WHY to BUY BEFORE RESIDENCY
I know ! I know! I love White Coat Investor too, and if you’ve been around the WCI community for any time at all you’ve undoubtedly heard Dr.Dahle disparage the “homebuying bug” that new residents tend to get. In some ways, he’s right…you’ve likely been renting for several years and feel like you deserve a “little treat” (in the form of a new house). We all know that sometimes the “little treat” philosophy doesn’t make for the most well thought out decisions. HERE IN LIES THE PROBLEM. It’s not the treat in itself, but the lack of forethought and wise decision making about what that treat is.
We vehemently disagree with the hard and fast rule of “do not buy a home during residency” (and can refute each of WCI points about not buying during residency) for those who take the time to educate themselves, weigh all options from the perspective of long term wealth, and to work with a real estate advisor who understands where you are in your career cycle and your life and how that SHOULD effect the type of properties you consider. You can check out that previous link for some perspective on Dr. Dahle’s reasons not to buy during residency, and below I’ll go into a few reasons that you SHOULD buy before (or during) residency.
- “The best time to buy real estate is always 5 years ago” – or “don’t wait to buy real estate, buy real estate and wait”….all of the old mantras that basically boil down to equity over time and the general principle of appreciation in the value of real estate over time. The earlier you buy, the more time it allows for you to build equity during your residency and during your ownership of the property! (For those wondering what the heck is “equity”). Over the course of decades, on average, real estate has always increased in value over time. This means that if you wait until after residency to buy…you could be buying the same house for much more. There have been short periods like the real estate crash of the early 2000s that saw a temporary decline in real estate values; however, in Indianapolis it took only about 18 months for the market to recover to pre-crash values. Indianapolis and the surrounding areas continue to be one of the most resilient markets, if you buy correctly. Make wise buying decisions, so that you can ideally turn your residency home into your first cash-flowing rental property post-residency. Whether you sell or hold at the end of residency, a longer tenure of ownership allows that equity to build for as long as possible, and increases the likelihood that you buy ahead of even more price inflation.
- A Future (or current) First Investment Property with 0% down payment- There will not be any other scenario in which you’ll have the ability to buy an investment property with 0% down. While you can not use a physician loan to buy a home that you do not intend to live in , you CAN use it to buy a home you intend to live in first and subsequently convert into an investment property when you move onto a different home. You can also use some physician loan products to buy a duplex , where you would live on one side and immediately rent out the other. This would mean immediate cashflow for you and can help to cut down on your living expenses to more quickly pay down student loan debt, max out retirement accounts , etc . Unless you have experience with investment properties, you’ll want to consult a trusted real estate advisor to help you evaluate cash flow potential for each property.
- Trial by Fire Intro to Real Estate Investing – For the next 3-7 years, this may be the BEST TIME you have available to truly get some training and experience in evaluating real estate deals. If you know you have an interest in owning rental real estate as a portion of your financial freedom plan, there is no better time than the present to gather the knowledge you need to be ahead of the curve. It’s likely that about 7-10 years out of training is when most of your colleagues will begin to think about how they’re investing their money and their wealth planning (at least this has been our experience), and at that point you will have been investing for 10-15 years. Start your financial education and path to financial freedom as early as possible
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