Author Topic: Child in Dental School - Rent or Buy???  (Read 4456 times)

newton

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Child in Dental School - Rent or Buy???
« on: November 26, 2016, 03:53:12 PM »
Fellow Mustachians - I need your thoughts.

My child is currently in their first year of dental school and will be there for at least 4 years.  I am considering purchasing a condo rather than renting.  I have no experience with rentals and currently own my home (paid for).

Here are the approximates:

Renting - Almost $1K month after all "extras" (utilities, cable, internet, etc.)
Purchase - $130K, payment would be $800 a month on a 15 year, plus $170 a month for homeowners association.  Water, sewer, garbage, common area maintenance is included.

She will for sure be living in the area for 3 years and possibly two more after that.  So I'm looking at $36K in rent over the next 3 years for sure.  I have friends who have kids that will be attending the school over the next 10 years so I have options to rent to people I know and trust for a few years after she is done. 

1.  Does it make sense to look at purchasing rather than renting?
2.  What tax issues do I need to think about? 
3.  Should I establish an LLC?

If there are other posts that you know of related to the above, please share.

I appreciate any and all advice and suggestions. 

cincystache

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Re: Child in Dental School - Rent or Buy???
« Reply #1 on: November 26, 2016, 04:09:39 PM »
I'm not well versed in real estate but that is very kind of you to pay for your daughter's housing. Could she find a fellow dental classmate and split a 2BR for $700 each instead? The way you lay out the options, it sounds like you want to buy and you're looking for validation. I'm sure you'd be fine in either scenario but the flexibility of renting is under rated.

What would the condo you're looking to buy go for on the rental market? 1,000 per month? In order to cover capital expenditures over the next decade (appliances, flooring, etc.) you'd probably be lucky to break even unless you seem some big price appreciation when you sell.

Dental students don't need cable TV. She is probably studying all the time anyways right?

waltworks

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Re: Child in Dental School - Rent or Buy???
« Reply #2 on: November 26, 2016, 06:13:18 PM »
Briefly:
-You will pay considerable taxes/fees at both ends of the transaction, including capital gains if the condo appreciates, since you are not the occupant. I'd conservatively (meaning, being generous to you) figure you'll lose 15% off the top when you go to sell.
-Very little principal is paid down in the first 5 years of a 30 year mortgage.
-HOAs can/do often raise fees and assess for large projects.

Long story short: best case scenario you break even vs. renting. Worst case scenario you take a bath.

Just have her rent a place.

-W

Goldielocks

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Re: Child in Dental School - Rent or Buy???
« Reply #3 on: November 27, 2016, 12:11:42 AM »
Look at this as a rental purchase, as that is what you may end up with after 2 years.

The $130k versus a rental at $1000 k is not a great investment... it is fine if you have a place already and waiting to sell, but not so great to get started as a rental.  I would pass.

LadyStache in Baja

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Re: Child in Dental School - Rent or Buy???
« Reply #4 on: November 27, 2016, 07:47:44 AM »
A person in dental school is not a child. 

Sofa King

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Re: Child in Dental School - Rent or Buy???
« Reply #5 on: November 27, 2016, 11:44:43 AM »
A person in dental school is not a child.

LOL!!!  I was thinking the same thing. 

KCalla

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Re: Child in Dental School - Rent or Buy???
« Reply #6 on: November 27, 2016, 08:03:50 PM »
If she's currently in her 1st year, she may only live in the purchased condo 3 1/2 years.  It is of course unlikely, but she may find that dental school is not for her.  It's possible that she will do a residency or specialty training at the same school, but if she goes that route, it is more likely that the best match will be elsewhere.  As someone else posted, only do it if you are enthusiastic about becoming a longer term landlord.  Otherwise it is hard to see how this will be even a break even proposition for you.
A few thoughts about this from a dental student's possible point of view:  While it would seem logical, on the surface, that living in a parent owned home should reduce uncertainty, it is possible that it may do the opposite.  There are some advantages in dealing with a third party.  Repairs, problems, etc can be reported to an unrelated landlord can result in less "involvement".  One can become aggravated with an unrelated landlord without guilt or lasting effect.  You don't have to find "extra" time to visit with that landlord or help coordinate repairs and maintenance when something goes wrong.   
Her time and energy will be strained.  When you interact, it will just be as family if you do not own the condo.  That has great advantages.  She will also feel more freedom to change where (and with whom) she lives.  That sense of freedom (especially as her schedule becomes more and more structured) can be a nice pressure release (even if she never actually moves, she would feel that she would have the power to choose).
If she has/can find a safe place to rent, that seems ideal.

KCalla

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Re: Child in Dental School - Rent or Buy???
« Reply #7 on: November 27, 2016, 08:08:28 PM »
Re:  "I have friends who have kids that will be attending the school over the next 10 years so I have options to rent to people I know and trust for a few years after she is done."

