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Horror Stories From People Who Bought a House in Residency

Home Mortgages and Home Buying Horror Stories From People Who Bought a House in Residency

  • Avatar lostlost 
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    I agree that the general rule should be to rent and not to buy as a resident. But there are always exception to the rule. I bought a condo in Chicago as a medical student during the market crash for 40 000 and sold in residency for a 30 K profits. You have to know the local market well and you have to do your research. Needless to say, I knew the neighborhood well, I have family in town as well. But I rent in residency and fellowship and still renting as an attending.

     

    #170080 Reply
    Avatar Tim 
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    Owning a house for a fixed period of time is a problem. Not many residents or fellows have the resources available to sustain two residences. Time and price are the pressure points. Philosophically, buy only when you plan to stay. Big difference between deciding to upgrade a career change requires relocation.
    Have you seen a house or condo for sale, “Must close last week of June. Short commute to hospital. Very safe close to amenities and nightlife.” The hard part, how is the housing market in June 3-6 years from now? Swimming against the tide is very difficult!

    #170094 Reply
    Avatar jbmitt 
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    DS bought a condo in 2010 and sold it in 2015 for approximately the same amount as purchased.  Add in realtor fees, a furnace that needed replacement, washer & dryer set that died, refrigerator and freezer that were repaired (could have been replaced for the cost), a rotting wooden porch, and a high monthly HOA.  Subtract the nominal tax benefit and I’m pretty sure that it had a negative ROI.

    We both agree that renting would have been a better option and that she got suckered into the cheap flip/renovated kitchen.  The rest of the place needed new floors, paint, windows, and updated bathrooms.  She had limited time to deal with service calls and would have been better off letting a property manager handle things.

    We had a garage which was nice.  We have pets, so renting would have been challenging.  The market that we were in had entry level and high end rental options and nothing middle of the road.

    It wasn’t a disaster, but it was more of a frustration during pretty busy years of our lives.  We’ve since purchased and sold our first house that we were going to “grow into” and bought our second house as a result of a first attending job not being a great fit.  Fortunately, we’ve prioritized our savings and retirement and are on a good path financially.  I’d caution people purchasing in residency, and immediately as an attending until you know things are a good fit.

    #170095 Reply
    Liked by Kamban, hatton1, Zaphod
    Avatar Peds 
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    DS bought a condo in 2010 and sold it in 2015 for approximately the same amount as purchased

    Click to expand…

    didnt think that was possible….

    #170112 Reply
    Avatar hightower 
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    I bought a house in MED SCHOOL in 2006.  Got accepted to an out of state residency in 2008, so we had to sell and move right as the crash was occurring.  The value of the house had dropped by 50% when we listed it.  Took over 9 months to sell and we had to do a short sale while I was in residency living in a different state.  We lost the money we put into it to re-do the kitchen, around 10k total (paid for mostly with loan money).  As dumb as that sounds now, the new kitchen is probably the only reason we were able to actually sell it.  We came out okay in the end, other than it being a total waste of money and huge headache to deal with.

    I was DUMB with money back then.  But, it’s also amazing that anyone was stupid enough to give us a mortgage with zero down on a 100k house when the only income we had was my wife’s job at home depot making barely 30k/yr.  We had no savings at the time.  It’s no wonder that the lender, Countrywide, is now out of business.  I believe it was predatory lending.  We had no intention of buying when we first called a realtor looking to find a home to rent.  The first thing they said was “why don’t you just buy?”  I replied “but we hardly make any money.”  And they were like “it’s okay we can get it done.”  As a 25 year old with no financial education to speak of, it was hard to say no to that, especially since we were having trouble finding a place to rent that would let us have our dog.

    Lesson learned though and it’s made me smarter today.  Fortunately we didn’t have a real nightmare to deal with like others had to go through.

    #170174 Reply
    Zaphod Zaphod 
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    I bought a house in MED SCHOOL in 2006.  Got accepted to an out of state residency in 2008, so we had to sell and move right as the crash was occurring.  The value of the house had dropped by 50% when we listed it.  Took over 9 months to sell and we had to do a short sale while I was in residency living in a different state.  We lost the money we put into it to re-do the kitchen, around 10k total (paid for mostly with loan money).  As dumb as that sounds now, the new kitchen is probably the only reason we were able to actually sell it.  We came out okay in the end, other than it being a total waste of money and huge headache to deal with.

