[Editor's Note: Happy Match Day to all the MS4s this week. I hope you all got your first choice. This is a guest post written by Mikki Ramey. WCI has partnered with Mikki (a Realtor) and John (a physician) Ramey who together run DrMoves.com to provide referrals to highly qualified real estate agents who have previously worked with a number of physicians. This is a service readers have asked for in the past so when I finally found the right people to work with, I brought them on board as paid advertisers. If you're buying or selling a home this year, I'd encourage you to use their service.]
I always get a kick out of reading posts and blogs giving absolute recommendations: “Don’t buy a house during residency” or “Don’t buy a house if you are going to own for less than 3 years.” If I would have followed this advice, then I would not have made $30,000 during medical school after owning a townhouse for 2 years or $120,000 during fellowship after owning a home for 2 years.
Over the years, I have been much more successful buying real estate than I have been with other types of investments. Most people give investment advice based on their previous gains or losses. I have worked with over 100 physicians buying homes. Here are some tips for those considering a home purchase this year.
# 1 A House Is an Investment
Look at your house as an investment, especially if you are purchasing during medical school, residency, or fellowship. You may only own this home for 2-5 years. If you are going to make this short-term purchase, buy a property that can resell easily. Usually, it is a good idea to buy the least expensive home in a more expensive neighborhood. Consider buying in a neighborhood convenient to the hospital.
Mikki and John Ramey, MD
# 2 Consider Buying It As an Investment From the Get-go
Consider keeping the property and renting it out after you move. Check rental rates in your area and see if the renting the property will create a positive cash flow. To analyze the cash flow, just make sure you can cover your mortgage, insurance, taxes, and home owners association costs. You also want to keep money in reserve for repairs. Renting may be the best option in a declining real estate market if your house has lost equity. I have a 40 year-old friend who began buying properties during graduate school and he now owns 250 properties. Owning rental properties can create a nice stream of somewhat passive income.
# 3 Reduce Risk By Holding Longer
A home is similar to other investments in that the less time you own the home the more risky the investment. Many financial advisors don’t recommend buying stocks unless you will own for at least 10 years because of the risk. If you decide to buy a home for a period of less than 5 years, then make sure you get a good price on the buying side. Know what the price per square foot is in a neighborhood and try to be below the average.
# 4 Significant Tax Deductions
Homes will allow you some great tax deductions. You may be able to deduct both mortgage interest and property taxes. If kept as an investment, expenses and depreciation can also be deducted.
# 5 A Home Office
If you or your spouse moonlights or has 1099 income, you may be able to set up a home office. Talk to your CPA to see if you qualify for this tax deduction. If you qualify, you will be able deduct a percentage of your home expenses based on the size of your office. [Bear in mind your use of the home office must be both regular and exclusive-ed.]
# 6 Don't Forget Often-Ignored Costs
Always calculate the total cost of home ownership. Many people forget to include the cost of taxes, insurance, maintenance, repairs, transaction costs, financing costs, and furnishings.
# 7 Consider Renting a Room
Consider renting a room. I have had several clients over the years who have rented rooms to other doctors or students. Some of these clients have been able to pay their entire mortgage with the rental income earned. You possibly can do short or long term rentals. Rotatingroom.com is a great place to advertise to students.
# 8 Consider Living In Your Investment
Consider buying a fixer upper. If you resell a primary residence after owning it 2 years, then you can avoid paying capital gains taxes. What other investments allow you to avoid paying this tax?
# 9 Home Equity Loans
You may qualify for a home equity loan. Did you realize that the interest on a home equity loan is deductible on your taxes? I have had several clients take out home equity loans to pay off their student loans because the rates on home equity loans were less expensive, especially when you consider that for most attendings, student loan interest is no longer deductible.
