First-time home buyers as academics

[simpleSimon]

Before tenure.  I lived in X city and bought a home in Y city... because I always considered Y my base of operations and was certain I would return there some day.  As soon as I bought the home, I rented it to a responsible tenant.  He lived there for a few years.  By sheer coincidence, a job materialized in Y city; I got the job and moved into my house for the first time.  I occupied that home for five years before taking a job in another city... where I bought a second home.  Home #1 became a rental property again.  The second home was much larger than I needed so I took in a boarder and the rent has subsidized my lifestyle: it has paid for property taxes, insurance, repairs and upgrades.  Eventually, I took in a second boarder and used the rent to add to my savings.  I am often asked why I bought more home than I needed--twice.  Simple: a house is not simply a place to live; it is a place to park and grow your money.  House #1 has more than doubled in value.  House #2 has done the same thing.  I am now preapproved to buy house #3.

It is not always possible, I know, but I believe home buying should be tied to dips in the real estate market.  If you buy at the right time (and in the right place) the house you buy can appreciate rapidly.

[mahagonny]

Never been on the tenure track. Freeway flier. Bought a house in the 90's. I made money outside of the teaching racket too. We were lucky, and my wife is a good planner. Keeps her ear to the ground. Bought at a good time.
I don't see a house as an investment unless you're renting some or all of it to tenants. It's more of an ultimatum, as in if you don't buy you're gonna be in a really tough spot. Any house costs you. Repairs, taxes, insurance. I guess if you sold and moved to somewhere really inexpensive you'd make out. But then probably I couldn't make money there.
But what really helped was the mortgage interest deduction (itemized form) at a time when my income was pretty strong.
Realtors are always sending us letters. Wanna sell? No damn way!
I don't know how young people get by these days. Ours is doing pretty well, but again, hard work and luck.

[dismalist]

It's best to think of buying a house as giving one the freedom to do things that a landlord might not condone, but to also give one the responsibility to financially manage the physical depreciation of the house.

Buying a house is in general not a good way of trying to make money. If one tried, one would be speculating, gambling. Suppose house prices rose while one owns. Then if one sells, one needs the appreciation money to buy an equivalent house!

Mahagonny sees this clearly:

... . Any house costs you. Repairs, taxes, insurance. I guess if you sold and moved to somewhere really inexpensive you'd make out. But then probably I couldn't make money there.

Even renting out is not necessarily brilliant. Compare returns to the S&P 500.

As for the mortgage deduction, of course take it, but its overall impact is to raise the price of houses! We will have more high priced occupier owned houses rather than cheap rental places.

[mahagonny]

Every now and then I'd have a really good month. Extra freelance work. I would make a double payment on the mortgage for that period. Apply the extra to the principle. I guess I took advantage of my youthful stamina!
Things are harder now I guess. Good luck. If you get a financial planner, some of the ones who work with a bank are good. They're already paid salary by the bank. I avoided Ameriprise (formerly American Express). Ripoff. They sell you a like, $1000 plan and then make you sell off everything you have so you can buy their front-loaded funds. Tax liability! Not good. And that way the only way it works out for you is if you stay with them forever. Crafty bastards.

[clean]

When I was first out of PhD school, I took a job at a small, state university.  The town was not a 'college town', and there were plenty of non student rentals available.  AS I was young and poor, I didnt even consider buying. In fact, the rental market in that town was about 2/3rds the level of the university town I graduated from!  In fact, my first thought was, "I would nt LIVE in ANY apartment that ONLY charged $xxx per month!"  But then I found that ALL of the apartments were in the same price range, and they were all essentially built by the same company with the same floor plan!  So the decision was really, What part of town do you want to live in the same floor plan?

I was there for 3 years and one of my coworkers was leaving for another job.  He sold me that house for essentially what he had paid for it several years earlier, but we were able to close the deal very quickly... so he didnt have to fix the deferred maintenance problems and he didnt have to worry that he would not be able to sell before he was to close on the house he had purchased on his campus visit!  (Though I warned him that IF he didnt put in a contingency to sell his current house that he would not have the money for the down payment when due!  - he didnt take that advice!  After all, what do I know as an untenured assistant professor FINANCE...  IF I was smart I would have been on Wall Street, right??) 


When I left there and moved here, I decided that I was not going to move twice, and I didnt want to live in an apartment (have people on top of me).  So I bought, BUT by then I had a 20% down payment and I bought a house that was below my means (less than one year's income), and that could be rented or sold quickly.  I am still in that (long ago) paid off house. 

SO... IF you are asking SHOULD you buy before tenure, I would say "not unless you are certain that either a.  You WILL be tenured soon or b.  that you can sell the house quickly (and that you can afford the costs of moving and commissions and a loss in value even or C. BOTH!! "   

The bottom line is this... Tenure is a stressful time. You dont need MORE stress! 

[Ruralguy]

I turned out that I was lucky.. the small house I bought, though unwanted by new faculty as a direct purchase, was much beloved as a rental. So, I got an offer to purchase, and those folks then rented it out, and still do rent it out 15 years later. If I had bought a bigger house, some faculty member might have eventually bought it, possibly years later, and nobody would have touched it as a rental property. I am still driving the car I bought with the profit on that property.

But I agree, since  I really didn't know that there was a good market for that house, I should not have bought it before tenure. I was lucky.

[mleok]

I purchased a house with 0% down a few months before the start of my first tenure-track position, with financing from the university credit union.

