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Living in a hot housing market; do I buy now?? Help!

Home Mortgages and Home Buying Living in a hot housing market; do I buy now?? Help!

  • Avatar gasdoc86 
    Participant
    Status: Physician
    Posts: 41
    Joined: 12/29/2017
    Earnest refinancing bonus

    Right now I rent for about $1500 per month. Rental market seems to me to be rising as well. It’s the thought of a 500K+ house hanging over me that I just hate. The other thing I hate is that interest rates will probably go up over the course of the next year and I’ll wind up paying hundreds more per month if I wait to buy on interest instead of furniture, other things, etc. It’s a frustrating situation.

    #94449 Reply
    Avatar gasdoc86 
    Participant
    Status: Physician
    Posts: 41
    Joined: 12/29/2017

    Also I very much appreciate everyone’s advice, thanks for taking the time to post and give your opinion.

    #94450 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2629
    Joined: 05/07/2017

    Right now I rent for about $1500 per month. Rental market seems to me to be rising as well. It’s the thought of a 500K+ house hanging over me that I just hate. The other thing I hate is that interest rates will probably go up over the course of the next year and I’ll wind up paying hundreds more per month if I wait to buy on interest instead of furniture, other things, etc. It’s a frustrating situation.

    Click to expand…

    that’s how life is.  we are all frustrated at times at missed opportunities.  sometimes they are opportunities for people who are well older than you.  i assure you that the older ones would rather be young again.  🙂

    also, i promise you that many opportunities will present themselves over your lifetime.  housing markets will be hot and cold.  opportunities present themselves in both types of markets.  very rarely is a deal truly once in a lifetime.  if the interest rate is higher, there will be greater opportunities for deduction.   easier to find refinance when the rates drop.  or pay it off sooner.   the few hundred more is not going to be the difference between financial independence and not.  or if it is, find a cheaper house.  🙂  but it won’t be for a soon to be rich anesthesiologist.

     

    #94451 Reply
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 207
    Joined: 12/28/2016

    gasdoc86, There was lot of uncertainty in my early career as my wife finished school and we moved to our current location. We rented for few years right as the housing market was coming out of the depths. With two incomes and the only real debt being her student loan, we looked at houses bigger and expensive and eventually settled on a much cheaper house that cost us in low 500’s. I had 20% down payment. With market steadily going up I was selling put options. With in few months of buying our house, some of those positions went south and I had to scramble purchasing those stocks. It was a difficult start but five years later that house is worth mid 800’s now. I made the right decision in buying a cheaper house but wrong decision in exposing myself by selling options. Mortgage rates were also supposed to go up 5 years ago but they never did. You can’t predict future or always make the right moves but I would err on caution.

    We are in a much better financial footing now and we are contemplating the exact situation as you are but on the business side. Whether to extend the lease of our office space or buy/build a newer bigger office. We expect to be practicing and occupy the new space for the next 10-20 years and running the numbers support towards purchasing but real estate is hot and I cant find anything to buy near my current location. I was going to post my situation on the forum to get some feedback and I see your question.

    In your current situation having flexibility to make some of the difficult decisions is a valued asset. So assess your downside risk and upside lost opportunity and make your decision.

     

    #94469 Reply
    Avatar Dont_know_mind 
    Participant
    Status: Physician
    Posts: 952
    Joined: 11/21/2017

    Humbleinvestor- happens to everyone – on the way to the bank I somehow got into options, internet stocks, futures, bitcoin etc. I guess it’s a learning experience. And most people have some major losing ones. However, I wonder whether you are rationalising an error. Would you have been better off buying the more expensive house? With the premises, I would post that question. We elected to rent my wife’s business premises 10 years ago and that was a mistake. We tried to buy it a few years later and the landlord wouldn’t sell and moving is a hassle. It depends on the capital expenditure, the higher your capex the more inclined you should be to buy, because the harder it will be to move and the worse your bargaining position as a tennant. I guess it depends on what is available and at what cost to buy.

