So I am early into thinking about buying a condo, but do not know if it is a good idea. I am in my last year of Medical School and start residency in June 2014. I am currently 25 and will be 26 by the time I graduate school. For those of you who don't know what residency entails I will make about $50,000 for the next 3-5 years. I am assuming my training will take 4 years, and then my income will go up dramatically. During residency I will work long hours so I don't want to move out of the city to buy a house. The thing I thought about was a condo, but I am not very versed in this aspect of my life and am trying to get more financial savvy. I wanted the opinion of those that know more then me about this. I want to live alone, but would consider a roommate if I bought a condo. I also want a 2 bedroom either way. I figure my options are
1) Continue to rent a 2 bedroom for around 1000-1200 around the city I live. I would continue to piss this money away and not have anything to show for it.
2) Buy a condo for around 200,000 with a monthly fee of $300 (so essentially I would still lose $300 per month). I figure the monthly payment would be around $1300-$1400 and then the $300 fee so figure $1700/month. I would consider renting to one of my friends for $700 per month to bring this down, but would rather not if I could get away with it. I only have $10,000 for a down payment, but talking to some bankers they usually would wave the down payment for me because my future earning potential is attractive for them. I would plan on living there through my training and 2 years after, so most likely 6-7 years. I don't have any other loans, no credit card debt, my car is paid off and is a Toyota with 100,000 miles on it so it should last my training. I will also be deferring my loans throughout my training. So my question is a condo a reasonable option if I plan on selling in 6-7 years? Or is it a bad idea? I want to own something instead of rent, but am somewhat worried about having to much money per month wrapped up in owning a condo
In Minnesota my net monthly take home would be $2,900/month. Is $1,700-$1,900 per month too much to wrap up in a condo that I may just be paying the interest on the loan for the 6-7 years? Can I sell it to get my money back? Or will I lose horribly on this idea.
Sorry for the long post, I am looking for some guidance on where to go from here and have a year to decide. Thanks
Sun May 05, 2013 3:24 am
Publius Preferred Member
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Congratulations on being in the last year and on the match! My wife and I have been down this road -- she is a physician and we moved to a new city just after getting married when she started residency. WE chose to buy, though our combined income was higher than yours because I was working as a research scientist as well. So, I will answer your last question first. I would not have been comfortable with tying up 1700 - 1900 of 2900 monthly in housing expenses. This is actually more house than we bought, and our combined income was ~ 80,000 the first year of residency. (this has been 10 years, so residency pay wasnt as high then).
Now back to 1). Don't consider it pissing away money. Consider it investment in not having to deal with the headaches that come with ownership when you are working 80hr weeks. Having a number to call when the toilet over flows instead of having to call a plumber and find the time to be off for a morning while the plumber works is worth what little equity you will forgoing after 4 years of ownership.
Also, 6 years is not a very long time to plan on owning and reselling a house. None of our friends that bought at the beginning of residency (this was 2003, ended up making any money on their houses after 5 or 6 years. In fact, most of us still own the houses there and are playing long distance landlord because the market wasn't right to sell when everyone finished residency and fellowships. Granted we had to deal with one of the worst downturns in the housing markets in recent history, but my point is, you don't know what will happen.
Your income is going to change dramatically in 5 years or so, if it were me, I would keep monthly housing costs low so you aren't tempted to use credit cards, and not have the headache of ownership when you are at one of the busiest times of your professional career.
What specialty, if you don't mind me asking? My wife's was ortho with fellowship in sports.
Sun May 05, 2013 2:04 pm
oldguy Senior Member
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quote: I would consider renting to one of my friends for $700 per month to bring this down, but would rather not if I could get away with it.
I'm a landlord, just so you know - the first rule of landlording is never rent to an acquaintance, a coworker, a coworkers kid, a friend, and never ever to a relative, you need a formal arm's length agreement with a stranger.
The remaining balance at Year#6 on a $200,000 mortgage is about $180,000. So only about $20,000 of your $122,000 6-yr cost is equity. And the buy/sell overhead is 6%, about $12k, so some of your $20k goes for that, leaving you with $8000 (in a neutral market). So the entire equation hinges on the real estate market over the next 6 yrs - if your condo drops from $200k to $190k, you'll actually have to pay to sell it. Conversely, if the value jumps to $250k, you'll walk away with $58,000. And none of us know the answer - those of us that own multiple real estate hope for the latter.
Our Toyota has 140,000 on it, we're planning on several more years from it
Sun May 05, 2013 5:41 pm
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Joined: 09 Feb 2009
Hello, I'm also from Minnesota and I work for the U of M and I see a lot of residents and fellows come and go in the departments I support so I understand the business end of things. As Publius stated after your 4 years of residency you don't know if you'll stay here or get a job elsewhere, so I personally wouldn't recommend tying up cash in an asset that may increase or decrease.
Also, you stated that the condo's you'd be looking at may cost around $1,700 to $1,900 a month, that's quite steep for the Twin Cities, you must be looking at some of the brand new ones near the river that are quite exhorberant. I own a single family home in the Twin Cities that is quite nice and our monthly payments are only $1,300 a month. In addition, 1k for an apartment is quite expensive for this area, I guess if you need the 2 br setup then that costs would make sense, but I've rented in the past for far cheaper.
I would hold off on the real estate and concentrate on your career, you'll probably have school loans that will be very high, so I would work on paying those off while your doing your residency. Once your established somewhere then real estate will be more appropriate. Good luck!
Risk comes from not knowing what you're doing. (Warren Buffet)
Mon May 06, 2013 1:40 pm
Flash10 New Poster
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Joined: 05 May 2013
Thanks everyone for the replies it really got me thinking about a few things. I still have a few remaining questions and senarios I want to run by you.
And Publis I plan on going into Emergency Medicine (3-4 years) or the combined Emergency Medicine/Internal Medicine program (5 years).
So I have completely decided against the condo idea, it just doesn't seem right. Now my next question. First if I do residency in Minneapolis I plan on staying in Minneapolis when I graduate, my family is relatively close. If I went away I wouldn't even consider buying because I would plan on moving back when finished. The only things that would make me leave are 1) I can't get a job after residency (the job outlook for the Twin Cities area looks good for EM) or 2) I get married to someone that absolutely wouldn't stay in this area.
The reason I said I would be selling after 5-6 years is after graduation I would want to sell the condo for a home. I know realize that there are more houses around the area I wanted to then I thought. So with that thought if I found a house with a 1200-1300 mortgage like littleroc02us has would that be possible? I would definitely get a 2 bedroom apartment, because I want a spare room to do work/when family came to visit. I would stay in this house longer until I wanted to move or upgrade. I figure a 2 bedroom apartment is just a bit cheaper, although less maintenance cost.
Now the last thing to address would be the roommate situation. I want to be able to afford this on my own, and only get a roommate for extra cash. I realize it is bad to rent to friends, but have been living with my current friend/roomate for 3 years. What I would want to do is he would want to live with me for a year. I could afford it on my own, but would rent to him to build up a repair fund. If things went sour that would be fine cause I planned on paying everything myself anyways. Let me know what you guys think of that instead of my original plan.