Choosing to Rent or Buy a Home in 2025
The decision to rent or buy a home is the root of much anxiety in many individuals’ lives. I found this to be true in my life, and I think that for those in healthcare professions with prolonged training, it can be even more difficult.
I rented until I was 32 years old and finally decided to purchase a home during the COVID-19 pandemic, and even then, it was a very difficult decision to make. I know firsthand how much anxiety can come when deciding to rent or buy a home. Further, especially for physicians, there is often a societal expectation that you ‘deserve’ a home. This way of thinking is toxic and can lead to poor decision-making.
This week, we will tackle choosing to rent or buy a home in 2025. This marks the 10th chapter of our Doctor Money finance series, which I hope to complete and formally turn into a publishable book or e-book in the not-too-distant future. Stay tuned!
Table of Contents
Doctor Money: A Personal Finance Guide for Physicians
Chapter 10: Choosing Your Housing Plan
A Common Misconception
I want to begin by formally dispelling your preconceived notions about homeownership. For those who think it is the ultimate sign of success or achievement, you need to shed that obsolete way of thinking. This is no easy feat.
As someone who fixated on owning a home towards the end of my fellowship, I can assure you that there are many more factors that affect this decision than you realize (assuming you are not already a homeowner and have learned these lessons firsthand).
I overhear individuals say things like ‘owning a home is the best investment you can make,’ and’ if you are renting, you are just ‘throwing your money away.’ Most people say these things flippantly, but they can perpetuate an expectation that if you rent, you are somehow ‘poor’ or ‘uneducated in the ways of finances,’ which is just blatantly false.
I know plenty of individuals who own homes that are significantly more than they can afford, which keeps them ‘house poor.’ Further, I know individuals who rent as a lifestyle choice, and they not only avoid all the ancillary expenses that come with homeownership, but it also helps them expedite their financial independence.
On the other hand, I know many geographic regions in the U.S. with high costs of living that have exorbitantly high rent prices, and I know individuals who took their homes and rented out rooms and turned a profit… and everything in between.
What you need to take away is that there is no ‘one size fits all’ answer when it comes to home ownership, but there are often right or wrong choices for individuals. This is often based on their expectations, budget, financial goals, and long-term plan. Let us start by talking about the benefits of renting.
The Benefits of Renting
I rented from the time I left college until my final year of fellowship, nearly 11 years. As many learn throughout their medical training, we are often relocated every few years. Four years in medical school. Then you match into a 3-to-7-year residency; perhaps you match again for subspecialty training/fellowship. This can be prohibitive from owning a home and is a great reason to rent.
A few things about renting. First, the number you pay in rent is largely the most you will pay monthly on your residence. This is a great thing for keeping a fixed budget. See, if you rent, then issues that arise regarding your residence are the owner’s financial problem, not yours. If the air conditioning needs to be replaced or the roof needs repairs, that is someone else’s problem. Advocating for their repairs as a tenant can be challenging, but ultimately, you do not fit the bill.
What I am alluding to is that there are many hidden expenses associated with homeownership. For example, any repairs that come up are your responsibility if your homeowner insurance doesn’t cover them. There are also homeowners insurance costs, property taxes, flood insurance (depending on where you live), any upgrades to the home, utilities (sometimes included in rent expenses), upfront costs to include a downpayment, and closing fees. The list could go on…
So, with all of that said, here are my rules for renting:
My Rules for Renting
- Your monthly rent payment should be no more than 30% of your monthly net income (take-home pay).
- Get renters insurance
- Do not look at rent as ‘wasted money.’
These are a few short rules I recommend to all who are currently renting or considering renting for the foreseeable future. Renting is an underappreciated option that society has often labeled as ‘inferior’ to home ownership, and that is ridiculous. Far too many people, medical trainees and physicians alike, succumb to the false narrative that you need to own a home to build wealth, and that is not true.
If you are not sure where your life will be in the next five years, find an affordable place to rent and stay. I bet you could calculate how much you are saving compared to a mortgage payment and invest that difference, expediting your road to financial independence.