    Gasdoc86- you sound like my friend who is also an anaesthetist. I have a theory that hot housing markets selectively punish people who are more neurotic on the way up- you are more likely to sell too early and not be able to get in because the price is more than yesterday or this or that. And you are probably less likely to be able to just not worry about it and just buy. Then it is excruciating watching it go up further. Anyway, the less neurotic have more of a problem in bear markets, so the market punishes all equally at the end of the day. Although these costs seem large now, they will appear small in a few years when you blow 20k on an internet spending splurge on junk items or lose a few 100k on a bad investment. It’s important to keep it in perpective. Once you really go through something terrible, you can always say, well it wasn’t as bad as that. Think of buying your first house as like a minor life initiation ritual. Unavoidable, much like internship, but probably more pleasant.

    #94498 Reply
    Avatar mxg67 
    Participant
    Status: Physician
    Posts: 82
    Joined: 11/25/2016

    I’d continue renting.  Your lack of interest in ownership (besides the potential of ‘missing out’) and aversion to debt would be reason enough.  I too dislike the idea of large debt hanging over my head.  Things may change as well and you may want to move, you may not like your job, kids, neighborhood, etc.  If you do have reason to stay long term, that may sway things slightly.  I’m in a similar scenario, looking at settling in a HCOL area near family where average house prices are 1M+ (500k seems cheap to me), that much debt makes me uneasy so I’m considering renting, saving and buying with a large downpayment or outright.  If I do get priced out then I could move, but if that happens on a doctors salary then that area has much bigger problems.  If you could find some data on house prices, crunch the numbers(salary, savings, market returns, mortage/rent, etc.) and run various scenarios, maybe that could help you decide.

    #94610 Reply
    Avatar HumbleInvestor 
    Participant
    Status: Physician, Small Business Owner
    Posts: 207
    Joined: 12/28/2016

    Humbleinvestor- happens to everyone – on the way to the bank I somehow got into options, internet stocks, futures, bitcoin etc. I guess it’s a learning experience. And most people have some major losing ones. However, I wonder whether you are rationalising an error. Would you have been better off buying the more expensive house? With the premises, I would post that question. We elected to rent my wife’s business premises 10 years ago and that was a mistake. We tried to buy it a few years later and the landlord wouldn’t sell and moving is a hassle. It depends on the capital expenditure, the higher your capex the more inclined you should be to buy, because the harder it will be to move and the worse your bargaining position as a tennant. I guess it depends on what is available and at what cost to buy.

    Click to expand…

    I have been dabbling in equity options for quite some time at that time but always took measured risk knowing my savings are for the down payment. Once that got out of the way, I guess I took more risk than required. As for purchasing the business premises we are in, we need a bigger space and I cant afford to purchase the whole complex (may cost $40m-$50m) our business is in. Looking for something to open up near by and adding to the cash position to ensure I will have the required down payment if something becomes available that may stretch my limits. Where do you park such money besides ally, not knowing when you would need it?

    #95299 Reply
    Avatar gasdoc86 
    Participant
    Status: Physician
    Posts: 41
    Joined: 12/29/2017

    Just an update since I posted this 18 months ago.

    Didn’t buy a house. Paid off all student loans. Maxed all retirement accounts. Will have 200K in liquid funds for house purchase by the end of July. Not bad for end of first year of being an attending.

    Contrary to popular wisdom in my area, the housing market since stabilized and prices didn’t continue to rise. They seem flat since the time I posted this. Also contrary to popular wisdom, mortgage interest rates have actually fallen against all expectations that they would rise.

    Wife and I are actually planning to rent another year. I’m glad I didn’t buy and I’m glad we resisted the pressure to buy a house. Going to continue to max tax deferred space and do backdoor Roths and throw the rest in a MM fund for another year and then look at houses.

    It goes to show that markets can and do do the opposite of what you might expect.

    So, the wisdom of this forum proves true again. Renting is definitely better than buying in most cases when you are just starting your first attending job.

    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1853
    Joined: 02/11/2019

    I did not realize this was a revived old thread.  I spend a few moments trying to figure out why the OPs screen name had 86 in it if he was 31 years old.  Now it makes sense.

    Anyways back on topic…

     

    Great job!  When it is happening in real time it seems like everything is certain.  Buying during that period of boom would be no different then trying to time the market.  Keep up the good work and take your time finding the right house.