    I was DUMB with money back then.  But, it’s also amazing that anyone was stupid enough to give us a mortgage with zero down on a 100k house when the only income we had was my wife’s job at home depot making barely 30k/yr.  We had no savings at the time.  It’s no wonder that the lender, Countrywide, is now out of business.  I believe it was predatory lending.  We had no intention of buying when we first called a realtor looking to find a home to rent.  The first thing they said was “why don’t you just buy?”  I replied “but we hardly make any money.”  And they were like “it’s okay we can get it done.”  As a 25 year old with no financial education to speak of, it was hard to say no to that, especially since we were having trouble finding a place to rent that would let us have our dog.

    Lesson learned though and it’s made me smarter today.  Fortunately we didn’t have a real nightmare to deal with like others had to go through.

    Click to expand…

    How did a 100k place lose 50%? The only good thing about my loss was that the house was only 120k and didnt seem to change much (mind you I was unaware of the crisis due to surgical residency in said LCOL), I guess I would have had to try to sell during the down turn to see, but thats rough.

    #170177 Reply
    Avatar MaxPower 
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    I’ve shared mine previously, but finally have a conclusion.

    We bought a house for residency in June of 2008 in a LCOL city for $189,000, which included $3,000 towards closing costs, using a doctor’s loan through BoA.  We lived there for all 5 years of residency and listed the house for sale in the spring of the year I graduated.  We had one showing.  It was priced too high for the market–they were building new homes in the same large development, so potential buyers could buy new homes for the same price as existing homes.  We then listed the home to rent, and following 3 months of vacancy it was rented for 2 years.

    During that first 2 year rental period we replaced the roof (minimal cost to us because it was covered by insurance after a hail storm caused damage), one of the 2 A/C units (we had replaced the other one during my 3rd year of residency) for around $4,000, had to have a large, invasive tree cut down for about $1,000, and then had to resod our entire lawn because the tenants neglected watering it and it died.  This cost right around $3,000.  Our management company had promised us monthly drive-by inspections and quarterly inspections of the inside of the house that were never done and certainly led to this problem.  They sold out to another management company during this first 2 years and of course denied responsibility.  We were cash flow positive about $300 per month for this first lease, in addition to about $400 of the rent payment going towards reducing mortgage principal.

    We then had a vacancy of close to 4 months after our first tenants moved out and before the most recent ones moved in.  The rental market had deteriorated in that time and we were only able to make about $100/month above what our management fees and mortgage payments were.  We had some minor maintenance issues creep up–fridge died so had to pay $700 to replace it, house needed powerwashing, mail box needed painting, etc.  Minor issues that if we were close by I could have easily taken care of, but instead had to pay grossly inflated costs to have them taken care of ($75 to paint a mailbox?).  When these tenants moved out in June, we decided to try and sell the house, so had a realtor come and look at it and give us their thoughts.  They recommended listing it at $174,000 (so $15,000 less than we had bought it for 10 years prior), but that was after just over $5,000 worth of work (cleaning and stretching carpets, deep cleaning the whole house, painting the interior, etc.).

    The house was on the market for 3 months when we lowered the listing price, and eventually received an offer for $168,000.  After closing costs were taken out, we got a check for just over $3,500 as the proceeds from the sale of our house (so not even enough to cover what we put into it to get it ready to list for sale).  So even after 10 years, we could only sell the house for $21,000 less than we paid for it.  In retrospect, we loved our house.  Great neighborhood, great schools, stability for 5 years.  But it was a money pit.  I hadn’t discovered WCI before near the end of residency, and everything I heard at the time was encouraging us to buy a house and all of the standard propaganda about “not throwing money away for rent” or “real estate always appreciates; 2-3% per year expected.”

    We did buy a condo for medical school also, in 2004, that we sold in 2008 for a profit of close to $20,000, so even though we got in at the high end on our residency house purchase, we also sold at a high.  I used that money to fund Roth IRAs for my wife and I for 2 years, so at least I had somewhat of a head on my shoulders then.

