Should I have purchased a home for residency?

[Port]

Backstory: my wife and I are both physicians. She is done with residency and is an attending in a moderately compensating specialty and I'm a resident/about to start 1 year fellowship in a generously compensating specialty. We are staying at our residency home institution/city for my fellowship. Our future following my fellowship in regards to job, including location, is uncertain and won't be certain for at least 4 more months. We are both frugal and follow much of the WCI and Boglehead advice. After med school, we knew we would be in our current city for at least 5 years, and at that point we decided to rent instead of buy due to the increased exposure to potential expenses of home ownership and the uncertainties of the market. We rent an apartment with a very nice location, which we have been happy with, and we are staying for another year in our current lease since we enjoy the place.

Now I see what has happened in retrospect. If we bought a home in the same neighborhood as we currently live, we would have spent approximately 300-400k on a modest home, paying a little more (20-25%, but it would have been well within our means) on a mortgage payment/taxes than we do on rent. These homes are now easily selling for 550-700k. In perspective, this increase is about the same as the amount of money we have been able to save in our retirement saving plans. I believe we would have been able to have been just as diligent saving our money for retirement if we had purchased a home.

I know the logic of not buying a home for residency, and I do agree with the arguments for it. But now in retrospect the logic does not compensate for how I emotionally feel and what the bottom line looks like. If we stay long term in this neighborhood, if our job situations allow, and we buy a house as a long term expenditure, we will be spending an extra amount similar to our principle in our retirement accounts to buy a home off of someone else. Furthermore, although we do like our current apartment, we probably would have been happier in a house where we could have had a small yard for our dogs, more separation from our neighbors, etc.

Am I  wrong to feel this way? I guess I'm jealous that some of my friends who are heavy spenders are now moving on to new jobs and can sell their homes for such a profit. Yes, my market has been very good for those who purchased in the last 3-7 years and this may be an atypical story. I am just kicking myself that I missed this sort of opportunity. I know in the long run we will be fine, but I am just upset on the principle of all this.

 

 

[wp746911]

It's called timing. When I finished residency it was around the time of the big real estate crash. There were residents who had overextended themselves and were 100-200k upside down in their house. Others had houses that they couldn't get rid of for 2-3 years (and had moved away to the other side of the country). They were bemoaning how they had bought a house, paid high mortgage costs, lived farther from work, had higher utility bills, and now were getting hosed when they tried to sell. When they bought they were told 'don't worry real estate always goes up'.

 

Look- You did the right thing by not buying. The ones who did the wrong thing came out ahead. The thing is, in life, its all about the odds. The people who do the 'right thing' tend to come out ahead in the long run. Maybe not on this deal, but eventually the 'right thing' usually works. There will always be the random person who bets it all on black and wins in vegas, but usually they win. Don't focus on the negative- focus on your great earning potential and move forward in life!

[Hatton]

Quit beating yourself up.  No one can predict the local real estate market.  The last stress that a resident needs is worrying about some home maintenance issue.  Houses are illiquid unlike financial assets.  Your friends who are bragging about how much they have made are likely not deducting real estate fees both ways, maintenance, taxes etc. Read WCIs post on becoming an accidental landlord.  We all make choices in our financial lives.  I would say learn from your mistakes but don't dwell on it except I really don't think you made one.  Your resident friends who bought houses will have more stress as they have to fix up the house to sell it etc whereas you can accept a job any where and focus on your new job.

[YYjames]

Yea so may be DONT BUY HOME should not be taken as dogma that many here do.

Realize that what Boglehead or WCI says is not gospel. Each individual has their own circumstances. I also believe that while you can have a set way or 10 boglehead rules or whatever WCI rules, this "set" way of doings things IGNORES opportunities. Because one simply adheres to it and doesn't expand to look for new opportunities.

I for one am not a proponent of set rules. In a growing neighborhood (which its what it sounds like) with a KNOWN time period (you knwo you'll be staying there for 5 years) I would absolutely buy. Because a growing area has momeuntum and if it is supported by multiple industries the prices will appreciate.

Don't beat yourself up though. Part of being a doctor is that you can still come out ahead and absorb this "loss". Look for another "investment" opportunity with same logic.

[jfoxcpacfp]

Ah, the blinding clarity of hindsight. You can't get anywhere by looking in the rear-view mirror and you will never be able to find all of the potholes on the other paths you didn't take. You made what you thought was the best decision given the facts at your disposal. Time to move on.

[retinadoc]

I sometimes think back and feel the same way.

Ten years ago, I started medical school and after graduating, I stayed at the same institution for residency and fellowship. Would've been nice to buy certainly (I spent about $1000 x 12 x 10 = $120000 in rent), but, as you know, the match process is a fickle beast -- I could've just as easily been elsewhere after medical school or residency and then would have had to sell and move.

[Zaphod]

You're forgetting transaction costs, maintenance, taxes, etc...happiness? Not sure how much happier one can be in residency based purely on where they live. I for one wish I had rented and not had to deal with a house during mine, not to mention losing out in the deal. Obviously, this is hindsight bias and pure timing. I regret my parents not getting in to Microsoft in 1986, but thats reality for you.

If you put the money into the market instead than you will still be better off in the long run. You can always purchase at the next time the market softens, it happens.

[VagabondMD]

Should have, would have, could have...

If I could go back in time, there are lots of things that I might have done differently. Fact is, I can't.

[PhysicianOnFIRE]

If you had known you could expect a $250,000 profit on the home, it probably would have been a good idea to buy. But you didn't (and couldn't) know that.

I bought a 1-bedroom condo for residency in 2002 and the value rose 60% in four years. I wasn't ready to sell in 2006 (I started doing locums and kept the place as a home base).  When the value was declining in 2007, I decided to hold on until the market rebounded. After 7 years with renters (only 2, I got lucky), I sold in 2014 for 20% more than I originally paid 12 years earlier.

