MtoM #227: Orthopedist Becomes a Millionaire 7 Years Out of Training and Finance 101: Leverage

Summary

White Coat Investor Podcast Episode Summary: MtoM #227: Orthopedist Becomes a Millionaire 7 Years Out of Training and Finance 101: Leverage Release Date: June 16, 2025

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1. Introduction

In this episode of the White Coat Investor Podcast, Dr. Jim Dahle welcomes orthopedic surgeon Kyle Stephenson to discuss his remarkable financial journey. Titled "Milestones to Millionaire #227," the episode delves into Kyle's transition from medical training to achieving millionaire status within seven years of residency, alongside foundational financial principles focusing on leverage.

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2. Guest Introduction and Background

[02:16] Kyle Stephenson:
Kicking off the conversation, Kyle introduces himself as an orthopedic surgeon specializing in sports medicine based in Indianapolis, Indiana. Since beginning his practice in 2018, Kyle has made significant strides in building his net worth.

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3. Journey to Millionaire Status

[02:44] Kyle Stephenson:
Kyle proudly shares that he has reached a $2 million net worth milestone within seven years of completing his residency. Reflecting on his childhood aspirations, he admits that becoming a millionaire wasn’t part of his early dreams. His focus was always on becoming a successful physician.

[03:29] Jim Dahle:
Jim acknowledges the achievement with excitement, highlighting how doctors often start their financial journey with substantial debt but can achieve impressive growth over time as their investments compound.

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4. Real Estate Investing Strategies

[05:03] Kyle Stephenson:
Faced with significant tax burdens early in his career, Kyle pivoted towards real estate investment after his CPA advised him to explore asset purchases. He utilized his asset line of credit to acquire properties, emphasizing the importance of leveraging existing assets to build wealth.

[05:39] Jim Dahle:
Jim probes into Kyle’s real estate portfolio, eager to understand the extent of his investments.

[05:42] Kyle Stephenson:
Kyle outlines his real estate strategy, which began with the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method. Starting with a single-family home in 2022, he expanded into Airbnb rentals, triplexes, and multifamily units. Notably, Kyle has invested in a 176-unit multifamily property in Savannah, Georgia, two hotels in Louisiana, and is currently involved in a new development in Westfield, Indiana.

[06:33] Kyle Stephenson:
When asked about entering the general partner side of real estate syndications, Kyle emphasizes integrity, financial education, and the importance of finding trusted partners and mentors. He stresses that educating oneself is crucial to avoid being taken advantage of in complex deals.

5. Balancing Medical Career with Side Hustles

[12:10] Jim Dahle:
Jim shifts the discussion to Kyle’s ability to juggle his demanding medical career with his entrepreneurial endeavors. He asks Kyle how he manages these responsibilities without burning out.

[12:29] Kyle Stephenson:
Kyle attributes his balance to intentional planning and disciplined time management. His days start at 5 AM with a workout, allowing him to work before his family wakes up. He benefits from having two half-days in his orthopedic schedule, dedicating these days to his real estate ventures. Emphasizing teamwork, Kyle credits both his surgical and real estate partnerships for maintaining efficiency. Additionally, he prioritizes family time by setting strict boundaries, such as keeping his phone away during designated family periods and adhering to a consistent bedtime to ensure adequate rest.

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6. Financial Lessons and Advice on Debt and Leverage

Following the interview, Dr. Dahle transitions into a comprehensive segment on financial leverage and debt management.

Understanding Debt and Leverage

[15:00] Jim Dahle:
Jim discusses the dual nature of debt, highlighting its role in fueling economic growth and personal wealth while also being a potential source of financial ruin. He underscores that all money is, in essence, debt, whether it's government-issued or created through fractional reserve banking.

Key Statistics on Debt

Jim presents alarming statistics:

• $807 billion in credit card debt.
• 4.2 trillion in total consumer debt.
• 45% of families carry credit card debt.
• 775,000 annual bankruptcy filings.

Guidelines for Managing Debt

Jim offers actionable advice on handling debt:

• Credit Cards: Use them for convenience, not credit. “Credit cards aren't for credit; they're for convenience” ([25:00] Jim Dahle). He suggests eliminating credit cards if they impede savings goals.

• Car Loans: Advocates for purchasing cars with cash or minimal financing, recommending loans no more than $10,000. He shares his experience of buying a reliable, inexpensive car to avoid long-term debt.

• Student Loans: Emphasizes the importance of having a repayment plan, particularly advocating for the Public Service Loan Forgiveness (PSLF) program. Kyle shares his personal struggle with PSLF, highlighting the uncertainties surrounding loan forgiveness.

