Tenant with LOADS of Medical School Debt (payments deferred)

19 Replies

Hi there,

We are currently screening for a 2/2.5 condo in Newport Beach at $2795 and I'm wondering about the co-signer on the property. 

Is it normal for a young Orthodontist to pull 20k/month but have almost 700k in student debt?  The 8-10 student loans are Sallie Mae - and most are deferred with $0 monthly payments, so his credit is actually 780.  I've never seen this much debt on an application, but I'm not sure if I'm overreacting.  He's co-signing for his mom who makes 8/k a month selling time shares (which seems unstable to me - but what do I know?)

Any ideas or insight would be nice to have.  Thank you in advance!

I have different levels of respect for time share types, but depends on what they do, not all  are on the front lying lines....I mean sales lines.

Financial underwriting of a medical doctor, especially a young one is often seen under compensating factors due to the expected income rather than so much to today's earnings, so long as funds are available, in other words, much higher ratios are accepted since the remaining discretionary income is more than sufficient to live on. Don't get bug eyed over the amount of total debt, payments can be structured to income.

Difference in a guarantor and a co-tenant, the guarantor has no lease obligations or rights of possession, only a financial obligation and that is not really enforceable until default. Co-tenants are or can be, held jointly and severally obligated, I'd suggest that approach.

At her rent level, she still has discretionary income remaining after rents, you need to ask yourself is it reasonable for her to cover her obligations and have amounts remaining for living expenses? Looks like she might and, her son may be helping and his discretionary income probably allows that. A very good credit score is something he will protect too.

:) 

That level of debt is completely understandable for an orthodontist.  4 years of college, 4 years of dental school plus 2 years orthodontics fellowship tuition and living expenses adds up.  I am guessing he/she will earn at least 300k first year out.  I would gladly have the good doctor co sign for mom.

One way or another, a person has to have a place to live and if they don't want to live with someone else, they'll find ways to afford their housing along with school debt - which alongside medical debt is likely to be the last debt people pay in my opinion outside of housing and utilities.

Basically, what I'm getting at is, if people have to choose between paying their rent and living alone or deferring school debt, they'll defer the school debt.  I think a medical student is probably a good applicant all else considered, and I think they'll find ways of structuring their loans to meet their living needs.

Now, if it was credit card debt that'd be another story.  But in this case, I think most people would prioritize their living expenses over their loans...whether that's a smart choice is debate able but as long as your getting paid first does it matter?

Originally posted by @Landon Elscott :

Basically, what I'm getting at is, if people have to choose between paying their rent and living alone or deferring school debt, they'll defer the school debt.  I think a medical student is probably a good applicant all else considered, and I think they'll find ways of structuring their loans to meet their living needs.

Now, if it was credit card debt that'd be another story.  But in this case, I think most people would prioritize their living expenses over their loans...whether that's a smart choice is debate able but as long as your getting paid first does it matter?

If I was doctor, I would actually worry about my school debt above all else because that's the one debt that's exempt to discharge. Plus, after you graduate from school, how can you defer that school debt? I thought that you could do that while you were still in school?

That $2795 rent strikes me as weird. How do you come up with that number?

If the market rate is supposed to be $2800, then a $5 difference doesn't seem significant enough.

Instead, it might be better to just rent it at $2800 or something like $2750, if you want to below market rate, because I always noticed that the rentals on Craigslist with weird prices like $2795 were from those big apartment complexes that spammed Craigslist. 

I work with a lot of doctors as clients.

Medical school is very expensive. When they get out of school the first five to ten years even though they make money they spend most of it. Building out the practice and paying for the medical equipment costs a lot.

So really about 30 to 40% into the career is when machines start getting paid off and they have little to no debt and can regenerate capital per month much faster for investing.

I am not an expert on the medical field this is what doctors tell me on the phone. More concerning to most doctors is Obamacare. This is reducing what the client pays to the doctor so they do volume to try and make it up. Older doctors with client bases that are not subsidized are considered more stable for the income as they tend to pay cash or have private insurance companies.

Doctors worry about the direction of the medical industry and tell me they are investing now heavily incase it gets much worse and then they will just leave the profession. My ENT doc who is retiring after 35 years of surgery but will still run his practice to maintain existing patients and teach new doctors doesn't want to deal with insurance companies anymore. He tells me you have to send it 6 times before they pay etc. and then they try to make all these excuses not to pay for legitimate billing etc.

Even though this doc is guaranteeing the rent I would not feel comfortable about it. Timeshares have volatility of income.

  

Thank you so much for all of this great information!  Wow. A real forum of people who like to talk about this stuff! 

Cal - She's been selling time-shares for about a year for one of the big hotel firms. She's got 50 grand in her most recent bank statement (but I know that means nothing)

Bill - I will definitely put them as co-tentants.  I like being able to hold him responsible - he showed almost 20k in one month paystub (I'm in the wrong business) and you're right - his medical license and clean credit have to be important to him.

