Purchasing a place of residence during medical school?

[anxious_101]

Ah, lots of valid points lads! I surely have to think this over carefully.

[cheech10]

If you run the numbers, interest on the mortgage + property tax + maintenance fees + insurance + interest that you would have received from investing the down payment elsewhere (the opportunity cost) is equal to or more than the cost of rent for a comparable unit. Here's a real world approximation for a 1 bedroom in downtown toronto:

 

Purchase Price: $330,000

Down payment: 30,000

Mortgage: 300,000

25 year amortization, 5 year fixed @ 3.89%

Monthly mortgage payment is 1560.00

Interest portion of mortgage payment is $905.00

Property tax is $150.00 per month

Maintenance fee is $400.00 per month (including utilities)

Insurance is $25.00 per month

 

Total expenses are $1480 per month (+ opportunity cost of $100 per month interest at 4% from the down payment), and add $645 per month to carry this home.

Rent for a comparable unit is $1500 per month, or less.

 

So you can see the expenses are equal in both scenarios, and the cash outlay is significantly more for buying. An this is for a modest condo in the area; there are much more expensive ones available. Also, if you need to sell in 4 years for residency elsewhere, you're looking at 5% commission plus legal fees, etc., where if you rent, you can leave much more easily.

 

Finally, I wouldn't count on much more appreciation in the Toronto condo market. There has been a significant run up in prices over the past 5 years, and A LOT of new units have been built. There may be some short term appreciation still to come, but longer term, prices will probably stagnate or fall to be more in line with average incomes in the city.

 

Overall, my choice right now would be to rent.

[rmorelan]

If you run the numbers, interest on the mortgage + property tax + maintenance fees + insurance + interest that you would have received from investing the down payment elsewhere (the opportunity cost) is equal to or more than the cost of rent for a comparable unit. Here's a real world approximation for a 1 bedroom in downtown toronto:

 

Purchase Price: $330,000

Down payment: 30,000

Mortgage: 300,000

25 year amortization, 5 year fixed @ 3.89%

Monthly mortgage payment is 1560.00

Interest portion of mortgage payment is $905.00

Property tax is $150.00 per month

Maintenance fee is $400.00 per month (including utilities)

Insurance is $25.00 per month

 

Total expenses are $1480 per month (+ opportunity cost of $100 per month interest at 4% from the down payment), and add $645 per month to carry this home.

Rent for a comparable unit is $1500 per month, or less.

 

So you can see the expenses are equal in both scenarios, and the cash outlay is significantly more for buying. An this is for a modest condo in the area; there are much more expensive ones available. Also, if you need to sell in 4 years for residency elsewhere, you're looking at 5% commission plus legal fees, etc., where if you rent, you can leave much more easily.

 

Finally, I wouldn't count on much more appreciation in the Toronto condo market. There has been a significant run up in prices over the past 5 years, and A LOT of new units have been built. There may be some short term appreciation still to come, but longer term, prices will probably stagnate or fall to be more in line with average incomes in the city.

 

Overall, my choice right now would be to rent.

 

there have been some recent reports from the real estate market and bank of Canada suggesting the the price of housing will actually fall in the near future as well:

 

http://www.ft.com/cms/s/0/a0116176-979d-11e0-9c37-00144feab49a.html#axzz1RzKb4v5j

 

http://business.financialpost.com/2011/06/29/housing-prices-could-fall-25-research-firm-warns/

[aaronjw]

Well then you pretty much just paininted a picture for no one to ever buy their dwelling then

 

I purchased a downtown condo in Ottawa 3.5 years ago when i moved there for work (while still having my house) and made a pretty nice sum when i sold it after leaving in April. Could it have gone down? Sure but i had to pay for a place to live in one way or another and i much rather invest that money into myself than into someome else.

 

But i can see how doing so with LOC money probably doesnt make for a wise decision although as had been pointed out, you can't lol

 

 

If you run the numbers, interest on the mortgage + property tax + maintenance fees + insurance + interest that you would have received from investing the down payment elsewhere (the opportunity cost) is equal to or more than the cost of rent for a comparable unit. Here's a real world approximation for a 1 bedroom in downtown toronto:

 

Purchase Price: $330,000

Down payment: 30,000

Mortgage: 300,000

25 year amortization, 5 year fixed @ 3.89%

Monthly mortgage payment is 1560.00

Interest portion of mortgage payment is $905.00

Property tax is $150.00 per month

Maintenance fee is $400.00 per month (including utilities)

Insurance is $25.00 per month

 

Total expenses are $1480 per month (+ opportunity cost of $100 per month interest at 4% from the down payment), and add $645 per month to carry this home.