Leveraging Investments

Jim explores the concept of leverage in investing, explaining that borrowing to invest can amplify returns but also magnify losses. He advises maintaining a debt ratio between 15% and 35% of total assets to balance growth and risk. Key factors to consider include:

• Interest Rates: Lower rates are preferable.
• Debt Duration: Align loan terms with investment horizons.
• Security: Prefer unsecured debt when possible.
• Tax Implications: Favor deductible debt to reduce effective interest rates.

Jim also discusses margin investing, cautioning about the risks of margin calls and the importance of ensuring investments remain cash-flow positive.

Characteristics of Quality Debt

Jim outlines characteristics of high-quality debt:

• Long-term vs. Short-term: Match loan durations with investment timelines.
• Fixed vs. Variable Rates: Favor fixed rates to mitigate interest rate volatility.
• Secured vs. Unsecured: Prefer unsecured debt to protect personal assets.
• Deductibility: Opt for debt that offers tax deductions.
• Non-callable: Avoid loans that lenders can demand repayment at any time.

Psychological and Practical Considerations

Jim advises listeners to assess their moral, psychological, and financial readiness before taking on debt. He emphasizes the importance of:

• Evaluating personal comfort with debt.
• Ensuring debt aligns with financial goals.
• Avoiding high-interest and short-term debts that can lead to financial strain.

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7. Closing Thoughts

As the episode wraps up, Jim encourages listeners to carefully evaluate their use of debt and leverage in building wealth. He reinforces the message that intentionality and education are crucial in making informed financial decisions. The episode concludes with a final shout-out to Kyle for his inspiring journey and a reminder to consult professional advisors for personalized financial strategies.

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Notable Quotes:

• Kyle Stephenson [02:44]: “I hit the $2 million net worth milestone.”
• Jim Dahle [03:29]: “Most doctors start relatively late, but it takes time for that money to start compounding.”
• Kyle Stephenson [06:27]: “Have high integrity is the biggest thing.”
• Jim Dahle [15:00]: “Debt is clearly something to be a little bit cautious about.”
• Jim Dahle [25:00]: “Credit cards aren't for credit; they're for convenience.”
• Jim Dahle [35:00]: “Debt is debt. There’s no such thing as good debt and bad debt.”

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This episode serves as an invaluable resource for high-income professionals in the medical field, offering insights into balancing a demanding career with strategic financial planning. Kyle Stephenson’s success story, coupled with Dr. Dahle’s expert financial advice, provides listeners with practical strategies to achieve financial independence and build lasting wealth.

Transcript

[Jim Dahle]

This is the White Coat Investor Podcast.

[Kyle Stephenson]

Milestones to Millionaire Celebrating stories of success.

[Jim Dahle]

Along the journey to financial freedom. This is Milestones to Millionaire podcast number 227. Orthopedist becomes a multimillionaire seven years out of residency. Southern Impression Homes takes owning rental property to the next level with their innovative 2.0 approach, focusing solely on turnkey new construction investment properties, single family homes, duplexes and quads in high growth markets of Florida. They handle every aspect of the process with expertise and efficiency, including financing, insurance and property management. To learn more about build to rent, visit whitecoatinvestor.com southernimpressionhomes or call 904-831-8058. All right, don't forget this month those of you booking consults with student loan advice. And there's a lot of you out there dealing with all the crazy changes in Washington, with the income driven repayment programs and with public service loan forgiveness that could probably benefit from a student loan advice consult. But if you book one this month, we're going to throw in an $800 online course from White Coat Investor called Continuing Financial Education 24. This qualifies for CME, so we're basically giving you a whole bunch of free CME as well. With that consult you can [e-mail] you don't have to have the meeting done by the end of the month, you just have to book it during June and you will get the course. You can save hours of research and stress, get answers to all your student loan questions, and let a professional guide you through the best options for managing your loans. Our staff has consulted with more than 2,300 borrowers on over $720 million in student loan debt. Potentially save hundreds to thousands of dollars with your custom student loan plan. Okay, let's get our interviewer on today. We've got a great interview coming up. This is with a fellow that really got into financial literacy and has not only done well in his career, but has done well in some of the financial side pursuits that he's been doing. Let's get Kyle on the line. Our guest today on the Milestones to Millionaire podcast is Kyle. Kyle, welcome to the podcast.

[Kyle Stephenson]

Thank you very much, Jim. Appreciate you having me on.

[Jim Dahle]

Let's start out by introducing you a little bit to the audience. Tell us what you do for a living, how far you are out of training and what part of the country you're in.

