Why does every MS4 think he's an exception to the "don't buy" rule?

[The White Coat Investor]

I'll be the first to admit there are exceptions to my general rule that residents should rent instead of buying. But it seems to me that everyone thinks they are one.

"I have to buy because --------- City doesn't have very many good rentals"

"I have to buy because I have a kid and one on the way."

"I have to buy because I'll be there 4 and maybe even 5 years."

"I have to buy because I have home equity now and what am I going to do with it if I rent?"

"I have to buy because interest rates might go up."

It goes on and on and on.

The tricky part is because home prices have been on the upswing for the last 7 years, every resident in the program and every resident that any resident in the program was ever in the program with enjoyed some significant appreciation.

All you can do is point out a few things and wish them luck. You're not going to stop them from buying. At least it's usually a relatively inexpensive mistake in the grand scheme of a doctor's financial life.

[TheHappyPhilosopher]

For the same reason that we all refuse to believe that we suffer from all of the well studied cognitive biases (of course everyone else falls into those traps but not me!). We all think that it is us who are the rational ones and everyone else who is making crazy decisions.

We are special snowflakes!

Not only that, but when we see a cohort do well (like residents in the past 5 years) we have a recency bias and think the trend will continue forever. Everyone has forgotten about 2010.

Personally, I now believe it is a mistake for residents to buy a house in most situations. I bought a house in residency and it turned out great (my timing could not have been better) but it was mostly luck. I bought right before a housing bubble somewhere where the price to rent ratios were actually probably quite favorable to buyers (of course I didn't have any of these calculations prospectively).

Rented in fellowship and it was quite enjoyable and worry free

[shantster]

I think it's been too engrained in people's minds that home ownership = attaining the "American dream," and all the commercials for the different realtors, internet search companies, and especially National Association for Realtors keep bombarding people with that message. They also make great emotional pitches (everyone's happy and has a better life with the home - no one has difficulties selling it or is underwater) so people try to rationalize the more real logical argument.

Personally, I don't think any physician should purchase a home until at least 1-2 years out of training after having a good feeling for the job/current group and knowing that it will be a good longterm fit. I believe the number of our residency and fellowship graduates that have left their first job after 1-3 years is the equal to (if not exceeds) those who stayed at that job.

[G]

The White Coat Investor wrote:

All you can do is point out a few things and wish them luck. You’re not going to stop them from buying. At least it’s usually a relatively inexpensive mistake in the grand scheme of a doctor’s financial life.

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This.  It's better than hookers and blow.

[GXA]

While I agree it is generally better to rent for most residents, I was an exception when I finished med school and bought for my 3 year residency  

[Zaphod]

TheHappyPhilosopher wrote:

For the same reason that we all refuse to believe that we suffer from all of the well studied cognitive biases (of course everyone else falls into those traps but not me!). We all think that it is us who are the rational ones and everyone else who is making crazy decisions.

We are special snowflakes!

Not only that, but when we see a cohort do well (like residents in the past 5 years) we have a recency bias and think the trend will continue forever. Everyone has forgotten about 2010.

Personally, I now believe it is a mistake for residents to buy a house in most situations. I bought a house in residency and it turned out great (my timing could not have been better) but it was mostly luck. I bought right before a housing bubble somewhere where the price to rent ratios were actually probably quite favorable to buyers (of course I didn’t have any of these calculations prospectively).

Rented in fellowship and it was quite enjoyable and worry free

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Totally agree, its crazy, everyone says some sort of, "x excuse means none of these things apply to me". No one is saying that it cant work out, even a large percentage of the time. What everyone is saying is on average in the majority of the cases it doesnt make sense. Your downside is zero, upside huge.

One of the key points about behavioral biases is that even though you are made aware and can try to build ways to overcome their influence, you're not too much less likely to be a victim of them.

[RogueDadMD]

Most people I find that buy in training do it because they just want to own a home and don't necessarily even have a good or flimsy financial reason to do so.