# 10 There Is More To a Home Than an Investment
Buying a house is not for everyone. It is just like other investments in that you should study the investment and make sure it is right for you. One of my favorite investments has been our beach condo. About 5 years ago, I was trying to decide between investing in a whole life policy versus buying a beach condo. I decided to buy the condo. My financial advisor told me I was making a poor decision in buying a real estate investment. At the time, I doubted myself. However, now I consider it my best investment ever. I have netted about $20-25k on this rental property. It has also seen some nice appreciation. But most importantly, I have built 5 wonderful years of memories of spending time with my 4 children and husband at the beach. Even if I lost money on the investment, I could never buy the fun and memories we have had. 
Feel free to contact me at DrMoves.com with questions. I am always happy to talk about real estate with future investors.
[Editor's Note: Obviously Mikki is a big proponent of buying a home. I've written before about purchasing a home, and those posts (with some serious warnings) can be found in the links below this post. There is potential to both make and lose a lot of money. Check out Mikki's site to find a realtor and this page if you need a doctor mortgage lender.]
What do you think? When has buying a home worked out well for you? What considerations should people take when considering buying their home? Comment below!
Nice article and valuable service , but a few personal observations re some of the points in the article
Real estate unlike stock market is often extremely local and inefficient, providing one with opportunities to make great investment, if one knows what to look for.
Buying a home and buying a rental property however often have certain different criteria (especially if you consider some? quality of life factors – ? fancy trim, Jacuzzi, rainfall shower, pool, water feature, landscaping, fancy carpets/flooring etc., that one may desire in their homes, but not only doesn’t provide any returns at sale/rental , but can be a hassle in rental property). A home is often not a financial investment (unless you live in a highly appreciating market), if you consider the costs of homeownership – it’s a place to live, bring up your family, have good experiences/memories. Also converting your home to rental doesn’t often make sense if you are banking on cash flow rather than appreciation. Of course cash flow and tenant hassle factors can be directly related, and one needs to determine where in the spectrum one buys a rental property. When the market is going up almost any deal, can seem a great deal, its often only when the market hits the bottom the strength of the deal/solvency of investor is revealed.
The capital gains exclusion for selling ones residence and the step up basis at death are certainly some of the plus points. Home office deduction is captured at time of selling, though you may not have taken the depreciation.
However anyone who plans to go into rental business, it would be prudent to be aware of the associated “laws”. In residential real estate there are laws one must carefully consider, to avoid getting in trouble – at federal level: lead laws, fair housing laws, Fair Credit reporting act etc. Then there are state and local laws. So learn these applicable laws and local tenant landlord laws beforehand; have strong leases, selection/denial criteria and record keeping. Otherwise one may find someone, claiming you discriminated against /broke a law.
Also then when you have someone like certain posters (on a recent boglehead posting about leaving “a present “for the landlord), you show them the error of their ways with the local felony or applicable law. Know the laws, and run it like a business, fair and strict to have a possible enjoyable experience/investment.
Having a property manager may mitigate some of these issues, but they create their own issues and eat (more than their “fair share”) into the profits.
#9 is awesome….never thought of that. Doubt I can get better than my current 2% rate on student loans (even after tax deduction), but it is still great advice. If I could get a home equity at 2.5% the tax deduction would more than make up the 0.5% difference.
2 questions:
1. You example of the beach condo….assuming this is a second (or third, fourth etc) home, can you still deduct mortgage or state/local taxes on that home?
2. I can’t recall having not done my taxes yet this year (still waiting on a couple K1’s!), but when/if ever does the tax deduction on mortgage interest/taxes phase out? For some reason I think this phases out over a certain level of income. Thanks!
1. Yes, you can deduct interest and taxes on a second home, but not a third one. Bear in mind there are rules as to how much it can be rented to qualify as your second home, and that many of the expenses of a second home aren’t deductible like they would be in a rental property. So if you are going to stay in it some of the time and rent it some of the time, read the rules so you do the one that gives you the best break on taxes but doesn’t impede your use of the property.
