A good financial adviser or blog would almost never make a blanket that applies to everyone and the same goes for this blog and the reason for this post. My last post touched on 10 reasons why residents should not buy a house during residency. For many residents, buying a house for residency is a poor financial decision. However, for some resident physicians buying a house may actually make sense. There are a lot of benefits to owning a house, many of which involve unique individual factors highly influenced by local markets and future job prospects. Some other blogs may tell you that renting is almost always the right decision. I do believe that many residents fall into a category where renting is the better option but its not the right option for everyone. For those who do not fall into the renting is the obvious choice, here are 10 reasons why you should considering buying a house in residency.
Many residents extend training beyond residency
Extending training by 1-3 years beyond residency for fellowship alows for more application of the house or condo. In this case, if you plan to stay at the institution where you did residency it may make sense to buy instead of rent. There is some risk with this scenario, you still has to match to fellowship in the location where you bought the house. In certain markets such as NYC, LA, NOLA, and Houston there are multiple programs to apply to. Applying to multiple programs in each city will help ensure that you will end up staying put for fellowship, making home ownership work in your favor for the long run. Analyze what your chances of extending training are and how likely you are to stay in the same city. If the chances are high then it might make sense to buy instead of rent as you will be in training for 5-7 years which in many markets give you a good change to make money over renting.
Become a landlord to eventually cash flow the property
If single and in a long training program such as surgery where the program takes 5 years, then getting a roommate while owning a property can give you extra cash in your pocket every month. This comes with the stipulation that you must be okay having a roommate or someone living in your house. You must also be okay with keeping up with maintenance. If those things don’t bother you then you can potentially make extra money off of the purchase in certain markets after you eventually move. There are hundreds of website, blogs, and postings about physicians who love to invest in real estate. If this is something you know and something that yu desire to eventually do (become a landlord), then do your homework and consider staring early.
Provide more room and less frequent moves for your family
Don’t forget to thank the person who supports you though residency and for many residents that person also includes a family. If a house is affordable and the spouse has a reliable job its not unreasonable to consider purchasing a place to live, especially if residency will be 5 years. It’s not realistic to put life on hold and to ask the family to take on extra burden to live in a studio apartment in some locations. Taking your families needs into consideration for living arrangements. They should be a priority as they are supporting you though one of the hardest times of your life. Discuss what their needs and wants are as a partnership and family but do so realistically.
The bottom line is not the number one priority to every person
Chances are that if you found this blog then you are the type of person who puts financial stability and retirement as a top priority. Just like there are many colors in a Crayola box, there are many ways to live ones life (right or wrong in your eyes). Even after crunching the numbers and time spent on rent vs own calculators, to some residents its worth having a place to own where memories can be built. Even if the calculator tells them this type of person they will come out slightly behind with renting, the emotional factor of owning a place is worth it to them. Not everyone focuses solely on the bottom line for every life purchase and I’ll concede that. It might not make you rich but there might be a wealth of reasons otherwise for a resident to buy a house. For example, one of my classes mates bought a condo to have a secure place for his grandparents to stay every time they come to the US from China to assist taking care of their new child. Another friend of mine bought a condo to help his sister-in-law have a place to stay near the medical center for her cancer treatments. This person is in a 5 year program and felt there were many benefits to owning over renting beyond the profit and loss statement.
I’ll right away concede that this is a weak argument but its still somewhat valid. The money paid in mortgage interest can be deducted from your taxes. You will have to possibly talk with your accountant or run the numbers yourself to see if this benefit will actually have any impact on your decision to buy vs rent. In many cases, the tax break of owning a home is not a large factor in building wealth or making buying a better financial decision
You can put your stamp on where you live
Living in an apartment means that you have to abide to all the strict rules of the complex. This means no painting of the walls or changing out the fixtures on the sinks. Making a house or condo feel like home can be an excellent thing especially after a long call and for those with a new family. Some residents make do while renting, others like to DIY and change hardware around the house. This type of behavior would most likely be off limits for renters. Buying offers the benefit of no one limiting you on what types of changes you can make to the inside within reason (structural or code limitations)
As discussed in the 15 vs 30 year mortgage post, most mortgage payments in the beginning apply to the interest and not principle. Over the course of 5 years or more its likely you will build some equity in the place that you have bought. When selling the house this equity will be paid to you if the selling price is more than what is currently owed. There is a risk that the price of the house may go down, but even if the house stays the same price each payment builds a little equity in the house.
Gifted by a relative or parents
Parents with money to spare and multiple children who are interested in obtaining an education in one location may end up buying a house or condo in an effort to have multiple children use the house for schooling. This has worked well for many of my friends. The catch is that money and family often does not mix well and there are numerous opportunities for disagreement and arguments. If the family can make this work, there are huge potential finacial benefits. If not, there is also a large downside of creating a rift in the family
Loans for houses are currently at all time lows
Borrowing money is currently quite “cheap” and with many speculating that rates by the fed will raise soon. This argument has many risks with associated with it since if the rates rise there is the risk of borrowers having a harder time getting a loan and subsequently more difficult to sell the house/condo. Regardless, the low interest rates have been sparking more individuals to buy in an effort to lock in a low fixed rate for the 5+ years of residency and fellowship.
If your spouse has a non resident salary in a stable job
Having a significant other with a reliable income and stable job can add to the argument to buy a house instead of renting. Especially if residency is longer than 3 years and the couple is able to save up some money for a down payment. Dual income families are a quick way to build wealth and will be much easier to pay off a mortgage compared to a single person with student loans.
Overall to rent vs own is dependent on many factors and a very personal decision. Overall I do tend to favor renting for residents unless in the following situations:
- Residency is 5 years
- Mortgage monthly cost vs rent cost ratio is <1 ( 1.5 in HCOL areas)
- Plan for fellowship after residency with more than one program to apply to in the city where you will be buying
- Rent vs Own calculator state break even point is 3-4 years
- Must be okay either fixing or calling someone to fix broken appliances even post call
- Be the type of person who likes to take some moderate to high financial risk at that stage in your life
- Preferably have a dual income situation
- Buy in a good location with good resale or ability to rent easily