Why Residents Shouldn't Buy Houses
After yesterday’s broad post on the effects of pulling out of the Iran Deal, I wanted to regain focus a bit and give some reasons it’s better to wait on buying a home if you’re a resident. Obviously this is geared towards residents, but the same reasons can be applied for those in medical school as well as nursing school to a lesser degree. Some residents have family support when buying a house and that certainly helps reduce the negative effects of buying a house during residency, but overall it may be better to wait.
You already have a large amount of debt. It isn’t uncommon for those coming out of residency to have upwards of $250,000 in debt so adding a mortgage and the other expenses that come with owning a home is not the best way to maximize your resources.
Residency is only 3-5 years long. Given the transactions costs when buying a home (usually around 5%) as well as selling a home (usually around 10%) it’s tough to be able to turn that property into a positive investment. Now, it’s possible that you have a decent mortgage, and the property appreciates at least 3%/year and you have very low maintenance costs, and you’re able to sell it relatively easily after residency (I’ll get into why that will likely happen later) then you’re still making a very slim margin on the investment, and not one that’s worth 3-5 years of avoidable hassle.
You won’t want to live in that house when you’re an attending. For most residents, staying in that house likely won’t be an option as you’ll be moving to another city upon graduation. Beyond that however, when you start making attending money it’s natural to look to upgrade your living situation. While it may be more prudent to continue living like a resident so as to put you on a better financial foundation, most people tend upgrade their lifestyle. This means that the house you bought as a resident that seemed huge now seems relatively cramped given your new purchasing power. If you planned ahead and bought a bigger house than you needed during residency, well then you’ve just taken on more debt and these other reasons still apply.
New homes cost more than you would think. Everyone knows that when you switch from renting to owning, you’re now responsible for all maintenance and repairs. However, while those can be relatively small, those costs can also add up quickly. They are also impossible to predict, which can leave you in a desperate situation if things go badly. Another aspect of this is that maintenance and repairs cost time or money. Either you’re fixing things yourself, or paying someone else to do it. Time and money are two things residents typically have in very short supply.
Residents typically won’t get any tax breaks for owning a home. Generally you won’t be purchasing a home large enough where the mortgage interest and property taxes are more than the standard deduction. While buying a house does come with tax advantages like being able to deduct the interest payments/property taxes, that likely won’t be the case here.
Budgeting is much easier when you rent. Due to the unforeseen expenses that crop up when owning a house, it’s much more difficult to accurately budget when you own a home. When renting, you know that every month you’re paying a certain amount for housing, and not any more than that. Given that budgeting is such a fundamental skill to build up and practice, making it easier on yourself when you’re just starting out is imperative. Also, more time spent on budgeting is likely more time you either don’t have or could be spending on other ventures.
Obviously there will be situations that are outliers, but this should illustrate why it’s more efficient to rent during residency. I’m curious how people have handled this as they go/went through residency, so comment below or send me an email as I’d love to hear your stories.