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  • New - A few questions

    Looking for some direction - my current situation

    Wrapping up first year out of residency

    30 yrs old

    Dental Specialist

    Loans

    $243,000 Dept of Ed, around 6.5% avg on REPAYE

    $85,000 - Private (family) at 5% - paid $10k last year, on hold for now

    $18,000 residency relocation loan 4%

    $20,000 - Dept of Ed (Wife) around 5.5% - making minimum payments

    No other debt (credit card, mortgage, cars, etc)

    Income

    Paid on production, last 3 months AVG $35k pre tax

    Wife is stay at home mom

    Assets

    $100k cash

    That is all. No retirement, etc.

     

    I am trying to plan in the next 6 months for purchasing the following cross-country:

    A home (looking $200k or less)

    Starting a practice (and purchasing real estate, hoping to keep this under $500k)

    Refinance student loans (REPAYE has allowed me to build liquidity but the loan balance is going up, when I recertify income this year payment will go up)

     

    I am just looking for general direction I guess. Does it make sense to refinance now to get a lower % or keep it on REPAYE in case the S hits the fan with new practice?

    I cannot imagine renting another home after having spent nearly $100k in rent (High COL area in residency, west coast) in the past 3 years. Should I apply for a mortgage first before applying for a practice loan? Or refinance student loan first?

    What do you guys think?

  • #2
    Is the 35k per month or per quarter?  So you are moving cross country and planning on starting a practice?  Any kids?

    Comment


    • #3
      Well, you asked, so I'll answer. Quite frankly, I think this sounds scary. Kid(s) at home with a SAHM, on the high side of student loans, low income, and more debt for a practice (in a new area? Or your hometown?), practice real estate, and a house. What will you live on?
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

      Comment


      • #4
        Ahhhh I see you haven't worked with too many fresh dental specialist grads  8-)  :lol:

        Undergrad - no debt
        State school for dental $220k (FYI private schools hover around $360-400k COA) loan has bumped up to 243k through the 6 years since I took the first loan out (cost of gaining liquidity) I have paid off $25ish in past 4 years
        Got paid in residency (most programs don't pay, they actually cost money - Between 40-100k/yr)
        So - many in my position are 400k-600k principal plus 6 years of 6.8% interest to get to this point (I know one guy at 850k for 7 years of USC tuition LOL) .
        Could be much much worse  :lol:

        So I'm on the low end of debt for recent grads (unfortunately didn't get any scholarships in dental school despite being #1 in class, guess my parents made too much $ - which is what scholarships are based on)

        $35k/month pre tax is not great I suppose but not sure if that puts me low income? Last month was $45k but that's the highest I've been and there are changes coming in my current practice - I.e not sustainable at that level, may be able to maintain 35k/month for next 6 months. I also get no real benefits like healthcare, retirement, I pay malpractice, DEA, professional dues, and licensing fees, etc with post tax $

        There really aren't any other choices as a specialist. Open on your own or be subject to wild fluctuations in pay with little job stability, and have little to no control over anything.

        Any ideas on the above regarding loans and sequencing? Thanks!

        Comment


        • #5
          edit:fixed emojis and edited loan amounts

          Comment


          • #6
            I don't know, maybe others will disagree with me, but it seems like you've become "debt numb."  You have 343k in debt at high interest rates and no retirement savings and you're talking about potentially adding another 700k in debt.  That will put you over a MILLION dollars in the hole.  That's crazy to me.  I wouldn't be able to sleep at night.  You have the ability to earn a strong income now, even if it does fluctuate from month to month.  You need to start you retirement savings now.  The longer you wait to start the lower your potential savings will be and the harder you'll need to work to get where you need to be for retirement.  Time in the market is key.