We bought 10 months into my 3 year fellowship because my wife basically demanded we buy a home.    It was definitely NOT something I considered a sound financial decision.  It worked out because of how I was able to ultimately do the financing and because we bought at the bottom of the market in 2010 and sold in 2016, but we bought entirely because my wife wanted her own home.

We thought we were likely to stay after fellowship, but that wasn't the motivating factor.

[FutureDoc]

Similar situation with Rogue Dad, except we bought right before starting intern year.  That made underwriting a pain and a half.  It's worked out great so far, but if one of several deferred maintenance issues suddenly came due that could change at any time.

[baenregod]

Just to chime in as a special snowflake, my circumstances are probably different than most thanks to my extremely generous parents, allowing me to graduate from med school without loans and gifting us a down payment as a wedding present.

I'm also in a 6 year program at the same place I went to medical school, so we knew the area very well and found a relatively new house in a nice neighborhood very close to the hospital and downtown where my wife works. Our mortgage payment is significantly less than what we would pay renting an equivalent home in our area (I know that we will have more maintenance costs vs renting, but with a relatively new home hopefully nothing too major, also have E-fund with 6 mo expenses). A nice bonus is we got to lock in a very low interest rate, 3.1%.

While we're still early on in the process, so far we've really enjoyed owning our home.

I do agree that it doesn't make sense for many residents, particularly those in shorter programs, but I feel in our circumstances we made the right decision, or at least not a terrible one.

 

[Zaphod]

baenregod wrote:

Just to chime in as a special snowflake, my circumstances are probably different than most thanks to my extremely generous parents, allowing me to graduate from med school without loans and gifting us a down payment as a wedding present.

I’m also in a 6 year program at the same place I went to medical school, so we knew the area very well and found a relatively new house in a nice neighborhood very close to the hospital and downtown where my wife works. Our mortgage payment is significantly less than what we would pay renting an equivalent home in our area (I know that we will have more maintenance costs vs renting, but with a relatively new home hopefully nothing too major, also have E-fund with 6 mo expenses). A nice bonus is we got to lock in a very low interest rate, 3.1%.

While we’re still early on in the process, so far we’ve really enjoyed owning our home.

I do agree that it doesn’t make sense for many residents, particularly those in shorter programs, but I feel in our circumstances we made the right decision, or at least not a terrible one.

 

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Nope, that doesnt make it any smarter, just easier since it wasnt your money to be burned and seems to be going well. You're still in a place that could be difficult to sell, a hassle, etc...No one said it doesnt work out at times, just that its not the best move. Any multitude of reasons one throws out wont make the objective truth any less true. Its like saying playing the lottery is a good idea in general just because you happened to win. Still wouldnt make it a good overall life plan for people.

It would be great if people understood the contribution of pure chance, randomness and luck in how many things play out in life instead of ascribing it to some special circumstance. You didnt time it so that you were born and graduated and were in residency buying a house right at the bottom nor did I time my buy at the top. Those things are out of our control, the sooner you realize that the sooner you start making better decisions with probabilities and variances assumed from the get go.

 

[Kamban]

Rogue Dad, M.D. wrote:

We bought 10 months into my 3 year fellowship because my wife basically demanded we buy a home

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I have a feeling this is is a major unsaid that has finally been said by someone. The spouse gets tired of being in a rented place. He / she sees physicians with nice homes and great get together and parties and feels they also need to do that since the spouse is on track to being a doctor with a nice income. They have scrimped during college and medical school. Why not start to relax and enjoy now. A house is a good start. After all the mortgage is less than the rent, and the interest is tax deductible to boot.

The other spouse agrees or gives in since it is either a house or a marriage. Guess which one wins. The people who are the exceptions and make it out OK or great are on this board. The rest are in debt and would not come here and admit they made a blunder.

[DMFA]

Lots of posts about it in PDG lately. It's interesting to see the differences in responses between a financial forum and a general Facebook docs group.

