Is there any risk if a Resident buys a very cheap house????

[psychMDhopefully]

There are some neighborhoods in the south, where you can get a decent little house that is in good shape for 120k or less. The mortgage payments + property taxes on these would be about $500 a month, thats cheaper than most apartment rent. Is there any risk in a resident buying a house like this even if they may move to another city after residency?? Of course they can always try to sell the house, but if they can't, the mortgage is only $5oo, they can afford to just keep it right?

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[mvenus929]

There are lots of expenses that come with owning a house that you don't have if you're in an apartment. If your fridge breaks, A/C goes out, your home floods--you'd have to pay for all that (minus whatever your homeowner's insurance pays) out of pocket, whereas your landlord would be responsible if you were in an apartment. Don't forget to include taxes in your mortgage calculation too, as well as any homeowner's association dues. They can significantly increase monthly payments.

 

[RangerBob]

I don't think you're calculating your payments correctly--monthly mortgage payments on a $120k home on a 30-year mortgage at 3.5% (more likely your 30-year fixed rate would be above 4%, but you can get ARMs in the low/mid 3's) would be $540/month. That doesn't include your property taxes or homeowner's insurance. You're probably looking at closer to $800/month in payments.

Yes, there is plenty of risk. You're taking out another $120 in debt. There's the risk the home won't sell. The risk the home won't sell for a while (costing you an extra $800/month while you're making rent/mortgage payments on your new place). The risk you lose money when you sell (you'll have to pay 6-8% in closing costs--you likely won't have that much equity built up after just a few years of residency unless you made a large down payment, but most residents use physician loans with $0 down). The risk you decide to rent it out instead and the tenants trash the place and cost you more than the profit you made from the tenants (and from your increased equity in the home). There's also the risk you decide to do a fellowship and can't absorb the costs of selling the home.

And there are the risks mentioned above, like replacing the heater/AC, general maintenance costs, etc. Most residents don't have time to do their own work on a home.

If you buy a home, assume you'll need to spend $2000/year on maintenance/upkeep on a home in that price range and have $10k in savings (at least) set aside to cover any major problems (heater & AC replacement costs $7-$8k alone).

Bottom line is you may come out ahead vs renting (NYTimes has a good rent vs buy calculator--try googling it and enter your data), but I would only buy a home (and I did buy one) with the assumption that you'll either break even or possibly lose money on the home when all is said and done. While your monthly payment is lower with buying, you still need to factor in all those maintenance costs, closing costs, etc., that you wouldn't have with renting. And if you rent, remember you can pack up and leave with a one month's notice. With buying a home, you own that mortgage until it's paid off one way or another.

The smartest financial thing you could do is share a 2bd apartment, rent a 1bd studio apartment--or better yet, just rent a room in a house. A $120k home is not going to appreciate much while you're there, so unless you're a DIY guru, the odds are you' going to sell it for what you paid (plus or minus a few thousand dollars).

 

[hatfielj]

There are some neighborhoods in the south, where you can get a decent little house that is in good shape for 120k or less. The mortgage payments + property taxes on these would be about $500 a month, thats cheaper than most apartment rent. Is there any risk in a resident buying a house like this even if they may move to another city after residency?? Of course they can always try to sell the house, but if they can't, the mortgage is only $5oo, they can afford to just keep it right?

Yes there is a lot of risk anytime you buy a house. The housing market could crash again before you graduate and you could end up owing more on the house than its worth. As already mentioned, houses are expensive, more so than just the mortgage, taxes, and insurance. Renting is so much less stress and worry and gives you the freedom to move whenever you want without being tied down.
This is totally a case of do as I say, not as I do because I bought a condo when I was in residency and fortunately for us we were able to sell it for 11k more than we paid for it, after just 4 years of owning it. But, that doesn't always happen. And selling a house is stressful too. If I were you knowing what I know now, I would wait until after residency to buy. And make sure you save up cash for the down payment and any remodeling or new furniture you want as well. That will make the whole home buying experience much more pleasant for you and you'll be able to buy a nice place and feel good about it.

 

[cpants]

As someone who bought a house during a 5 year residency, I will tell you I think its a mistake. I ended up selling for about the same price I bought it. Maintenance and upkeep easily outweighed the mortgage interest deduction on my taxes. So I basically walked away with a check for $1000 after 5 years. Owning the house was a tremendous stress, as you literally have no time or money to maintain it. Stuff breaks all the time. Thank god the boiler or the roof didn't go, or it would have been a huge financial burden. Not to mention, trying to sell the house at the end of residency is a major pain in the neck and very expensive and you could lose money on it. You could end up in a terrible situation if you want to do additional training and can't sell your house (ie. you can't afford to pay your mortgage and rent in a new location on a fellow's salary). I know one coresident who moved across country and was unable to sell his home. Now he is renting it and has to hire a management company to handle the tenants.

So yes, there are significant risks and not a lot of benefits. I would only consider it if you are planning to stay in the area where you train for the rest of your career or if it is impossible to find a decent rental.

 

[doctorloans]

Yes, as everyone has mentioned there are tons of risks as well as benefits. Since every home is different (and has different issues), every neighborhood and city are also unique and have varying levels of appreciation or even depreciation.

It can be a really great investment but you should carefully consider and choose what works best for you. And try to buy something that will appreciate!