    #170183 Reply
    MPMD MPMD 
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    I was feeling foolish in residency as the local real estate market went on a tear and I was renting.  Then, one day my poor junior resident went home to find a pipe had burst in his condo and flooded a bunch of it… and the condo next to him… and the one below him… and those neighbors weren’t happy and wanted compensation… and he was on 2 weeks of nights… and insurance people want to work with you during business hours… and he had to coordinate to have the repair people let in while he was still at the hospital each morning… and he had to sleep/shower at the hospital for a week because of course the repair people wanted to work during the day when he needed to sleep.

    I trust he made out fine in the end.  But, I was very glad not to be responsible for my dwelling after that.  When my pipe burst, I called the maintenance guy.  He was there in 20 minutes.  I left the apartment.  He dealt with the neighbors.  Total bill: $0.

     

    Click to expand…

    i had an almost physical reaction to this post.

    money aside, this story should be printed out and handed to residents applying for mortgages.

    there were several months during my residency (MICU, trauma) when i simply would not have had the bandwidth to deal with something like this and would have had to reach out to my residency leadership to be moved to a different rotation. when you are pulling 90-100 hr weeks you don’t have the ability to coordinate home repairs, you just don’t. for people doing stuff like gen surg or neurosurg i just don’t see how they could deal with a major home repair crisis.

    Avatar Bonez 
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    I bought a 3br 2ba house in 2011 for $86k at beginning of residency (outside detroit). Put less than 10k into it and sold 5 years later for $180 to first offer after 1 day on market.

    #170554 Reply
    Liked by octopus85
    White.Beard.Doc White.Beard.Doc 
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    How about the perspective of someone with enough mileage to have a white beard…

    I bought a townhouse when I was a resident.  I had family in the area and I ended up keeping it as a long term rental as I did not want to take a loss.  It has worked out well, but if I could go back I would have rented and invested the money in the market.  If you subtract the value of my time, I would have built similar wealth with less work.

    I put down a healthy 36k downpayment back in the day.

    Always cash flow positive as a rental, small amount in the early years, large amount in the later years, all tax protected due to depreciation deductions, my current great tenant has been there for 9 years (I am very fortunate).

    Now worth 325k despite a relatively weak local market and I have 100% equity as mortgage was paid off with the rental payments.

    Current positive cash flow after condo fees and property tax is $1300/month tax free, equivalent to $2500 taxable income in my high tax state, kind of like a tax free municipal bond.

    Long term, real estate can be good for your net worth.  The downsides are the maintenance and care that is needed, the vacancies that can occur, and the issues that can come up if you don’t have good tenants.  Stock market investing is way easier but also has its own volatility.  I guess the diversification is good, but it does take a variable amount of work to handle direct real estate investments.

    #170612 Reply
    Liked by hatton1
    Avatar Dont_know_mind 
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    I wonder if there is some cognitive bias to people more likely to complain about realised losses.

    A symmetrical situation – resident does not buy 400k house. They buy house for 800k in 8 years as an attending a 3 years out (after figuring out that they are staying there). Loss is more than if they had bought for 400k and sold for 200k. But they will complain about the 200k loss more than the 400k extra they have to pay for the house later ?

    It is true that buying as a resident you are a weaker hand and that affects your odd of success. However, if you do stay in the area and defer buying a house, you are short a house, which if it is an appreciating asset, can be a problem.

    This basically applies to anyone in a market that has gone up significantly since 2010. NY, San Francisco, most capital cities, you could be down significantly in terms of later outlay due to the effect of leverage. No way you can make up for this appreciation with investing the deposit on index equities if the housing market is on the move.

    Run the numbers, current 15y mortgage rate, CAGR 7%, 20% deposit, 400k. 8 years later: house is 680k, 80k equity now worth 280k. If you had invested 80k in index funds and returned 10% pa over the period, the 80k is 170k. The real opportunity cost of not buying a house in residency is not using the potential leverage from your income during this period for it to compound wealth growth with leverage. Arguably it would be easier to get a margin loan and 2:1 leverage but I have not seen many do this successfully due to behavioural errors or being margin called.