Rent for a comparable unit is $1500 per month, or less.

 

So you can see the expenses are equal in both scenarios, and the cash outlay is significantly more for buying. An this is for a modest condo in the area; there are much more expensive ones available. Also, if you need to sell in 4 years for residency elsewhere, you're looking at 5% commission plus legal fees, etc., where if you rent, you can leave much more easily.

 

Finally, I wouldn't count on much more appreciation in the Toronto condo market. There has been a significant run up in prices over the past 5 years, and A LOT of new units have been built. There may be some short term appreciation still to come, but longer term, prices will probably stagnate or fall to be more in line with average incomes in the city.

 

Overall, my choice right now would be to rent.

[cheech10]

That's not true. I bought my condo at the beginning of residency 5 years ago, and my costs were less than renting would have been at the time. I've also enjoyed significant appreciation It's only been recently that renting has become less expensive.

 

The idea of "paying yourself rather than a landlord" doesn't make sense, as I hope I've illustrated. The expenses are equal or slightly lower for renting. If one wants to save money, one can do it by paying principal toward a mortgage, or by renting and investing an equivalent amount elsewhere. It just depends on where you think you'll earn a better return: real estate appreciation or stocks/bonds/mutual funds/etc. And given the torrid run-up in real estate values recently, which defies all historical valuation, I would suggest real estate is unlikely to outperform other investment vehicles. Then add the fact that it is illiquid and selling costs are significant, and it doesn't make much sense to me in the current market for a short term dwelling (5 years or less).

[bloh]

The problem with the rent vs buy dilemma is that our society has built the notion and stigma that renting is for the poor. That makes it very difficult for an average person to look at the problem objectively and to really be open-minded. As of now (at least in Alberta) it makes no sense to buy. The rent:buy ratio is completely out of whack. Before the crazy build up of real estate prices (pre-2007), the ratio was reasonable. My fathers mortgage payment for his 1BR condo is 500$ (+300$ condo fee). Right now, the same place would be twice that at least (and less than 5 years have passed). Buying can be a good thing at times, but you must look at the circumstances.

 

Mortgages are built so that for the first 10 years, you are paying interest predominantly. Therefore, unless you intend to stay and keep that property for ~10 years, you're really not building equity. It may seem like that at the end, but you aren't counting all the money you've spent on insurance, fees, buying/selling costs, maintenance, property taxes, etc. People always conveniently forget those and tend to rely on hoping that the property appreciates. But if that's your hope, why not just buy stocks instead?

[Jamone]

Owning a house/townhouse/condo is a big investment. Don't take it lightly. Sure, you're throwing money down the drain when you're renting. But when I did FM residency in Alberta, everyone was telling me to buy a house at the time because the market was hot. Well if I did I would've taken a huge loss on the place because two years later when I had to move back to Vancouver, the market tanked, much moreso than just by renting.

 

Would that have been around 2007? I remember there was huge housing bubble a while back. Smart decision to stay out. When everyone's being told to buy because the market is hot, that's when a person should be most cautious about buying, because it's more likely that homes are being overvalued. Steep upwards trends in prices cannot continue indefinitely.

[MarathonRunner]

The problem with the rent vs buy dilemma is that our society has built the notion and stigma that renting is for the poor. That makes it very difficult for an average person to look at the problem objectively and to really be open-minded. As of now (at least in Alberta) it makes no sense to buy. The rent:buy ratio is completely out of whack. Before the crazy build up of real estate prices (pre-2007), the ratio was reasonable. My fathers mortgage payment for his 1BR condo is 500$ (+300$ condo fee). Right now, the same place would be twice that at least (and less than 5 years have passed). Buying can be a good thing at times, but you must look at the circumstances.

 

I have friends living in Edmonton (they are posted at CFB Edmonton) and ALL of them have bought homes (albeit out in the boonies, not in Edmonton proper). Why? Because the rental prices are absolutely ridiculous! All of my military friends posted to Edmonton, despite the ridiculous cost of housing, have bought homes for one simple reason: it is cheaper than renting. To me, that just illustrates how silly rental and housing prices are in Edmonton.