2. Read about the PEASE phaseouts. It’s a very gradual process over hundreds of thousands of income.
Thanks! Although I’m finally at the level of needing a CPA, I assume TurboTax has been “PEASING” me out for the past 3 years and I didn’t even know it. 80% is still better than nothing!
Although it doesn’t aPEASE me to know my deductions have been getting cut, I will learn to become at PEASE with it…..I’ll be here all night folks.
Funny, and I loved your movie.
The poster starts out by saying “I get a kick out of advice like don’t buy a home if you’ll own it less than 3 years”, and then posts tips, 3 of which advise holding a home for the long term.
They say, ” I made money on a home, therefor you will!”. Sorry, not very compelling logic there, either.
“Interest and tax deductions” are simply discounts off the interest and tax, which you won’t have to pay at all if you don’t buy.
Capital gains deduction: That’s great, if you have a gain. After expenses and broker commission, you may have a loss if you sell within 2-5 years. If the market is down, you can lose a lot of money.
“I did better buying a vacation home than I would have buying whole life insurance”. No surprise there. Better than if you had invested in lottery tickets also. Still not a compelling argument.
Equity loan interest is deductible: If you don’t buy the house, you can take the equity you would have had in the house ( the down payment) and use it to pay off your loans without paying interest at all.
I bought a house in Silicon Valley. It has appreciated by millions, but still not better than the S&P 500 over the same period of time.
“Capital gains deduction: That’s great, if you have a gain. After expenses and broker commission, you may have a loss if you sell within 2-5 years. If the market is down, you can lose a lot of money.”
^^so true. Say you buy a $200,000 house. Live in it for 3 years. You did a great job picking out a great neighborhood. Now you sell it for 220,000. Realtor takes 7% or almost 15,000 (you don’t have a spouse who is a realtor, etc, FSBO is nice, however, busy housestaff are unlikely to be able to leave hospital/clinic at the drop of a hat to show house to potential buyer, etc).
I’m all for buying a house, but to make a big profit you have to be in the right market at the right time. The real estate cycle may or may not coincide with your residency.
“(you don’t have a spouse who is a realtor, etc, FSBO is nice, however, busy housestaff are unlikely to be able to leave hospital/clinic at the drop of a hat to show house to potential buyer, etc).”
I sold our house FSBO in the last year of my fellowship. We were getting some nibbles, and then I got a call at work one afternoon from someone who said they were very interested but wanted to see the house right then. I hurriedly got someone to cover my pager, drove 35 minutes in traffic to meet them, and immediately recognized them as a retired couple who lived 2 doors down. Turns out that their high level of interest would be better described as curiosity. After karate chopping them both in my imagination, I gave them a five minute tour and went back to work.
I had the opposite experience. I bought a home for residency (5 years) in 2004 and lost $60K on it when I had to move for fellowship in 2009. It was almost impossible to sell and had to take a big loss. This was a starter home in a good neighborhood close to the hospital. It was just bad timing with the housing bubble bursting. I wish I would have rented.
I understand these guys are advertising partners, but it feels like this guest post was chock-full of arguments opinions WCI has already debunked in various other posts over the years.
The part about the beach condo being a “better investment” than a Whole Life policy is especially amusing.
Gag. What a terrible article. I would never trust these people. ” Even if I lost money on the investment, I could never buy the fun and memories we have had. ” This read as a fluff infomercial.
Buyer beware.
Agree. Hey, my anecdotal data isnt bad, apply to all!
And on the contrary, fun and great memories are very buy able, and obviously still were bought if it came in a house.
#5 “A Home Office” is irrelevant. You do not have to own a home to deduct a home office. I just finished reviewing a tax return for a couple who are both in medicine with 2 home offices in 2 states, both homes rented. Their deduction is probably higher than if they had owned because we do not have to depreciate over 39 years.
This post (essentially native advertising):
“Look at your house as an investment, especially if you are purchasing during medical school, residency, or fellowship.”
Related post (straight from WCI):
“10 Reasons Why Residents Shouldn’t Buy A House”
These posts are OPPOSITE of each other, and it doesn’t take a genius to know which one gives better advice.
