Rent or buy a home in residency?

[Romberg45]

if I could go back in time -- two things I would definitely do during residency --- RENT (even though we made money on house sale) and contribute to ROTH IRA!! you're on the right track!

Yes, my Roth IRA has been fully funded for the last 5 years or so. I’ve already fully funded it this year too. I have an emergency fund too, so I’m going to go hard this summer and invest as much as I can in my Roth 403(b) at my residency program to take advantage of the down stock market.

I’m also trying to see if I can get a signing bonus at the hospital I will be working at as an attending to add some of that to the stock market.

[mamaham]

Hey guys, I’m graduating and starting residency soon and I’ll be RENTING, haha. Thanks for all the advice a couple years ago.

I’m getting my financial affairs in order right now. Looking for apartments, buying disability insurance, etc.

if I could go back in time -- two things I would definitely do during residency --- RENT (even though we made money on house sale) and contribute to ROTH IRA!! you're on the right track!

[SerrateAndDominate]

Fantastic news that is much needed!

[Romberg45]

Hey guys, I’m graduating and starting residency soon and I’ll be RENTING, haha. Thanks for all the advice a couple years ago.

I’m getting my financial affairs in order right now. Looking for apartments, buying disability insurance, etc.

[artemis]

Tangler wrote:

well, lets just say a resident has a million reasons (including financial ones) NOT to buy.
1. stuff breaks, hidden costs &
2. Hidden headaches, you have ZERO time for bs, you need to be: 1. working, 2. sleeping 3. studying 4. exercising and spending time w family/ friends.
you don’t have time for the nonsense of the broken fridge, dead water heater in winter, burrrrr, leaky roof, dead AC in summer heat right before boards, angry neighbors because you did not mow the lawn because you are dead tired and trying to work hard to avoid getting in trouble with a mean attending ( like me).

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And here's the way those repair calls go 99% of the time:

"ACME Repair will send out a repairman sometime tomorrow between 8 AM and noon.  No, we can't provide a more accurate estimate of when he will arrive, sir."  (Repairman will actually arrive at 2 PM.)

Houses are a pain in the butt to deal with even when you're an attending and have some degree of control over your schedule.  They can be a nightmare when you're a typical resident (powerless and broke).

[AlexxT]

Romberg45 wrote:

Just because my attendings are experts at medicine, that doesn’t mean they’re experts in finance, e

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Attendings are just people who were residents a few years ago.  They didn't know anything about finance when they were residents, and they haven't learned anything about money since.  Why should they?  It's mostly the blind leading the blind.

 

Romberg45 wrote:

Just because my attendings are experts at medicine

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By the way,  many of them don't know that much about medicine, either.

[Tangler]

You are better off renting. Option 3 = best.
I have bought 3 homes, but currently rent. Renting a nice place in the south east is very reasonable, and the right move. This “renting = throwing away money “ idea is pure doggie poo. I felt EXACTLY the same way in 2000 when as an intern i bought a house, dumb.
Why Rent?
well, lets just say a resident has a million reasons (including financial ones) NOT to buy.
1. stuff breaks, hidden costs &
2. Hidden headaches, you have ZERO time for bs, you need to be: 1. working, 2. sleeping 3. studying 4. exercising and spending time w family/ friends.
you don’t have time for the nonsense of the broken fridge, dead water heater in winter, burrrrr, leaky roof, dead AC in summer heat right before boards, angry neighbors because you did not mow the lawn because you are dead tired and trying to work hard to avoid getting in trouble with a mean attending ( like me).

Real estate agents SELL
Bankers LEND
both those folks have more time and money and experience than you and you tend to lose in a deal with them. They win, you lose.
You need 3 things to win when looking for a house.
1. big down payment ( debt = death, banks are not your friend) subprime anyone?!
2. TIME, you need a stable situation (been in a job for 1 year, family happy, No move on horizon) + time to look for good deal in right location + time to learn neighborhoods in area + time to deal with bs headaches that WILL happen in EVERY house
3. emergency fund to squash headaches when they happen
i would tell my intern self back in 2000: RENT, and the stubborn rascal would probably ignore me!!!!

[DMFA]

Romberg45 wrote:

Thanks for all the replies. I am really grateful for each response and would like to thank all of you from saving me from a horrible decision.

