Ok, so I repeatedly advise residents and young attendings to please, Please, PLEASE do not buy a house.
If you haven’t read them already, read these posts:
The House Buying Itch – Medical Student Edition
Priorities, 2 and 3
For this reason, this particular post is about buying a house 3+ years after becoming an attending. I am making these assumptions:
You have a stable job that you like.
You are in an area you plan to be in long term.
If not, then just reference this post for later.
Please understand that this is just my experience(s) with buying a house and is more of case study rather than a guide on what to do.
The first things you should decide are: Budget, House Type/Size, and Location. This should be done at approximately the same time. Of course, these variables are all dependent on where you live which is why this section isn’t altogether helpful. However, just for an example:
If you live on Oahu, like I do, and your budget it $500k and you want a 4/4 in Kahala… I have bad news for you. You CAN’T buy a 4/4 in Kahala for $500k… I don’t even think you can buy a 50×50 empty lot for that price in Kahala. For those of you who live in high priced areas, like San Francisco, New York City, Washington DC, Honolulu, etc. you may get a bit of sticker shock in how far your dollar goes. However, there are others of you that live in more “reasonable to live” places who will be deciding whether you should buy a 4/4, a 5/5 or a 10/10 or something. I envy you. Like I said, this first part is very dependent on where you live.
So let’s just choose some random numbers. You’ve decided on a budget of 750k for a 4/4, 3000 sq ft house, relatively close to your work. Ok great, now you need to look at a host of other things:
How far away from work are you willing to commute? This is dependent on where you are as well. An extra 10 miles here in Honolulu or Washington, DC could add an hour or more to your commute. However, an extra 10 miles in other parts of the country may not be a big deal… or maybe even an extra 20 miles may not change your commute significantly. Do your own research and find out what you are comfortable with, but please realize that minutes and hours stuck in traffic is time you can never get back. Also, a few extra miles right now as a young attending may not be a huge deal, but as you get older that commute may grate on you. People have different tolerances for traffic. Be honest with yourself and with your spouse:
I learned this lesson at my first job in Rhode Island where I lived about 30-35 minutes from work. However, my wife’s job was significantly farther away, taking her between 45 minutes and an hour to get home (on a good day). She would leave for work earlier than me and get home later than me exhausted everyday, and then we both tried our best to take care of our daughter, who was only 6 months old or so at the time. This was even more difficult for her the days that I was on call and was “home but unavailable” until about 10 pm or so. I decided whatever new job(s) we eventually would take that I would try my best to have her not sit in traffic all the time.
This brings me to the next point. We didn’t (and still don’t) have an extended family support system. My parents are in California and her parents are in New Jersey. A longer commute is more doable if you have help from extended family. Having family help with child care, meet you at home, and maybe get the ball rolling on dinner is VERY helpful. I had some of these benefits when our nanny would help with doing laundry and dishes a bit during our time in Rhode Island.
Another very important thing to consider is to be in a good school district. I think this is important whether you plan to have your children go to public school or not. I think having a house in a good school district is a good indicator that the house will retain its value. There are a lot of websites which rate schools. However, the one I think is pretty good is: Schooldigger. It has different tabs which include a lot of helpful information like Boundary, Rankings, Test Scores, Reviews, Students, and Neighborhood. I think the “Ranking” and “Test Scores” might vary year to year, but overall I think they’re pretty good general indicators.
Tip: look at the Rank History under the “Rankings” tab and click “switch to advanced graphs” under the “Test Scores” tab. In my opinion, the overall trend is more important than a single year for those metrics.
Ok, so let’s just choose 20 miles from work. So $750k, 4/4, 3000 sq ft, and 20 miles.
Now you can start passively looking at houses. I wouldn’t get a realtor just yet. There are a lot of good places to start, like zillow.com or trulia.com to get an idea of what you’re looking for. Also, finding a list of open houses in the area you are looking at is great. For Oahu, we have our own little website that does a good job of listing houses and open houses called OahuRE.com. I would imagine there are similar ones for your particular area. I would just do a google search for “open houses” and “your location”. For example, here are the results for “open houses san francisco“. There is also a more general website, called homefinder. I haven’t used it, but I did a quick search and its results seem reasonable.
If available, have these sites send you a weekly email to look through any open houses in an area that interest you. Then on lazy Sundays, go get some coffee and take a trip over to the open house and just kind of look around. This is primarily to get you to understand your taste in houses, and establish your “want list” and “must have list”. For example:
A “want list” might have “Black granite countertops in the kitchen” whereas a “must have list” might have “large kitchen”. In other words, a want list is usually more specific, whereas a must have list is usually more general. This is not always true, for example, if you absolutely “must have” a walk-in closet or “must have” a finished basement. These lists are different for everyone and very specific to you (and your significant other). This brings me to the next point:
Your significant other may have different tastes than you. Perhaps these differences didn’t really come up while you were renting an apartment, or in a starter house, or whatever. However, now you must be aware of each other’s tastes. Your want lists and must have lists WILL HAVE compromises.
