Rent vs. Own 🏠️

Buying a home during med school feels like trying to memorize the Krebs cycle—you know it’s important, but it’s overwhelming, and no one really explains how to use it in real life. Sound familiar? In this newsletter, I’m walking you through my real-life experience of testing my “break-even price” strategy, some financial food for thought I wish we learned in our case based learning (CBL) sessions. Spoiler alert: just like treating a patient, success came down to preparation, a bit of risk, and some good timing.

In today’s email:

• Is Now The Time? 🏠️ Should I buy a home in medical school?

• Thinking ahead 🕰️ Detailing the new FHSA.

• My Personal Experience 😆 How it turned out for me.

👇 TRY IT NOW: Create scenarios to see how much student debt is manageable based on your specialty, lifestyle, and family plans. Plan smarter with just a click!

THE BIG IDEA

Is now the time? 🏠️ 

Let’s talk Homeownership: Is Buying the Right Move for You?

If you’re anything like me and my friends, the topic of homeownership comes up more often than we’d like to admit. With Canada’s real estate market on everyone’s mind, it’s hard to ignore. And if you’ve found yourself here, I’m guessing you’re a medical student (like me) trying to navigate this big question while balancing a demanding schedule.

Here’s the thing—we have a unique advantage compared to most: access to “cheaper debt.” I use quotes because, as you’ve probably gathered from my previous newsletters, debt is complicated. But when it comes to deciding between renting and buying, a few key factors can help guide the conversation:

1️⃣ Future Career Plans: Where do you see yourself in the next 5–10 years? Your residency or early career could mean relocating. Risk-averse advice says you shouldn’t buy unless you can hold the property for at least 10 years. More on why this matters in a bit.

2️⃣ Financial Readiness: What does your financial picture look like? Do you have savings for a down payment? An emergency fund? A solid credit score? Most importantly, do you know your monthly expenses? Without a clear understanding of your spending, committing to monthly mortgage payments can be a risky move.

3️⃣ Lifestyle Factors: How does homeownership align with your current lifestyle? Are you married with a dual income? Have kids and need more space? Renting offers flexibility, while buying provides stability and ownership—but only if it fits your life right now.

Let’s Crunch Some Numbers.

We’re all Type A here, so let’s talk numbers. Whenever I weigh buying versus renting, I calculate what I call the “break-even price.” This number shows the price I’d need to sell a home for in the future to avoid losing money. That’s the goal, right? Let’s break it down step by step:

💡 Disclaimer: If you’re studying or completing residency in a High Cost of Living (HCOL) city like Vancouver or Toronto, these calculations might look very different. Still, it’s worth running the numbers for your situation. 

1️⃣ Find Comparables: Look at rental prices for a similar property to the one you’re considering buying. Compare these to the interest costs of financing the purchase. Remember, your monthly mortgage payment includes principal repayment—don’t overlook this when comparing costs.

2️⃣ Project your Timeline: How long will you realistically live in this home? Calculate the total cost of owning versus renting over that timeframe. Ownership might cost more (or less) but you also need to account for…

3️⃣ Hidden Costs: Buying and selling a home comes with extra expenses:

• Buying: Land transfer taxes, home inspections, and mortgage insurance (if your down payment is less than 20%).

• Selling: Realtor commissions (4–5% of the sale price) and legal fees.

4️⃣ Do The Math: Take the cost difference between owning and renting, add the hidden costs, and you’ll find your break-even price. This gives you a conservative estimate of what you’d need to sell the home for to avoid financial loss. 

The choice to buy or rent isn’t easy, and it depends on your goals, finances, and timeline. Use these steps to start the conversation—and make the decision that’s right for you.

Thinking Ahead 🕰️ 

Dreaming of homeownership while juggling medical school? The First Home Savings Account (FHSA) could be the tool to make it happen. This government-backed account is designed to help first-time homebuyers save for a down payment with a few major perks: tax-deductible contributions, tax-free investment growth, and flexibility. Here’s what you need to know to make the most of it:

Key Features of the FHSA

1. Generous Contribution Limits: You can contribute up to $8,000 annually, with a lifetime maximum of $40,000. If you don’t max out in one year, unused room carries forward to the next. While your contributions are capped, your investments can grow beyond $40,000 tax-free.