[baenregod]

Zaphod wrote:

baenregod wrote:

Just to chime in as a special snowflake, my circumstances are probably different than most thanks to my extremely generous parents, allowing me to graduate from med school without loans and gifting us a down payment as a wedding present.

I’m also in a 6 year program at the same place I went to medical school, so we knew the area very well and found a relatively new house in a nice neighborhood very close to the hospital and downtown where my wife works. Our mortgage payment is significantly less than what we would pay renting an equivalent home in our area (I know that we will have more maintenance costs vs renting, but with a relatively new home hopefully nothing too major, also have E-fund with 6 mo expenses). A nice bonus is we got to lock in a very low interest rate, 3.1%.

While we’re still early on in the process, so far we’ve really enjoyed owning our home.

I do agree that it doesn’t make sense for many residents, particularly those in shorter programs, but I feel in our circumstances we made the right decision, or at least not a terrible one.

 

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Nope, that doesnt make it any smarter, just easier since it wasnt your money to be burned and seems to be going well. You’re still in a place that could be difficult to sell, a hassle, etc…No one said it doesnt work out at times, just that its not the best move. Any multitude of reasons one throws out wont make the objective truth any less true. Its like saying playing the lottery is a good idea in general just because you happened to win. Still wouldnt make it a good overall life plan for people.

It would be great if people understood the contribution of pure chance, randomness and luck in how many things play out in life instead of ascribing it to some special circumstance. You didnt time it so that you were born and graduated and were in residency buying a house right at the bottom nor did I time my buy at the top. Those things are out of our control, the sooner you realize that the sooner you start making better decisions with probabilities and variances assumed from the get go.

 

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I don't know if its the reading over the internet, but you seem to come off as fairly aggressive. I didn't say that I thought buying a house was the right decision for everyone, in fact, I was agreeing that it isn't for MOST (residents with significant debt, shorter residencies, etc). I was pointing out that in my set of circumstance (no debt, being in our location for a minimum of 6 years, nice house in a desirable location that shouldn't have problems selling) I didn't think it was a bad one. Is renting for 6 years at a higher cost than my mortgage really a smart move, particularly while interest rates were extremely low? That's over $100,000 in rent. Even if we have to sell our house at a loss, the "probability" of us losing over $100,000 on the sale, even after maintenance/fees/etc seems extremely unlikely.

At what point does it become okay to buy? We rented for 4 years in a nearby neighborhood before buying our house where we will be for 6 years. If we have a 500k net worth, then is it okay? Or if it was 8 or 10 years instead of 6? Where do you draw the line?

Apologies if I sound defensive, I wasn't arguing for the majority of residents to be buying houses, I just feel that in my particular situation, it made a lot of sense to buy, and if it works out it was because I evaluated our personal situation and weighed the pros and cons, not because I lucked out buying a lotto ticket (although I am beyond lucky in that my parents were able to help put me in this situation).

If you disagree still, I'd love to hear why beyond: "it could be difficult to sell" (that will be the case no matter what, whether you're a 40 year old attending worth 5m or a med student).

 

[The White Coat Investor]

I don't know, 6 years seems a reasonable bet to me. I don't think I'd do it as a resident, but you've got a heck of a better chance of getting your 15% appreciation in 6 years than in 3.

[VagabondMD]

I did not buy a house as a resident. In fact, I was single and never considered it until I was about to be married and had a contract for my first job in the same city. Perhaps it is a newer trend as most of my colleagues did not buy a house in residency, either, but who is to say that there are no circumstances that might indeed be suitable to buying a house in training? Like baenregod's (above), or someone with a high earning spouse, or someone with children trying to get them connected into a community or school district, etc.

On the other hand, you can make a financial argument that you should NEVER buy a house as it is always going to be more expensive than renting, no job is truly permanent, it's always costly and a hassle to fix a roof or change a light bulb, etc. When I was in the process of buying my first home, deep into my fellowship, I remember an attending advising me that I was buying a lifestyle, not an investment, which puts it into perspective, IMO.