We often see doctors in our physician online community grappling with the decision to buy a house or rent during earlier stages of their career. As this choice involves both financial and personal considerations, they often receive conflicting advice from members who have been in similar positions. Below, we’ll do a deep dive into factors that you should consider as a physician, as well as general rules of thumb to decide what’s best for you.
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Should you rent or buy when starting a new job?
Although everyone is eager to set down roots when they start a new chapter of their lives, the general advice in our physician communities is not to buy a house immediately. There’s many factors to consider at this stage, including the likelihood of staying at the job, how well you know the area, and what your growth trajectory at the job will be. Remember that transactional costs of buying, selling, and furnishing a house are pretty high, so if you have to sell within a short period of time, there’s a high likelihood that you could lose money.
How likely do you think it is that you’ll stay at the job?
The fact is that many jobs these days, especially at the beginning of your career, don’t work out. The majority of physicians change jobs within the first few years out of practice, and most physicians change jobs within the course of their career. Rarely is it that the first job is the forever job, so buying the forever house right at the onset of your career rarely pans out. See these results from a poll on our community.
Additionally, note that while you may love the job, some factors may be beyond your control. With consolidation and downsizing as well as decisions about granting partnership in a private practice, there are times where the decision to leave may not be yours.
How well do you know the area?
Often times, when you take a new job, especially if it’s in a location where you didn’t grow up or do a part of your education or training at, you don’t really know the area well enough to decide where in town you’d ideally like to live. Things that may factor in are traffic patterns and how they affect your commute, which school you want to send your children to, where your spouse or significant other finds a job, where the restaurants and activities you like are located, and more. Renting for at least a short period of time will allow you to explore before making a more permanent decision.
Will your lifestyle choices change as your career and personal life evolves?
Buying a house straight out of training or at another time where your income is rapidly changing, such as when going from an employed physician to a private practice, may mean that your budget and lifestyle will change significantly as well. Chances are that the amount of house that you’ll be able to afford may change. Additionally, at early stages of a career, your family may be growing, affecting what houses are appropriate. You don’t want buyer’s regret about buying a house that you may outgrow quickly.
Does it make economic sense to buy a house?
With mortgage rates being on the higher side these days, a lot of physicians are finding that the economics of buying a house don’t always make sense in certain markets. There are always pros to home ownership, such as the ability to gain equity in something instead of spending money in rent that you never get back, the “forced savings” of your monthly payments towards your mortgage, the stability of being able to plan on fixed monthly mortgage payments instead of rent that could fluctuate, and potential tax benefits or opportunities to create future cashflow. That said, these could be outweighed by the downsides. Things to consider include:
Can I afford to buy a home right now, especially the home I want?
A lot of factors go into whether you can buy the home that you want - your salary, your ability to put down a down payment, your credit score, whether you have a track record of income and whether you’re paid as a W2 vs 1099, and how much you have in savings. If the cost of the house you want leaves you feeling house poor to the point where you can’t enjoy vacations or nights out, or renders you unable to meet your other financial goals such as contributing to retirement accounts or saving for your kids’ education, it may not be the right time. Similarly, if your debt burden makes your debt to income ratio unfavorable or has impacted your credit score, it may affect your ability to qualify for a mortgage. Locums and 1099 physicians also often have trouble securing mortgages until they have a steady track record.
Learn more about how to determine how much house you can afford.
Learn more about credit scores.
Learn more about the difficulties of buying a home without W2 income, such as only having 1099 income.
Is the cost of renting less expensive than buying the same quality home?
In certain markets, housing prices have gone up so much that after accounting for the costs of home ownership (mortgage, maintenance, repairs, insurance, taxes, HOA fees, and more), it actually is cheaper to rent than it is to own a home. Many physicians make the mistake of just comparing the amount of the mortgage to the monthly rent, but this would be ignoring the costs of home ownership. Finding a good Rent vs. Buy calculator and plugging in your geographic area will help you do the math as to what the best options are, as well as help you estimate how many years it will take for owning to be more beneficial than renting.
Learn more about the costs of home ownership in our physician’s guide to buying a home.
How long do I think I will stay in this house?
As a general rule of thumb, the balance tips towards owning the longer that you stay in your home. Many say you’ll want to plan on staying in your house for at least 5 years before buying becomes a better idea. If you think your family is going to grow, that you may switch jobs, or that in general, the amount of house you can afford right now isn’t where you see yourself in a few years, you may want to consider renting now and buying later.
Do you have a better use or investment opportunity for the money you’d use for a down payment on a house?