2. Tax Benefits: Contributions are tax-deductible, meaning they reduce your taxable income. Plus, any earnings from your FHSA investments are tax-free, which means more money toward your dream home.

3. Home Purchase Deadline: Funds must be used within 15 years or by the time you turn 71. If not, they roll into your RRSP, maintaining their tax-advantaged status.

4. Eligibility: You must be at least 18, a Canadian citizen or permanent resident, and have never owned property in Canada before.

Steps to Get Started

1. Choose a Financial Institution: Open an FHSA with your current bank or explore options like WealthSimple or Questrade for easy, low-cost investing.

2. Open an Account: Have your ID and required documents ready to set up your account.

3. Set a Savings Plan: Regular contributions are key—$666 a month will get you to the $8,000 annual max. Consider automating transfers to stay on track.

4. Invest Smartly: Grow your savings faster by investing in low-cost ETFs or mutual funds within your FHSA.

5. Monitor Your Progress: Review your contributions and investment growth regularly, and adjust as needed to stay on target.

Why It’s Worth Considering

The FHSA isn’t just a savings tool—it’s a strategic way to grow your money and take advantage of significant tax breaks. Whether you’re planning to buy in a few years or further down the line, starting now gives you a head start.

Your dream home might feel far away, but with an FHSA, each step brings it closer. Don’t wait—open your account today and start building your future!

Did you know?

My Personal Experience 😆 

It was the summer between my 2nd and 3rd year of Medical School. We’d relocated to a smaller community for clinical rotations and needed a place to live. After weeks of unsuccessful searching, the thought of buying crossed my mind. This was when I came up with (and tested) my “break-even price” strategy for the first time.

Calculating my Break Even Price.

1. Find the comparable’s

   • We wanted to live near the hospital to save on gas and vehicle costs. The best rental option we found was a 2-bedroom, 2-bathroom apartment for $1,800/month (not including utilities). Across the street, an older apartment building was selling 2-bedroom, 2-bathroom units for just under $300,000. At the time, interest rates for a line of credit (LOC) were around 5%, and getting a mortgage for such a short term didn’t make sense.

2. Projecting my timeline

   • I anticipated this would be a short-term purchase—two years at most, until residency started and we’d relocate again.

     • Owning Costs: $1,250/month → $30,000 total

     • Renting Costs: $2,000/month (including utilities) → $48,000 total

   • On the surface, owning seemed cheaper—but I had to account for the hidden costs.

3. Hidden Costs

   • Here’s the breakdown of additional costs:

     • Property Transfer Tax: $3,000

     • Legal Fees (buy + sell): $3,000

     • Home Inspection: $500

     • Property Taxes: $450/year → $900 total

     • Maintenance: $1,000

     • Realtor Fees: $15,000 (5% commission on sale price)

   • Total Hidden Costs: $22,950

4. Bonus! Renovations

   • The apartment needed updates, so we spent about $20,000 on DIY renovations, replacing the kitchen cabinets, countertops, flooring, and bathroom vanities—all before Year 3 began.

5. Number Crunching

   • After including the renovation and hidden costs, our break-even price came to $327,900. Interestingly, even without the hidden costs, owning was cheaper than renting over the two years. This highlighted how crucial it is to consider the full picture.

🏆️  RESULTS? We sold the unit for $334,000, making the decision to own a good one in this case. That said, luck played a role—market timing worked in our favor when we bought and sold.

Final Thoughts.

It’s easy to look at numbers and summarize a scenario, but owning a home comes with stressors and complications you can’t predict. Personally, I’ve always dreamed of owning a home, so I’m willing to accept the added risk and responsibility.

That said, you need to be honest with yourself before jumping in. Ask the tough questions, weigh the risks, and remember: this is just my experience—not financial advice. My goal is to provide a real-life example of how buying real estate worked for me during medical school.Until next Saturday…

Christian, Founder of Budget Your MD

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