            Wouldn't it be smarter to keep working at least a few more years to get a handle on those student loans?  6.5% is a heavy finance charge.  And I don't personally believe anyone will be getting loan forgiveness under the current administration.  Your balance is growing which means you're throwing away money on interest every month.  Yes, you need to refinance, but if you take on another giant loan its not going to seem like you've accomplished much.  If I were you I would keep working a few more years and knock out that student loan balance.  You can use some of the 100k you have sitting around for that. Put at least 80k towards the loan balance now.  That leaves you with 20k for an emergency fund.  Then you'll have 180k of student loans left to deal with (including your wife).  Refinance that and start paying it off aggressively.  You should be able to get rid of 180k in a few years if you're making what you make.  At that point you'll be in better financial shape to take on a mortgage, a business loan and to start your own practice.  You'll still be under 35 y/o at that point, so I don't think you'll have lost anything by waiting

            And it's dangerous to tell yourself "it could be worse" when comparing your situation to your peers.   Your peers are INSANE to take on that much debt for school.  You need to look at your situation and compare it to other 30 year olds and realize that your net worth is super super low.  You're poorer than a 30 y/o janitor who started working right out of high school at this point.  Yes, you have the potential for big income, but 1 million dollars of debt is very very risky.

            Comment


            • #7
              Welcome!

              Great job so far. I see you needing these 5 large categories of expenses:

              1. emergency fund (done!) - but you need to have this at least in a high interest savings account (at least you'll get 1%).

              2. life/bills/etc

              3. Student loans

              4. new house / rent / etc

              5. New Practice

               

              I think the safest (less risky) path is to rent in a cheap place, and crank out the student loans, then buy a house and practice once you know you're settled. You'd get a fine income, but not a huge one until later years.

              Do you know where you want to start said practice? As a dental specialist, do you need to open a practice, or can you just spend 1day/week in different practices? (don't know your focus/specialty here...) If you do need/want to open a practice, you need to have a business plan, and really be sure of the #'s before you start. A mortgage on a 200-300k/house won't kill you at that income.

               

              I'd usually recommend paying down the loans ASAP, as you're bringing in a lot each month. However, depending on your timeline to move/buy house and buy practice, you may be served to keep some cash for a downpayment (if needed for a practice). Home mortgage is deductible, and will be realistically low, compared to student and practice loans, so plan to borrow as much of the house as is reasonable/practical without paying PMI, etc.

              So, I'd take the 100k, save 20% of the house, and 6 months of expenses. I'd either pay the loans off, or save for a practice. If you're bringing in 35k/month, you can likely make a HUGE dent in your loans in the next 6-12 months, then be much for flexible about moving.

               

               

              Comment


              • #8




                Welcome!

                Great job so far. I see you needing these 5 large categories of expenses:

                1. emergency fund (done!) – but you need to have this at least in a high interest savings account (at least you’ll get 1%).

                I have looked at doing this - currently shopping rates, may as well get paid to have it sit there

                2. life/bills/etc

                We are averaging $6,000/month in bills. I know it is high, healthcare is very pricey but I also have to pay life/disability/malpractice/car/renters insurance, student loan payments, food, etc. I am trying to minimize this for the time being

                3. Student loans

                Considering refinancing, minimum payments are around $1,000 total based on last years income, which is being updated with student loans.gov right now for REPAYE 

                4. new house / rent / etc

                I get the renting idea - but when rent is $1,500 on a $200,000 house it makes absolutely no sense to rent. We have to live somewhere. How is there less risk in renting? AC blows outs, etc I get it. but what if it doesn't?

                5. New Practice

                To be 100% financed by bank. Business plan done, cash flow projections are conservative 

                 

                I think the safest (less risky) path is to rent in a cheap place, and crank out the student loans, then buy a house and practice once you know you’re settled. You’d get a fine income, but not a huge one until later years.

                Do you know where you want to start said practice? As a dental specialist, do you need to open a practice, or can you just spend 1day/week in different practices? (don’t know your focus/specialty here…) If you do need/want to open a practice, you need to have a business plan, and really be sure of the #’s before you start. A mortgage on a 200-300k/house won’t kill you at that income.

                 

                I’d usually recommend paying down the loans ASAP, as you’re bringing in a lot each month. However, depending on your timeline to move/buy house and buy practice, you may be served to keep some cash for a downpayment (if needed for a practice). Home mortgage is deductible, and will be realistically low, compared to student and practice loans, so plan to borrow as much of the house as is reasonable/practical without paying PMI, etc.