[Kyle Stephenson]

Yeah, my name is Kyle Stephenson. I am an orthopedic surgeon, sports medicine Trained. And I am in Indianapolis, Indiana. Been in practice since 2018.

[Jim Dahle]

Okay, so about seven years out, it sounds like. And you've recently accomplished a significant net worth milestone. Tell us what that is.

[Kyle Stephenson]

Yes, sir. Yeah, I hit the $2 million net worth milestone. I was pretty proud when I hit that.

[Jim Dahle]

Very cool. Congratulations. You are a multimillionaire. When. When you were a kid. What. What did that mean to you? To be a millionaire? To be a multi millionaire? Was that something you ever imagined you would be, you know.

[Kyle Stephenson]

No, not really. I mean, growing up, but. And it sounds a lot sweeter now that you say that, but I do. I mean, growing up. No, not really. I knew I wanted to be a doctor. I knew I wanted to be a sports medicine doctor. I wanted to take care of athletes. And then honestly, reading your book, and not to give you a plug or anything, but in residency, I mean, we all read it, and I just remember the chapter Millionaire by 40. And. And here I am 40 in a couple months.

[Jim Dahle]

So you doubled me. We made it just before 40.

[Kyle Stephenson]

But you got inflation and other things.

[Jim Dahle]

You know, I run into people all the time and talk to them like, you are more financially successful than I was. You're doing great, you know, and they feel like they're behind because they hear these people that have done incredible things, you know, and the truth is that most doctors, it takes time. It takes time. You start out in a big hole and you start relatively late, especially if you've done something with a long residency like ortho. And it just takes time for that money to start compounding, even when you make a lot of money every year. So tell us the journey. I mean, where were you at when you came out of medical school? Where were you at when you came out of residency? And what have you been doing for the last seven years?

[Kyle Stephenson]

Okay. So, yeah, and in residency, I was obviously reading your book. Like I said, I was also reading Robert Kiyosaki's books, you know, the Rich Dad, Poor dad and Cash Flow Quadrant. And I knew at some point I wanted to, you know, buy assets, cash flowing assets. And saying that when I got out of fellowship, we moved to Indianapolis, started practicing, and I really just. I maxed out my Roth IRA and residency and fellowship. I just really put money into the s and P500. I put about 30% of my income early on into the S and P and index funds and just built that up. And I did that for some couple years, really. And then I finally got to a point to where I was like, all right, I Got a tax problem. I think a lot of people hit that point.

[Jim Dahle]

It's amazing when all of a sudden you're paying more in taxes than you made as a resident, isn't it?

[Kyle Stephenson]

That's right. Exactly. So, yeah, my CPA didn't know what to do. He was like, you make too much money. Sorry, man. Do enough research. You realize real estate is a great place. So I did get into real estate, and with that being said, I used my asset line of credit to start buying some real estate. So I used some cash, but a lot of my asset line of credit and really built that velocity of wealth using my dollar in multiple places, and that's really helped push that trajectory. So started, like I said, index funds mostly, and then got to a point to where I could start buying real estate, and now I'm doing both.

[Jim Dahle]

Yeah, tell us what your real estate empire looks like.

[Kyle Stephenson]

It's pretty solid. I started with the brrr method. I bought a single family home in 2022. So in 2022, I finally was like, all right, I'm done being a limited partner. I want to start being active, more general partner. And so I gave myself five years, and at this point, it's not even three years yet. I did my first one with single family home, then Airbnb, then a triplex, another Airbnb started small. Then I started joining teams of apartment multifamily units. Have a multifamily 176 unit in Savannah, Georgia, two hotels in Louisiana. Just raised on a new development here in Westfield, Indiana. So really have built. Started to build that empire.

[Jim Dahle]

Yeah. You're having fun with this, I can tell you. Enjoy this.

[Kyle Stephenson]

Love it. I love it.

[Jim Dahle]

What would you say to somebody else that wanted to get onto the general partner side, that wanted to run a syndication?

[Kyle Stephenson]

Yeah. Biggest thing is, I mean, a couple things like have high integrity, because we're learning these last four years that, you know, the market's not as good as it was, you know, from 2010 basically, to 2019. So find trusted partners, gain financial intelligence. I mean, I tell most people, if you read books to learn information, you'll get ahead of 98% of people. So really just start educating yourself financially. Educate yourself on real estate investing, partnering up with the right people. Find mentors, you know, reach out to them and say, hey, what can I do to learn this stuff and start doing it, as opposed to just start, you know, as opposed to just throwing your money in. I think that's where doctors get burnt is they throw their money in. Expect a big Return where in fact, you know, they get taken advantage of because they didn't understand the deal.

