Buying a house in law school?

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makingasnack
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Buying a house in law school?

Postby makingasnack » Sun Nov 28, 2010 11:05 pm

I haven't entirely decided on this, but am considering purchasing a house while in law school.

Assume:
1) I could find a *decent* house for around $90,000.00
2) Could make a downpayment of around 15-20%
3) I assume I could find a finance rate under 5% (maybe that's way off though)
4) I have a spouse who will be working and hopefully paying most all of the bills.

I hate to sink $22,000.00 ($600 per month for 3 years) into rent for three years and get nothing back out of it.

If I bought something (with downpayment and monthly payments for three years) I would expect to sink around $33,000.00 into housing while I in school. The benefit would be building equity and having a chance to actually make back some of the money that I would have been spending on the rent back (through either renting the house out or selling it after I graduate).

Thoughts?

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northwood
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Re: Buying a house in law school?

Postby northwood » Sun Nov 28, 2010 11:08 pm

buy a house when you can afford to maintain it, pay taxes on it, and other things.

Also- dont forget to budget for closing costs, attorney fees and other expenses when you close and sell. If you are planning on living in the area for a long time, then you could do it. If you are planning on living there just for law school only- Its a really big risk.

Also- if you can get a house dirt cheap. you will have to fix it up in order to sell it when you are done.

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thelaststraw05
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Re: Buying a house in law school?

Postby thelaststraw05 » Sun Nov 28, 2010 11:19 pm

If you are going to continue to live in the area after law school, it makes sense. Most real estate agents (who are honest) wouldn't suggest you buy a place you are planning to own for less than 5 years.

A couple of the cons to buying (why it might be a bad investment):

1) Closing costs can be significant. When I bought closing costs were over $5,000.
2) Your payments for the first several years are primarily interest and reduce the principal of the loan.
3) The seller pays the commission for both the listing agent and the purchasing agent. The amount depends on the state, but is a percentage of the sale price.
- For these reasons it is hard to break even if you own a house for a short period of time.

A couple of the pros to buying (why it might be a good investment):

1) You will be buying a house in an area where there is likely a strong rental market (near a school). If you don't need to recoup the down payment, you can rent the house after you graduate to pay off the mortgage and continue to build equity.
2) If you continue to leave near where you go to school you will already have housing established.
3) If the housing market grows from the current low point, buying a house could be a good investment over the short term.

If you have any questions for me about my particular experiences, feel free to PM me. I bought about a year ago in a more expensive market.

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kalvano
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Re: Buying a house in law school?

Postby kalvano » Sun Dec 05, 2010 3:28 am

When I looked at selling my house this past summer, seller's expenses totaled out to almost $15,000 out of what equity I have.

If you sell too soon, you may even have to write a check out of pocket to make up some of the difference. Also, keep in mind taxes and such that you don't pay on rentals.

HeavenWood
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Re: Buying a house in law school?

Postby HeavenWood » Sun Dec 05, 2010 10:11 pm

makingasnack wrote:I haven't entirely decided on this, but am considering purchasing a house while in law school.

Assume:
1) I could find a *decent* house for around $90,000.00
2) Could make a downpayment of around 15-20%
3) I assume I could find a finance rate under 5% (maybe that's way off though)
4) I have a spouse who will be working and hopefully paying most all of the bills.

I hate to sink $22,000.00 ($600 per month for 3 years) into rent for three years and get nothing back out of it.

If I bought something (with downpayment and monthly payments for three years) I would expect to sink around $33,000.00 into housing while I in school. The benefit would be building equity and having a chance to actually make back some of the money that I would have been spending on the rent back (through either renting the house out or selling it after I graduate).

Thoughts?


Unless...

1) You can pay for the house in cash and the real estate in the area is one the rise,

OR

2) You plan on living in this house long-term,

This is probably a poor investment choice. If you insist on doing this, you should probably buy something like a non-co op condo instead--they're usually less expensive to maintain.

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OGR3
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Re: Buying a house in law school?

Postby OGR3 » Sun Dec 05, 2010 10:19 pm

HeavenWood wrote:
makingasnack wrote:I haven't entirely decided on this, but am considering purchasing a house while in law school.