Along the same lines as my post above...do you really want to be landlord to your friends' kids?  Especially if you may not have a gain in your investment while doing it.

newton

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Re: Child in Dental School - Rent or Buy???
« Reply #8 on: November 28, 2016, 09:52:47 AM »
I'm not well versed in real estate but that is very kind of you to pay for your daughter's housing. Could she find a fellow dental classmate and split a 2BR for $700 each instead? The way you lay out the options, it sounds like you want to buy and you're looking for validation. I'm sure you'd be fine in either scenario but the flexibility of renting is under rated.

What would the condo you're looking to buy go for on the rental market? 1,000 per month? In order to cover capital expenditures over the next decade (appliances, flooring, etc.) you'd probably be lucky to break even unless you seem some big price appreciation when you sell.

Dental students don't need cable TV. She is probably studying all the time anyways right?

Thanks for the input.

She could live with others and actually has some options so that may be the end result.  I may be looking for validation :)  as I see $36K going for rent over the next 3 years and am trying to find ways to avoid that.

A similar place would probably rent for $850 so as a strictly rental investment, it is probably not a great one.  I could take a 30 year loan and at least make the payments a bit more equitable, although I know that it doesn't help in the long run. 

:)  Your probably right about the cable, although I have realized long ago, today's college students are not like when I went to school :)

Thanks again!

newton

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Re: Child in Dental School - Rent or Buy???
« Reply #9 on: November 29, 2016, 04:58:13 AM »
Briefly:
-You will pay considerable taxes/fees at both ends of the transaction, including capital gains if the condo appreciates, since you are not the occupant. I'd conservatively (meaning, being generous to you) figure you'll lose 15% off the top when you go to sell.
-Very little principal is paid down in the first 5 years of a 30 year mortgage.
-HOAs can/do often raise fees and assess for large projects.

Long story short: best case scenario you break even vs. renting. Worst case scenario you take a bath.

Just have her rent a place.

Thanks for the input.  Would the taxes/fees, etc. offset the almost $36K I will pay in rent over the next 3 years???

-W

waltworks

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Re: Child in Dental School - Rent or Buy???
« Reply #10 on: November 29, 2016, 08:00:26 AM »
Hey, if you want to risk alienating your daughter and her friends and potentially losing a bunch of money so you can "save" the rent costs, be my guest. In a perfect scenario, you might make a little bit of money on this, but most of the scenarios involve you breaking even at best (or losing a ton if the HOA decides to replace major stuff) and the financial stress affecting your relationship with your daughter/your friends.

A great way to avoid the $36k in wasted rent would be to let your adult child take care of finding housing on their own, though I'm assuming you've already promised her something here.

-W

whywhy

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Re: Child in Dental School - Rent or Buy???
« Reply #11 on: December 01, 2016, 10:21:21 AM »
Have you third option of considered house hacking (look up)? Buy a duplex or big enough house to rent rooms to other students.

onlykelsey

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Re: Child in Dental School - Rent or Buy???
« Reply #12 on: December 01, 2016, 10:24:36 AM »
It sounds like there are many better options out there for real estate investment.

As a millennial myself, I really would let her look in to options herself and have her do the research and then come back to you with ideas, if you're committed to footing the bill for her.  Graduate school students should be able to do their own research and arrange their own housing.  Maybe put possibly buying a place on the table as an option for her (with you obviously making the ultimate decision).  She'll need to make all of these decisions herself someday, and she's no longer a teenager.

newton

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Re: Child in Dental School - Rent or Buy???
« Reply #13 on: December 11, 2016, 06:51:48 AM »
Hey, if you want to risk alienating your daughter and her friends and potentially losing a bunch of money so you can "save" the rent costs, be my guest. In a perfect scenario, you might make a little bit of money on this, but most of the scenarios involve you breaking even at best (or losing a ton if the HOA decides to replace major stuff) and the financial stress affecting your relationship with your daughter/your friends.

A great way to avoid the $36k in wasted rent would be to let your adult child take care of finding housing on their own, though I'm assuming you've already promised her something here.

-W

Thanks.  She is actually the one who found it, researched it, and will be paying for it through loans.  She will be paying for it either way...either to me or to someone else.  Not sure you really answered the question though. 

newton

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Re: Child in Dental School - Rent or Buy???
« Reply #14 on: December 11, 2016, 06:53:08 AM »
It sounds like there are many better options out there for real estate investment.

As a millennial myself, I really would let her look in to options herself and have her do the research and then come back to you with ideas, if you're committed to footing the bill for her.  Graduate school students should be able to do their own research and arrange their own housing.  Maybe put possibly buying a place on the table as an option for her (with you obviously making the ultimate decision).  She'll need to make all of these decisions herself someday, and she's no longer a teenager.

Ummm.  Not helpful.  Seems the question got turned into whether I should be paying for it or not.  I'm not either way.  Either she pays me or pays someone else.  Thanks for the parenting advice though.

