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Home own vs buy math (for MS4s)

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  • #16
    Originally posted by udrag14 View Post

    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 significant other or family, it is definitely harder situation.
    I think this result is based upon recent home value appreciation and under estimating the possibility of significant expenses. Much higher risk. The question is can a resident afford the risk of major expenses and the timeline for appreciation. At a minimum, probably 10% down for the costs to sell. Houses depreciate while the land is appreciating.

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    • #17
      It is? I’m the spouse and we rented during my wife’s residency. I worked from home full time for 2 of those years. Didn’t even consider a home since we knew it was only 3 years and we’re paying student loans.

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      • #18
        The biggest challenge with your spreadsheet is the volatility and unpredictability of several things on your list. Appreciation of real estate is lumpy. Yes, over the last 100 years, appreciation has been around 4% per year. But there were decades in that period that were triple that, and other decades that were negative. And things like roof replacement and furnace replacement are lumpy as well.

        When you own a home long term, as in more than a decade or two, those lumpy periods tend to balance out. But if you own a home for just a few years, things may work out great, or they may work out terribly. You will be subject to the luck of the draw with that lumpiness and unpredictability with shorter length home ownership.

        Right now, we are coming out of a period of outsize appreciation. These levels of appreciation are unsustainable. And mortgage rates are rocketing upward. It is highly likely that there will be a downtrend in home prices coming sometime soon. No one knows when that will be, but sooner is more likely.

        If you want to be a homeowner in med school or residency, you are taking on a lot of risk. Again, you can get lucky and it could potentially work out great, or you can get hosed and take serious losses and find yourself suffering with outsize additional stress. Those of us with gray hair have seen both of these scenarios play out multiple times. The gray hair also advises you to focus on the most important stuff in med school and residency. Create the lowest stress life you can create during these demanding years so you can focus on your studies and learning your craft to the best of your ability. Live within your means, live close to the hospital, take care of your sleep, nutrition, and exercise. Take care of your personal relationships. For most students and residents, avoiding the added stress and uncertainty of homeownership is generally a good idea.

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        • #19
          Originally posted by White.Beard.Doc View Post
          The biggest challenge with your spreadsheet is the volatility and unpredictability of several things on your list. Appreciation of real estate is lumpy. Yes, over the last 100 years, appreciation has been around 4% per year. But there were decades in that period that were triple that, and other decades that were negative. And things like roof replacement and furnace replacement are lumpy as well.

          When you own a home long term, as in more than a decade or two, those lumpy periods tend to balance out. But if you own a home for just a few years, things may work out great, or they may work out terribly. You will be subject to the luck of the draw with that lumpiness and unpredictability with shorter length home ownership.

          Right now, we are coming out of a period of outsize appreciation. These levels of appreciation are unsustainable. And mortgage rates are rocketing upward. It is highly likely that there will be a downtrend in home prices coming sometime soon. No one knows when that will be, but sooner is more likely.

          If you want to be a homeowner in med school or residency, you are taking on a lot of risk. Again, you can get lucky and it could potentially work out great, or you can get hosed and take serious losses and find yourself suffering with outsize additional stress. Those of us with gray hair have seen both of these scenarios play out multiple times. The gray hair also advises you to focus on the most important stuff in med school and residency. Create the lowest stress life you can create during these demanding years so you can focus on your studies and learning your craft to the best of your ability. Live within your means, live close to the hospital, take care of your sleep, nutrition, and exercise. Take care of your personal relationships. For most students and residents, avoiding the added stress and uncertainty of homeownership is generally a good idea.
          Great points WB. It probably boils down to whether one can hold the investment as a resident for 10+ years and at what cost psychologically, depending on the hassles and actual capital appreciation. As Kamban pointed out previously in another thread, it also may reduce your ability to negotiate with your employer, after finishing if you are tied down to a region.

          Against this though, everyone is short a house unless they want to rent forever. How they cover this really depends so much on the expected capital gain that one inputs (for this asset). If the expected gain is high, there's more motivation to cover earlier.

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          • #20
            Originally posted by udrag14 View Post

            Why is a resident the wrong person to buy? You have a steady income. You can obtain a doctor loan.
            I wonder how much of this is recency bias.
            We are all short appreciating assets when young, including real estate (a house to live in), stocks (for retirement).
            There is a great book called lifecycle investing (Ayres, Nalebuff)
            https://www.lifecycleinvesting.net/

            It's pretty difficult to utilise it in stocks.
            In real estate there is a very good instrument to do this called a 30 year mortgage. A lot of doctors think they can afford to not utilize it earlier on. Maybe there are good reasons and maybe they can afford it. I think your point about having a secure job is a good one. Some people don't have that job security and yet they still do, at an earlier age.

            Market timing real estate I have found is like market timing stocks. It seems easy, but actually my hit rate is about 55%. Some times I have got it right and others I've got it wrong and completely blown out my gains from previous efforts. It's easy to get it right once or twice and think you have it figured out, but actually, real estate is usually a pretty efficient and well informed market most of the time. I usually have no edge to be underweight. I might go overweight if there was wholesale liquidation and mortgage markets were frozen for 6 months or longer.

            But otherwise, I am completely allergic to being underweight or short assets that tend to have a real capital return rate over time (stocks and some real estate). I might think I know better, but I try to ignore this where possible.

            So if I was young and short a house, I would cover as soon as I knew where I was likely to live long term. But it's so individual, others will have different risk preferences, return assumptions, life experiences and psychological differences.

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