    “Never let your sense of morals prevent you from doing what is right.”

    #225575 Reply
    Avatar artemis 
    Participant
    Status: Physician
    Posts: 593
    Joined: 12/02/2016

    Thanks for the followup post, OP!  I’m glad to hear that continuing to rent worked out well for you.

    #225576 Reply
    Liked by gasdoc86
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8133
    Joined: 01/09/2016

    Just an update since I posted this 18 months ago.

    Didn’t buy a house. Paid off all student loans. Maxed all retirement accounts. Will have 200K in liquid funds for house purchase by the end of July. Not bad for end of first year of being an attending.

    Contrary to popular wisdom in my area, the housing market since stabilized and prices didn’t continue to rise. They seem flat since the time I posted this. Also contrary to popular wisdom, mortgage interest rates have actually fallen against all expectations that they would rise.

    Wife and I are actually planning to rent another year. I’m glad I didn’t buy and I’m glad we resisted the pressure to buy a house. Going to continue to max tax deferred space and do backdoor Roths and throw the rest in a MM fund for another year and then look at houses.

    It goes to show that markets can and do do the opposite of what you might expect.

    So, the wisdom of this forum proves true again. Renting is definitely better than buying in most cases when you are just starting your first attending job.

    Click to expand…

    Oh, man, I wish you would submit a blog post to WCI on this “experiment”. Your true story is worth 1,000 conversations I could ever have with clients. Please consider.

    post-script – like @lordosis, I was reading this as a new thread (until I got to that 5-line signature and started to send a mod warning and then read the date). Kept thinking, how many times have I heard that “interest rates are going to rise, should I buy now?” in the last 10 years? But there is no way I could post anything that would top the above. Just awesome what you did. Kudos to you, @gasdoc86.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #225586 Reply
    Avatar Duckworth 
    Participant
    Status: Physician
    Posts: 30
    Joined: 05/07/2018

    Amazing ! Thanks for coming back and posting this

    #225593 Reply
    Avatar Brains428 
    Participant
    Status: Physician
    Posts: 398
    Joined: 11/09/2017

    @gasdoc86. What’s the reason you are continuing to rent? Have a larger down payment, larger house, or because you’re waiting on the right house? I’m asking because I feel like I’m going to be in these shoes in 18 months.

    #225600 Reply
    Avatar nephron 
    Participant
    Status: Physician
    Posts: 227
    Joined: 05/09/2019

    Delaying your first home purchase is usually a good financial decision for physicians.  Even after you become an attending, most physicians do not stay at their first attending job, so you end up losing a lot of money when you have to move or worse, you get stuck in a job that you are not happy with because you you just bought a home and cannot move.   I think someone should do a study on how many years doctors stay on their first job out of training, I am betting that is actually fairly low even though most of us assume that our first job will be our forever job.  The transactional cost of buying and selling a home are high, I’ve heard of estimates of around 10% of the home value, combined with the risk of any housing market means that it usually takes some 5 years or more before it becomes worthwhile to buy in my opinion.   There is real value in being mobile early in your career, you make better career decisions if you do not have to factor in the trouble of having to sell a home if you move as well.   I built a home shortly after I became an attending and it probably delayed my career/stuck me in an area by some 2-3 additional years and cost me an additional 100 K vs having just rented a place.

    #225676 Reply
    Avatar gasdoc86 
    Participant
    Status: Physician
    Posts: 41
    Joined: 12/29/2017

    @gasdoc86. What’s the reason you are continuing to rent? Have a larger down payment, larger house, or because you’re waiting on the right house? I’m asking because I feel like I’m going to be in these shoes in 18 months.

    Click to expand…

    Mainly in order to have a larger down payment. Furniture for a new house is a big expense as well. I’d rather be over prepared than under prepared. My wife also says she likes the low maintenance lifestyle aspect of renting at this time. If something breaks in our apartment we just call the office and get it fixed at no cost to us. We know we’ll need a house eventually but we like the idea of putting off all the associated expenses for another year.

    #225714 Reply
    Liked by Brains428

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