (your bias).
3. There obviously is risk if you buy, but what is the risk if you don’t buy?

[Tim]

The only way to “guarantee” a 5% appreciation and the accuracy of the ownership costs has a definition. Rent.

[IlliniGopher]

I guess if this is an academic exercise for deter future residents about what unknown costs are to them, then it’s pretty good and can use some fine tuning.

rent is the ceiling, mortgage is the FLOOR!

[Hatton]

Even the appreciation of homes is not guaranteed.

[JBME]

5% annual appreciation of a single home is generous in my view. For my home I assume only 2% per year, on average

[Lordosis]

For 3-5 years I would assume no appreciation!

[udrag14]

These posts are way too pessimistic. Any ownership is a risk but I do think buying a house is reasonable for the right individual. I do think current market conditions are hot, but you could potentially find a deal. If you are paying over asking, you could be a world of pain.

We lived in an apartment for a couple months before our house was done. Our apartment rent was more expensive than our mortgage, and our mortgage included taxes and insurance. Furthermore, we got 5x the space in our house.

We bought a resident house in 2013 for $289,240. We sold the house 6 years later for $370,500. Maintenance was <20K that you stated. I think it was like 5K. Furthermore, this doesn't include any equity in the house and tax savings.

There are a lot of considerations, and I think this is a personal decision. These theoretical situations are just that theoretical. It isn't so black and white.

[auggie1983]

Yea you can rent the rooms of the house to other residents/tenants, you get a ‘low’ cost home ownership education, if you take an attending position near your residency then it makes it that much easier to live like a resident your first few years of attendinghood, ha

[JBME]

These posts are way too pessimistic. Any ownership is a risk but I do think buying a house is reasonable for the right individual.

Yes but I think we're all replying in the context that this person is a resident in this scenario. Buying a house is reasonable for the "right" individual and in almost all cases a resident isn't the right individual. I could endorse a resident buying a house if the spouse also works, student loans will be paid off during residency (or they were blessed and have no loans), they are saving at least 15% (ideally 20% but if they're pushing a ton to student loans, 15% will do) and will live there for at least 5 years.

[Notsobad]

We bought a house in fellowship, sold it two years later and made money. We moved to a different city, contrary to our initial plans. We got lucky due to the right market conditions.

In 2009 people who moved to my city were stuck with out of state houses that took years to unload. Some of these were fancy attending houses in depressed markets.

in 2006 my friend bought a condo. It was underwater for years. He rented it out with negative cash flow for years. Eventually refinanced and he is not losing monthly any more. Fortunately it rented well.

Of course it can work out. If often works out. But don’t make decisions based on the anecdotes that you want to hear.

Here’s another anecdote. A couple of years ago Hahnemahn ER residency shut down, the residents had to scramble and relocate.

Renting is a prudent move.

[udrag14]

Yes but I think we're all replying in the context that this person is a resident in this scenario. Buying a house is reasonable for the "right" individual and in almost all cases a resident isn't the right individual. I could endorse a resident buying a house if the spouse also works, student loans will be paid off during residency (or they were blessed and have no loans), they are saving at least 15% (ideally 20% but if they're pushing a ton to student loans, 15% will do) and will live there for at least 5 years.

Why is a resident the wrong person to buy? You have a steady income. You can obtain a doctor loan.

Lot of examples of house hacking and other ways to make it work.

Your priorities maybe savings rates and loans, but I totally disagree with that. Saving 20 percent in residency is so insignificant compared to saving 20 percent as an attending. Furthermore, I think a house >>> student loans asap. You can never get money back from your students loans. You can at least tap into equity from a house.


It is always easy to say to rent, but my experience is larger house or apartment are much more expensive to rent versus buy. Yeah, renting for a single person maybe reasonable but if you have a signifcant other or family, it is definitely harder situation.