Welcome to the updated Slickdeals redesign beta. Learn more and give us feedback. Or, return to the classic view.

Search in
Forum Thread

Entering medical school this fall: Rent apt or buy house?

ah6tyfour 46 April 26, 2011 at 07:26 AM
Deal
Score
0
8,529 Views

Thread Details

I will be attending medical school in the fall. I'm going back and forth between the pros and cons of renting vs. owning in the area. To me, owning seems like the better idea, but I am young and naive and am probably not realizing all the hidden costs.

It costs around $450/month + utilities to rent a room or share a 2-bedroom apartment. I will be needing housing in the area for at least four years and possibly up to seven years.

A 3-bedroom, 2-bath house can be had for around $70K-$90K. As a student, I qualify for an FHA loan that only requires 3.5% down, no PMI, and a fixed interest rate of 4% for 15 years.

Here's why I think I should buy:
-Purchasing $80K house would result in monthly payment of ~$550/month
-I can rent out two rooms to fellow students for $400-$450/month + utilities
-Their rent will at least let me break even on monthly mortgage/insurance/tax. Any extra can be put into savings for potential home maintenance.
-I would essentially live there for free
-So not only would I not need to spend ~$5,400 per year on rent, I also receive at least $9,600 per year towards paying the house. My net gain after four years is at least $60,000.
-I can easily rent to incoming medical students if I have to leave after four years. They are on loans so they will always pay rent.
-Eventually I can keep the place as vacation home, give to parents, or sell. No matter how much the market tanks, since most of mortgage was paid by rent money, I come out ahead.
-Not much rain (and no snow at all) in the area so probably won't have major issues to deal with like leaking roofs.

What are the cons?
-Have to find tenants (not hard, since 200+ students come in yearly)
-Unknown cost of repairs. What if fridge dies? I'd shell out the equivalent of almost 2 months of rent to replace it.
-Four years of rent will basically cover the interest I'd be paying on the house
-Lots of sunk costs (interest to bank, homeowners insurance, property tax, closing costs that might or might not be paid by seller, maybe HOA fees)
-No tax benefits since I will have no income

What should I do?

19 Comments

1 2

Sign up for a Slickdeals account to remove this ad.

Joined Dec 2005
My # is bigger than yours
6,157 Reputation
#2
buy, refrigerators rarely break & if it does, just sell it on craigslist
Reply Helpful Comment? 0 0
Joined Dec 2009
L3: Novice
61 Reputation
#3
is the house/condo fha approved? if not, you won't be able to finance it with the fha loan, even if you qualify for one
Reply Helpful Comment? 0 0
Joined Aug 2006
L2: Beginner
46 Reputation
Original Poster
#4
Quote from chaimvital View Post :
is the house/condo fha approved? if not, you won't be able to finance it with the fha loan, even if you qualify for one
I haven't actually looked at places yet. Still in the process of securing the loan pre-approval. But I thought almost every place would be FHA approvable. They just had to do an inspection to make sure. Do they have some set criteria that might exclude a significant number of homes?

Edit: just did a good search and seems like most single family homes are automatically FHA approved, pending a home inspection. Condos, on the other hand, are a different case due mainly to HOA issues. I'm looking for single family homes so that I can avoid paying a monthly HOA fee, so hopefully I won't run into the problem of wanting a home that is not approved.

I can always put down 20% and do a normal mortgage if I need to.
Reply Helpful Comment? 0 0
Joined Dec 2009
L3: Novice
61 Reputation
#5
the mortgage company might try to get the individual unit approved for the FHA loan which might take longer if successful, or better still, buy the unit in one of the complexes that have been pre-approved by the FHA. either way the brokers should be able to navigate the local market.

from the numbers you laid down above, i would think buying at $75-80k in this depressed market might make more sense. i would make sure i estimate the rental income more conservatively though, i.e. vacancy, non-payments (even if the tenants are on loans), and in rare occasions, evictions (here in NY it takes months to get the judge's decision to evict somebody all while the non-paying tenant lives there for free + the legal fees that you pay...) even with this, i would believe buying makes more sense for you. you might break-even or even come out slightly in the negative, but still, i would believe, better than where you would be by paying rent for 7 years...
GOOD LUCK
Reply Helpful Comment? 0 0
Joined Apr 2011
L1: Learner
10 Reputation
#6
Quote from ah6tyfour View Post :
I haven't actually looked at places yet. Still in the process of securing the loan pre-approval. But I thought almost every place would be FHA approvable. They just had to do an inspection to make sure. Do they have some set criteria that might exclude a significant number of homes?

Edit: just did a good search and seems like most single family homes are automatically FHA approved, pending a home inspection. Condos, on the other hand, are a different case due mainly to HOA issues. I'm looking for single family homes so that I can avoid paying a monthly HOA fee, so hopefully I won't run into the problem of wanting a home that is not approved.