                So, I’d take the 100k, save 20% of the house, and 6 months of expenses. I’d either pay the loans off, or save for a practice. If you’re bringing in 35k/month, you can likely make a HUGE dent in your loans in the next 6-12 months, then be much for flexible about moving.

                 

                 
                Click to expand...


                Thanks for the input see comments above

                Comment


                • #9




                  Any ideas on the above regarding loans and sequencing? Thanks!
                  Click to expand...


                  So, to directly answer your question, I would:

                  1. Take 100k, save 30k for a house, and 40k as an emergency fund (or 6m of expenses). That leaves 30k.

                  2. Pay off your wife's loan today. Have a beverage together to celebrate one loan gone!!

                  3. What's the timeline for the family loan? Starting paying that off severalk/month. (just to get rid of it).

                  4 Move 15% of income to retirement starting next paycheck. Start retirement. (are you salaried, or self employed now - dictates the account options you have). Consider back door Roth.

                  5. Review your expenses, cut those you don't need.

                  6. Refinance your Direct student loans with SoFi/DRB/etc at a 5 year, low variable rate. Pay them off aggressively. Can you pay 5-10k/month to the loans?

                  7. Use your evenings to find a state/city, house shop, write a business plan.

                  8. Adjust as necessary as the loans are paid off.

                   

                  In 6 months, you'll have paid off a huge amount of loans, you'll have an idea where you could move, you'll have a realtor in mind, you'll have a neighborhood or 3 to look at on Zillow, you'll have (343-30-10*6) = 250k? in loans (down from 343). You're loans will no longer be growing.

                   

                  I'm less debt adverse than others here, but you have to have a solid business plan and rationale for debt. You likely have a good idea, but some folks just say "Oh I'll start a practice and make a ton" - that isn't a plan, that's an ignorant dream. It clearly can be done, but it takes some business acumen and work to ensure things are organized enough to make it work. I know a guy who did just that last year and paid more in taxes than most folks earn. Just takes planning. So, first have a 6 month plan, then have a longer term life and business plan.

                  Edit: sounds like you have a business plan - find banks/lenders to get financing!

                  Congrats on the start!

                   

                   

                   

                  Comment


                  • #10




                    Ahhhh I see you haven’t worked with too many fresh dental specialist grads
                    State school for dental $220k (FYI private schools hover around $360-400k COA) loan has bumped up to 243k through the 6 years since I took the first loan out (cost of gaining liquidity) I have paid off $25ish in past 4 years
                    Got paid in residency (most programs don’t pay, they actually cost money – Between 40-100k/yr)
                    So – many in my position are 400k-600k principal plus 6 years of 6.8% interest to get to this point (I know one guy at 850k for 7 years of USC tuition LOL) .
                    Could be much much worse

                    So I’m on the low end of debt for recent grads (unfortunately didn’t get any scholarships in dental school despite being #1 in class, guess my parents made too much $ – which is what scholarships are based on)

                    $35k/month pre tax is not great I suppose but not sure if that puts me low income? Last month was $45k but that’s the highest I’ve been and there are changes coming in my current practice – I.e not sustainable at that level, may be able to maintain 35k/month for next 6 months. I also get no real benefits like healthcare, retirement, I pay malpractice, DEA, professional dues, and licensing fees, etc with post tax $

                    There really aren’t any other choices as a specialist. Open on your own or be subject to wild fluctuations in pay with little job stability, and have little to no control over anything.

                    Any ideas on the above regarding loans and sequencing? Thanks!
                    Click to expand...


                    A few, but I don't see what everyone else is doing and "it could be worse" as reasons to dig the hole deeper. Perhaps a fresh perspective would help? As for low income, I was talking about starting a new practice, heavy debt, and single household income. I should have clarified that I think you would be better off to stick your current not-so-low and fairly guaranteed income. I think you're doing fine with that, even though I read it as $35k per quarter not per month, sorry for the confusion. Even better now.