Assume:
1) I could find a *decent* house for around $90,000.00
2) Could make a downpayment of around 15-20%
3) I assume I could find a finance rate under 5% (maybe that's way off though)
4) I have a spouse who will be working and hopefully paying most all of the bills.

I hate to sink $22,000.00 ($600 per month for 3 years) into rent for three years and get nothing back out of it.

If I bought something (with downpayment and monthly payments for three years) I would expect to sink around $33,000.00 into housing while I in school. The benefit would be building equity and having a chance to actually make back some of the money that I would have been spending on the rent back (through either renting the house out or selling it after I graduate).

Thoughts?


Unless...

1) You can pay for the house in cash and the real estate in the area is one the rise,

OR

2) You plan on living in this house long-term,

This is probably a poor investment choice. If you insist on doing this, you should probably buy something like a non-co op condo instead--they're usually less expensive to maintain.


This is what I did. Mortgage + Condo Fees + Insurance = ~$500 less than I would pay in rent per month. At closing, my condo was appraised at $6,000 more than what I paid. You gotta love Pittsburgh!

HeavenWood
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Re: Buying a house in law school?

Postby HeavenWood » Sun Dec 05, 2010 10:22 pm

OGR3 wrote:
HeavenWood wrote:
makingasnack wrote:I haven't entirely decided on this, but am considering purchasing a house while in law school.

Assume:
1) I could find a *decent* house for around $90,000.00
2) Could make a downpayment of around 15-20%
3) I assume I could find a finance rate under 5% (maybe that's way off though)
4) I have a spouse who will be working and hopefully paying most all of the bills.

I hate to sink $22,000.00 ($600 per month for 3 years) into rent for three years and get nothing back out of it.

If I bought something (with downpayment and monthly payments for three years) I would expect to sink around $33,000.00 into housing while I in school. The benefit would be building equity and having a chance to actually make back some of the money that I would have been spending on the rent back (through either renting the house out or selling it after I graduate).

Thoughts?


Unless...

1) You can pay for the house in cash and the real estate in the area is one the rise,

OR

2) You plan on living in this house long-term,

This is probably a poor investment choice. If you insist on doing this, you should probably buy something like a non-co op condo instead--they're usually less expensive to maintain.


This is what I did. Mortgage + Condo Fees + Insurance = ~$500 less than I would pay in rent per month. At closing, my condo was appraised at $6,000 more than what I paid. You gotta love Pittsburgh!


PM'd.

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3|ink
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Re: Buying a house in law school?

Postby 3|ink » Tue Dec 07, 2010 12:33 pm

OGR3 wrote:This is what I did. Mortgage + Condo Fees + Insurance = ~$500 less than I would pay in rent per month. At closing, my condo was appraised at $6,000 more than what I paid. You gotta love Pittsburgh!


Yeah, but I take it your borrowing money to buy the place? The risk is yours. If the property value falls below the loan payoff, you're screwed. You'll have to file bankruptcy to have the shortfall discharged.

Buying a house is a terrible idea right now, ESPECIALLY in an area where property values have a downward trend. It's better to rent and contribute nothing to equity than it is to buy something that'll only put you in more debt.

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thelaststraw05
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Re: Buying a house in law school?

Postby thelaststraw05 » Tue Dec 07, 2010 12:48 pm

3|ink wrote:Buying a house is a terrible idea right now, ESPECIALLY in an area where property values have a downward trend. It's better to rent and contribute nothing to equity than it is to buy something that'll only put you in more debt.


I disagree. In most places the market is still near bottom and interest rates are incredibly low. If 1) you can afford to buy a place, 2) your mortgage payment + tax + HOA is lower than local rent, and 3) you are planning to stay after law school it can be a really smart decision.

In a great real estate market (early 2000s) it can take about 3 years before buying a house can turn a profit. In a good real estate market the average is 5-7 years. In a BAD real estate market (last three years) you lose money. But as with anything if you have an opportunity to buy low, you should definitely consider it.

I had an opportunity last year to buy low and in just a year other condos in my development are selling for $10,000 to $20,000 more than I bought mine for. Just be smart.

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OGR3
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Re: Buying a house in law school?

Postby OGR3 » Tue Dec 07, 2010 12:50 pm

3|ink wrote:
OGR3 wrote:This is what I did. Mortgage + Condo Fees + Insurance = ~$500 less than I would pay in rent per month. At closing, my condo was appraised at $6,000 more than what I paid. You gotta love Pittsburgh!


Yeah, but I take it your borrowing money to buy the place? The risk is yours. If the property value falls below the loan payoff, you're screwed. You'll have to file bankruptcy to have the shortfall discharged.

Buying a house is a terrible idea right now, ESPECIALLY in an area where property values have a downward trend. It's better to rent and contribute nothing to equity than it is to buy something that'll only put you in more debt.


I'm not too worried. :wink:

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3|ink
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Re: Buying a house in law school?

Postby 3|ink » Tue Dec 07, 2010 12:56 pm

thelaststraw05 wrote:
3|ink wrote:Buying a house is a terrible idea right now, ESPECIALLY in an area where property values have a downward trend. It's better to rent and contribute nothing to equity than it is to buy something that'll only put you in more debt.


I disagree. In most places the market is still near bottom and interest rates are incredibly low. If 1) you can afford to buy a place, 2) your mortgage payment + tax + HOA is lower than local rent, and 3) you are planning to stay after law school it can be a really smart decision.

In a great real estate market (early 2000s) it can take about 3 years before buying a house can turn a profit. In a good real estate market the average is 5-7 years. In a BAD real estate market (last three years) you lose money. But as with anything if you have an opportunity to buy low, you should definitely consider it.

I had an opportunity last year to buy low and in just a year other condos in my development are selling for $10,000 to $20,000 more than I bought mine for. Just be smart.


The market hasn't bottomed out yet. There remains a significant inventory of vacant houses the banking industry has yet to foreclose.

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homestyle28
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Re: Buying a house in law school?

Postby homestyle28 » Tue Dec 07, 2010 1:01 pm

I'm considering same thing as OP. Something to consider is the space/dollar equation. I have a wife and a kid, so need 2-3 bedrooms, space for the kid to play etc. In many major markets renting this kind of space is much more expensive than buying it. I'm looking at homes where my total costs will be ~1200-1500/mo. Comparable rentals are 1800-2000/mo. So figure on a difference of 5k/year over 3 years ~15k saved. Worse case we move at that point and lose the 15k to realtors, so we brake even. I figure it turns largely on the following factors:

1. How much do I enjoy home maintenance?
2. Can I plausibly sell this house in its current condition in 3 years, or do I need to make major improvements?
3. How much does it matter to me to be able to decorate/paint/etc. without restraint?
4. What are the chances that we stay in this house longer than 3 years.

FWIW, we went through a similar decision 3 years ago, decided to buy. Bought a house that needed a lot of work and will probably walk away from 20k by buying the wrong house.

HeavenWood
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Re: Buying a house in law school?

Postby HeavenWood » Tue Dec 07, 2010 1:26 pm

3|ink wrote:
OGR3 wrote:This is what I did. Mortgage + Condo Fees + Insurance = ~$500 less than I would pay in rent per month. At closing, my condo was appraised at $6,000 more than what I paid. You gotta love Pittsburgh!


Yeah, but I take it your borrowing money to buy the place? The risk is yours. If the property value falls below the loan payoff, you're screwed. You'll have to file bankruptcy to have the shortfall discharged.

Buying a house is a terrible idea right now, ESPECIALLY in an area where property values have a downward trend. It's better to rent and contribute nothing to equity than it is to buy something that'll only put you in more debt.


Property values in Pittsburgh have actually gone up during the recession (from 99k to 114k). OGR3 will probably make a nice profit when he decides to sell.

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3|ink
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Re: Buying a house in law school?

Postby 3|ink » Tue Dec 07, 2010 1:31 pm

HeavenWood wrote:
3|ink wrote:
OGR3 wrote:This is what I did. Mortgage + Condo Fees + Insurance = ~$500 less than I would pay in rent per month. At closing, my condo was appraised at $6,000 more than what I paid. You gotta love Pittsburgh!