WCI, it’s encouraging to all of us that you’ve created such a successful side business that rivals your clinical income, but I’m not sure it’s worth allowing articles like this on your blog to get there…
I agree wholeheartedly! The message in this ad is totally antithetical to what WCI has taught us and it should not be allowed on the site. At the very least, he should put a disclaimer stating that he disagrees with it.
I put this into the conflict of interest category — WCI states at the beginning these people are paid advertisers. This is basically an infomercial blog post for those who want to re-affirm their view of a home as an investment.
Ownership of real estate can be an investment, but one’s primary residence in most cases will not fall into that category.
I agree with Robert Kiyasaki that your house is a “liability” since cash goes to it rather than away. If you can sell at a profit down the road then that is great. As a pure investment it isn’t the best for most physician investors. I have seen more lose than gain overall. Selling after 2 years will almost never cover all of your costs and it makes more sense to rent – especially as a resident who has limited funds and is likely to move soon.
Invest those $$$ that would go to RE investments into a diversified stock/bond portfolio
You will do better over your career and NO HEADACHES
I never have to worry about you guys ever letting me get away with anything. Seriously though, as always, thank you for your valuable feedback. As always, I fully disclose my financial conflicts of interest and as always, you guys get to evaluate what I say or what others say in light of those conflicts.
That said, I think you guys are being a little rough on the post. The tone of the post is different from the posts where I write about real estate. I like to think of my usual tone as being cautiously optimistic toward real estate and reasonably suspicious of those who work in it. This post, like every post I’ve ever seen written by anyone who works as a realtor, lender, title agent etc, has a tone that is more of a “very optimistic with a dash of caution” tone. I think the tone is mostly what commenters are reacting to. The post isn’t quite as detailed as many of those we have here both from me and some guest posters and I think the combination of the “cheerleady” tone and the lack of extended discussion of some of the points is what you guys are mostly reacting to. But let’s address a few of the individual issues you guys bring up:
# 1 The post is “10 reasons to buy a home” not “You should buy a home in every situation.” I’ve done posts like this where I put 10 reasons to do something and then the next day run a post that lists 10 reasons not to do something. It’s okay to look at two sides of an issue. Many of AlexxT’s points are showing the other side, but they don’t necessarily invalidate the one side. You do get to deduct mortgage interest and taxes for example. Alex is right that renters don’t pay those costs directly (although those costs are folded into the rent for any successful landlord.)
# 2 This post reflects more of the common wisdom on homeownership. I’ve written many posts to show that there is another side to the common wisdom. I think calling that “debunking” is a little strong. I mostly just want people to realize that it is complicated and you need to really run the numbers before spending such a large amount on an illiquid item that has both consumption and investment aspects.
# 3 Regarding trusting real estate agents (or any other person paid by a commission): Skepticism can be healthy. You shouldn’t go to a real estate agent and ask “Should I buy or rent?” The answer will always be buy. It’s like asking a lawn mower salesman if you should buy a lawn mower. But if you want to know about the features of lawn mowers and why one costs more than another one and are already committed to buying one, then the salesman becomes a useful source of information. Same with a realtor. You want some help buying a home, that’s who you hire. But you don’t go there to ask, “Should I buy a home?”
# 4 Excellent point Johanna about deducting a home office while renting. Not sure I ever thought about that, but it’s obviously true.
# 5 The default option for most residents should be renting. But that doesn’t mean no resident should ever buy a home. Everyone can think of a scenario where a resident should buy. Perhaps there is nothing that meets your needs/wants that is rentable. Perhaps the other spouse is an attending and the long term plan is to stay in this community. Perhaps you’re buying at a market bottom and willing to speculate a little. Who knows? But it’s not an absolute.
# 6 A home as an investment. When editing this post, I read the first couple of points as saying- Evaluate a home using logical numbers and assumptions to see if buying makes sense. Some of you seem to read them as “A home is a great investment.” Go back and reread them and see if you agree with me.