Lews Therin

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Re: Child in Dental School - Rent or Buy???
« Reply #15 on: December 11, 2016, 07:13:05 AM »
The 36K in lost "rent" seems to be the most important factor, but if you look at it the other way, the amount of money you are not putting into the condo will be harvesting interest as well.

Factor in the loss of that stash, + the amount you will be putting into the condo itself when paying down the mortgage, for a piece of "stock" that returns only 8% (- whatever the % of the loan from the bank itself is costing you ((the interest)) ) IF there are no increased condo fees, No repairs, and everything goes well. (8% came from 12000 cash-flow - 2000 for your HOA fees). There are significant number of REITs that could do the same thing, and frees you from becoming a landlord.

Personally, I'd take the money, invest it in a REIT, unless you are really willing to spend a lot of time/effort in figuring out how to best use the Tax system in order to maximize profits. (claiming depreciation, making sure that you are always cash-flow even or negative while increasing the value of the property) and then having to take the increase in capital gains anyways.

Hope that helps get back on the subject!

cincystache

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Re: Child in Dental School - Rent or Buy???
« Reply #16 on: December 11, 2016, 07:55:39 AM »
Fellow Mustachians - I need your thoughts.

My child is currently in their first year of dental school and will be there for at least 4 years.  I am considering purchasing a condo rather than renting.  I have no experience with rentals and currently own my home (paid for).


I appreciate any and all advice and suggestions.

Newton, no need to get snippy with people who suggest that your adult "child" figure out her own accommodations, you specifically asked for ANY AND ALL ADVICE in your original post. Be nice, people are just trying help and give you their perspective. If you wanted advice on only the real estate aspect, then don't give people specifics of your situation.
« Last Edit: December 11, 2016, 07:58:09 AM by cincystache »

newton

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Re: Child in Dental School - Rent or Buy???
« Reply #17 on: December 11, 2016, 08:01:38 AM »
Fellow Mustachians - I need your thoughts.

My child is currently in their first year of dental school and will be there for at least 4 years.  I am considering purchasing a condo rather than renting.  I have no experience with rentals and currently own my home (paid for).


I appreciate any and all advice and suggestions.

Thanks for the advice.  Kind of figured it was obvious that I was asking on a pure "investment" basis.  Apparently not.  And, don't think I'm being snippy.  Just obvious.  Thanks again Cindy.

Newton, no need to get snippy with people who suggest that your adult "child" figure out her own accommodations, you specifically asked for ANY AND ALL ADVICE in your original post. Be nice, people are just trying help and give you their perspective. If you wanted advice on only the real estate aspect, then don't give people specifics of your situation.

newton

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Re: Child in Dental School - Rent or Buy???
« Reply #18 on: December 11, 2016, 08:08:37 AM »
The 36K in lost "rent" seems to be the most important factor, but if you look at it the other way, the amount of money you are not putting into the condo will be harvesting interest as well.

Factor in the loss of that stash, + the amount you will be putting into the condo itself when paying down the mortgage, for a piece of "stock" that returns only 8% (- whatever the % of the loan from the bank itself is costing you ((the interest)) ) IF there are no increased condo fees, No repairs, and everything goes well. (8% came from 12000 cash-flow - 2000 for your HOA fees). There are significant number of REITs that could do the same thing, and frees you from becoming a landlord.

Personally, I'd take the money, invest it in a REIT, unless you are really willing to spend a lot of time/effort in figuring out how to best use the Tax system in order to maximize profits. (claiming depreciation, making sure that you are always cash-flow even or negative while increasing the value of the property) and then having to take the increase in capital gains anyways.

Hope that helps get back on the subject!

Thanks so much Candadian.  It really does.  Great input and advice.  I have decided to have her rent as I had to make a decision last week.  I can really rent for about the same the payment on a 15 year would be and actually in the same building :)  I hate feeling like throwing away $36K but probably would at best have broken even and really don't want to be a landlord.

Thanks again.  The issue is solved :)

LadyStache in Baja

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Re: Child in Dental School - Rent or Buy???
« Reply #19 on: December 11, 2016, 08:11:03 AM »
Here's a great article... http://affordanything.com/2015/11/24/is-renting-better-than-buying-should-i-rent-or-buy/

Seems like you're most worried about the 36k that will be paid in rent. 

You're mixing up your motivations.  If you're investing in real-estate, you need to take all emotion out of it (oh, what a beautiful foyer, ooh, look at the bathroom, etc).  Since your child will be living in the place, it's easy to get excited about something that maybe doesn't really work out on paper.

Do the math, only the math.

It may make more sense to buy a rental and rent it to a 3rd party, and use that money to offset the money your child is paying elsewhere. 

If you're investing in real estate, you want it to be something you'll hold onto as an investment after your child leaves dental school.  It has to make sense on its own legs as a rental.  Can you get rents that will cover 2x your expenses (mortgage included)?  Do you really want to be a landlord?  Have you looked into real estate as an investment not a primary residence?

The article I linked above takes you through the math, step by step!