[Jim Dahle]

Yeah. Tell us a little bit about leverage in your life. How much, how much do you borrow against your real estate properties, for instance?

[Kyle Stephenson]

We do use leverage. Of course, I keep it small on my personal ones. I definitely keep it small. So I've bought the properties with asset line of credit. All right, so not really using my own cash, but. And then I do a cash out refi after I do my forced appreciation. Excuse me. So once I do forced appreciation on the property value add, then I do a cash out refinance, pull most, if not all of my money out. Now I have no money in the deal, so the risk is really low. So I'm big on keeping. I mean, leverage is important. And that's why real estate's great as opposed to the stock market. Because the stock market, you put in 10,000, it's 10,000 in a house, you put in 10,000, it could be worth 50,000 or five times. So I do use leverage, but you gotta be smart with not being overleveraged. And I think that's the big thing.

[Jim Dahle]

Yeah, for sure. Overleverage is how a lot of people get in trouble in the real estate world. It's one of those things. It's kind of like the price is right. Right. More is better. It is better. You're closer. You're closer until you go over.

[Kyle Stephenson]

Exactly.

[Jim Dahle]

Then all of a sudden your property's not cash flowing and your life's falling apart and it becomes really messy. So in reasonable amounts, it can work. And there are ways you can apply some leverage, even to a portfolio that's primarily invested in the stock market. You mentioned your asset based loans, for instance. I mean, if you have a mortgage and you're also the stock market, you're technically investing on leverage there as well. Very cool. So you got interested in financial literacy win during residency or what was it that made you decide I want to start learning this stuff?

[Kyle Stephenson]

Great question. I mean, during residency for sure. I would say medical school. I was focused. I'm going to be a successful orthopedic surgeon. I don't need to worry about this stuff. And then I was in residency reading books, started to get more curious and. Really? And you talk about this once you understand it enough, your financial advisor really can't help you to a certain point. I did have a financial advisor when I got out. He was a dad's, you know, one of my dad's buddies, and he did great for me. But I started learning myself that, you know, he can't make more money for me than I can in the s and P500. Right. Or the stock market index funds. And so I started realizing that, doing my own due diligence, learning real estate on my own, and finding mentors that would help me along the way. But I was always just very, very curious. I have older brothers who are businessmen and you know, a lot of things they've told me I appreciated. But I also want to figure it out for myself, like, is that the real, you know, is that how it really is instead of just taking people's word for it? So just curiosity has always been there. I have a podcast now where I do try to educate on real estate investing and you know, other entrepreneurial mindset shifts. But yeah, I think the biggest thing is just being curious and trying to figure it out for myself.

[Jim Dahle]

Yeah, very cool. So what, what this start look like? I mean, do you end up paying for medical school with loans or what do you do to get through medical school?

[Kyle Stephenson]

No, I mean, my parents were, you know, they did well in their, in their careers, but they were not going to pay for my medical school. So undergrad I had full ride scholarships, played baseball and football and then medical school I had to pay for. And I actually still have the loan unfortunately. And obviously that's a ding on my, on my net worth. But I, this is crazy. So I'm, I'm doing the public service loan forgiveness program and I am, I'm about six months beyond those 10 years of what should be. So it should really should be forgiven.

[Jim Dahle]

You're in that save forbearance trap that a bunch of people are in right now.

[Kyle Stephenson]

Yeah, you got it. We're in the trap. And unfortunately for me, what I did is, oh, post Covid I was having, you know, I was feeling really stuck and, and that's really, you know, what helped push my, my real estate, you know, financial stuff as well. But we moved to Charleston, South Carolina. My wife and I, we had our first son and we were feeling stuck. And we're like, we need a change of heart, you know, or a change of scenery. Let's go to the beach. We did that and when we did, we went from a nonprofit to a for profit for two years. We would not have had to pay those loans. We would have been forgiven if we didn't do those two year stint. But it was worth it on one hand because, you know, it changed my whole mindset. Now we're back with three kids and we're Glad we did it. We love it. But now my loans are stuck and I mean, I thought in January I was going to be scot free, like, good to go. And then, you know, you already know what happened, so we'll see what happens. I mean, there's a possibility they'll let us buy back those forbearance months. You'll know more than me. I mean, I try to keep up.

[Jim Dahle]

With it, but yeah, give it a month. And I think it's going to be a lot more clear exactly what's going on in this space. So, yeah, it's stay the course for now. I think those going for pslf, especially somebody as far along as you are in it, it's still going to work out just fine.

[Kyle Stephenson]

I appreciate that.

