Little Rock Broker Advises Medical and Law Students on Buying vs. Renting

For the many medical, dental, and law students who spend three or four years in Little Rock, Arkansas, the default choice is to rent. But according to Jerry Larkowski, Managing Broker at ESQ. Realty Group, LLC and a licensed attorney, renting is often the right call—though not always. For students who expect to stay in Central Arkansas after graduation, he says the planning should start much earlier than most of them think.

The first question is whether you’re staying. Larkowski is clear that not every student needs to buy. Someone headed to a residency or a job in another state after graduation may be better off keeping things simple. For students who plan to stay, the case gets stronger. A house offers things most apartments don’t, starting with privacy and quiet. For someone studying for boards or the bar exam, that is not a small thing. “If one knows they will remain in Central Arkansas after school, it makes sense to start early,” he says. There is a long-term benefit, too. When a graduate’s income grows and it is time for a larger home, the first house doesn’t have to be sold. Larkowski says these homes can become good investments as rental houses.

For students who aren’t ready to buy yet, Larkowski suggests making it a goal for the next 12 months and using that time to learn Little Rock. Pay attention to the different areas of town. Think about where you would want to live and, just as important, where you would not. Visit open houses on Sunday afternoons. Looking through homes currently for sale beforehand helps you decide which ones are worth the drive. Walk the neighborhoods you like. “The best way to get to know a neighborhood is to walk it,” Larkowski says. “Drive there, park your car, and take a stroll.” Spend time there as a customer. Shop at the nearby stores, eat and drink at the restaurants and bars, and talk to people about what living there is like. Talk to lenders and realtors early, long before you plan to make an offer.

Heavy student loans are the norm for medical, dental, and law students, and they are often what surprises students most when they first sit down with a lender. Larkowski puts it plainly: student loans affect your debt-to-income ratio, no differently than a car loan does. That includes loans in deferment while you are still in school. A $0 payment on your credit report does not mean a lender will count it as $0. FHA guidelines generally count 0.5% of the outstanding balance each month when no payment is reported, so a $200,000 balance could be treated as a $1,000 monthly payment. Under Fannie Mae guidelines, a deferred loan can be counted at 1% of the balance or a fully amortizing payment. That makes one question worth asking any lender before you tour a single house: how will you count my student loans? The answer can change your budget by hundreds of dollars a month.

On the loans themselves, Larkowski’s advice is to choose the repayment plan with the lowest monthly payment. “You will be able to ‘buy more house’ when it’s time,” he says. The trade-off is that a lower payment can mean more interest over the life of the loan, which is worth discussing with a financial advisor.

Some students buy during school and rent out part of the property, a strategy often called house hacking. That might mean a duplex where you live on one side and rent the other, or a house with spare bedrooms for roommates. FHA financing can be used for an owner-occupied property with up to four units, which puts a duplex within reach for some buyers. “The duplex ‘house hack’ concept looks good on paper; if you can make it work, do it,” Larkowski says. He attaches two conditions. First, hire a property manager, and never tell the tenant next door that you own the building. Second, put roommates on paper. Buying a house and renting rooms to friends can work, but Larkowski says to “be sure to have a lease, no matter how good a friend they are.” Whether a student buys during school or two years after graduation, his advice on timing is the same: “You can start too late, but you can’t start too early.”