Financial Planning For Resident Physicians, Item #5 Carefully Consider Your Dwelling
This is the sixth article in a series dedicated to helping the resident physician take steps to put their house (financial and otherwise) in order. My previous articles on the subject may be found here.
Homes are emotionally charged purchases. When my wife and I lived in Dallas, Texas, we desperately wanted a home. After living in apartments for years we were tired of not having a place that was “ours.” Our commitment to Dallas was only two years, and we had already been there for more than a year. Because we weren’t 100% sure we would be there another three to four years, we ended up passing on a beautiful first home. It was tough. But we dodged a bullet because about a year later we moved to the Midwest to get closer to family.
Whether or not you should buy a home during your residency is an important decision. There will be a strong emotional pull to purchasing a home, especially if you’re married and have some little ones running about. You will justifiably want to provide a nice space for them to live while you complete your training. But home ownership isn’t, to borrow the words of Rocky Balboa, “all sunshine and rainbows,” and if things don’t end up going your way, you could be paying for a home in another state while you complete a fellowship, or take a job elsewhere.
At the end of the day, your unique situation will dictate whether or not you should purchase a home during residency. For many residents (but not all), the answer will be no.
Your home probably isn’t an investment.
Don’t treat your home like an investment. Maybe you’ll get lucky and will end up earning money on the sale of your home. But maybe you won’t. As William Bernstein wrote in The Four Pillars of Investing, “[i]deally, a fine painting, like a house, is neither a speculation nor an investment; it is a purchase. Its value consists solely of the pleasure and utility it provides now and in the future” (45).
Whether your home appreciates or depreciates in value is subject to factors, many of which are well out of your control. We’ve been living in our home for almost four years and I wouldn’t be surprised if it has lost value due to a regional Fortune 500 company moving its headquarters to a different city.
How long will you be around?
Unless you somehow know that you will be in the same geographical location as your residency for five or more years, it’s likely best to rent. Otherwise, you’re taking a gamble—and one that you might end up losing.
Factors such as whether you will get a job in the area after residency, or whether your home will sell when you leave during the time frame you desire, are not entirely in your control.
“But I don’t like throwing away money.”
Been there, and felt it too. Just remember that the cost of a home is much more than the down payment and monthly mortgage. There’s upkeep and unforeseen costs. Your water heater will break, or your roof will need repairing. There may be surprises such as a flooded basement during a rainstorm, or fallen tree limb that damages the house. You will need to buy things to furnish the home so it’s not just an empty shell.
There won’t be a landlord to call on when things go wrong. In your already grinding schedule, you’ll have to pick up the bill or do the work yourself when the lawnmower breaks, there’s a leak in the basement, and the dishwasher needs to be replaced. There will be problems that you will have to put money into. These problems will require financial, as well as physical and emotional, resources.
And if you do end up leaving after residency and your home doesn’t sell quickly enough, don’t forget how expensive it is going to be to pay a mortgage in another state while you pay rent or a mortgage in the state where you live now.
Look, even though I’m painting home ownership during residency as undesirable, that may not necessarily be the case for you. You’ll need to consider your unique situation. But be careful because it’s easy to justify buying something if we really want it. Be patient and avoid making a purchase you will regret.
These are my opinions, unless I’ve specifically cited other material. The information and ideas I’ve presented are for information purposes only. Before you implement anything, make sure you have a thorough discussion with a qualified professional who understands your situation.