Should Residents Buy or Rent? Complete Decision Framework

You're starting residency or fellowship and everyone has opinions: your attending says "buy now while rates are good," your co-resident says "rent for flexibility," and your family says "stop throwing money away on rent." Who's right? It depends entirely on your specific situation.

This guide provides a comprehensive decision framework for residents and fellows: when buying makes sense, when renting is smarter, how to run the numbers properly, and the hidden costs people forget.

The Quick Answer (For Most Residents)

Rent if:

• Your residency/fellowship is 1-2 years
• You're unsure where you'll work after training
• You have no down payment saved
• You work 80+ hours/week and can't handle homeownership
• Your program is in an expensive city with low rent/price ratios

Consider buying if:

• Your training is 3+ years in same location
• You plan to stay in that city long-term
• You have 3-5% down payment + reserves
• You can handle landlord duties (especially for house hacking)
• Local real estate is affordable relative to rents

The 5-Year Rule

Real estate professionals often cite a "5-year rule": don't buy unless you'll stay at least 5 years. Here's why:

Costs of Buying and Selling:

• Buying costs: 2-5% of purchase price (closing costs, inspections, appraisal)
• Selling costs: 6-10% of sale price (agent commissions, closing costs, repairs)
• Total transaction costs: 8-15% round-trip

Example: $300,000 home

• Buy: $9,000 closing costs (3%)
• Sell 2 years later for $315,000: $24,000 costs (8%)
• Net proceeds: $315,000 - $300,000 - $9,000 - $24,000 = -$18,000 loss
• Plus you paid interest, property tax, insurance, maintenance for 2 years

It takes 3-5 years of appreciation and principal paydown to overcome these transaction costs.

Financial Analysis: Rent vs Buy for Residents

Let's run actual numbers for different scenarios:

Scenario 1: 3-Year Residency, Plan to Leave City

Renting:

• Rent: $1,500/month × 36 months = $54,000
• Renter's insurance: $200/year × 3 = $600
• Total cost: $54,600
• Cash preserved: Have down payment $ invested earning 5% = $3,000 gains
• Net cost: $51,600

Buying ($300K home, 3% down):

• Down payment: $9,000
• Closing costs: $9,000
• Mortgage: $1,938/month × 36 = $69,768
• Property tax: $250/month × 36 = $9,000
• Insurance: $100/month × 36 = $3,600
• Maintenance: $200/month × 36 = $7,200
• HOA (if applicable): $150/month × 36 = $5,400
• Selling costs (at year 3): $24,000
• Total cash out: $137,968
• Less: Principal paydown ($14,000) + appreciation assuming 3% annually ($27,000)
• Net cost: $96,968

Winner: Renting saves $45,368 over 3 years

Scenario 2: 3-Year Residency, House Hack, Stay in City

Buying duplex ($400K, 5% down, rent other unit for $1,500/month):

• Down payment: $20,000
• Closing costs: $12,000
• Total mortgage payment: $2,522/month
• Property tax: $350/month
• Insurance: $150/month
• Maintenance: $250/month
• Total expenses: $3,272/month
• Less rental income: -$1,500/month
• Net housing cost: $1,772/month × 36 = $63,792
• Initial cash: $32,000
• Total cash out: $95,792
• Keep as rental after moving out (don't sell)
• Equity built: Principal $19,000 + appreciation $36,000 = $55,000
• Net cost: $40,792 (vs $54,000 renting)
• Plus: You own investment property generating cash flow

Winner: House hacking saves $13,208 AND leaves you with rental property

Scenario 3: 5-Year Residency + Fellowship, Staying Local

Buying (5 years):

• Same $300K home as Scenario 1
• Total housing costs over 5 years: $149,520
• Less: Principal paydown ($24,500) + appreciation 3% annually ($47,000)
• Selling costs: $24,000
• Net cost: $102,020

Renting (5 years at $1,500/month):

• Rent: $1,500/month × 60 = $90,000
• Assuming 3% annual increases: Actually $95,700
• Net cost: $95,700

Winner: Roughly equal, slight edge to renting ($6,320 savings)

At 5 years, break-even point approaches. Beyond 5 years, buying typically wins.

Hidden Costs of Homeownership

Many residents underestimate true cost of owning. Here's what people forget:

One-Time Costs:

• Closing costs: 2-5% of purchase price
• Inspection: $400-600
• Appraisal: $500-700
• Lender fees: $1,000-3,000
• Initial furnishing/repairs: $2,000-10,000

Ongoing Monthly Costs:

• Property tax: 1-2% of home value annually (varies dramatically by state)
• Homeowners insurance: $100-300/month
• HOA fees: $0-500/month depending on property
• Maintenance: 1% of home value annually minimum ($300K home = $250/month)
• Utilities: Often higher than apartment (larger space, yard care)

Surprise Expenses:

• HVAC replacement: $5,000-10,000
• Roof repair/replacement: $8,000-20,000
• Water heater: $1,500-3,000
• Appliances: $500-2,000 each
• Foundation issues: $5,000-25,000+

Reality: Most residents budget for mortgage payment but forget these add $500-1,000/month to housing costs.