Albert - Thank you. After reading through this post a few times, we've decided to go for it.  Weighing pros and cons - they meet all the criteria and are more responsive than the other OC housewives that came to see the place. If we held out for another two weeks, I think we would have had some other great choices - but hopefully we won't be a bigger pockets horror story... 

Josh - A dear friend is the realtor who listed the place.  I'm not sure how we came up with that number - but I haven't had any blowback from potential tenants yet. I will definitely keep it in mind for craigslist ads in the future.

Joe - The rental market in the area is pretty good, but time isn't on our side.  The previous good tenant lost his job and his rent check bounced - so he agreed we could keep the deposit and he'd to move out. We are trying to get someone in place relatively quickly.  The unit is negative cash-flow (-300 a month), but in the last two years, we've gained about 120k in equity. One more year and we are trading into a cash flowing property elsewhere. No real plan laid out yet, thus, my new excursion to Bigger Pockets :)

Joel - That was my initial hesitation as well. When I look at their other bills, they seem to have plenty of cash flow to cover the bills after paying rent (looks about 15% of their monthly salaries combined). We are meeting them today to sign the one year lease.

Thank you again for your advice/suggestions

@Drey Stockert  

If she has that kind of money in her bank account you need to take extra month's security and more than one month's rent up front.  Something like two months security deposit and first and last month's rent.  But only if that is legal in tenant friendly CA. 

The dr. Debt is normal. I like people who follow through on things. Becoming a dr. Takes a lot of time, brains & effort to see it till the end.

From what you've presented here they seem like good candidates to me.

@Cal C.   - HA!  California won't let you even look at your tenant in the wrong way or they'll give them the property :). We took the legal max in security and she offered to pay two months rent up front.

@James Wise  - I think that is what we finally decided on.  I'd rather have two workers than some kid on dad's trust fund that doesn't care about responsibility.

Originally posted by @Drey Stockert :

 A dear friend is the realtor who listed the place.  I'm not sure how we came up with that number - but I haven't had any blowback from potential tenants yet. I will definitely keep it in mind for craigslist ads in the future.

 How long were you trying to find a tenant? If it didn't take any longer than it normally did, then you should ignore my concerns. 

That number is something that would have made me suspicious because I see weird numbers like from those spamming apartment complexes on Craigslist whenever I check up on CL for years now. But, a normal renter probably doesn't check up or click on enough postings to notice that pattern.

In fact, an odd number actually might have helped because odd numbers like that look smaller than a round, even number. There have been studies on pricing that found that people bought something more that was priced at $205 dollars, for example, than something priced at $200 even though $200 is cheaper. 

I went back to school recently to finish my Bachelor's business degree. I only needed 30 hours, which took me about two years. I graduated this summer with my Bachelor's degree and $50,000 in student loan debt. If I could rack up $50K in just two years, I can easily see how any medical professional could rack up $700K over eight years.

In any market right now, renting single family is risky.....as seen here, the great tenant lost his job sounds like before he even moved in.  That's just the state of things.  Mom's income and employment is pretty risky even with cash in the bank but with the son co-signing, I would have taken the gamble as well.  His loans are deferred right now so it's as if the debt doesn't exist for the moment...and probably he'll defer for a couple of years.  Not sure it's legal in CA but most owners I know here in GA would have done 1st, last and a month deposit.  Let us know how it goes with her but, if I were you, I'd chat with her and suggest getting a roommate if that is possible.  With someone else paying $1,400 a month for a room there, she'd always be able to pay the rent....unless the son is planning to live with her.  That's why I prefer shared housing...it minimizes the risks, maxes the revenue, minimizes the expenses & maintenance and always keeps someone in the property.  

700k to me seems like a lot for orthodontic training in my opinion. I am not saying that it is not possible but that is about 90k a year for 8 years. I am not familiar with the dental pathway but I am familiar with the medical pathway. I usually hear about people owing around 100-200k after training. I personally do not know of anyone owing 700k. I guess if they went to a private school and completely loaned everything every year, maybe it is possible. Did this person buy a residence or car with this money? I find it odd and not the norm.

It is is seems some folks above are confusing student debt with business debt that occurs when someone is starting a practice. These are two different things. This example has accrued 700K student debt. And in medicine fellowships are paid positions, not positions that you take loans out for. He can defer your loans out during the fellowship but you don't take out student loans for it.

@JaimePenix - He went to USC - so the private education was sky high.  

Thought I'd post a follow-up and give an update.  We let them move in and so far, so good (knock on wood). They were VERY picky about repairs and updates once they moved in, so we had to set some landlord boundaries - but now, everything seems to have worked itself out.  I'll post if anything goes wrong :)

Originally posted by @Drey Stockert :

@JaimePenix - He went to USC - so the private education was sky high.  

Thought I'd post a follow-up and give an update.  We let them move in and so far, so good (knock on wood). They were VERY picky about repairs and updates once they moved in, so we had to set some landlord boundaries - but now, everything seems to have worked itself out.  I'll post if anything goes wrong :)

 Glad to hear it is going well.

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