Looking back, I should have sold in 2006.  And I should have bought Apple stock instead of a condo in 2002.  My $12,000 down payment would be worth $1.2 million now. Hindsight is 20 / 20.

 

 

[The White Coat Investor]

Port wrote:

Backstory: my wife and I are both physicians. She is done with residency and is an attending in a moderately compensating specialty and I’m a resident/about to start 1 year fellowship in a generously compensating specialty. We are staying at our residency home institution/city for my fellowship. Our future following my fellowship in regards to job, including location, is uncertain and won’t be certain for at least 4 more months. We are both frugal and follow much of the WCI and Boglehead advice. After med school, we knew we would be in our current city for at least 5 years, and at that point we decided to rent instead of buy due to the increased exposure to potential expenses of home ownership and the uncertainties of the market. We rent an apartment with a very nice location, which we have been happy with, and we are staying for another year in our current lease since we enjoy the place.

Now I see what has happened in retrospect. If we bought a home in the same neighborhood as we currently live, we would have spent approximately 300-400k on a modest home, paying a little more (20-25%, but it would have been well within our means) on a mortgage payment/taxes than we do on rent. These homes are now easily selling for 550-700k. In perspective, this increase is about the same as the amount of money we have been able to save in our retirement saving plans. I believe we would have been able to have been just as diligent saving our money for retirement if we had purchased a home.

I know the logic of not buying a home for residency, and I do agree with the arguments for it. But now in retrospect the logic does not compensate for how I emotionally feel and what the bottom line looks like. If we stay long term in this neighborhood, if our job situations allow, and we buy a house as a long term expenditure, we will be spending an extra amount similar to our principle in our retirement accounts to buy a home off of someone else. Furthermore, although we do like our current apartment, we probably would have been happier in a house where we could have had a small yard for our dogs, more separation from our neighbors, etc.

Am I  wrong to feel this way? I guess I’m jealous that some of my friends who are heavy spenders are now moving on to new jobs and can sell their homes for such a profit. Yes, my market has been very good for those who purchased in the last 3-7 years and this may be an atypical story. I am just kicking myself that I missed this sort of opportunity. I know in the long run we will be fine, but I am just upset on the principle of all this.

 

 

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A few comments from someone who has been there (I rented in residency in Arizona from 2003-2006.)

1) A decision made a priori is not a bad decision because the outcome was bad. You had to make a decision without knowing what the outcome would be. It's like deciding to do an appendectomy for appendicitis and then causing an abscess. Just because there was an abscess doesn't mean that appendectomy was the wrong thing to do.

2) An increase in value from $400K to $700K in value over 5 years represents an annual increase of 11.84% a year. Bear in mind that historical average is something like 3-4% a year. Of course you should have bought if you would have known that housing value inflation would have been 9% more than historical averages. But you need to realize how unusual that sort of rate of increase is.

3) A $400K home on a two resident salary would have been awfully expensive. That's a big chunk of income going to housing.

4) Bear in mind there is more to the equation than just purchase and sales price. For instance, it costs about 5% to buy and 10% to sell. So the buying and selling costs alone would have been $20K+$70K = $90K. That reduces the gain from $300K to $210K. There were also maintenance/upgrading costs. Now buying still works out well when your rate of increase is 12% a year, don't get me wrong, but it isn't quite as good as it at first looks.

5) Do you also kick yourself for not buying Apple stock 10 years ago? It has increased from $45 to $110. If you constantly think about missed opportunities it is likely to cause you to make suboptimal decisions going forward.

[PhysicianOnFIRE]

5) Do you also kick yourself for not buying Apple stock 10 years ago? It has increased from $45 to $110. If you constantly think about missed opportunities it is likely to cause you to make suboptimal decisions going forward.

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If I'm reading the chart correctly, Morningstar shows the price of AAPL in the range of $0.95 to $1.17 in October, 2002 when I bought my condo.  By 2006, it was ten times that, then went up another tenfold, now at $109.

I don't read many individual stock charts (because I don't own any individual stocks), but I think the discrepancy in the math comes from the fact that there was a 2 to 1 split in 2005 and a 7 to 1 split in 2014. See splits and CAGR here.

I don't kick myself though, just like I don't kick myself for not betting on every Super Bowl winner. Who knows if I would have picked the winners?  I might have bet on Lycos or Pets.com. The ability to look back could make any one of us a super rich Biff with Marty McFly's Sports Almanac.

Cheers!

-PoF

[Psyched]

Nah, I wouldn't worry too much about it. I graduated in 2009 pretty soon after the market tanked and didn't buy. My husband is also a doc so we are in a similar boat as you. I don't regret renting one bit! The amount of time just to take care of small, everyday maintenance while in residency takes away a lot of the little precious free time you have in residency. Looking back I am glad I didnt have to deal with that, even in a residency where I took zero overnight call.

I am three years out and am shocked at just how much more complicated, expensive, and time consuming life in general gets every year that I age and live in a home, esp. once you factor in having kids! The financial benefits are not as pronounced as some think once you factor in having to pay real estate transactions, taxes, water, trash/sewer,  not to mention buy a washer, dryer, mower, blower, garden tools, etc etc etc.

I also don't think anyone mentioned yet how expensive and sometimes stressful the LAST year of residency/fellowship is--deciding on a job, negotiating contracts, signing up for boards, FCVS, credentialing, licensing, DEA costs, moving, interviews, etc etc etc take time and money. The paperwork alone feels like a part time job for awhile!  Do you really want to have to worry about selling a home that year too?

 

Best of luck-you and your wife are going to both make more than enough to be comfortable as long as you are wise with money, esp the first year or two out.