[bloh]

I have friends living in Edmonton (they are posted at CFB Edmonton) and ALL of them have bought homes (albeit out in the boonies, not in Edmonton proper). Why? Because the rental prices are absolutely ridiculous! All of my military friends posted to Edmonton, despite the ridiculous cost of housing, have bought homes for one simple reason: it is cheaper than renting. To me, that just illustrates how silly rental and housing prices are in Edmonton.

 

It could be that there's a huge shortage of rental spaces in suburbs and communities outside the city, which would artificially inflate the rental prices. However, we aren't talking about communities outside the city; we're talking about inner city where students and other people would normally rent. Therefore, it's not constructive to bring that into the argument.

 

Alternatively, it could be that all your friends are incredibly horrible at math. As I've said before, most people forget additional costs when they are looking at buying a place. Just selling your property costs exhorbitant amount of money (7%+ in most cases).

 

Here's just some rough napkin math to illustrate my point. Imagine you're only keeping your place for 4 years (48 months) and that you are purchasing a place at $200,000.

 

Realtor selling costs (7% for first 100k, 3% after) = 10,000 one time cost = $210 per month

Maintenance (1% of property value) = 2,000/year = $165 per month

Property taxes = 1000+/year = $100 per month

Gas/water/internet (or condo fee) = $250 per month

 

That's $725 per month before even counting mortgage + insurance. My rent is 600$ all inclusive. How can you even compete with that?

 

At best, you are breaking even.

[MarathonRunner]

It could be that there's a huge shortage of rental spaces in suburbs and communities outside the city, which would artificially inflate the rental prices. However, we aren't talking about communities outside the city; we're talking about inner city where students and other people would normally rent. Therefore, it's not constructive to bring that into the argument.

 

I meant that it was cheaper for them to buy a place in St. Albert (just north of Edmonton, near the base) as opposed to renting in downtown Edmonton (near the U of Alberta, or on the other side of the river, downtown).

 

Most of them are engineering officers, so hardly bad at math. When their mortgages are around $1200 a month, and it would cost them $1500+ a month to rent a place that would be much smaller than the homes they were able to buy (and that rent DOESN'T include utilities, internet, water, a parking space, etc.), well, it becomes a pretty simple choice.

 

Yes, if you buy a place you have to pay realtor fees and property taxes, but if you rent, you normally have to pay for a parking space (it's never been included in my rent when I've rented), as well as extra for storage space if required (normally if you buy your own home, even a townhouse, you have a basement and garage for storage). And whether you rent or own, you still have to pay utilities, internet, etc. Again, I've never rented anywhere where they've been included in my rent. I've always had to pay extra for utilities (water, heat, electricity, etc.), internet and TV/cable/satellite/whatever. So, to me, those costs are the same, whether you rent or own.

 

My good friends who are engineering officers posted to 1CER in Edmonton have shown me the math, and even when you take all the extra costs into account, it was far cheaper for them to buy a 3-bedroom home in St. Albert, just north of the city, than to rent a 2-bedroom apartment in downtown Edmonton. Your opinion may differ, and you may not believe their math, but I've seen it first hand, and yes, it was much cheaper for them to buy.

[lazyboy]

This is more or less what your GUESS about what the housing market in your area would be 4 years down the road.

 

If you take YVR and YYZ as an example, prices have been going up. If you have the down payment four years ago, you property will appreciate in value.

 

If you live in Calgary or Edmonton, the price have already been adjusted. You're seeing condo around $300K and house around $400K in inner city. More people is moving to Alberta again, job market is good. Like any investment, you look at risk to reward ratio, the risk for the price to go down is low, but there is more room for it to go up. Rental price is around $1400 for a decent, recent condo that are close to hospital. That kind of price may go up even more...

 

It is your GUESS and like VR, some is more RIGHT than the other.

[JustMe]

YVR and YYZ are airports... not real estate markets

[NLengr]

Article on CBC about the housing market again.

 

Also says TD is expecting a 2.0% increase in interest rates by 2013. That'll add a few hundred extra to servicing the average med school line of credit every month too.

[KLM]

Maintenance issues and surcharges can be a real problem if you decide to buy.

 

My parents bought a four bedroom condo townhouse in Thunder Bay a few years ago and charge 3 renters $600-$800 a month. I live there rent free but look after the place. I am often fixing things or bringing in trades to fix things. With the $2000 rent it is not so bad but I would not want to buy without renters.