# 7 The Rameys advertise with me. The point of having them as a sponsor on the site is to have somewhere to send people who are looking for a realtor used to working with doctors, not to have someone you can go to ask if you should buy a home at all. If it doesn’t make sense for you to buy as a med student or resident (and it probably doesn’t) or if it doesn’t make sense for you to buy as an attending (and many times it won’t) then DON’T CALL THEM. On the other hand, if you’ve run the numbers and decided it is time to buy, here’s a way to get a decent realtor that at least somebody knowledgeable has vetted.
Thanks as always for the valuable feedback. It does shape future content on the site.
Speaking for myself, I have no problem with posts by advertisers. You are extremely transparent about the financial aspects of this website ( too transparent for your own good, I think ). I enjoy posts by professionals/advertisers. It’s helpful to get their perspective, even if I don’t always agree with them, and more often than not they provide very useful and detailed new information.
However, in this particular case, I think perhaps the post should have been run as a “pro and con”. I think those of us who posted were providing the “con” arguments that we felt were missing.
More specifically, perhaps the problem was that the opening premise, that the advice against residents buying a home is laughable, was not supported by, or even discussed, in the article.
WCI,
I appreciated the post. I don’t agree with everything in it, but I definitely don’t agree with all of the comments either. And you know what….that’s ok! There is some valuable information in this post whether or not someone agrees with the post as a whole. If you don’t like the article just click on to the next website and come back in 2 days for a new post. Chill out people.
My disagreements with this post were less about the business relationship than the content, which generally comes across as well below the standard I’ve come to expect from the blog. While you mentioned you rejected many posts from paid advertisers, I’m not clear what about this post allowed it to make the cut.
Much of the content is either to superficial to be helpful or at some points confusing, inaccurate or not applicable to the target audience. I was assuming the business relationship is what facilitated this post making it onto the blog, though that may be an inaccurate assumption.
The very first point is wildly misleading, as most physicians in training buying a home will NOT be able to pay 20% for a downpayment. So it’s unlikely they’ll have a 15-year mortgage and/or have any significant equity in the home in 2-5 years, just maintenance costs being sunk into the house. So it’s basically hoping the market appreciates significantly to overcome the transaction costs. I think the takeaway point #1 should be that if you DO choose to purchase in training you need to find one that you have a good chance of reselling and is not already killing your budget to buy.
Overall I think there are some reasonable and helpful points, however the post wasn’t written in a way that made the truly valuable nuggets of information apparent to the reader who isn’t already familiar with the topic. That defeats the purpose of the post, and will confuse readers who come across this first.
I love that you guys feel comfortable leaving comments like this. It makes the site awesome. I might get fewer guest posts though!
I don’t want to be rude to your guest writers either. I know they likely took pride in having this article published on your blog, and you obviously thought enough of it to allow it onto your site. However I think what you’re building here is a community based on your huge level of personal interaction with the readers, so I think that makes us more willing to speak our minds, particularly when we think content isn’t of the quality we expect or isn’t considered accurate.
WCI- I agree with Alex: no problem with guest posts and even those by paid advertisers, but this article was very light on content even if a reader happened to be in complete agreement with the poster. Seems like you, as the editor, could have worked with the poster to ensure they brought value to your readership, or at a minimum you could have done a better job of setting context up top with the perspective you shared in your comments area post.
Thanks for all you do and the value you do provide, and for taking feedback into consideration.
Thanks for the feedback. Believe it or not, I do reject most guest posts I get, even from paid advertisers! What would you have liked to see in a post from a realtor? “How to hire a good realtor,” while useful information, seemed a little self-serving. Maybe “Common mistakes doctors make when interacting with realtors” or “Errors Doctors Make When Buying a Home?” What do you think?
I think any of those titles would be great, and add something else to the discussion here. As a whole, I don’t mind the post.