[Jim Dahle]

Yeah, very cool. Well, I think people might be interested in hearing about how you balance your life as an orthopedic surgeon with kind of these side hustles. You're doing a podcast, you're running syndications, you're buying properties, you're making deals. Tell us how you balance all that without feeling like you're working all the time.

[Kyle Stephenson]

Yeah. So intention, I would say, is the biggest thing. Setting my day with intention. I have a wife, beautiful wife, and three young kids, 4, 2, and 11 months. And so that keeps us busy, as you can imagine. But my day starts 5am, get my workout in, and then it gives me a good buffer of a couple hours before my kids get up so I can get some work done. And then it's orthopedics. Luckily, I have two half days of orthopedics, Monday and Friday. So I do get some real estate stuff done during those days. And then also a big part of it is teamwork when it comes to surgery. Not only that, but also in real estate, I would say teamwork. So having trusted partners goes a long way to help me out. Who, not how by Dan Sullivan. Classic book. And then really? Yeah, setting. Carving out time in the day for my kids and my wife and keeping the phone away, that's the hardest thing to do because, you know, you come home as a physician, you're on call or whatever it is, like your phone's always available. Same thing with real estate investing. Same thing with podcasts. I mean, there's always screens and always this, you know, things that can get in the way. So setting that time for your wife and kids. Set up date nights with your wife. Set up time with my kids where the phone is away and I have to hang out with them because I enjoy doing that. But I also Want them to know, hey, you're more important than my cell phone. And so being intentional with all that stuff. And then I'm in bed by 9:00pm I mean, if I have a podcast recording, we're doing that 7:30, 8:00, kids are in bed. I can knock that out quick. And I'm in bed by 9pm so I love it. 9pm, get sleep until 5am and feeling good and rested.

[Jim Dahle]

Very cool. Well, congratulations to you, Kyle, on your success and thanks for being willing to come on the Milestones to Millionaire podcast. Inspire others to do the same.

[Kyle Stephenson]

Absolutely. Can I just say one thing real quick? Really a shout out to you just for what you've done with everything. And you've inspired, obviously, a ton of people, so we appreciate you and keep going and getting these things out there.

[Jim Dahle]