Decision Framework: 8 Key Questions

Specialty Considerations

Surgical Residents:

• 5-7 year programs → Buying more attractive
• But 80+ hour weeks → Harder to manage property
• Fellowship likely → May need to move again
• Recommendation: Rent years 1-3, reassess for remaining years

Internal Medicine → Fellowship Path:

• 3 years residency + 3 years fellowship = 6 total
• If fellowship in same city → Buying makes sense
• If fellowship elsewhere → Rent during residency

Family Medicine (Planning to Stay Local):

• 3 year program, often stay in same area
• Better work-life balance → Can handle homeownership
• Recommendation: Buying can work well

The Physician Mortgage Option for Residents

Physician mortgages can make buying more accessible:

Benefits for Residents:

• Low down payment: 0-5% (vs 20% conventional)
• No PMI: Even with small down payment
• Flexible underwriting: Student loans treated favorably
• Can use contract: Qualify based on attending contract even before starting

Drawbacks:

• Slightly higher rates than conventional with 20% down
• Still need reserves and closing costs
• Doesn't change the 5-year rule fundamentals

See our guide: Physician Mortgage Loans Explained

Real Resident Scenarios

Success Story: House Hacking Resident

Dr. Patel, Emergency Medicine, 4-year program

• Bought $380K duplex with 5% down
• Lived in one unit, rented other for $1,600/month
• Net housing cost: $900/month (vs $1,800 renting)
• After 4 years: Moved out, both units rented
• Cash flow: $600/month positive
• Built $60K in equity through paydown + appreciation
• Result: Saved $43,200 in housing costs + owns cashflowing rental

Caution Story: Bought in Wrong Market

Dr. Johnson, Internal Medicine, 3-year program

• Bought $450K condo, 3% down
• Worked 80 hours/week, couldn't maintain property well
• Market declined 5% during residency
• Got fellowship across country
• Had to sell at loss after realtor fees
• Result: Lost $35,000 vs if had rented

Rent vs Buy Comparison Table

Special Situation: Married Residents

If Spouse Works (Non-Medical):

• More stable income makes buying more feasible
• Spouse may have time to handle homeownership
• More likely to qualify for mortgage
• More likely to stay in area if spouse has job

If Both Are Residents:

• Household income ~$120K → Can afford more house
• But both have 80 hour weeks → Who handles maintenance?
• Match risk - might not match to same location for fellowship/jobs
• Recommendation: Only buy if both are committed to staying long-term

Final Recommendations by Situation

Definitely Rent:

• 1-2 year programs
• Definitely leaving city after
• No down payment saved
• High cost markets (San Francisco, NYC, Boston)
• Unsure about staying long-term

Consider Buying (Especially House Hacking):

• 3+ year programs
• Likely staying in city long-term
• Have 5-10% down + reserves
• Affordable market with good rent ratios
• Comfortable being landlord
• Can buy duplex/triplex for house hacking

Strongly Consider Buying:

• 5+ year combined residency + fellowship in same city
• Definitely staying after training
• Good local real estate market
• House hacking opportunity available
• Spouse to help with property management

The Opportunity Cost Argument

Don't forget: money tied up in down payment and reserves could be invested elsewhere.

Example:

• $30,000 down payment + closing + reserves
• If invested in stock market at 8% annual return
• Over 3 years = $38,985
• Opportunity cost of buying: $8,985 in forgone investment returns

Factor this into your buy vs rent calculation.

Final Thoughts

There's no universally right answer to "buy or rent during residency." It depends entirely on:

• Length of training
• Future geographic plans
• Local real estate market
• Your financial situation
• Your willingness to be a landlord
• Opportunity to house hack

General wisdom:

• If staying less than 3 years → Rent
• If staying 3-5 years → Run the numbers, either could work
• If staying 5+ years → Buying often makes sense
• If can house hack → Usually beats renting regardless of timeline

Don't let anyone tell you "renting is throwing money away" or "you must buy real estate." Run YOUR numbers for YOUR situation and make an informed decision based on math, not emotion.

And remember: renting during training so you can focus on becoming an excellent physician is not a financial failure—it's a strategic choice that provides flexibility during an uncertain life stage.