There were plenty of variables that I wasn’t taking into account previously, such as property taxes, insurance, and interest. I also overlooked a major risk: I wouldn’t want to have the stress of a damaged roof or broken water heater bother me while at work and hinder my training and possibly future career opportunities.

And whatever money I saved from renting would probably be nowhere near the tax advantages of fulling funding a Roth IRA and funding a 401(k).

I had some attendings recommend I buy a house to save money during residency. Just because my attendings are experts at medicine, that doesn’t mean they’re experts in finance, etc.

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This is how they sell them.  "Hey, buying this $200,000 house will only cost you $845/month, and you get to keep some of it!"  Never mind all the expenses you mentioned, likely inability to deduct mortgage interest (which just reduces its cost by a little bit) with the new higher standard deduction, bad things happening that aren't covered by insurance, upkeep, etc...just like people think leasing cars as opposed to buying new ones is throwing money away, the key is "cost to own" - how much did you put into it, and how much are you getting out (although those depreciate while houses usually appreciate).

Buying and selling a house is a huge pain.  I envy renters - sure, they can't do whatever they want to their house, but I don't really want to do anything to it anyway...and all they have to do to leave the house is say "I'm out."

I got lucky in my house during residency and fellowship which was ill-advised to have bought as a two-intern couple.  Six years, fortunately no significant repairs that were not covered, and overall amount I put in (PITI, lawn mowing, pest control, security, but not including utilities, internet, TV) versus amount I received on its sale, less tax deductions for tax/interest, roughly equated to $900/mo spent...far less than what I'd have spent on rent for a comparable dwelling.  Results not typical.  The house appreciated 7% per year, was bought at historic low mortgage interest rates and at the early end of the housing bust recovery at low prices, didn't need any updating, didn't need any significant repairs not covered by warranty (AC unit replaced), and sold the second day it was on the market (staging/viewings done while we were out of the country on vacation).  I say again: results not typical.  It took a lot of luck in a lot of different areas to help all that come together.

I think WCI said once, "why does every MS4 think they're the exception to the Do Not Buy in Residency rule?"

[adventure]

MaxPower wrote:

today though. I’ll play devil’s advocate to your devil’s advocate with my own example.

...

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Yikes. That is horrifying..

[q-school]

CordMcNally wrote:

Romberg45 wrote:

Thanks for all the replies. I am really grateful for each response and would like to thank all of you from saving me from a horrible decision.

There were plenty of variables that I wasn’t taking into account previously, such as property taxes, insurance, and interest. I also overlooked a major risk: I wouldn’t want to have the stress of a damaged roof or broken water heater bother me while at work and hinder my training and possibly future career opportunities.

And whatever money I saved from renting would probably be nowhere near the tax advantages of fulling funding a Roth IRA and funding a 401(k).

I had some attendings recommend I buy a house to save money during residency. Just because my attendings are experts at medicine, that doesn’t mean they’re experts in finance, etc.

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Your future self will thank your current self. Also, as a general rule of thumb, don’t take financial advice from doctors.  

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exactly.  this always makes me laugh.  why should attending physicians be perceived as having some kind of financial literacy?

the fact that they are in a teaching situation should make them cautious about how suggestions would be perceived.  instead fire away with potentially terrible suggestions.

 

[CordMcNally]

Romberg45 wrote:

Thanks for all the replies. I am really grateful for each response and would like to thank all of you from saving me from a horrible decision.

There were plenty of variables that I wasn’t taking into account previously, such as property taxes, insurance, and interest. I also overlooked a major risk: I wouldn’t want to have the stress of a damaged roof or broken water heater bother me while at work and hinder my training and possibly future career opportunities.

And whatever money I saved from renting would probably be nowhere near the tax advantages of fulling funding a Roth IRA and funding a 401(k).

I had some attendings recommend I buy a house to save money during residency. Just because my attendings are experts at medicine, that doesn’t mean they’re experts in finance, etc.

Click to expand...

Your future self will thank your current self. Also, as a general rule of thumb, don't take financial advice from doctors.  

[Romberg45]

Thanks for all the replies. I am really grateful for each response and would like to thank all of you from saving me from a horrible decision.