While physician loans make it possible for most physicians to buy a home with 0% down, not all physicians choose to go this route, particularly when interest rates are high. It’s important to understand that your house is a relatively illiquid asset, so any equity that you put into it should be considered reasonably stuck. If you know that you’re going to have a practice buyin coming up, you’d like to pay off your student loans, or that you have a great investment opportunity or want to get started with investing in cashflowing rental properties, you may decide that it doesn’t make sense to sink the money into a house and prefer to rent while you address other financial goals.
Learn more about physician loans vs conventional loans.
If this is not the ‘forever home,’ would it make a good investment property later?
Many physicians buy a house assuming that it’s a starter home, and then they can convert it to an investment property later. The fact is that not all houses are good investment properties, as the cashflow doesn’t justify the amount of money that has been invested into the house (or worse, you could still be paying out of pocket monthly because the rent doesn’t cover the costs of ownership). It’s important to run the numbers to make sure that the property is actually a good investment property.
Are you in a volatile or overpriced housing market or is there a threat of home prices going down?
The general rule of thumb in investing is that you want to buy low and sell high. While most people don’t view their homes as an investment property, it’s important to make sure that you think about whether it makes sense to buy a home at this moment. If you’re in a housing bubble, it’s quite possible that you’ll overpay for a house. While this doesn’t matter if you’re going to live in the house for 2 decades, it will matter if you’re planning on selling the house in a few years and run the risk of having to come to the closing table with a check when you sell the house just to pay off the mortgage lender. If you’re worried prices may drop in the short term, it’s probably not the best time to buy a house.
Are there any tax benefits to home ownership, and what is the potential for appreciation of this house?
While we don’t think that a primary house is a good financial investment, sometimes it can be. Look into potential tax benefits and how they apply to your personal situation. If the house does appreciate, a good amount of the appreciation will be tax free. If you itemize your deductions on your taxes, you may be eligible to write off the interest that you pay on mortgages, so see if the amount you’d pay in interest over a year would be greater than the standard deduction you’d take otherwise (or if you already itemize your deductions, this could be great!). Similarly, married couples can avoid taxes on up to $500k in capital gains upon sale of the house ($250k for single).
What are your personal circumstances?
Sometimes even though buying doesn’t make financial sense, there are reasons that you may want to buy a home regardless. While we urge you not to get so emotional about a house that you make an overtly bad financial decision, you’ve also earned the ability to decide when you want to forget the rules and do what makes you happy or what you need for yourself and loved ones. Some questions to consider:
Am I able to find a rental property that suits my needs?
There may be special circumstances that preclude you from being able to find a rental property that checks off the boxes that you need in terms of location, structure, or otherwise. For example, if you have a handicapped family member and need a ranch style property that might require renovations, you may have a hard time finding that property. Additionally, most property owners or managers have rules that you need to abide by, and these may not work for what you want in terms of the ability to customize the house, have pets, or sublease (or even house hack!).
Would I be willing to move if I had to?
Renting always has some uncertainty, as ultimately the property’s fate is up to the owner. If they decide not to renew your lease for whatever reason, to raise the price of the rent dramatically, or that they want to sell the property, you could find yourself needing to move. For some people, this is an unacceptable inconvenience and they may choose to buy just to have control over their housing situation.
Do you anticipate any major life changes in the near future?
There are some reasons why it really may not make sense to buy a house because there are major changes in your personal or professional life that you anticipate coming in the near future. Buying a house that fits your life now may not make sense in these situations, because you may be forced to sell the house and find one that better suits your needs soon. These include:
Unhappiness in the current job or a likely job change for other reasons
Getting married
Having children
Having elderly parents that may need to move in with you
New medical problem that may result in different housing or accessibility needs
Wanting to switch to part time or other factors that may impact how much house you can afford
Conclusion
The decision to rent or buy isn’t always as straightforward as we’d like to believe, but there are some general factors that should be considered when approaching this decision so that you don’t end up making an unwise decision. When in doubt, renting may give you the flexibility to wait until your personal and financial situation changes. However, eventually, most physicians will ultimately decide to buy a home when their personal and professional situation stabilizes, and it’s important to know when to take that leap, as having equity and stability, as well as a house that meets your needs and preferences can be a great way to add to personal satisfaction and enhance career longevity.
Additional housing and mortgage resources for physicians
Explore related PSG resources:
Differences between physician and conventional home mortgage loans
Moving discounts for physicians under our resources, discounts and perks for physicians
You can also watch replays of previous free mortgage and housing events and sign up for alerts for future events through our Transition to Practice series and financial grand rounds.