Ok, so now you’ve been to a few open houses. You’ve established your want list and your must have list. Keep going to open houses. Or, if you are getting tired of going every Sunday, take a few weekends off and relax a bit. But then just keep going. This next part is critical. You need to find out what your housing market is doing. Is your housing market hot and houses are always going for wayyyy above asking price? (San Francisco, I”m looking at you!) Or is your market more cold, where people go in for a few thousand below asking, etc.
You need to keep tabs on all those open houses you’ve been going to to establish your own internal compass for what you would have paid for that house and compare them. You will develop a feeling after doing this for “what a house is worth to you” when you go to open houses from now on. This will help you establish whether you think you can keep waiting, or you need to buy this house NOW.
After you gain your own internal compass and you think “you’re ready”, go find a good realtor (word-of-mouth is the best). Then go look at banks to get pre-approved for a mortgage. Try to get pre-approval for little more than your budget. You want this just in case THE house comes up but is a few thousand over your budget. You want to keep that option open. If your housing market is hot, you will want to be able to put in an offer the same day you see it. Because by then you will know a good deal when you see one. If you put in the offer a few days (or even a few hours) later, it will be gone.
Anecdotally, the housing market on Oahu is pretty hot all the time in the area in and around town (central Honolulu) because of the limited amount of land. For my house, I put in an offer at asking price.There were at least 3 other offers the same day. If I had waited till the next day, or even a few more hours, it would have been gone. Another anecdote: a colleague of mine in San Francisco told me that houses there have asking prices of like 995k, but the bids and closing prices are like $1.5 million… why even have an asking price then? *shrug*
With all this, you can consider bidding on houses… and *GASP* maybe even buy one. However, we’re not done yet:
There are a host of other things you must take into account in terms of financing the house, closing costs, escrow, planned renovations or remodeling, etc. Let’s just say the sticker price for the house isn’t what you’re going to pay at closing. Nor will it be what you pay over the life of your loan. We’ll talk about that next week.
Don’t buy a house as a resident or young attending.
3+ years into your first stable job is the earliest to consider buying a house.
Choose your Budget, House Type/Size, and Location.
Choose your Location wisely, factor in the Commute and the schools.
Go to Open Houses.
Establish your Internal Compass.
When ready, get a realtor (preferably from a trusted referral), and get pre-approved for your loan.
More details next week.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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So, let’s say that you came across this blog a little too late. You are a first year attending (entering second year) and bought a house and you realize the position you are in isn’t right for you. How do you decide how to rent or sell? If renting, how much should one charge above the mortgage payment? What’s a fair amount to pay a property manager? What’s an acceptable loss if selling? What’s a good long term strategy, overall? Should one keep paying a mortgage into an empty house if you can’t rent it (but still can afford the mortgage)?
Hi Fred. Sorry for the late reply. Lots of good questions here. In fact, these questions are so important that I will try to dedicate a whole blog post to this topic later. However, I don’t want to keep you hanging so I’ll try to give you what I think is good advice. Please note, I have not been in this situation, but almost was during my first job. For that reason, I have previously considered if this situation were to happen to me. The first thing to do is to decide *for sure* that you want to leave your current job and find another one. Then you need to decide where this new job is and if it *really is* better. Remember… the grass is always greener on the other side… The second thing to do is to understand that with the small time period of owning a house and either needing to rent or sell it, you will almost be certainly looking at a loss, unless your rent is able to cover the cost of the mortgage. Now, I will answer your questions with very short answers, which I will elaborate on later in future post.
1) Rent vs. sell: it depends on your situation, but in general selling is trying to cut your losses whereas renting is trying to turn your mistake into an income property (but this could be a second mistake).
2) How much to rent for isn’t up to you, it’s up to the rental market in your area. Even if you wanted to cover your mortgage, the rental market may not allow for it. This is heavily dependent on how your house loan is structured and how much actual equity you have in the house.
3) There is no fair amount for a property manager, and this will vary by region. However, in the end you get what you pay for. If you want a property manager to take care of all the problems so you never hear about them (ie. good) then it’ll cost you probably 8-12%. However, this is also region dependent as well. But you can see that 8-12% of your rent each month going to a manager cuts into your bottom line to “cover your mortgage”.
4) What constitutes an “acceptable” loss will vary by individual. However, I would guess if you were able to sell the house for the same price you bought it for, and only be paying for the closing costs (as a buyer and seller), in this small 1 year time period, then you did pretty well for what could have been a very expensive mistake.
5) Long term strategy depends on you. If you fancy yourself a property manager then by all means make it into an income property and sell it when the market is hot. However, I can not think of many reasons to keep a mortgage on an empty house unless you think you can sell it for a big profit someday to offset the cost of paying a second mortgage all those years. In that sense, you are keeping this house as a “second home” or vacation home” and those things my friend are for rich people who require the convenience of having a home while on vacation because they don’t like to stay on their yacht.
I’ll try to make this into an actual post later with more details. However, these questions are quite complex and the idea of having an income property is also very complex. If you can’t tell, I’m not a huge fan of income properties this early in your career. However, some of my colleagues would disagree with me. It really depends on your own individual risk tolerance, as well as if you are single or have a family and kids to support. In general, the more dependents you have correlates negatively with your risk tolerance.
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