You've landed a full-time job, so is the next step buying a house? The market may seem right, but watch out for these potential pitfalls before making the decision to buy.
Tempted to jump into the buyer's market in housing?
Great deals still abound and your steady paycheck has lenders signaling you could actually secure a mortgage.
However, no one knows where the bottom of the housing slump will be, health reform could have major implications for your future income and practice-movement picture, and other financial strategies have emerged to handle the asset protection role a personal home used to play in physicians' portfolios.
"If you're trying to make financial decisions for the long term, don't assume the future will be like now," says Joe Flower, an author and frequent speaker on health reform and its impact on physicians. "I would say go small because the future is uncertain. You'll probably be OK in the long run, but you might go through some prolonged periods of uncertainty along the way."
Most experts say home ownership is still a good long-term financial move, but not for everyone at any time.
"If you aren't confident you'll be living in the home at least five years, I'd be reluctant to buy," says Dan Danford, chief executive of the Family Investment Center in St. Joseph, Mo.
And while some physicians may not want to waste a lot of time haggling over a few thousand dollars on the price, a bargain really does cushion home buyers when they eventually sell, he said. "The better deal you get today, the better it looks when you go to sell, no matter how long it is. Buying low in the first place provides you some cover," he says.
The days of stashing a lot of wealth in a big home for asset protection purposes may be waning, too.
"The great big houses are less and less desirable," Danford says. "There's a glut of McMansions now, and that's not where the value is going to be."
Geographic markets matter, he says. In a big market with lots of different housing options, there's more flexibility on what you purchase. In a smaller market it's easy to overbuild and then homeowners are stuck with something they can't sell.
All that said, most advisers still think home ownership is a good long-term financial move.
"The reason real estate works as an investment is leverage," says Danford, referring to the ability to put in a relatively small sum and reap the appreciation of the entire property over a period of time.
"I still think for most people, owning is a better option than renting long-term, but there are times in life when that's not true," he says." Whether it's your age or the market you're in and how long you're going to stay, there are certain situations that argue against owning."
Here's a litmus test to tell if you're in one of those categories where home ownership is a bad idea:
Beware of bargains. "Don't throw out the rules just because something's on sale," Danford says. "You have to consider how you'll get out of the property on the other end.'' Just like beaten-down stocks, he said, some houses are down for good reason and aren't coming back.
Location, location, location. Real estate's No. 1 mantra also bears some thought when it comes to the rent versus own decision. In active metro markets it's fairly easy to calculate a meaningful rent ratio by comparing very similar properties. If the cost of buying a home is more than 20 times the annual rent, it may make more sense to rent because home values are too high to justify buying, real estate experts say. On the flipside, upscale rental properties in some markets aren't the bargains they once were, either, according to information from Rent.com.
And the type of market matters, too. In smaller rural towns it may be impossible to find a rental home that compares to what you'd be able to buy. When that happens, it may be time for some tough decisions about how important the amenities of a home are - school access, size, and quality of the home.
If you're just starting a career and aren't certain about committing to your practice and the geographic area, however, at least throw into the discussion the fact that staying flexible in the early going can make a big impact on how you navigate changes in your field due to health reform and market demand.
Zero-down loans. Those zero-down physician loans have gone by the wayside in many markets, experts say, so be realistic about whether you're ready to go house hunting. If you don't have 10 percent to 20 percent of the cost of a home already saved, you're probably looking at renting instead of buying. And even renters are being asked to pony up strong deposits, says Millie Gil, vice president of Bold Real Estate Group, which provides relocation services for Florida physicians.
Buying out a physician's home that hasn't sold -a common occurrence in relocations just a few years ago - has also fallen away, she says.
The bottom line: It is a great time to buy, but not for everyone. So if you're just starting out, expect to be in a career transition within a few years, or are already loaded with debt and would struggle to put together a down payment, take a pass.
Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. As a contributing columnist for the Chicago Tribune, she writes a weekly, syndicated retirement column called "The Journey" that appears in Tribune newspapers across the United States. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached via firstname.lastname@example.org.
This article originally appeared in the February 2011 issue of Physicians Practice.