Should I buy or rent my second house?

Question

Hi everyone, not sure if this is the right sub-forum so please point me in the right direction if it isn't

I own a home in Philadelphia that I purchased a few years ago and unexpectedly have to move given that I lost my job, I still owe 600K on that home and am planning to rent it out. I had initially bought the house with a physician loan (zero down, no PMI). I am moving to northern VA and was initially planning to rent but now I'm wondering if it's worthwhile to purchase another house using a physician loan given that renting a decent 2-3 bedroom home in that area is around 4K. I checked around and I would qualify for another physician loan as long as I am living in it.

Just some other info, my wife and I make a combined 500K (I work full time she works part time) but also have about 500k (interest rate 3.5%) combined in student loans

Is it a terrible idea to purchase another home using a physician loan? I figured that prices in northern VA are quickly increasing and might have value to buy rather than rent.

Kevin M. · Answer

Maybe a lender can chime in for the specifics behind a physician loan, but the general rule of thumb is three-five years for purchasing. In other words, if you plan on residing in a home for at least three years it TYPICALLY makes more sense to buy.

Remember what you're paying for when you rent; risk mitigation (cap ex/market downturn) and the ability to leave. You don't want to bet against the market, and if you are signing a new employment contract and you are confident you will be residing in your new home for a few years then you should probably buy. You will make out better financially in the longrun if you do your homework before closing.

A don't like when people say renting is "wasting money" because it's really not. You're just paying a premium to take on less risk and have more liquidity. If you don't need these two things-then buy.

James Smith · Answer

Thanks for the replies. In discussing with a few lenders, looks like I'd still be eligible even though its only been 2 years. I think we would probably live at least 3-5 years at this new place.

@Nathan Milholin I was thinking of keeping the Philly house because it's in a good location (Queen Village) and prices in general in that area seem to constantly be going up. In quickly reviewing the market, looks like we should be able to rent it out at a reasonable price to cover all of our monthly expenses for that house.

Thanks again

Theresa Harris · Answer

@James Smith  Remember when adding up your expenses to see if the property taxes will increase because you aren't living in it and how much a property manager will charge both for turnovers and when it is rented.

Nathan M. · Answer

I think there is an important emotional and mental wellness component to choosing where to live. This is going to be your home. I don't know you personally, but I have doctors in my family and know that it's not a cake walk. You have a grueling job. Where you live needs to be a place you walk into and immediately feel like a load has been lifted. Whether a place is a rental or a purchase shouldn't be predeterminative of where you live. Decide what you're comfortable with as a monthly payment (if a home, think of it as an investment--mortgage payment + taxes + insurance + maintenance + management {your time} + reserves {sh*t happens}) and base your search for both houses and rentals on that, perhaps allowing a slight premium for the rental for the convenience factor. Just my two cents.

This is unsolicited, but as a Philly area resident, I'm skeptical that keeping the Philly home as a rental is worth it. If you're absolutely sure that rent will cover the payment and all expenses, I get it. You have no money in the home other than whatever equity you've built. Someone else paying the mortgage is free money in the form of equity. But if it's sitting vacant for two months, or you can't get it rented at a price that covers everything, it feels more like a liability than an asset to me. If it's possible to sell with a gain after closing costs, that would be the more attractive option to me.

Just one more consideration--The DC area is a pretty expensive market, as I understand it. Those areas are prone to greater swings in value as the market rises and dips. Sure, the values are increasing right now, but given that we're in one of the highest boom cycles ever, perhaps waiting for a dip would be wise. On the other hand, that kind of thing is impossible to predict. Kevin is quite right that the rental premium may well be worth it for the ability to cut and run at the end of the lease.

Best of luck with the housing search and move!

Should I buy or rent my second house?

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