Yeah, but I take it your borrowing money to buy the place? The risk is yours. If the property value falls below the loan payoff, you're screwed. You'll have to file bankruptcy to have the shortfall discharged.

Buying a house is a terrible idea right now, ESPECIALLY in an area where property values have a downward trend. It's better to rent and contribute nothing to equity than it is to buy something that'll only put you in more debt.


Property values in Pittsburgh have actually gone up during the recession (from 99k to 114k). OGR3 will probably make a nice profit when he decides to sell.


Wow. It appears you're right about Pittsburgh.

http://www.zillow.com/local-info/PA-Pit ... /r_394982/

WTH is up with that?

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thelaststraw05
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Re: Buying a house in law school?

Postby thelaststraw05 » Tue Dec 07, 2010 1:47 pm

3|ink wrote:
HeavenWood wrote:
3|ink wrote:
OGR3 wrote:This is what I did. Mortgage + Condo Fees + Insurance = ~$500 less than I would pay in rent per month. At closing, my condo was appraised at $6,000 more than what I paid. You gotta love Pittsburgh!


Yeah, but I take it your borrowing money to buy the place? The risk is yours. If the property value falls below the loan payoff, you're screwed. You'll have to file bankruptcy to have the shortfall discharged.

Buying a house is a terrible idea right now, ESPECIALLY in an area where property values have a downward trend. It's better to rent and contribute nothing to equity than it is to buy something that'll only put you in more debt.


Property values in Pittsburgh have actually gone up during the recession (from 99k to 114k). OGR3 will probably make a nice profit when he decides to sell.


Wow. It appears you're right about Pittsburgh.

http://www.zillow.com/local-info/PA-Pit ... /r_394982/

WTH is up with that?


Same is true for Arlington where you would be looking 3|ink:

http://www.zillow.com/local-info/VA-Arl ... e/r_30258/

In Arlington home values have gone up over 2% year-over-year. As with any investment, do research and be smart. My neighborhood in Arlington has gone up over 3% year-over-year.

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ahduth
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Re: Buying a house in law school?

Postby ahduth » Wed Dec 15, 2010 8:46 am

thelaststraw05 wrote:
3|ink wrote:
HeavenWood wrote:Property values in Pittsburgh have actually gone up during the recession (from 99k to 114k). OGR3 will probably make a nice profit when he decides to sell.


Wow. It appears you're right about Pittsburgh.

http://www.zillow.com/local-info/PA-Pit ... /r_394982/

WTH is up with that?


Same is true for Arlington where you would be looking 3|ink:

http://www.zillow.com/local-info/VA-Arl ... e/r_30258/

In Arlington home values have gone up over 2% year-over-year. As with any investment, do research and be smart. My neighborhood in Arlington has gone up over 3% year-over-year.


Pittsburgh went to hell a long, long time before the current property price bubble popped. I'm not terribly familiar with the area, but it has a reputation for being on the upswing, and if you want to live there, might not be too bad.

Arlington is a whole other ball of wax. A 3% return is, what, somewhere between the return of a money market fund and an extremely poorly run bond fund? Obviously if you're living in the house, a lot more goes into the decision than just the value of the asset. But I'm hoping that 3% return includes your property taxes, capital improvements and all the various other expenses that go with owning a house. Otherwise you're just lying to yourself about the financial benefit there.

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BlakcMajikc
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Re: Buying a house in law school?

Postby BlakcMajikc » Fri Dec 17, 2010 3:03 am

Pittsburgh: low unemployment, low crime, good infrastructure

Forbes 2010 Winner for Most Livable City

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thelaststraw05
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Re: Buying a house in law school?

Postby thelaststraw05 » Fri Dec 17, 2010 7:54 am

ahduth wrote:Pittsburgh went to hell a long, long time before the current property price bubble popped. I'm not terribly familiar with the area, but it has a reputation for being on the upswing, and if you want to live there, might not be too bad.

Arlington is a whole other ball of wax. A 3% return is, what, somewhere between the return of a money market fund and an extremely poorly run bond fund? Obviously if you're living in the house, a lot more goes into the decision than just the value of the asset. But I'm hoping that 3% return includes your property taxes, capital improvements and all the various other expenses that go with owning a house. Otherwise you're just lying to yourself about the financial benefit there.