                    Starting a new practice is stressful, particularly for dentists. If you were going into practice with a partner or buying your dad out, I might change my mind. It's great that you've saved $100k, but you're going to need that to live on and I am afraid you might eat into it pretty rapidly. jmfo (just my free opinion, not the other f word   )
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11
                      Overall is okay, if like you say, it werent all subject to changing and a cross country move. Theres a lot of uncertainty there. Buying a house at the same time is just plain suicidal for your liquidity and sanity at the same time as starting a new practice. That will require lots of liquidity and possible periodic injections of cash to stay afloat early on and a house will just be sucking that dry. The practice is your future lifeblood, get that going, get it running nice, pick a place that you like when slightly stable in practice.

                      Get your family loan to a reasonable rate for goodness sake, and refinance the rest while you still have a good income to better rates or terms that allow you to grow your practice.

                      You are acting a bit debt numb, but I think the practice makes lots of sense, but is of course risky as is school, etc...the house part just makes no sense and is too much stress on top of it.

                      Comment


                      • #12
                        Wow some great input here. Perhaps I am debt numb. I did not intend to compare myself to other people in my field - simply pointing out that I have made choices to minimize that debt number along the way, which has saved me a few hundred thousand dollars. It is almost impossible to do it for less tuition money outside of scholarships at this point in our country.

                        One thing I'm not understanding is purchasing a house. How is it more risky? A 200k house on a 30year mortgage versus $1,500-1700/month renting. Seems pretty straight forward that it's time to purchase instead of throwing another $50+ thousand away over next 3+ years.

                        Comment


                        • #13
                          A mortgage is fine (especially since the interest is tax deductible) if you can find someplace affordable that is in an area you will want to stay for awhile.  If you anticipate moving again in a few years it might make more sense to keep renting.  The cost of home ownership involves a lot more than the monthly payments.  If you sink a bunch of cash into the house and the market drops right before you need to move, you could take a hit.  That's where the risk is.  If you plan on buying and staying put for 5-10 years or so, then buying makes more sense IMO.

                          Comment


                          • #14




                            A mortgage is fine (especially since the interest is tax deductible) if you can find someplace affordable that is in an area you will want to stay for awhile.  If you anticipate moving again in a few years it might make more sense to keep renting.  The cost of home ownership involves a lot more than the monthly payments.  If you sink a bunch of cash into the house and the market drops right before you need to move, you could take a hit.  That’s where the risk is.  If you plan on buying and staying put for 5-10 years or so, then buying makes more sense IMO.
                            Click to expand...


                            EDIT: Accidentally quoted @hightower and not @justadent, my bad.

                             

                            Youre not including maintenance and the absolute given you will be paying more for a house than you would in an apartment where its normal and accepted to get something smaller than you would in a house. If you do a really honest all inclusive costs comparison there are very few markets where owning outright is a much better decision than renting. I say this as a homeowner and a landlord with my own renters.

                            Youre forgetting transaction costs, higher utilities (increases with house size), maintenance costs (very real), and that fact it 100% has to be paid and is an anchor to the region if things sour or dont work out and just cant be sold quickly and highly unlikely to do so without a real cost within the first several years. Its just choosing up front to make life harder for no reason whatsoever.

                            I will never regret renting the first couple years, I do however at times regret ever buying anything with its associated needs and PITAs that comes with home ownership. Sometimes I just wish I was back in an apartment where stuff was taken care of and I didnt have to worry about anything.

                            Comment


                            • #15




                              One thing I’m not understanding is purchasing a house. How is it more risky? A 200k house on a 30year mortgage versus $1,500-1700/month renting. Seems pretty straight forward that it’s time to purchase instead of throwing another $50+ thousand away over next 3+ years.
                              Click to expand...


                              As others have touched on, buying isn't always best. I can't remember where I read this (maybe it was on here) but renting a place gives you a ceiling on how much you're going to spend. You know you won't be spending anything more than that on shelter. Buying gives you a floor. You know what the minimum amount you're going to be spending is but there's an awful lot of room above that floor for additional spending. Tread carefully.

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