    If CAGR in your city is higher, opportunity cost higher. If the CAGR if your city in this period is 10% (not uncommon in trough to peak periods). 400k house would be 850k in 8 years, your equity would be 450k in house Vs 170k in unlevered stock index funds. Worse, the house you want as an attending would now be in the 2M range and you would feel priced out and defer buying further. There is also the reality of many people being priced out of booming markets.

    You can model this in a spreadsheet with long term CAGR for your city. What is harder to measure is one’s susceptibility to behavioural errors.

    #170806 Reply
    Liked by octopus85
    Avatar Tim 
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    @dont_know_mind,
    Cognitive Bias-definitely!
    Behavioral finance-
    Realized losses are more significant than realized gains.
    Realized gains/losses are real modifiers of behavior, risk aversion to avoid a loss is dominant bias.

    Opportunity cost has little impact on financial behaviorally. Capital preservation is supreme.
    All rules are off with a “gambling” type thrill.

    By the way, is now a good time to buy? Do CGAR’s around USC differ from UCLA? The vast majority of residents are loaded with debt. Spreadsheets are analytical, addictive yes, but don’t outweigh cognitive bias.

    #170860 Reply
    jfoxcpacfp jfoxcpacfp 
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    This thread is so interesting. Every story could be translated to equity investing in stocks (a non-diversified investment), investing for the short term, or investing without a plan.

    Just as with real estate, there are many anecdotal stories with individual stocks. Most have to do with pure luck in buying at the right time when the market is artificially inflated (as with the housing bubble which also bled off into the market as a whole) or a short holding period combined with buying at the right/wrong time.

    As with the stock market, real estate held for the long term is likely to realize decent profits. Unlike the stock market, you are still not as likely to have long-term predictable results because you are undiversified – one asset class (distilled down to a single investment within an asset class in the case of a single-family dwelling). This is similar to owning a single stock that owns a single company. That stock may be a huge success or a bust.

    With equity investments, the best portfolios are well-diversified and periodically rebalanced. Impossible to do with real estate. The result is you are placing a heavy bet on a single property or single sector. It’s a gamble, which is sometimes mitigated by knowledge of the specific property and desirability. Owning your office building or buying into a surgical center are the 2 examples I usually think of.

    Where the plan comes in is in understanding how much $$ you can invest for the long term. If you are sure you will not need your investment back within 5 years, based upon your plan, you have the added benefit of not being forced to sell when the market is down. Again, you must consider the lack of diversification on top of the timing issue with real estate. Your timing may be great, you may choose a highly desirable property – or you may do the opposite. Much more of a gamble with real estate than with equities in a balanced portfolio.

    While I’m not trying to dissuade physicians from real estate investing, as I realize it is very popular, I am attempting to influence you to do so with eyes wide open, understanding the inherent risks you take on in exchange for the possibility of attractive returns.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #170863 Reply
    Hank Hank 
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    For personal safety I’m not sure it’s a good idea to live just off campus near USC.

    #170893 Reply
    Avatar Tim 
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    Residential real estate is exactly like purchasing a stock.
    It’s value is simply the price you paid and leverage used for either asset.
    The difference is a residence comes with upkeep expenses.

    For a typical medical student or resident, this is a calendar spread. Time is the key with few options in residential real estate. Transaction costs are substantial, the market is thinly traded, and the bid/ask spread can be substantial. The asset is a “trade”.

    1) Buy a house with leverage and sell in 4 years, or
    2) Buy a stock with leverage and sell in 4 years, or
    3) Simply rent

    Living in the house only consumes the rental income. Those funds will be spent regardless. Each has a value in day one, a different set of risks and financial responsibilities with an exit price uncertain in 4 years. Actually “do all three” if you can afford it. Rank them and “do just two” but 3) has to be included. It’s just money on margin for a calendar trade for an investment.

    It’s highly unlikely for any individual to find a substantial bargain on a house, stock, or rental. The market sets it and the beginning and exit.

    Would any one recommend 80% leverage in a stock?

    #170895 Reply

Reply To: Horror Stories From People Who Bought a House in Residency

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