 

Then, the condo association put on a $8000 fee recently for new windows. We have no choice but to pay it.

 

Fortunately, I was accepted to TB for med school so I will live there for at least another four years. But I would not want to buy a one/two bedroom place for only four years.

[bidiboom]

Maintenance issues and surcharges can be a real problem if you decide to buy.

...

Then, the condo association put on a $8000 fee recently for new windows. We have no choice but to pay it.

...

 

The same goes here as well.. we have house too and it's a wallet cancer! Devouring our income for this or that repair and maintenance stuff.. it never ends.. as you own a property, you own kinda child to take care.. if there is nobody else to help, it's a burden, especially during an education.. 2 years ago I had taken math courses, all others were starting to study at home as soon as they arrive.. and I was dealing with those stuff and I remember, sometimes it was turning to night and I wasn't able to open even the cover of the book!

[KLM]

I feel your pain bidiboom.

 

Last week I was fixing a toilet fill valve, earlier this week it was the kitchen faucet and then this morning I have to do something about birds or something nesting in the attic. I've also had to get rid of mice and had the A/C repaired. All this was only in the last few weeks. It just goes on and on.

 

I am worried about these maintenance issues when I start med school. I am hoping all will get done this summer.

[dblu7]

It could be that there's a huge shortage of rental spaces in suburbs and communities outside the city, which would artificially inflate the rental prices. However, we aren't talking about communities outside the city; we're talking about inner city where students and other people would normally rent. Therefore, it's not constructive to bring that into the argument.

 

Alternatively, it could be that all your friends are incredibly horrible at math. As I've said before, most people forget additional costs when they are looking at buying a place. Just selling your property costs exhorbitant amount of money (7%+ in most cases).

 

Here's just some rough napkin math to illustrate my point. Imagine you're only keeping your place for 4 years (48 months) and that you are purchasing a place at $200,000.

 

Realtor selling costs (7% for first 100k, 3% after) = 10,000 one time cost = $210 per month

Maintenance (1% of property value) = 2,000/year = $165 per month

Property taxes = 1000+/year = $100 per month

Gas/water/internet (or condo fee) = $250 per month

 

That's $725 per month before even counting mortgage + insurance. My rent is 600$ all inclusive. How can you even compete with that?

 

At best, you are breaking even.

 

This is more of a question (or series of comments with question marks....) more than anything, but my fiance and I are debating this (I start @ mac this fall):

 

From what we found, the buyer does not pay any realtor fees (since for the most part the seller is the one who incurs realtor fees). For anyone who has bought a place, confirm or deny?

 

While I totally agree that going into this to make a lot of money (i.e. appreciation) in a short amount of time is foolhardy, breaking even is not that bad considering you just spent 4 years living rent free (this may or may not make you feel better after spending hours calling trades in to fix stuff, do housework, etc.)

 

Also, comparing a 1500-2000$ monthly payment for a house to 600$ rent is kind of comparing apples to oranges. In the former example, you own a house, the latter you rent a room....one room, plus the use (usually not exclusive) of other parts of the house.

 

Also mentioned above is the benefit of being able to rent out to other students.

 

In any event, we're still flip-flopping, so if anyone out there has bought a house in my situation (one partner working FT in a solid paying job and one going to school) any insight/advice would be much appreciated!

[hking03]

This is more of a question (or series of comments with question marks....) more than anything, but my fiance and I are debating this (I start @ mac this fall):

 

From what we found, the buyer does not pay any realtor fees (since for the most part the seller is the one who incurs realtor fees). For anyone who has bought a place, confirm or deny?

 

While I totally agree that going into this to make a lot of money (i.e. appreciation) in a short amount of time is foolhardy, breaking even is not that bad considering you just spent 4 years living rent free (this may or may not make you feel better after spending hours calling trades in to fix stuff, do housework, etc.)

 

Also, comparing a 1500-2000$ monthly payment for a house to 600$ rent is kind of comparing apples to oranges. In the former example, you own a house, the latter you rent a room....one room, plus the use (usually not exclusive) of other parts of the house.

 

Also mentioned above is the benefit of being able to rent out to other students.

 

In any event, we're still flip-flopping, so if anyone out there has bought a house in my situation (one partner working FT in a solid paying job and one going to school) any insight/advice would be much appreciated!

 

My fiancee and I bought a place in 2008 when I was still doing my undergrad. We also sold her place at the same time so we paid fees on that, but yes traditionally you pay fees when you sell to both your realtor and the buyers realtor... You will have to pay lawyer fees, but it's something like 800.00.

