Is it a sound financial decision to buy a house that you will only live in for four to five years?

My husband and I have no debt. I am 25 years and he is 27 years old. We currently have about $70,000 saved between our investment account and a money market savings account. I am contributing 10% to a 401(k) with a 5% match. Our household income is $65,000. My husband is a PhD student and I'm a nurse. The rent we would pay for a similar-sized house is $1,500-1,750 a month. We are planning on looking for a house that is under $175,000. We can afford a down payment that's 15-20% of this amount. Is this a sound financial decision? We do not want to continue living in an apartment, but we would only live in this house for four to five years.

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February 2018

Buying in your case is a sound decision if the home can easily be converted into a rental property when you leave.  If you buy a home that is difficult to rent out (and difficult to resell for that matter) the bare minimum time you spend there should be 7 years.  When I think of homes that are difficult to rent out or resell I think of way out in rural areas, new constructions, bespoke homes, homes with high upkeep costs, etc.  However, if you buy a home that you know will be easy to rent out because it is in an area where there is a lot of rental demand (near a major university, lots of transient young professionals, etc.), you can always just turn it into an income-producing asset when you leave by putting it on the market as a rental.

If you don't want the hassle of being a landlord, you can usually hire a rental agency for a modest one-time upfront fee and then about 10% of the ongoing rent.  That way, it is out of sight and out of mind, being professionally managed, and you just sit back and collect the check.

You are well-educated young people clearly committed to making smart decisions and growing your assets.  Owning rental real estate is a nice diversifying tool as you grow your assets.  It's good to own some stocks, some bonds, and some real estate.  I think buying a home, living in it for a while, and then turning it into a rental property for income when you move on could be a great play for you.

February 2018
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February 2018