The primary financial benefit of owning isn't that it is an incredible investment. It is that you get some of the money you pay each month back AND that the interest paid is tax deductible.

You are of course right, if I could live for free someplace there are better investment vehicles. Unfortunately, my choice is between renting where I throw the money away and buying where I get some money back.

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rbgrocio
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Re: Buying a house in law school?

Postby rbgrocio » Fri Dec 17, 2010 8:11 am

makingasnack wrote:I haven't entirely decided on this, but am considering purchasing a house while in law school.

Assume:
1) I could find a *decent* house for around $90,000.00
2) Could make a downpayment of around 15-20%
3) I assume I could find a finance rate under 5% (maybe that's way off though)
4) I have a spouse who will be working and hopefully paying most all of the bills.

I hate to sink $22,000.00 ($600 per month for 3 years) into rent for three years and get nothing back out of it.

If I bought something (with downpayment and monthly payments for three years) I would expect to sink around $33,000.00 into housing while I in school. The benefit would be building equity and having a chance to actually make back some of the money that I would have been spending on the rent back (through either renting the house out or selling it after I graduate).

Thoughts?


I bought a condo three months before law school started. It's been a blessing. I was on a similar situation. We were both working when we applied for the loan, but since we knew I was not gonna work first year, we had to purchase something he could afford comfortably on his own. Now we both work (I'm a 2L now) and it has worked out perfectly fine. Just make sure you purchase something you can pay comfortably with just one salary. You do not want to be stressed out about not being able to make the payments.

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Iconoclast
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Re: Buying a house in law school?

Postby Iconoclast » Tue Dec 21, 2010 2:38 pm

thelaststraw05 wrote: Unfortunately, my choice is between renting where I throw the money away and buying where I get some money back.


It's not that cut and dry.

It's more of a choice between renting and throwing away a known quantity of money vs buying and throwing away a completely uncertain amount of money (of which you may recoup an unknown amount).

I'm not against home ownership. I own my place now, and have owned others in the past.

But you need to make sure that you have an accurate picture of the real fixed expenses involved (including mortgage, insurance, taxes, HOA, utilities that would be covered in a rental, etc...). You also need to consider routine stuff that you normally don't think about (like having a pest guy spray the place down every so often, filters for the a/c unit, etc... it all adds up). And finally, there are the totally unpredictable items (fence blowing down in a storm, major appliance dying, pipe breaking, etc...) that you can't exactly quantify, but need to make some sort of allowance for.

You also need to consider that the house doesn't care if you have a paper due or need to study for finals. The lawn will need to be mowed no matter how tired you are. If the heat goes out 2 days before finals start, your family isn't going to wait until after you're done with exams. Even if your spouse/partner/whatever handles all this stuff without complaining, it will throw you off your groove to some degree.

And, as most of the discussion has centered on... there are transactional costs involved with buying and selling that will likely eat very deeply into any appreciation that may occur in the next couple years and therefore significantly limiting the upside.

And since it's been mentioned, being able to deduct the interest you pay isn't really a huge benefit, especially when one of you is a law student and won't have much if any income.

You mention that you don't want to sink 22K into rent for the next three years and have nothing to show for it. However, you may end up putting that much (or more) into a house over the same time period and end up wishing that you had nothing to show for it, instead of a house that will cost you another 10K to unload. Of course, the other possibility is that everything will go perfectly and you'll wind up ahead financially. You have to make a realistic assessment of how much upside there really is, and then decide if that upside is worth the potential problems that may impact your ability to focus on school at a critical time.

Journeybound
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Re: Buying a house in law school?

Postby Journeybound » Tue Dec 21, 2010 2:49 pm

If you are financially ready to buy a house, now is a pretty good time. First, interest rates are lower than ever. Second, if you are a first time buyer, you get a tax credit of $7,500 under the Housing and Economic Recovery Act. You just have to pay that credit back with $500 per year over the next 15 years. A few of our young married friends are jumping at this opportunity.