[mleok]

With regards to homes as investments, I only consider it an investment if it is in addition to your primary residence, that you rent out, or if you're considering moving to a lower cost-of-living city after retirement.

[Morden]

We purchased our first house when we were students, and sold 5 years later when we moved for my TT job; we didn't make money or lose money. We bought our second house when I was TT, but it was in a decent sized city and my SO had a job there, so even if I didn't get tenure, we weren't planning on moving anywhere. That's over 20 years now, and while the house has appreciated in value, we probably could have done better in the markets. Primary residences aren't an investment (in most locations); they are a lifestyle.

[artalot]

If you're looking for advice, I think it depends on where you'd like to live long-term. Statistically, tenure is awarded much more frequently than it is denied, so it's not necessarily a big risk to buy a house before tenure.

I waited until a few years after tenure because I kept hoping I would be able to move to a location closer to my family. Additionally, I had no savings when I finished grad school and in the current market you need at least 10% down. Houses are expensive. I saved a lot more when I was renting, even though my house payment is slightly less than my rent. And who knows about building equity - the housing market can be as precarious as the stock market. But, I wanted to paint the walls, so here I am.

[mleok]

If you're looking for advice, I think it depends on where you'd like to live long-term. Statistically, tenure is awarded much more frequently than it is denied, so it's not necessarily a big risk to buy a house before tenure.

I waited until a few years after tenure because I kept hoping I would be able to move to a location closer to my family. Additionally, I had no savings when I finished grad school and in the current market you need at least 10% down. Houses are expensive. I saved a lot more when I was renting, even though my house payment is slightly less than my rent. And who knows about building equity - the housing market can be as precarious as the stock market. But, I wanted to paint the walls, so here I am.

Another pontential way to mitigate the risk of purchasing prior to tenure is to consider the rental value relative to mortgage + property taxes, or the potential for appreciation of the property over the tenure track.

[lightning]

I worked in industry FT, while serving as a part-time NTT faculty member. So, I had already purchased and was living in a relatively nice home, before I took the dive into the life and economics of a TT professor. I've moved twice since that initial purchase, with the purchase of my second home coinciding with my move to my very first TT job. I always purchased a home right away, with each move, without ever renting. I have not rented in decades (other than a temporary summer home).

I always wondered if I would have been better off financially by renting or renting temporarily, while I researched the market and played the market, with each move.

I think most real estate is a lot like a mutual fund. If you buy and hold for the long term (even if you switch the assets in the mutual fund), you will always win if you keep it for the long-term. Since TT jobs, even multiple consecutive TT jobs are for the long view, always buying (and "rolling over the equity" into the new home--I know that's not how it really works, but you know what I mean) is better than any renting, if you don't mind dealing with the more complicated hassle of buying instead of the lesser hassle of renting.

I think that the control over your own living situation is worth the hassle of buying and maintaining ones own home. I have no regrets about never renting. In fact, Lightning jr is going off to college soon, and I'm thinking of buying a small house for hu, instead of throwing it all away on rent. The only thing making me think twice about that idea, is that Lightning jr. does not have the same financial wisdom and literacy as I do, and hu might completely screw up the place.

[Ruralguy]

In some regions, the holding periods for real estate would have to be several decades in order to make appreciable profit. The only exception in my area was right at the top of the market in the 2000's. If you sold in 2007 or so, you could have made a lot regardless of when you bought. Since then, properties only just started to gain in value in the last few months, but I think those estimates don't really take into account whether there are really buyers at those prices.

[lightning]

In some regions, the holding periods for real estate would have to be several decades in order to make appreciable profit. The only exception in my area was right at the top of the market in the 2000's. If you sold in 2007 or so, you could have made a lot regardless of when you bought. Since then, properties only just started to gain in value in the last few months, but I think those estimates don't really take into account whether there are really buyers at those prices.

That's very true that in some regions (like very rural areas), a purchased property will yield a net loss if it isn't held for decades. At the same time, those same regions may not have very many options for desirable rental properties. In this scenario, one is buying, mainly for livability and more control over their living space, with the expectation that they will, at best, only get some of their money back, when they sell. This is still better than getting none back, and living in a less-than-desirable rental property.

[clean]

Renting is not a sin, and rent is not throwing your money away.

If you start out with little down, then the majority of the payment you make to the bank is interest.  How is that any different from rent?

By renting, you have OPTIONS and Options have value!  You can walk away, owing nothing, with very little notice. You do not have to risk paying for breakdowns or TERMITES or broken pipes, or a huricane blowing down a fence or a roof.  You dont pay extra for insurance, and if you think that property values are variable, so too are property TAXES !!!  A special assessment could come your way at any time!  If you rent, you can 'opt out' by moving away with minimal notice. 
(IF the state finally decides to make up the retirement plan shortfall and raises property taxes, you are stuck!  And you can not sell fast enough to avoid paying! 
My parents lived in the country on a dirt road.... until the county decided to pave it and assess each property owner by the foot for each foot that the property came in contact with the road to pay for it!!)

If the AC goes out, the hot water heater, the dish washer, or the tree roots break the sewer pipes or the septic system needs emptied.... Renters do not pay these costs. Owners do... OR they do without while they save to pay for it if they own the property (and the problems!!) 

Renting is the best option many, many times! 

and then there is the NEIGHBOR Problem!  Homeowners 'own' their neighbors too!  renters with problems can give notice and not have to put up with for instance, the basketball bouncing at 11 pm at night, the weekend shade tree mechanic's junker, the weekend frat parties,   the disagreeing couple...