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Message
Rent or Buy a house
Posted on 4/11/12 at 7:01 pm
Posted on 4/11/12 at 7:01 pm
Rarely post but I lurk around here a lot and have taken notice that there is a lot of very good information given out so I humbly come to the money board to pick their brilliant minds...
I will graduate medical school next May and will be going off somewhere for residency (Birmingham, Mobile, Nashville, Denver). My wife and I would like to go somewhere that is new, but we dont plan on staying their after I finish residency. My residency will be four years, five at the most. So my question is what would be the more prudent thing to do, buy or rent a house?
I understand there are many variable that would play into this decision but just based on general circumstances what would you think.
Between the 2 of us we will be making a little over a 100k a year and we would probably be able to scratch together 15-20% for a downpayment. I realize that we could get something nicer for the same "monthly note" if we buy as opposed to renting. But over those 4-5 years we wont be building a substantial amount of equity in those years and would be on the hook for all maintenance issues as well as closing costs and things related to buying and selling a house. Also the thought of trying to sale the house when I finish somewhat scares me. So I ask, what would the money board do. Thanks in advance.
Sorry for the longish post, I know the OT cant read more than one line
I will graduate medical school next May and will be going off somewhere for residency (Birmingham, Mobile, Nashville, Denver). My wife and I would like to go somewhere that is new, but we dont plan on staying their after I finish residency. My residency will be four years, five at the most. So my question is what would be the more prudent thing to do, buy or rent a house?
I understand there are many variable that would play into this decision but just based on general circumstances what would you think.
Between the 2 of us we will be making a little over a 100k a year and we would probably be able to scratch together 15-20% for a downpayment. I realize that we could get something nicer for the same "monthly note" if we buy as opposed to renting. But over those 4-5 years we wont be building a substantial amount of equity in those years and would be on the hook for all maintenance issues as well as closing costs and things related to buying and selling a house. Also the thought of trying to sale the house when I finish somewhat scares me. So I ask, what would the money board do. Thanks in advance.
Sorry for the longish post, I know the OT cant read more than one line
This post was edited on 4/11/12 at 7:04 pm
4
Posted on 4/11/12 at 7:17 pm to RicFlairWhoooooo
Renting is a no-brainer in this case. Think about homeowners insurance, property taxes, etc., other hidden costs such as cutting grass/buying lawnmower/weedeater, etc. or having to pay someone to do it. Not to mention having to sell it in the backend, with realtor fees.
Posted on 4/11/12 at 7:36 pm to RicFlairWhoooooo
Nice names gents. Nothing wrong with renting in my opinion. It's easy and underrated. Think how much less of a headache it will be if there need to be some repairs done.
Unless you wanted to buy a house and rent it out or something when you move, but I would do that only if it was near a college.
Unless you wanted to buy a house and rent it out or something when you move, but I would do that only if it was near a college.
Posted on 4/11/12 at 7:37 pm to Ric Flair
Yea that is what I was thinking. What about the tax breaks that come along with owning a house? Would being able to write off the interest and some of the other things that you can do be beneficial enough to make up for some of the expenses you listed over 4-5 years? I would think that a married couple with no kids, making a little over a 100k (rich according to obama) would not be up for very many tax breaks. Thanks, from one ric to another.
Posted on 4/11/12 at 8:22 pm to RicFlairWhoooooo
Agreed, renting is the better option. Who's to say the house won't lose value and you'll be writing a check to sell it. When you get where you're going after there you'd have no choice but to rent while you wait for the house to sell. Lastly, you probably have more important things to pour extra cash into like if you have debt or need to build up savings so it's not like you would build more than minimal equity. Use this time to get a roof over your head for a fraction of your income and build up savings for when you're really ready to put down on a house. And forget the "tax incentives" that get mentioned by carrying a mortgage. No reason to pay a bank 10k a year just to avoid paying the IRS 2.5k.
Posted on 4/11/12 at 8:29 pm to RicFlairWhoooooo
Rent!
Posted on 4/11/12 at 10:17 pm to JWS3
When in doubt, RENT!
Posted on 4/12/12 at 12:13 am to lynxcat
I'll go against the grain and say buy but it's tough. Since you for sure have zero plans on staying where you match for residency, renting sounds compelling.. If you for sure planned on living there I'd say buy no brainier. But I'll play devils advocate.