 

If you are putting a downpayment of less than 20% down you will pay CMHC premiums, and I'm not sure how that works exactly... but you end up paying more if you have less than 20% down.

 

We are actually renting our townhouse out and we moved into a rental in vancouver... we end up breaking even in terms of what we pay, but we still own a property, live closer to school and will continue to accumulate equity on our house while going to school.

 

If you can afford to buy a place and can say that you will not sell it for at least 5 years, possibly 10 it's never a bad idea.

 

I would say that you should try and buy something relatively new so that you don't have to put up with the hassle of a 30+ year old place... like we did

[Hopeful Med]

My husband and I thought long and hard about buying but it is just not worth it unless you know you are going to do residency in the same city as you are attending medical school.

 

In our case we will move out of Kingston to do residency. All we would be paying is mostly interest and the appreciation is not strong in this city.

 

Even if you buy new there are still plenty of expenses.

 

So we are renting a cheap university owned place. It's $800 a month for a two bedroom including all utilities, internet and parking. We don't own a car so we rent out the parking space. It's hard to do better than that.

 

Some day we will probably buy.

[bloh]

I meant that it was cheaper for them to buy a place in St. Albert (just north of Edmonton, near the base) as opposed to renting in downtown Edmonton (near the U of Alberta, or on the other side of the river, downtown).

 

Most of them are engineering officers, so hardly bad at math. When their mortgages are around $1200 a month, and it would cost them $1500+ a month to rent a place that would be much smaller than the homes they were able to buy (and that rent DOESN'T include utilities, internet, water, a parking space, etc.), well, it becomes a pretty simple choice.

 

Yes, if you buy a place you have to pay realtor fees and property taxes, but if you rent, you normally have to pay for a parking space (it's never been included in my rent when I've rented), as well as extra for storage space if required (normally if you buy your own home, even a townhouse, you have a basement and garage for storage). And whether you rent or own, you still have to pay utilities, internet, etc. Again, I've never rented anywhere where they've been included in my rent. I've always had to pay extra for utilities (water, heat, electricity, etc.), internet and TV/cable/satellite/whatever. So, to me, those costs are the same, whether you rent or own.

 

My good friends who are engineering officers posted to 1CER in Edmonton have shown me the math, and even when you take all the extra costs into account, it was far cheaper for them to buy a 3-bedroom home in St. Albert, just north of the city, than to rent a 2-bedroom apartment in downtown Edmonton. Your opinion may differ, and you may not believe their math, but I've seen it first hand, and yes, it was much cheaper for them to buy.

 

Again, why are you bringing this up? It is irrelevant to everyone here unless you are seriously advising someone here to just buy a house in St. Albert and commute to the city every day for school. It is like me saying that renting in Halifax is cheaper than buying in Manhattan, therefore "bazinga, renting is the way to go!"

[lazyboy]

At the end of the day, you have to decide this on your own and on a case by case basis.

 

With everything being equal, you have to do a risk to reward analysis. If you buy, how far is the price do u think it will go down;how far do u think it will go up. How about mortgage rate?

 

If you are renting, do u think the rent will go up? In Toronto, the rent stay pretty flat for the last 3 years; In Vancouver, there is a rent control; In Calgary, good luck. On a side note, Calgary has most expensive monthly parking rate of $472, do u think there is an effect on the house price and rent...

 

So you be the judge.

[bloh]

Your house also appreciated significantly more than an average person in an average market should expect to get.

[rmorelan]

Your house also appreciated significantly more than an average person in an average market should expect to get.

 

Not to mention one way this worked was with the 31000 in rental income Now that has an entire host of other benefits/weaknesses. It also means that means you could not have possibly been owning an equivalent place to what you would have been renting.

 

You also I suppose cannot add the amount you would have spent renting because if you did you would have subtract the interest that you wouldn't be paying (you have to pay one or the other, never both). The interest payment (at historically extremely low interest rate) is quite close to the cost of your equivalent rent.

[KLM]

You did very well Sandman but as bloh says this is not average and as morelan you cannot add both.

 

You must have spent a fair amount modernizing even though you did the work on your own.

 

Are you going to buy another property or rent?

[Mithril]

Probably not the best idea to buy property at the moment.

 

http://www.cbc.ca/news/business/story/2011/07/13/housing-prices-fall-td.html