Buying a House in Grad School

Graduate School
1

<p>I'm trying to weigh the pros and cons of buying a house in grad school. People have a lot of similar advice: do it if you can afford a decent down payment, you're going to be there for at least 5 years, and you can rent it out or sell when you leave...or don't do it because the fees of closing costs, maintenance, repairs, and risk of not selling make it not worthwhile.</p>

<p>What I would like to hear from is people who have ACTUALLY BOUGHT (and sold) A HOUSE--how have you fared? Maybe this isn't the best site for that info...but if you know of any good links on the cost/benefit analysis of buying vs. renting, or for any first hand experience, I would really appreciate it.</p>

2

<p>This was the worst financial move of my life. It is a terrible, short-sighted idea having so little upside and so much downside. </p>

<p>We bought a small house and lost about 25% of it’s value in 5 years in the 90s. We couldn’t rent it because the only people who rent houses were deadbeats. It sat vacant for 11 months. We had paid people to clean it, but when we saw it again at the closing it was clear that they did a lousy job with everything. The home owners insurance company canceled the policy and we were forced to pay an exorbitant amount to get fire insurance from the mortgage company. We were very fortunate to have even sold it. We had friends who couldn’t sell their place and lost a lot more. </p>

<p>Why in the world would you want to buy a house before you start earning real money and before you know where you will end up living. </p>

<p>You are a graduate student. You have time to write rent checks. You don’t have time to do home maintenance. It will delay your graduation and cost you more than you have.</p>

3

<p>My husband and I lived in subsidized university housing – and saved as much as we could so we could have a down payment on a house when we moved into the “real” world.</p>

4

<p>What geographic areas are you looking to end up in for graduate school?</p>

<p>Here in Boston, buying a house is outside the reach of all but the most exorbitantly wealthy graduate students. A few people in my classes have purchased condos in the city, which are still very expensive and represent a significant gamble.</p>

<p>My husband and I are hoping to buy a house within the next two years or so, but we plan to stay here in the long-term. I won’t be looking at postdocs outside the Boston area.</p>

5

<p>I did this (bought) when I was a grad student, but we knew that we were going to stay in the area and probably the same house. And I 've seen people win and lose in this process. It really comes down to the individual(s), market, and the real estate mantra of “location, location, location”.</p>

<p>I’ve had probably 20+ different addresses over my lifetime, and they have included various living situations - house, apartment, dormitory, co-op, barracks, rented room, etc. Not all renters are deadbeats and not all landlords are greedy (can’t use the word on this forum)s. Thr relationship between the two parties can be wonderful or a nightmare.</p>

<p>Best advice would be to start with a hardcore pros vs. cons list and go from there. And try to locate folks in the specific area who have done the same thing. FWIW, we are still in the same house, I am no longer in grad school, and I feel that I made the right decision.</p>

6

<p>In Durham, I would estimate that about three quarters of the married graduate students and postdocs own homes. This only works because the cost of living is dirt cheap here and people have a spouse or significant other with an income of their own. The downsides to owning are the potential for major expenses to pop up out of nowhere, potential inability to get rid of the property when you move, potentially higher cost than renting. With renting, the day you move out you will never see a dime of the rent you paid for the last six years again whereas if you purchase, you may actually build equity and have a nice downpayment for a non starter house when you start postdoc/real position.</p>

7

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<p>I should clarify. Since I couldn’t sell my house, I looked into renting it out. Since I lived 300 miles away, I would have needed to hire a management company to handle tenants. All 3 of the ones I interviewed warned me that it would be very difficult to rent out my house because almost all of the potential tenants had serious credit problems. These were people who had the income to rent my house but didn’t have sufficient credit to own their own home. In the area we lived, most people owned their own home. If someone was credit worthy, and there were so many houses for sale, why wouldn’t they just buy a house. Even if I could have found a credit-worthy tenant, the negative cash flow would have been huge. I can’t begin to describe the stress of having an open wound like this. </p>