I too am in this same quandary. I'll be an M1 in NOLA next year and actually just got an offer on a house accepted. This is a long way and many unforseen circumstances away but id probably like to do ER and would think i will have a decent chance of matching in Nola or BR. So I'm anticipating the possibility of 8 years in NOLA
Buying:
The cost of buying a home has never been so low! I will be paying 3.75 on a 30yr.
I firmly believe the real estate market may have bottomed or certainly can't go much lower if you have location first and quality a close second. Which is why I'm paying more for a place on st Charles I probably don't need.
You will build some equity in your home, and can rent it later for income (yes managing may be costly, buts its a calculated investment). But then you have someone else building YOU home equity.
and a rule of thumb some people go by for renting is if you take your net income from renting and divide it by the buy price it should pay you more than 30 yr T bond which is not hard right now sitting around 3-4%. But thats an oversimplified and more investment oriented rule.
Bottom line: I'm taking a calculated gamble, but I'm not afraid to toss the dice. I hope the area I'm buying in has relatively ineslastic demand!
I too am in this same quandary. I'll be an M1 in NOLA next year and actually just got an offer on a house accepted. This is a long way and many unforseen circumstances away but id probably like to do ER and would think i will have a decent chance of matching in Nola or BR. So I'm anticipating the possibility of 8 years in NOLA
Buying:
The cost of buying a home has never been so low! I will be paying 3.75 on a 30yr.
I firmly believe the real estate market may have bottomed or certainly can't go much lower if you have location first and quality a close second. Which is why I'm paying more for a place on st Charles I probably don't need.
You will build some equity in your home, and can rent it later for income (yes managing may be costly, buts its a calculated investment). But then you have someone else building YOU home equity.
and a rule of thumb some people go by for renting is if you take your net income from renting and divide it by the buy price it should pay you more than 30 yr T bond which is not hard right now sitting around 3-4%. But thats an oversimplified and more investment oriented rule.
Bottom line: I'm taking a calculated gamble, but I'm not afraid to toss the dice. I hope the area I'm buying in has relatively ineslastic demand!
This post was edited on 4/12/12 at 12:16 am
Posted on 4/12/12 at 1:10 am to greenhead11
quote:
and a rule of thumb some people go by for renting is if you take your net income from renting and divide it by the buy price it should pay you more than 30 yr T bond which is not hard right now sitting around 3-4%.
What? Is this some kind of bastardized attempt at a cap rate? And the r is essentially a risk free rate? I've literally never heard of this in my life.
Posted on 4/12/12 at 1:42 am to kfizzle85
The only formula that I have ever seen in regards to affordable rent:
annual salary/ 40= amount of rent you can afford
annual salary/ 40= amount of rent you can afford
Posted on 4/12/12 at 6:58 am to kfizzle85
I think my real estate broker told me that in regards to after buying a home. Its to determine if renting is worth doing over selling-so an after thought- makes sense to me. You take your net projected income from the rental property accounting for fees = risk free rate essentially.
Then I guess for thoroughness sake you can throw on an additional subjective "market risk premium" and we'd have one way of deriving is renting (after you bought a place)is worth it.
But then you gotta factor liquidity premiums and other intangibles....hell and then TEV/EBITDA and growth into perpetuity
I may have lost my mind (but it made sense to me), this is what you get when your doing DCF's this early in the morning. Maybe medical school will make me more sane than work?
Then I guess for thoroughness sake you can throw on an additional subjective "market risk premium" and we'd have one way of deriving is renting (after you bought a place)is worth it.
But then you gotta factor liquidity premiums and other intangibles....hell and then TEV/EBITDA and growth into perpetuity
I may have lost my mind (but it made sense to me), this is what you get when your doing DCF's this early in the morning. Maybe medical school will make me more sane than work?
This post was edited on 4/12/12 at 7:06 am
Posted on 4/12/12 at 9:16 am to greenhead11
quote:
But then you gotta factor liquidity premiums and other intangibles....hell and then TEV/EBITDA and growth into perpetuity
No not really, its just not sane to equate a rent income/price rate with a risk free rate. So any incremental risk above nothing makes it an okay investment? Yeah, sounds like something a realtor would cook up.
This post was edited on 4/12/12 at 9:22 am
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