Those topics would be useful. Or perhaps even an examination of what kind of services her firm offers specifically that apply to physicians that would differentiate her from going directly to another real estate agent in town. What has her specific experiences guiding physicians given her in terms of insights that would be relevant to readers
I’ve always seen my primary residence as a place to live, but not an investment. If it doubles in value and I want to cash out and buy another home, then I have to go buy another home that has doubled in value, or buy a smaller house, or another less expensive location. Now a second home can be an investment much easier, but it seems to still be more of a place to live part of the year, or for just vacations rather than a way to make money.
Anyways, not my favorite article, but if you can’t see past the bias from what WCI posted before and after the article then buying or renting will be your smallest issue.
I think my issue is that many of the listed points are not reasons to buy, as the title stated. Many were tips for buying or things to consider when you buy, but were not reasons to buy. A better, more clear title would have been, “10 things to consider when buying a home”. I wanted to see 10 reasons and it annoyed me to see maybe 4.
Agree w others that this seems rather blatantly and blindly opposed to the points WCI has made in many separate posts. I always appreciate a thoughtful pro-con post – perhaps it would have been better as such. Were I to be a new reader to the blog, I would be confused and not convinced that WCI was “one of the good guys,” as he likes to say, and, to be clear, as I know he truly is.
One of my friends bought a house more than a year before the end of her fellowship, so basically on a resident’s salary, in a high cost of living area where housing prices have trended upward in recent years. She has no med school debt, and she has a husband who works. Not sure how much he makes. She makes a lot more as an attending now. They have two young kids and the house is fairly close to where one set of parents lives (who can help with childcare). They want to live in the same metro area and have no intent to move. The house is big enough (3 bedroom, one separate small building with a big room/bathroom, so kind of akin to having 4 bedrooms/office rooms on the property. The yard isn’t gigantic, but it isn’t small either, large enough for kids to run around and to have room for a small garden with a large covered patio area for entertaining or any other purpose they might want to use it for. It is an older house and I’m sure if they wanted to live in a lower COL area they could get a very nice and large house for the same amount of money. I am sure they could afford a much bigger and/or newer house now due to having an attending salary, but the house is good enough for everything they need. I think by buying a few years ago, they got a better mortgage interest rate and I don’t really know about the value of the house today, but I imagine that it would cost as much or, if not, more, and as an overall trend over the years, the house’s value will definitely appreciate in the area where they live. I think the decision to buy is obviously very influenced by individual factors and it definitely made sense for my friend to buy a house when she was still in training.
I suspect the house value has gone up, but can’t imagine the mortgage rate is any better than what can be obtained right now.
I know many people who have benefitted from the wisdom of Mikki–including myself. As a doctor you are most likely going to need a real estate agent at some point and her expertise is unparalleled. Also with her husband being a doctor she has even more pertinent experience for people like us.
I’ll share my perspective as an MD wrapping up training soon:
Did medical school in Dallas, TX. Real estate was doing well, felt comfortable in Dallas, wanted to stay there after medical school for residency. Bought a condo, live in it for 3 years. Real estate market tanks. Break up with fiancee, finish med school, choose totally different field than initially planned. Condo worth 25% less than I bought it for. Move to Colorado for residency. Become a landlord. Net cash flow $0 but at least I’m not losing money on it – hope the AC doesn’t give out. Can’t get credit for a house in 2011 because I already own one. Watch the Denver and Dallas real-estate markets explode while I pay rent. Sell condo in 2015 for 25% MORE than I bought it for. Cry at the capital gains for missing the 2/5 use test by 8 months.
Lessons:
1) a mortgage is a heavy anchor
2) being a long-distance landlord is no fun
3) rising real estate pricing feels like a game of hot-potato for suckers
The most important lesson I learned is this perspective of the rent/buy decision:
If you’re need mobility, RENT. If you need stability, BUY.
Thanks for what you do WCI. I wasn’t a big fan of the post but I love the blog. Thanks!
[Ad hominem attack deleted.]