If my wife and I had the money for a down payment, we would go for it. We are sinking $2,000 a month into rent (California), when we could own our own place for less (plus the down payment...).

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Lwoods
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Re: Buying a house in law school?

Postby Lwoods » Tue Dec 21, 2010 2:54 pm

Lots of good advice in this thread.

Generally, you'll want to be in a house at least 5 years to make it worth the closing costs, etc. If you know you want to stay in the city where you're going to law school after law school and won't want to upgrade your house right away, then I could see it worth considering. Otherwise it's pretty risky and could result in you losing a lot of money. You don't want to be underwater on your mortgage when you want to sell.

Also, this mentality bugs me:
I hate to sink $22,000.00 ($600 per month for 3 years) into rent for three years and get nothing back out of it.


You are getting something in exchange for the money you'd be paying. You'll be getting shelter, maintenance and possibly some amenities (gym? pool?). Plus you have the freedom to walk away at the end of your lease.

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homestyle28
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Re: Buying a house in law school?

Postby homestyle28 » Tue Dec 21, 2010 2:55 pm

Iconoclast wrote:You mention that you don't want to sink 22K into rent for the next three years and have nothing to show for it. However, you may end up putting that much (or more) into a house over the same time period and end up wishing that you had nothing to show for it, instead of a house that will cost you another 10K to unload.


This is why I think buying can make more sense if you expect/hope to stay in the city your LS is in.

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thelaststraw05
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Re: Buying a house in law school?

Postby thelaststraw05 » Tue Dec 21, 2010 3:21 pm

Iconoclast wrote:
thelaststraw05 wrote: Unfortunately, my choice is between renting where I throw the money away and buying where I get some money back.


It's not that cut and dry.


You mixed a lot of different people into your response. Someone asked about the real estate market, I pointed out that where that individual was looking (the area around GMU) has seen 2% growth year-over-year. It was pointed out that you could achieve that kind of return with a great money market or a poor bond fund. I was mainly trying to point out that I was unable to use my housing budget on investment vehicles - instead I had to choose between renting (no investment) and buying (a large, low interest investment). While certainly not incredible, it is growth in a market where home values have been in decline.

I own my condo for less per month (including HOAs, utilities, mortgage, and repairs) than I would pay in rent for a similar apartment. I have continually said that you need to do research and make sure that it makes sense for you. I have suggested that one may not want to buy if you aren't going to be able to live there for at least 5 years.

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Iconoclast
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Re: Buying a house in law school?

Postby Iconoclast » Tue Dec 21, 2010 8:24 pm

thelaststraw05 wrote:
Iconoclast wrote:
thelaststraw05 wrote: Unfortunately, my choice is between renting where I throw the money away and buying where I get some money back.


It's not that cut and dry.


You mixed a lot of different people into your response. Someone asked about the real estate market, I pointed out that where that individual was looking (the area around GMU) has seen 2% growth year-over-year. It was pointed out that you could achieve that kind of return with a great money market or a poor bond fund. I was mainly trying to point out that I was unable to use my housing budget on investment vehicles - instead I had to choose between renting (no investment) and buying (a large, low interest investment). While certainly not incredible, it is growth in a market where home values have been in decline.

I own my condo for less per month (including HOAs, utilities, mortgage, and repairs) than I would pay in rent for a similar apartment. I have continually said that you need to do research and make sure that it makes sense for you. I have suggested that one may not want to buy if you aren't going to be able to live there for at least 5 years.


I was trying to address a bunch of issues that came up in the discussion. I apologize if it sounded like I was attributing other people's views to you. That was not my intention.

If you have a good handle on all the costs and it still makes financial sense, then great! It is indeed a good market for home buying. I'm skeptical that there will be a positive return in a 3 year period, but if you've done your homework and feel like you'll come out ahead (at the very least, ahead of what you would spend renting) then that's great. I truly hope things work out well for you.

I guess the biggest thing I wanted to get across was that first time homebuyers generally greatly underestimate the true total cost of owning compared to renting, and also tend to underestimate the transactional costs associated with real estate. If you say that you're aware of all this, then I have no reason to doubt you. Maybe someone else contemplating a similar purchase will have their eyes opened. (If it saves just one child....)




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