Deciding to rent or buy a home is a big choice that often stresses people out. I’ve seen this in my own life. The choice is tougher for healthcare professionals with extensive training.
I rented until I was 32. Then, I decided to buy a home during the COVID-19 pandemic. Even then, it was a difficult decision. I get that deciding whether to rent or buy can feel overwhelming. This is especially true for doctors who feel pressured to own a home. This expectation can be harmful and may result in poor financial decisions.
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A Common Misconception
It’s time to rethink the old idea that owning a home is the best sign of success. This is no easy feat.
I focused on owning a home near the end of my fellowship. There are more factors that affect this choice than you might think, especially if you’ve never owned a home.
People often say, “Buying a home is the smartest investment” or “Renting is throwing money away.” They often don’t think deeply about this. This can lead to the wrong belief that renters are “poor” or “bad with money.” That’s simply not true.
Many people choose mortgages for homes that are too expensive for them. This makes them “house-poor.” Others decide to rent. They avoid the added costs of homeownership. This choice also helps them reach financial independence faster.
Keep in mind that home ownership isn’t one size fits all. People often face right or wrong options. This depends on their expectations, budget, and financial goals. Let’s start by looking at the benefits of renting.
The Benefits of Renting
I rented for almost 11 years, from college through my final year of fellowship. In the medical field, moving frequently is the norm. Medical school takes four years, followed by a residency that lasts anywhere from 3 to 7 years. Many also pursue subspecialty training or a fellowship, adding even more relocations. Given the uncertainty, buying a home can be impractical. Renting is often a smarter and more flexible option.
A major benefit of renting is predictability. Your monthly rent is usually your largest housing cost. Renters don’t have to pay for big repairs, such as a broken air conditioner or roof damage. Homeowners are responsible for these costs. Advocating for fixes can be frustrating. But remember, the financial burden isn’t yours to carry.
With that in mind, here are my key guidelines for renting:
My Rules for Renting
- Keep your rent at or below 30% of your take-home income to maintain financial stability.
- Get renters insurance.
- Renting isn’t wasting money. It’s a smart choice for flexibility and planning.
Here are some rules I suggest for anyone renting now or thinking about it soon. Renting is often seen as ‘inferior’ to owning a home, but that view is silly. Many people, like medical trainees and doctors, think owning a home is key to building wealth. This is simply not true.
If you’re unsure about your future, choose a budget-friendly rental. Then, keep an eye on how much you save compared to owning a home. You can invest that difference, speeding up your journey to financial independence.
The Benefits of Owning a Home
Homeownership has its perks, too. I own a home, and most days, I’m happy with that decision! The key is making a wise, affordable decision to avoid financial stress.
The biggest benefits? Investing in real estate can help you grow equity. It also brings variety to your financial portfolio. Property values tend to rise over time, helping homeowners build wealth. Paying off a mortgage can also boost your credit score and, for some, provide tax benefits.
Another advantage is stability. Renters may deal with rent increases or eviction. As long as homeowners stay on top of their payments, they have a secure place to live. Homeownership can be a great financial move if you buy within your means and plan to stay put.
My Rules for Buying a Home
- The cost of your home shouldn’t exceed three times your annual gross income.
- Keep your monthly mortgage payments under 30% of your net (take-home) income.
- Aim to save at least a 20% down payment before buying.
- Plan to stay in the home for at least five years to make the investment worthwhile.
Let’s see how these guidelines apply in a real-world scenario.
Let’s consider a typical physician household. Dr. Works-Hard, a hospitalist, makes $275,000 each year. Her husband works part-time and earns about $90,000. Their combined gross income totals approximately $365,000.
Following the 3x income rule, the highest home price they should aim for is about $1,095,000. If their finances look good and they have a 20% down payment, they may raise their budget to 3.1x or 3.2x their income. Yet, going much beyond that is risky.
Play With the Numbers
They must follow rule #2. To remain financially stable, your mortgage payment must be less than 30% of your gross income. Their gross income is $30,417 per month. After taxes, they’ll have an estimated $20,000 per month. Your mortgage payment must be less than 30% of your income. That would be around $6,000. This is important for keeping costs in line. It includes down payments, interest, property taxes, and insurance.
A $1,095,000 home with a 6.5% interest rate would result in a monthly payment of approximately $6,665.67. This amount includes property taxes at 1.1%, annual insurance of $1,500, and a 20% down payment. The exact amount may vary with different calculators. If that interest rate falls to 5.0%, that monthly fee is closer to $5,831.31. In this example, the interest rate is the deciding factor in whether this home is affordable.
Rent vs. Buy in 2025: Making the Smartest Housing Choice
So, how do you determine the best choice for your situation? There’s no one-size-fits-all answer. Yet, there is a choice that fits your situation. The first step is letting go of the outdated idea that renting is somehow inferior.
Both renting and owning have some pros and cons. Don’t allow outside pressure to make you buy if it does not fit your situation. It will burden your finances and lengthen your path to riches. Instead, use the above rules to make a sound judgment. If you can comfortably buy a house and plan to own it for five years or longer, then purchasing may be a great option. The best choice is the one that fits your lifestyle and favors your finances.