• General Education
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Buying a Home During Residency

Evan Winter

After many years spent in school, likely living in a dorm or small apartment, resident physicians are often tempted to purchase a place of their own. As residents, they are in their late twenties to early thirties, and our society seems to dictate that buying a home by that point in life is a rite of passage. Although, that isn’t necessarily reality for many doctors before they secure a stable position as an attending physician. In training, some see real estate as a lucrative investment, and others view the preposition as a money pit. Every physician is subject to a different set of circumstances, and there is an array of arguments for and against buying a home during residency.

The Positives

Build Equity

When making the case for purchasing real estate, people often say something to the point of “You’re throwing away money by renting,” and in some cases this is true. Ideally, a house will appreciate over time and an owner will at the very least get back what they paid for it, which obviously isn’t at all true when renting. This is more likely to work out in a physician’s favor if they plan on owning the home for at least the length of their residency. Considering the average home appreciation rate, transaction costs, repairs, renovations, and more, it will likely take about 3 to 5 years for a physician to pay down the mortgage enough to break even or sell for a net gain. However, there are an incredible amount of variables which can positively affect equity over time, such as cost sharing with a spouse or roommates, remaining in the house for an extended period to complete fellowship, or transitioning to a landlord role and renting out the property. It is extremely important that resident physicians consider their unique situations and run the numbers to make sure that investment in a house is a valid option to save money.

Tax Breaks

There are some tax benefits to owning a home, including the ability to write off mortgage interest and deduct property taxes. More deductions may come into play depending on when the home is bought or sold and whether the property is used as a home office or is utilizing renewable energy. It should be kept in mind that many of these tax breaks are situational, and even the best of them will not likely be making or breaking a home buying decision. However, general tax information, including any deductions, should absolutely be part of the financial calculations made prior to purchasing a property, so they remain a small, yet not to be overlooked part of the process.

Make a House a Home

For some, the financial bottom line isn’t necessarily the most important point when deciding where to lay their head at night. Renting a property comes with a set of rules, which dictate to some extent how the renter can live. Depending on how a lease is written, it may be difficult or prohibited to repaint walls, change fixtures, hang pictures on nails, and make other changes to a property. Space is sometimes a concern, primarily for apartment living where the square footage is low and yards, especially private ones, are uncommon. Apartments may also come with added noise or just unwanted company from neighbors and maintenance or management personnel. Buying the right property can make all these issues disappear, and the satisfaction gained from fully controlling a living situation is not to be discounted.

The Negatives

Not Enough Time or Money

Residency is simply a busy time in a physician’s life. Usually, residents are working extremely long hours and need to focus on finishing training before considering much else. The time and money it takes to maintain a home is often underestimated, and residents probably won’t enjoy being tasked with regular maintenance such as fixing appliances or mowing a lawn. That is all made worse if any renovations are needed after closing on a property. Money can be a pain point from the start since, as previously mentioned, it will often be in a resident’s best interest to purchase a home early in their training. Unfortunately, that is precisely the time when they are least likely to have funds set aside for a down payment or any other costs associated with closing on a house and possibly performing renovations. If a down payment isn’t made, the cost of private mortgage insurance (PMI) can be added to the list of new expenses along with property tax, homeowners insurance, and other special hazard insurance. Some of these problems can be remedied if the resident physician is handy or has a spouse/roommate to help with maintenance and any expenses. However, if that is not the case, doing it all by oneself is a daunting task.

Too Much Debt

After graduating from medical school, most physicians owe student loan debt in excess of $200,000. That amount could buy a house in itself, and often comes with a higher interest rate than a mortgage. Given that it’s usually a struggle for residents to start paying down student loan debt in residency, adding a house payment to that burden really stresses their financial situation, if it isn’t outright impossible to handle from the start. This is also where some physicians are tempted by “doctor loans” which can allow for purchase of a home with little to no money down. Although, not having a down payment leads to greater difficulty paying off a mortgage enough to make the purchase worthwhile during residency.

Moving After Training

Time and money are easily the most pressing issues when deciding whether to purchase a home in residency, but at least residents will have some idea of where they stand in those areas. Where a physician will work post-training is often a looming question mark. So many doctors will relocate to accept an attending position, and if they’ve bought a house during residency, this begs the question of what to do with that property. Becoming a landlord is an option, but if the physician is moving across the country, they may find it difficult to upkeep the property or find someone who can do it for them. The alternative is selling the home, and there are a few pieces that need to fall into place to make selling go smoothly and have the house be a rewarding investment overall. 

Finding a buyer at the right time could be a challenge, and getting stuck without one, while still needing to move, will be costly. Costs associated with getting a property ready to sell and placing it on the market could further set the owner back. Furthermore, if a physician is forced to sell a house in which they have lived for only a short time, the mortgage is probably not paid down enough to make the investment a net positive. If any large repairs or renovations were made, those costs have not been spread over a long enough period to realize the benefits. The home also may not have appreciated in value enough to help offset the total cost of ownership.

The Verdict

Buying a home during residency is a huge financial undertaking and not something to be drawn into with doing a lot of research and planning. It is safe to say that as a single resident, with only one major source of income, purchasing a home is most often ill-advised. However, all physicians are in unique situations, and with the limitless number of variables, it is possible that there are enough positives to make purchasing real estate advantageous during training. When it comes to such major financial decisions, it is best to never assume anything. Everyone should take time to create a comprehensive financial plan for at least the next three to five years, run the numbers, and see where living expenses fit within the bigger picture.