Wanted to get some advice from BFI, we are probably about a year from buying a house and I wanted to get some thoughts so I can start doing things during the next year to make the best decisions we can going forward.

Im a medical student, and will be starting residency in a year and a half. I will have 50-60k-ish in debt which is mostly gov subsidized loans so aren't accruing much interest yet. My wife (in a low earning field) has about 50k in student loans also. So we will have about 100k in loans together, which would at first glance make it seem like buying a house would be stupid, but I wonder if it is.

During my 3-6 years of residency/fellowship I will be making 45k-60kish a year and my wife's job around 30k-40k. So I would guess our household income would be about 80k for 4 years and then will jump to essentially a guaranteed ~200k based on my interests. What Im thinking is that we could buy a house based on our 80k-ish income, then once I get up to full salary we could pay that house off in a few years and then because we will be near to a medschool there will be tons of very reliable people looking to rent, so I could rent it to medstudents and we could upgrade.

(Due to various professional connections I have, Im fairly certain I will be staying in the same city for the next foreseeable future)

Summary:

100k-ish in student loans combined
80k household income for 4-6 years, followed by essentially guaranteed 200k+
Should we buy a house?
Thoughts?

Is the return on renting such a house out enough to make it a good proposition or are you relying on appreciation?

Also why do you want to pay the house off? If its a good investmennt then why not use your cash to buy more rental property. if its not that good an investment or you dont want the hassle then then why bother with buying at all?

Are your wife's loans govt loans? Is she any sort of public servant? If so you can take advantage of loan forgiveness for her after 120 qualifying monthly payments. You might have to file taxes separately to make this work out.

If that isn't an option, you don't have to pay more than 15% of your discretionary income toward student loans so you could consolidate them (dropping the payment while lengthening the term to, I think, 30 years as opposed to 10 years) and after 300 qualifying monthly payments, the excess is forgiven.

All this to say, explore how to leverage forgiveness plans to your advantage. It may be the case that making it a priority to pay off your student loans, as opposed to investing in a home etc. is actually a mistake for you financially.

http://studentaid.ed.gov/repay-loans...s-cancellation (federal site for information relating to forgiveness plans)

https://www.saltmoney.org/Assets/PDF...aying-them.pdf (not sure about the reliability of this as a resource, but there seems to be at least enough information to get you started)

I've put very little thought into this, obviously thinking about renting out a house is way over my head right now, so lets toss that aspect for now and just focus on the "should I buy a house" aspect.

Obviously I'm no real estate expert, but I would be shocked if home values in my area don't continue to rise in the next decade because of a growing local economy and the fact the colleges have been growing every year and there are more and more students driving up rent and therefore home values in several areas where I would be considering living.

Yeah I need to more fully explore the loan forgiveness programs, part of my concern in that at some point the gov is not going to be cool with MDs skimping out on loan payments so I could do this thing for X years and then the program gets axed and then I have this pile of loans that has been sitting there with me making minimal payments.
(Also based on back of the envelope calculations, I almost certainly would be paying off these loans before I get to the point of getting anything forgiven based on 15% discretionary income and 30 years)

Also forgot to add, we will also have ~15k of extra living expenses loans sitting in the bank that I have just been holding onto because currently none of our loans are accruing interest so Im just holding as a rainy day fund that I could pay back with 0% interest when I graduate, so really will be more like 85k in loans.

Edit- Also regardless of what happens, I will likely be holding onto at least 50k of educational debt, b/c its pretty common for MD jobs to offer like 15k loan forgiveness a year for first two or three years (not sure why they don't just pay you 15k more, but this is how I've heard it tends to work)

What city are we talking about? What is the chance you would move out of this city after the 4-6 years?

I'd rather not say the city, but its not a major city. If I get a residency slot here then I would say its like 95% I will be there for 15+ years. If I don't get in residency slot here, then I will obviously not buy a house because we would be planning on moving back to this area from wherever I go.

Lifestyle is important here. Do you really want to have to come home to mow the grass and occasionally have to call (and pay) contractors to fix things while you are a resident? Do you really want to be a landlord (essentially a low paying part-time job) of a starter home in addition to your work once you are a well-paid physician? Do you really hate renting?

We really, really want a yard and AFAIK if your renting a house with a yard you are the one who has to mow it anyway?

Anyhow, the points related to land-lording are very well taken, that idea was rather half baked from the start.