<p>I know another woman who bought a beautiful condo in the Boston area, top of the line location, full security building, all amenities, low maintenance, etc. How could this be risky? The market crashed and she took a 25% loss when she got married and had to move to another city when her spouse couldn’t get a local job. It was inconceivable that the urban condo market would crash so fast. I don’t know if it was a short sale, but it could have been. Clearly she can’t buy a house for sometime now. </p>

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<p>The idea of building equity is marketing speak for real estate agents. You only build equity if the value of the house rises faster than the added costs of ownership bring you back down AND you can sell it when you need to. What is never valued enough is the freedom to move. It’s huge!</p>

<p>Because buying a house is such a leveraged investment, your losses can be enormous, much more than your down payment. Your gains can be big too, but surely not worth risking your future career over. If you want a leveraged investment, you might as well take the down payment money and if you were putting down 20%, buy a 5 year option on a stock index that controls about 5x (10x if you were planning on only putting down 10%) the amount that the option cost you. It’s the same thing except that you don’t have to find a plumbing contractor when your pipes freeze - that’s your landlord’s problem. Sound risky? It’s the same thing!</p>

<p>You are investing in yourself by forgoing working now to study in graduate school for a better life later, i.e., your lifetime earnings are hopefully a much better investment than any house. Why risk significantly reducing those earnings by getting yourself stuck. Surely will be able to buy a better house when you graduate when you are gainfully employed and stable. </p>

<p>Unless you are willing to stay put in that house for a very long time, don’t buy a house.</p>

8

<p>I appreciate all of your comments–it’s great to get firsthand advice.</p>

<p>The bottom line seems to be this: it could be worth it to buy a home, but it may not be. Is it worth the risk (time, money, migraine, legal issues)?</p>

<p>As ClassicRockerDad pointed out, it may not be worth the risk for me; I am young, have only “good debt” (student loans) to my name, and I will likely be mobile within weeks of graduating. Being tied down by a house–even if I saved <em>gulp</em> 15-30k over 5 years–could outweigh the benefits of having a larger space and what could arguably be called an asset.</p>

<p>My boyfriend also pointed out that I am not a person with a lot of demands for space. I don’t have a dog, or kids, or a carpentry hobby that requires a basement. As it is, I live about as cheaply as I can while maintaining relative privacy, by sharing a bathroom and kitchen. It would be nice to have a garden space. </p>

<p>To answer the question of where: I would be looking for housing in Chicago, San Diego, Stanford CA, New Haven, and Philadelphia (almost completely out of the question), or Madison, Ann Arbor, Iowa City, or St. Louis. </p>

<p>I think if I ended in St. Louis or Iowa City I would still consider buying.</p>

9

<p>Neuro,</p>

<p>I am in my first year of my grad program, and I bought a house this summer. I could not eliminate the risk entirely (as much of the risk is at the back end, when selling), but decided to make the jump for several reasons:</p>

<p>1) I am not alone - I have a wife and 2 children to house, making appropriate rental properties hard to find.</p>

<p>2) I live in a college town, and rental prices are inflated while non-student house sales are depressed right now. Renting an appropriate apartment or house would have cost me several hundred more a month for a lesser quality.</p>

<p>3) There were several incentives to buy this year - I had a significant discount with a real estate brokerage that waived some fees and commission, plus the substantial tax incentive this year amounted to more than 5% equity in the house… for free.</p>

<p>4) With children, I had to consider school districts - the district with many rentals had a poor reputation (including a shooting death this year), while the district with essentially no rentals has a great reputation.</p>

<p>5) We were able to identify a house that was a good value and an easy resell (good location, comparable value to surrounding neighborhood, high quality but traditional design, etc.), even though it was not our favorite. Our two favorites were beautiful but were sufficiently unusual that resale would have taken forever.</p>

<p>6) I already have a job lined up that has locations here and elsewhere, and if I need to stay in the area until my house sells I will probably be able to do so.</p>

<p>7) Having previously rented an unfurnished house, I was aware of and possessed the myriad of things that new homeowners typically need to buy - washer/dryer, lawnmower, garden hose, etc.</p>

<p>At the end of the day, you need to look through your own issues and see what is right for you, but remember that there is a big difference between CAN buy a house and SHOULD buy a house.</p>

<p>Good luck!</p>