There were plenty of variables that I wasn't taking into account previously, such as property taxes, insurance, and interest. I also overlooked a major risk: I wouldn't want to have the stress of a damaged roof or broken water heater bother me while at work and hinder my training and possibly future career opportunities.

And whatever money I saved from renting would probably be nowhere near the tax advantages of fulling funding a Roth IRA and funding a 401(k).

I had some attendings recommend I buy a house to save money during residency. Just because my attendings are experts at medicine, that doesn't mean they're experts in finance, etc.

[notadoc]

This is how much you’ll pay in hidden costs when you own a home

Obviously varies by location, house and some years more expensive than others.

https://www.marketwatch.com/story/this-is-how-much-youll-pay-in-hidden-costs-when-you-own-a-home-2018-08-21

 

[Monesthesiologist]

Houses cost a lot more than money. They also cost a lot of money. As a med student, I had a 180K mortgage using FHA loan and had monthly expenses related to the house including mortgage payment of >$1300-1500 on the cheaper months when I didn't have to replace something or upgrade something. Of that 1300-1500, only $400 went towards the principal balance each month. So residency is 4 years for you. Thats 12 months X 4 years X $400 = $19,200 best case scenario not accounting for ANY big expenses and doesn't even come close to mentioning the $10,000 it will cost in closing fees when you sell.

Certainly, you can buy a house. There's always a crazy scenario you could come up with where it would make sense to buy. But barring the crazy, SHOULD you from a strictly conservative financial perspective? Absolutely not.

[MaxPower]

Bonez wrote:

Just to play devils advocate.. I bought a house right outside of Detroit for $86k before starting a 5 year residency. It was recently flopped 3br 2ba believe it or not (2011). Had to drop about $3k on a sewer repair and otherwise did several DIY projects for curb appeal. Put it on the market 2 months before graduation and had several offers in 2 days. Sold for $180k. Made payments throughout residency that were 1/3 what my friends were paying for rent. Probably can’t replicate that scenario in the market today though.

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I'll play devil's advocate to your devil's advocate with my own example.

Before finding out about WCI, my wife and I bought a house for 5-year residency for $189,000 in the summer of 2008.  It was a 4 BD, 2.5 BR house that was 4 years old when we bought it in an area that our realtor assured us was growing and where we could expect 2-3% yearly price appreciation.  In 2009, we had to pay almost $1,000 to have our water heater replaced.  In 2010, we had to pay almost $4,000 to replace one of two A/C units in a two-story house (split system, critical in the Southeast where I did residency).  When I was set to graduate residency in 2013, we listed the house for sale for $179,000 (so nowhere near the "2-3% yearly appreciation" we foolishly believed would happen) and only had a couple of potential buyers come through.  It was listed at too high of a price, but we couldn't afford to take a loss on it at that point financially.

We then became accidental landlords.  We were able to rent the house out for about $250 more than our mortgage payment for the first 2 years, but had to replace the other A/C unit for about $4,000 in 2014, and then the roof in 2015 due to a hail storm.  At least that was covered by our homeowner's insurance after a $1,000 deductible.  When those renters moved out, we had to pay almost $3,500 to re-sod the entire yard that they had let die due to not watering it.  Our management company was bought out partway during their lease term and the ball was completely dropped on making sure that the house was being properly taken care of.  We were receiving notices from our HOA almost monthly about the condition of the lawn and overgrown trees.  We had to pay almost $2,000 around that same time to remove a large river birch tree at the front of our house that the initial landscapers of the house should have never planted next to the house.

Our second set of renters (just moved out) were great, but the rental market had tanked and so we were only able to pocket about $100/month above our mortgage payment on the house.  We had to pay to replace a fridge (almost $1,000) and a few other smaller repairs around the house.

The house is now on the market, listed for $174,900, and we haven't had any serious interest in the house.  Fortunately, we now only owe $149,000 so have some room to drop the price to get it sold since we figured out we were not meant to be long-distance landlords.

So I would tread carefully about buying a house during residency.  I liked the thought above about rent being the ceiling of what you would owe for housing for a month, while a mortgage payment on a house you "own" is the floor.  We are now in a position financially where we can easily cover the monthly mortgage even without renters, and things like a new fridge don't cause financial hardship, but looking back there were some tough times when we had to come up with $4,000 to buy a new A/C unit during residency on that kind of salary.