3-5 years is essentially the minimum to buy a house because the transaction costs are very high. It looks like you are on the cusp of it.

One thing to be careful about is that banks will be more than happy to lend you a ton of money given your future earning potential. I can't think of any other subgroup of people who can get loans easier than med students. You are a really good risk, and they will pretty much give you what you want - but that doesn't mean you should take what they give you. You need to estimate your potential house costs (including taxes, upkeep, etc) and see how much you can afford. Don't look at the bank because they will definitely be very lenient for you guys.

Secondly, the idea of living in a house for a few years and then keeping it as a rental sounds good in principle, but this may not be as easy or as practical as you think. You have to look at the rental market and buy the sort of property that makes sense to rent out. And the sort of property that makes sense for a rental is often not the sort of property you might want to live in for 4-5 years. Go check out some rentals, and compare their rents to the price for that sort of property...

Overall, it sounds like a fairly close decision. Basically, whatever you chose, you're not going to be very wrong or very right.

Unless you're a nomad, I don't really understand this fairly recent "lifestyle" argument against rentals.

To me, having a house is a positive lifestyle change. When you want to add a pond in your yard, you just do it. When you want to paint your walls neon color, you just do it. When something breaks, you call a maintenance person and they come and fix it. It takes 5 minutes. People make it sound as if the toilers in new houses break every other month and rentals are perfect and nothing breaks. As for yards, monthly service is cheap and unless you have a giant/intricate yard, it's really no big deal.

In contrast, renting is like living with your parents. You can't do a damn thing to "your" place without prior approval. When stuff breaks, your landlord is probably a cheapass who is going to delay and shop around leaving you with a non-working toilet. Or maybe they will just tell you that your faulty window is going to stay faulty and tell you to just not open it ever. When something needs to be replaced, they usually go for the crappiest and cheapest possible fixes. That's how rentals work and that's what usually needs to happen to make it work as a business.

And worst of all, with 30 days notice they can throw you out anytime they wish and you are left scrambling and trying to find something nice and possibly getting stuck on a 1 year lease at a place you don't really want to live in because the best places get snapped up very fast and your 30 days notice is running out. I've been in this spot several times. It sucks really bad.

So as far as lifestyle goes, unless you're a nomad owning >>>> renting.

"Really, really" wanting one of the benefits of home ownership is a really good reason to own a home. If wifey really likes to garden, that would be a good reason.

Owning a home isn't just mowing the grass. Who is going to take care of the other maintenance? Are you or the wife going to take time off of work and/or give up what would be time being together to figure out which plumber to call and then wait for him to arrive when the water heater goes?

Imo, you've already got enough responsibility on your plate with starting a residency in the near future. Wifey is already going to have to deal with you working ungodly hours and you being stressed. The little free time you have in the near future should probably be spent giving each other attention, not taking care of a house.

Basically renting is just punting in your current situation. You might miss out on a bit of capital appreciation, but (given that I have almost no knowledge of your personalities and marriage) I think waiting to buy is a decent choice.

You meant "for" when you said "against" right?

My advice was very specific to my guestimate of his circumstances.

At this point in his life he is looking at he is effectively nomadic (moving across town to a better house is essentially the same cost-wise as moving cross country). His income is going to go up massively, and the house he can get when he start his residency isn't going to be his permanent house.

Have you owned a starter home before?

Points are all well taken and are things we have been considering. We have been rather cooped up during medschool (small apartment in a complex, no yard, etc.) and are looking forward to have room to spread out, have a couple dogs, etc. but all those things are also available while renting.

I think the issue is I have this simplistic naive thought in my head that paying rent is like burning money, while paying a mortgage is like putting it in a bank account.

Also the moving in 3-5 (or 10 years) may be salient given that there is a lot of waterfront housing around the area, which is something we would love, but obviously wont be affording on my resident salary.

Glad we have a year to think about this

Its not planned as your home except on a short term basis so I assume there's no personal advantage in buying over renting. Then its just a matter of whether you judge it as a good way to make money compared to your alternatives.

Start with the assumption of house prices staying fixed in real terms and do the maths. Then you can add a more speculative judgement about house prices going up but if the maths looks bad now its a big gamble. On the other hand if the maths looks good now then its a great bet.

id wait until you get accepted into a residency program before making any major decisions. a lot of variables will be removed after that.