I can always put down 20% and do a normal mortgage if I need to.

you can search for FHA approved condo status here:

https://entp.hud.gov/idapp/html/condlook.cfm

Another consideration is that you are only going to be in the property while you're in school. Soon enough you'll be graduating and have to decide what to do with the property. If your interested in being a landlord, it might make sense. If you will want to sell the property after you graduate you run the risk of not being able to sell for what you paid plus approximately 10% in transaction costs.
Reply Helpful Comment? 0 0
Joined Aug 2006
L2: Beginner
46 Reputation
Original Poster
#7
Quote from tonysesame View Post :
you can search for FHA approved condo status here:

https://entp.hud.gov/idapp/html/condlook.cfm

Another consideration is that you are only going to be in the property while you're in school. Soon enough you'll be graduating and have to decide what to do with the property. If your interested in being a landlord, it might make sense. If you will want to sell the property after you graduate you run the risk of not being able to sell for what you paid plus approximately 10% in transaction costs.
Thanks, I just gave it a try and looks like there are a few (~20) condos that are approved.

I'm trying mainly to find a single family house instead of a condo, mainly because I don't want to pay HOA fees. But this will come in handy if I do end up in some sort of condo.
Reply Helpful Comment? 0 0
Joined Jul 2005
L10: Grand Master
#8
OP,
Now, I think it's awesome to have the opportunity to start investing so early on. However, considering it's medical school, I think it's best not to invest in a house now. That's a lot of responsibilities to take on while you're going to be in school. And, medical school is tough.

When you're in school and after graduation, you'll likely be traveling a lot due to internships, rotations, and residency. So, it may not be a good idea to have to worry about a house when you're moving from place to place and paying a mortgage and rent at the same time.

Sure, some will say that you can rent out the place while you're doing rotations/internships elsewhere. However, who's going to take care of your tenants if there are problems? You would have to hire a rental management company then to take of this.

I think this would be a good idea if you're married and your SO has a job.
Reply Helpful Comment? 0 0

Sign up for a Slickdeals account to remove this ad.

Joined Apr 2006
World dominator and rebel
2,639 Reputation
#9
As long as you consider that owning involves a lot more time needed from you, as opposed to renting, then it seems that the money equation does play in your favor in this case.

by the way, don't forget insurance, etc.
Even filing at the end of the year will take a lot more time (or paying someone) because it will be a lot more complicated.

If you want to be completely stress free, and free to move if you don't like the area/place, then rent
Reply Helpful Comment? 0 0
Joined Nov 2007
Undead Mortgage &RE Agent
559 Reputation
#10
And don't forget the tax advantages of owning. All mortgage interest, up front points, closing costs, PMI, and property taxes are all deductible. By increasing the number of dependents on your W2, you bring home more every paycheck, as the deductions generally add up to more than the standard deduction.
Reply Helpful Comment? 0 0
Joined Aug 2007
WORLD CUP 2014 CHAMPIONS
347 Reputation
#11
Quote from ah6tyfour View Post :
-I can rent out two rooms to fellow students for $400-$450/month + utilities

-No tax benefits since I will have no income
Income from rentals, thus can take advantage of tax benefits?
Reply Helpful Comment? 0 0
Joined Jun 2009
Nothing Clever Here
131 Reputation
#12
Assuming the numbers shown and finding legitimate tenants is no problem, seems like buying should be a no brainer.
Reply Helpful Comment? 0 0
Joined Aug 2008
L99: Slicker than Ice
1,728 Reputation
#13
also consider the tenants might be gone for 2-3 months during the summer, expect to not pay rent, yet keep all their stuff there for when they come back (i.e. not let you rent it out)

I think the home would be better for you as it sounds like you could manage it
Reply Helpful Comment? 0 0
Joined Feb 2006
L1: Learner
10 Reputation
#14
Where are you going to medical school at? Is it a place with affordable housing and a decent economy?

I started medical school 8 years ago, I bought a home for right at 50K.. I put some sweat into the house and spent about 7K on it... sold it 4 years late for 83K. I was in a place with very affordable housing, large college student base, and stable economy.

I moved elsewhere for residency. I bought a home for 218K.. spent near 10K on it. Very nice home, however, homes are for sale EVERYWHERE in this town and no college base. I am currently asking 200K, and about to drop the price even more as I move away to my perm job.

So... I think your price point is good as its affordable to other people. Its best if you buy something that can use some updating, but not a total shamble that needs major rehab.. you wont have time for that, and if you are not handy, you will be paying people to do it and it wont be profitable...
Reply Helpful Comment? 0 0
Joined Aug 2007
WORLD CUP 2014 CHAMPIONS
347 Reputation
#15
Quote from troutmd View Post :
I started medical school 8 years ago, I bought a home for right at 50K.. I put some sweat into the house and spent about 7K on it... sold it 4 years late for 83K. I was in a place with very affordable housing, large college student base, and stable economy.
the housing bubble was awesome, wasn't it!?! woot

Quote from troutmd View Post :
I moved elsewhere for residency. I bought a home for 218K.. spent near 10K on it. Very nice home, however, homes are for sale EVERYWHERE in this town and no college base. I am currently asking 200K, and about to drop the price even more as I move away to my perm job.
oh, nevermind OMG
Reply Helpful Comment? 0 0
Page 1 of 2
1 2
Join the Conversation
Add a Comment
 
Slickdeals Price Tracker
Saving money just got easier.
Start Tracking Today
Copyright 1999 - 2015. Slickdeals, LLC. All Rights Reserved. Copyright / DMCA Notice  •  Privacy Policy  •  Terms of Service  •  Acceptable Use Policy (Rules)