Very welcome. Okay. I hope you enjoyed that discussion. The fun thing about medicine and finance is you can pick any ratio you want of medicine to side hustles to real estate investing and build your ideal life. You know, for some people, they're going to go, I do not want to do any of that. I just want to go to a clinic and I want to see patients and I want to come home and I want to enjoy my time doing other fun stuff. Totally understand that. Right. I spent most of this week that I'm recording this rafting on the middle fork of the salmon. It was incredible. I didn't think about medicine well, I had to treat one of the other people on the trip actually with my portable error. But I didn't think about finance other than talking with one of the first year medical students for a few minutes. That was on the trip. But mostly we talked about life and we talked about rafting and we talked about fun times. So I get people that don't want to spend a lot of time doing side hustles, but you get to choose how much you know. And some people are like, I want out of medicine as fast as I can. I'm building this real estate empire so I can punch out. And that's great for them. Right. Find the balance for you when you're looking for these things. Now, I wanted to talk a little bit today about debt. Okay. Leverage called sometimes. It's commonly discussed among entrepreneurs, among people that are into real estate investors, certainly people running syndications talk a lot about the velocity of money and leverage and other people's money. All they're really talking about is debt. Right. There are benefits to debt, there are dangers to debt. So let's spend a few minutes Talking about debt, it's a bad rap in the world's great religious books, as well as most the financial media in the blogosphere. And it's true, debt is in large part responsible for lots of good things. The wonders of the world around you, our economy, our lifestyles, and the best the world has ever known are in large part fueled by debt. In many ways, this consumer culture is the strength of America. And so let's be honest, right? What is money? Money is debt. When a government issues currency, it's simply a note backed by the government's ability to tax. But most money is not created by the government. Most of it's created by banks. It's called fractional reserve banking. You put money in the bank, they pay you 0.6% on that money. It loans out money to others at 6% and basically creates money in the process. It can loan out more than it's actually taking in. And so that's, you know, how a lot of money gets created. And this has, you know, made a lot of really cool things in our lives that we enjoy that are really due to our financial system and to debt. On the other hand, debt has ruined lots and lots of lives out there, right? Years ago, the consequences of defaulting on your debt were much more severe, right? You go to debtors prison, it was a real thing. In the 1840s, if you didn't pay your debts, you literally went to prison until you or someone on your behalf paid them, right? There were no corporate or personal bankruptcy protections. Those are relatively new in the history of the world. So you can imagine why the Old Testament or the Quran or the Talmud or the New Testament, whatever will talk about debt being bad, right? I mean, you end up in prison for it. It's a real problem. And but even if you're not religious, there are a lot of disturbing statistics out there, right? Just a few years ago, I looked some of them up. The average American credit card debt was 6,300 bucks. The total amount of credit card debt, and this is a few years ago, is more now was $807 billion. The total in consumer debt is like 4.2 trillion. That's like close to the government's budget for the year, right? It's a huge amount of money. 45% of families carry credit card debt. Carry it. I'm not talking about, you know, pay it off every month. 45% of families are carrying it in the lowest quartile by net worth. The median net worth is $310. And the average credit card debt is $4,830. That's a quartile, that's a 25% of the U.S. population has on average a net worth of $310 and credit card debt of 4,800. And the average credit card debt isn't just among poor people, right? It goes right up when your income increases, when your education increases, your average credit card debt goes up. And more than 775,000 people a year file for bankruptcy. Right? So if you don't know someone whose life's been ruined by their financial debts, you just don't know enough people. So debt is clearly something to be a little bit cautious about. So some guidelines about debts. One thing to learn early on is credit cards aren't for credit, right? They're for convenience. You probably spend more money if you're using credit cards. If you don't believe that, you're probably wrong. And so if you need help spending using a credit card might help you to do it. But if you're not saving as much money as you need to reach your goals, maybe it's time to get rid of the credit cards. People also don't like that I tell them to buy cars with cash. Now I'm amazed that people borrow money for seven years to buy a car. I find it absolutely amazing. Fine, if you got a three month car loan, whatever, I don't care. Frankly, most doctors can afford to make plenty of financial mistakes. They make two or three or four hundred thousand dollars a year. It really doesn't matter if they buy a $60,000 car on credit or save up for an extra eight months and pay cash for it, it doesn't matter that much. But the attitude toward debt and the attitude towards saving up to buy things you want I think does have an effect on how people build wealth. And frankly, I really don't think anybody ought to ever have a car loan that's more than $10,000. Because you can get a pretty darn reliable car these days. It'll get you everywhere you need to go for $10,000. So if you combine that with whatever amount of cash you have, there's little reason to ever have a car loan for really more than that. I mean, first car I drove as an attending cost me $1850. It was extraordinarily reliable. I bought it at an auction. I had to put four used tires on it, a new battery and some new windshield wipers in four years. And then I basically sold it for the same price I bought it for. You don't have to spend a lot of money to get reliable. Now, it wasn't flashy, it wasn't nice. In fact, the AC didn't even work. But luckily I wasn't commuting in the afternoon most of the time. And so realize that you don't have to have super fancy cars paid for with debt to be a doctor. Student loan debt, right? Lots of you out there have student loan debt and you need a plan to deal with it, right? Does medicine still make sense? Yeah, it mostly makes sense. Even if you had to pay for the whole education with borrowed money, it still makes sense. Number one, like half a doctor's jobs out there qualify for public service loan forgiveness. And