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Home own vs buy math (for MS4s)

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  • Dont_know_mind
    replied
    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.

    Leave a comment:


  • Dont_know_mind
    replied
    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.

    Leave a comment:


  • White.Beard.Doc
    replied
    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.

    Leave a comment:


  • JBME
    replied
    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.

    Leave a comment:


  • Tim
    replied
    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.

    Leave a comment:


  • udrag14
    replied
    Originally posted by JBME View Post

    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.

    Leave a comment:


  • Notsobad
    replied
    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.
    Last edited by Notsobad; 04-01-2022, 07:55 PM.

    Leave a comment:


  • JBME
    replied
    Originally posted by udrag14 View Post
    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.

    Leave a comment:


  • auggie1983
    replied
    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

    Leave a comment:


  • udrag14
    replied
    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.

    Leave a comment:


  • Lordosis
    replied
    For 3-5 years I would assume no appreciation!

    Leave a comment:


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

    Leave a comment:


  • Hatton
    replied
    Even the appreciation of homes is not guaranteed.

    Leave a comment:


  • IlliniGopher
    replied
    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!

    Leave a comment:


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

    Leave a comment:

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