The Benefits of Owning a Home
OK, OK… I don’t want to rain on the homeowners’ parade any further. There are some great things about homeownership, too. I own a home, and I don’t regret the decision (most days), but I also adhere to the rules I will highlight below, which have made my home affordable and helped avoid financial stress. Let’s briefly discuss some of the benefits of home ownership.
The most glaring ones are real estate investment, the diversity it brings to your portfolio, and the building of home equity. As many have seen over the past five years, real estate prices have continued to rise and remain a stable long-term investment. As this happens, many continue to grow the equity in their homes, thus subsequently growing the return on their initial investment.
Paying down a mortgage is also good for your credit score. It shows that you can manage a large debt and make payments regularly without defaulting. This can help build your credit. There are some tax benefits, too. I will not descend into the particular, as the overwhelming majority of readers here will just take the standard deduction (as do I), but for those looking to itemize their deduction, there are opportunities for tax benefits if done correctly and legally.
Lastly, there is a certain stability that comes with owning a home. This is an advantage of home ownership over renting, which is less tangible. With renters, though your monthly rent payment is (generally speaking) the highest you will pay for your residence, the landlord can always increase rent or potentially find reasons to have you evicted or price you out. These are extreme scenarios, but scenarios nonetheless. However, if you avoid defaulting on your mortgage payment, then you will always have a roof over your head. Better yet, if you follow the rules below, you will be nearly assured of having a home indefinitely (assuming you have exercised other intelligent financial practices previously highlighted in earlier chapters as well).
My Rules for Buying a Home
- The price of your home should be less than three times (3x) your annual gross income
- Your monthly mortgage payment should never exceed 30% of your monthly net income (take-home pay)
- You should save enough to cover a 20% downpayment (or more)
- You should plan to live there for at least five years (or more)
So, what do these rules look like in practice?
Let’s take an average physician household. In this example, Dr. Works-Hard is an average hospitalist making $275,000 annually. Her husband works part-time and makes approximately $90,000 annually. Their household gross income is approximately $365,000. Using my rule above, 3x of their annual gross household income would be $1,095,000. This would reasonably be the maximum cost of a home that they could afford. If they are in a good financial position and have a 20% downpayment saved (or more), then perhaps they could gently push this to 3.1x or 3.2x, but not much more.
Play With the Numbers
Now, they also need to adhere to rule #2, meaning their monthly mortgage payment needs to be less than 30% of their monthly net income. Their gross monthly income is $30,417. After taxes, their take-home pay is likely closer to $20,000. 30% of their take-home pay would be approximately $6,000. Adhering to this rule is largely where down payment size, interest rates, property taxes, and homeowner’s insurance costs have the biggest impact.
A $1,095,000 home at an interest rate of 6.5% (including property taxes at 1.1%, annual insurance costs of $1,500, and a down payment of 20%) will have a monthly payment of roughly $6,665.67 (depending on the calculator you use). If that interest rate falls to 5.0%, then that monthly payment is closer to $5,831.31. In this example, the interest rate is the deciding factor on whether this home is affordable or not.
Using the same parameters in the previous example, with an interest rate of 6.5%, but this time the family puts 30% down instead of 20%, the estimated mortgage cost is roughly $5,973.55. Here, the down payment is the determining factor in whether they can make this home work or not. You just need to understand how to play with the numbers.
Choosing to Rent or Buy a Home in 2025
So, how does one decide what is right for you? As I previously stated, there is no right or wrong answer. However, there may be a right or wrong answer for your situation. I think the most important step is to shed the notion that renting is ‘bad.’
Like anything, there are pros and cons to renting and owning a home. What you want to avoid at all costs is feeling pressured by this societal expectation that you need to own a home and then put yourself into a difficult financial situation, hamstringing your ability to build wealth. Use the rules provided above to determine what is right for you. If you have realistic expectations on what you can afford when it comes to homeownership and you plan on staying put for five years or more, then perhaps owning a home is a smart call. Who knows? Only you do, my friend.
Fortunately, some great tools across the internet allow you to alter the parameters that factor into housing expenses, homeownership, and renting. Take the time to play around with these calculators. The education alone, learning how different variables affect affordability, can help you better grasp the factors at play and how you can use them to your advantage. As always…
Stay motivated!
The Motivated M.D.
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This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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