even for those that take a job that does not, if you will just live like a resident for two to five years afterward, you will be able to pay off those student loans. But I suggest you actually go ahead and do that. Dragging student loans out for years and years and years and years and years is generally regretted. Have a plan for your student loans. You've heard my general rules for mortgages, right? Limit the size of your mortgage, if you can, to no more than twice your gross income. Now that's getting harder and harder these days with our housing crisis and the price of houses going through the roof. I mean, I think my house now is far more than two times what my physician income could be. I don't know who's going to be able to afford to buy houses in this neighborhood when they get sold by their current owners, but people keep buying them. I don't understand it. But be careful, right? You can become house poor to where your house dominates your financial life. When I say if you're in a high cost of living area, maybe you can stretch that guideline a little bit. I'm talking about stretching it to three, maybe four times your gross income, not ten times your gross income. That's a recipe for disaster. Don't do that. Other consumer loans, right? You don't buy stuff on credit, save up the money, then go buy it, Right? Whether it's a boat or a snowmobile or furniture or rugs or paintings or anything else, right? Those things are much more enjoyable when you can pay for them once and know it's paid off. There's this idea out there that there's good debt and there's bad debt out there. That's pretty superficial, right? There's a lot more nuance to it. Right? For example, tell me which one of these is the good debt and which one is the bad debt? An $800,000 6.8% student loan or a $4,000 2% car loan. Which one's a good debt, which one's a bad debt? I can tell you which one I'd rather have. But there's no such thing as good debt and bad debt. There's just debt, okay? And the fact is, most of it's fungible, right? Once you have it, it's debt. And if you have some debt, everything you're buying, you're buying with borrowed money, right? If you got a 4% mortgage, well, unless you're paying off that mortgage, you're buying something else. You're buying food. Well, you're borrowing a 4% to buy that food, right? And that's probably fine if you need to feed your family. But keep in mind that leverage is leverage, right? Debt is debt. Whatever it's borrowed on, it can be used for other things. Okay, let's talk a little bit about investing on margin, right? Or investing with debt, right? Lots of people out there advocate for 100% stock portfolio. They're like, bonds are stupid. They don't return very much in the long run. Stocks have always done better than bonds, blah, blah, blah. My question for them is, why would you stop at 100% stocks? If 100% is good, why wouldn't 120% or 150% be better? Now, how do you get to that? By borrowing money and investing the borrowed money. Right? Debt's essentially a negative bond in that way. And you can borrow against your portfolio sometimes. It's surprisingly low rates. They're typically variable rates, but you can generally borrow up to 50% of the value of your portfolio. Now, you probably shouldn't borrow quite that much because you might get margin calls if the value of your portfolio falls. But borrowing 20 or 25% of your portfolio, you could get to 120% stock portfolio pretty darn easily. And debt works, right? If you're borrowing money especially at a low rate, and earning money especially at a high rate, you do come out ahead, right? The math is undeniable. That is the way it works. The problem is it works in both directions. When the value of your investment falls and you paid for it with borrowed money, it doesn't take much of a fall to wipe out your entire investment. So typically, when you are investing with borrowed money, and often this is done real estate. The main, most important thing is to make sure that real estate investment, that property still cash flows, right? Because even with a doctor income, you can only carry so many properties. With a negative cash flow, right? If you're having to go to clinic and see patients and operate in order to fund these properties, you can only carry so many. But if they all have positive cash flow, meaning they're all paying you, you can own an infinite number of them. So you ought to run the numbers, right, and figure out how big of a loan can you have and have it still cash flow. Right? And I've done this before and typically it works out to where you've got to put down 25, 30, 35, sometimes 40% to make sure that property is cash flowing. Okay, now the cap rate matters and the interest rate matters and those sorts of things matter in this calculation. But in general, the way you get a property, the cash flows is you put down more money you use, less leverage, less debt. That's how you make sure the property cash flows. And there's three factors. There's the interest rate, there's the capitalization rate on the property, and there's the down payment. If you have a 5% interest rate and a 4% cap rate, you need to put down a lot of money, maybe 40% to ensure positive cash flow. When the interest rate and cap rate are equal, say they're both 5%, you might be able to get it to cash flow with a 25% down payment. And sometimes you get a really great deal, really low interest rate, you can put down as little as 10%, still have a positive cash flow. But in general, putting down 25% to a third 33% as a down payment is the way to stay cash flow positive. In some areas of the country you gotta put down a lot more than that. Okay, so let's talk a little bit about characteristics of debt. Because if you're gonna use some debt, it's important that you use the best debt you can get. Debt can be short term or long term. In general, long term is going to be better, right? You don't wanna purchase a long term investment with a short term loan. You're buying, let's say a property you're planning to hold for 25 plus years and you're putting a 5% mortgage on it. Does that make sense to you? No. Try to get as long of a term as you can. Interest rate matters. Low interest rate is better than a high interest rate. It's just much easier to out invest a loan interest rate when that rate is low. There's fixed debt and there's variable debt. Fixed debt is generally better than variable debt. Now, variable might have a lower interest rate so you got two factors you're weighing. There's. But when rates go up dramatically like they did in 2022, the people with the fixed debt are very grateful they have fixed debt. Debt can be secured versus unsecured. And unsecured is better. Right? If your debt is secured by your home and you for some reason can't pay it, they come take your home if it's unsecured. If it's your credit card debt, you know, you just thumb your nose at them. Yeah, they ruin your credit report, but they can't take your home. So in general, an unsecured debt is better than a secured debt. Again, you usually get a better interest rate if you've got some security behind it. But there's multiple factors to weigh. Deductible debt is generally better than non deductible debt. Right. For example, on an investment property, your mortgage interest is a deductible expense. And so that lowers the effective interest rate on it. Right. Same thing with margin loans. You can deduct that as an expense on your taxes. Up to $2,500 a year of student loan interest can be deducted if your income's low enough. Most doctors that are practicing as attendings don't qualify for that. But deductible debt is a little bit better than non deductible debt. And non callable debt is better than callable debt. If you have a debt that the lender can call in any time, it's very hard to take a lot of risk with that money. So a non callable loan is much more attractive for long term investment purposes. All right, so if you're going to take out debt, try to get the very best debt you can get. A mortgage debt tends to be long term. Low interest, tends to be fixed, tends to be deductible, tends to be non callable, but it is secured. A margin loan is long term, low interest, it's deductible, but it's generally a variable rate and it's callable and it's secured. Student loans can be long term, they can be fixed, they can be non callable, they can be non secured, but they're mostly non deductible for this audience. And they may have high interest rates. So keep that in mind. Try to use the right kind of debt if you're going to use debt, not good debt or bad debt. There's just that some debt is better than other debt. How much should you take out? Well, those who really look deeply into this come up with a number between 15 and 35% of your assets. So if you look at everything you have, the value of your house, value of your retirement accounts, the value of your, you know, taxable portfolio, the value of any investment properties you have, they suggest that carrying no more than 15 to 35% of that as debt is probably the amount to have if you want to use margin in your life. If you want to invest with debt now, lots of docs have way more than that, right? If you're a dentist and you just came out of dental school and you owe $500,000 in student loans, and you have a $500,000 mortgage, and you have a $500000 practice loan, and you have like hardly any assets at all, your ratio is probably much higher than 35%. People that are completely debt free like we are, right, Their ratio is going to be much less than 15%. The ideal ratio of the people that study using debt to invest suggests that's between 15 and 35% of debt. But I suspect there's plenty of docs out there that are way more than that. And maybe I'll think about deleveraging a little bit. All right, I think that's probably enough to talk about debt, but a few things to think about, a few rules to use when you're thinking about how much debt you want to use. The first question is, do you have a religious or moral or social issue with debt? Lots of people do. And if you do, you probably don't want to have 15 to 35% of your asset value in debt. The second thing to ask is about your own psychology and behavior. Are you psychologically capable of handling debt? Most Americans are not. I mean, 45% of Americans are carrying credit card debt month to month. This is not a good idea. So ask yourself, can you handle debt? Do you actually have a method to get enough high quality debt to do what you're doing? Right? If the only debts available to you are terrible debts, you probably can't invest with a lot of leverage. Fourth one is, are you overextended or can you handle the worst case scenario? Right? If you have variable interest rate or something happens to your income, can you handle it? Are you still okay if your home value drops 40%? Right? Are you still okay if your stock portfolio drops 50%? If you're not, your debt ratio is too high, even if it's in that 15 to 35% range. Another question to ask yourself, Is the debt actually part of your plan? Do you need this debt to reach your financial goals? As humans we get tempted to buy stuff we shouldn't buy with money we don't have to impress people we don't even like. And you might have an opportunity to take on a high quality debt, but you might already be at your goal of a 20% debt ratio or you might not want any debt as part of your plan. So if this isn't part of your plan, don't do it. And lastly, ask yourself, are you improving the quality of your debt? I'm trying to get rid of low quality debt, right? High interest rates, short term non deductible debt while building an optimal debt ratio of high quality debt. So it might make sense to borrow against your portfolio or your house, pay off credit card debt in order to save on interest, but you have to stay within your ratios or you could get in trouble. It would really be terrible to lose the ability to service the debt right after you convert an unsecured debt to a secured one. So bottom line, do you have the ability to do this morally, psychologically, temperamentally? Do you want to do this? Do you have the means, meaning the access to high quality debt to do this? If the answer to any of that is no, I would recommend the pathway I took. Pay off all your debts rapidly in a methodical but rational way and live debt free the rest of your life. If you do have, you know, if you can say yes to all of those questions, well, maybe it's reasonable to leverage up your life 15 to 35% or so. Okay, that was a long, long spiel about investing with debt and debt in your life in general. And don't forget, if you have got some student loans and you'd like to get rid of those at some point, you can book a consult with studentloanadvice.com we're giving away a free online course, the CFE 24 course with that. And not only do you get to save lots of money on your student loans, but you get to have that peace of mind. You're doing it well and you get to get a whole lot of financial literacy education through that online course. We're grateful to our sponsor for this episode. That's Southern Impression Homes, which takes owning rental property to the next level with their innovative 2.0 approach focusing solely on turnkey new construction investment properties, single family homes, duplexes and quads in high growth markets of Florida. They handle every aspect of the process with expertise and efficiency including financing, insurance and property management. To learn more about build to rent, visit whitecoatinvestor.com southernimpressionhomes or call 904-831-8058. All right, that's the end of this podcast. If you'd like to be a guest on the Milestones to Millionaire podcast, you can [e-mail] Milestones until next time, keep your head up, shoulders back. You've got this. We're here to help. We'll see you next time on the podcast.

[Kyle Stephenson]

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.