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Finding the right living situation for your unique situation includes a number of factors, how much you're spending chief among them. Make sure to weigh the options of renting versus buying when considering your budget.
Renting and buying both have their advantages and both of their weaknesses. Make sure you're doing the right thing for your unique situation.
I recently read an article from financial blogger Mr. Money Mustache that led me to have some really interesting thoughts on the subject rent vs. buy. He said if you have to ask, you should probably rent.
We were talking about living in the city of Toronto and how it costs so much money- living in the burb’s vs living inside the city. To live in the city, all you will find are a million-dollar homes. He said, hey, that doesn’t work for me, I’m going to rent rather than buy. There were also a number of good points he had on there. For instance, one was when you have an 80k salary then renting makes more sense than buying. But I think there are a few points that he is missing out on.
When you rent, number one; you are subject to your rent going up every single year. Guess what, people own that property and they want to make money out of it. When you are having a good rebounding economy like we`ve been having, people getting hired and filling places, then rent gets pushed up. And then your budget may not accommodate it in the future and in the end, market tender tends to come to equilibrium on these things even though for a couple of years things may swing one direction or the other.
The other major point that I will make with this, as a resident or as a fellow, often I see people trying to buy a home. Residents and fellows, if you want to rent a place you better have a bunch of cash put down on it because you do not want to go cash flow negative. You need to make sure that you are not having the backup in case the place was empty for a couple of months. You want to have great cash flow consistently.
The third thing that I want to point out is that if you are already in practice and looking to buy your first home the situation also changes. I do think that the appreciation factor, as you can see in this case here, can be a huge part of your retirement. So, I still believe buying a home is the right thing to do. Perhaps the main point he is making is, “hey, if you buy a huge mansion then you might have huge mortgage payments, or you want to put down a lot of cash. You`re taking a big risk.”
However, in certain areas, like let's say where I live here in Bloomington, MN, you can get a great home for 400K with 5,000 square feet. For a physician that’s most likely not a big deal. Think about your situation if you are a resident, if you are a fellow, really ask yourself strongly; do I want to buy here? Am I going to be here for the rest of my career? If you are not sure, you shouldn’t buy because then you might have issues with trying to rent the place later, cash flow can slow down from that. And we want you to have great cash flow.
So, I`d like to know your thoughts; are you renting? Are you buying? What would you say to a resident or fellow with advice? Am I on point? Am I way off here? Is there a reason that they should buy that I have missed?
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Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.
The views expressed are those of the author and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation.