← White Coat Investor Podcast
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- [00:00]
Tommy Martin
This is the White Coat Investor Podcast Milestones to Millionaire Celebrating stories of success along the journey to financial freedom,
- [00:14]
Jim Dahle
This
- [00:14]
Jason
is Milestones to Millionaire podcast number 273. 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 such as 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, we are doing a sale right now. It is our CFE 26 course sale.
- [00:55]
Jim Dahle
What is CFE?
- [00:55]
Jason
It's continuing financial education and until May 12th you can get $100 off that course. You get 30 plus hours of financial and wellness sessions from the latest Physician Wellness and Financial Literacy Conference. Whether you want to boost your personal wellness, fine tune your financial plan, explore tax reduction strategies, live more intentionally, or prepare for retirement. This CME eligible course was designed by for you. This comprehensive course blends financial expertise with real life wellness strategies to help you gain clarity, build wealth and create a life you don't need a vacation from. You get 30 plus hours of on demand sessions, 16 and a half AMA PRA category one credit practical physician specific strategies that you can apply immediately. Invest in your financial confidence and long term well being and get a $100 discount today by going to whitecoatinvestor.com CFE and using code CFE100. All right, we've got a fun interview today from a well known doc. Let's get him on the line.
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Jim Dahle
My guest today on the Milestones to
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Jason
Millionaire podcast is Tommy.
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Jim Dahle
Tommy, welcome to the podcast.
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Tommy Martin
Hey, thank you so much for having me.
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Jim Dahle
Tell us a little bit more about
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Jason
you, where you're at in your career, what part of the country you live
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Jim Dahle
in, how far you are out of training, what you do for a living, etc.
- [02:16]
Tommy Martin
Yeah, perfect. So I am a My name is Tommy Martin. I'm a combined internal medicine and pediatrics physician. I'm currently about four years out of training. My wife as well, she's a pediatrician and she is also four to five years out of training. We did our training in Arkansas, but now we are working up in Massachusetts in the Boston area.
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Jim Dahle
Awesome. Those are two very different areas of the country. I'm curious what ended up causing you to go from Arkansas to Boston.
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Tommy Martin
You know you'll do anything for love Right. So, happy wife, happy life. So my wife is from Massachusetts, whereas I'm from Missouri, Arkansas. And so I would have loved to stay in that area. But with all of her family being, you know, from the east coast, we moved back up here. And then also our son has a really rare genetic disorder and we found an extremely good school for him to attend up here. And it's, it's truly been such a blessing.
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Jason
That is such a good description that we will do anything for love.
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Jim Dahle
And it's true. And clearly there's more than one person
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Jason
in your life you love and more
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Jim Dahle
than one person in your life that loves you, which in a lot of
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Jason
ways is the definition of success.
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Jim Dahle
Right?
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Tommy Martin
That's wealth. That is a wealthy life.
- [03:28]
Jim Dahle
Yeah, exactly. But it is a financial podcast, so we do have to talk about some financial stuff. Let's talk a little bit about where you're at in your financial life. I mean, you're a handful of years out of training. How are you balancing your financial goals? Tell us what you're working on right now.
- [03:45]
Tommy Martin
So growing up my family, you know, I was a first generation doctor. Neither of my parents finished high school and we did not have much money growing up. And so a lot of my schooling in college and medical school, all of that fell upon me, which I am very grateful for. And I know that sounds crazy, but it has taught me a lot about hard work, budgeting money, managing finances and all of those things. So very grateful for all of those. So my undergraduate, I had loans from undergraduate. I did get a lot of my schooling paid for for football and my acade. But then going to medical school, my wife and I, we actually met at St. George's University, which is a Caribbean medical school. And if the listeners know anything about that, Caribbean medical schools can be rather expensive or extremely expensive in our case. And so when my wife and I both finished medical school and started our first job into residency, we were both around $400,000 in debt from medical school. Now, thankfully, a lot of my undergraduate had already been paid off through working in college and things of that nature. But medical, those were very, very large finances. And so where we are at currently is one is I work at an institution that qualifies for PSLF. So I am in that program and I have two years in that program in which after serving for 10 years, your debt then would be paid off or paid for. My wife, she works private practice, pediatrics. And so she does not have that same luxury as being in being able to be in pslf. And so Kind of our mindset here were a couple. One is we still wanted to be able to live life, be able to vacation with our family and live a life that we thought would be fulfilling to us. Two is pay off the debt as aggressively as we could while maintaining that life. And three would be investing in not only for our future, but also our son's future. And so those were kind of the three pillars that we wanted as we went on this journey. And so currently we are, I'm going to continue out pslf and then we are hopeful to have my wife's debt paid off by the end of this year, maybe the end of next year. And that some of that ties into some investment things that we're doing and some other reasons why we're not paying it off immediately.
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Jim Dahle
So were you enrolled in an income driven repayment program during training or did you just start, you know, as an attending enrolling in pslf?
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Tommy Martin
So I started in residency doing PSLF on an income driven repayment program now throughout Covid, if many of the listeners may know. But a lot of payments were deferred during that time, but they still counted as credit towards qualified payments towards pslf. And so my four years of residency training has counted and now my four years come a couple months of attending hood counts. So that would give me eight years in it right now. And then I have two years left.
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Jim Dahle
Yeah. So two years left for you. And it sounds like you're probably done with her loans in another year and a half, two years as well, is that correct?
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Tommy Martin
Yeah, we kind of planned it out that way so that we would be debt free at the same time. I just thought that would be kind of cool to make it work that way. And so that's kind of how we've scheduled it out and structured it.
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Jim Dahle
Yeah, pretty awesome. So $800,000 in student loans in something like seven years or so, right?
- [07:06]
Tommy Martin
Yeah, that would be correct. Yeah.
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Jason
Pretty awesome.
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Jim Dahle
Okay, now you guys both went to St. George's right? And this, you know, going to a Caribbean medical school, not only expensive, but
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Jason
I mean, a lot of people that
- [07:21]
Jim Dahle
go there struggle to match.
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Jason
So they end up with, you know,
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Jim Dahle
$400,000 in student loans and don't have what you guys have, do not have
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Jason
the high paying physician job.
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Jim Dahle
What were your thoughts about that when you were selecting a medical school and deciding, I'm going to go for it, I'm going to be one of those that does match and has success, et cetera?
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Tommy Martin
Yeah, I had. How to describe this? I was probably too naive But I had no doubt in my mind that I would not become a doctor, regardless of what school I attended. You know, even all throughout my childhood and growing up, I've always been told I couldn't do X, Y and Z because of my situation or because of my family's history or my. My past. And I never let any of that define or decide what I could or could not do. So I did not have any doubt that I would become a doctor, that I would get a residency position, and that I would be an attending one day. And so I had zero doubts. I would say that my wife had a lot more fear and anxiety behind it just because of going to a Caribbean medical school and the stigma behind that. And so in saying that, when it came to interviews, I only wanted to interview at between eight to ten places, and I thought we'd be completely fine, but my wife said, no. Like, we would.
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Jim Dahle
Couples matching.
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Jason
Right, Right.
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Tommy Martin
While couples matching.
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Jim Dahle
Yeah, yeah.
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Tommy Martin
And my wife was like, no, we have to get a spot. Like, I'm so nervous. So we ended up, I think, going on 18 interviews throughout that process, and we ended up matching at our number two spot. And so it is. It is very true that it's hard to get a residency position coming or it's harder to get one coming from a Caribbean medical school. I will say that St. George's if you make it through St. George's the statistics of match rates are pretty good. Now, whether that be your number one or five spot, I have no idea, but the match rates are pretty good coming out of St. George's and so I, again, I was fairly confident that I would get into a residency, and I did choose med peds, which, when you think of competitiveness, it's a little hard to say. Like, people will say it's more competitive, but then, like, the board scores and the match rates, I don't know if it completely goes aligned with that, but either way, we got into residency and very happy with the journey that we went on.
- [09:37]
Jim Dahle
Yeah. You know, as you looked around at your class, did you feel like there was a significant portion of your class that was not on a pathway to graduating from medical school?
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Tommy Martin
It's such a great question, and it's hard to answer exactly. I will say in term one, which is your very first term, I think the answer to that would be yes, but by the time you get to term five, I think the people that weren't going to make it are kind of gone at that point. And then by term five, it's the people that's made it through the struggle, has made it through the hardship to get to the end. And I think that group of Term 5 students or the end of medical school students have a very high likelihood of matching.
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Jim Dahle
Yeah. Especially at one of the big four schools, you know, big four Caribbean schools like St. George's yeah.
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Jason
So, I mean, did they ever talk
- [10:27]
Jim Dahle
to you, the ones who, you know, dropped out after. After a semester or two, about their student loan burden and what their plans were to deal with that once they
- [10:37]
Jason
owed, you know, 50 or $100,000 or
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Jim Dahle
$200,000 in student loan?
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Tommy Martin
Yeah, for sure. I still have some friends that, you know, didn't finish, you know, and so some of them end up going to a different Caribbean and finding their way to becoming a doctor. And some have had success in that, but obviously the expenses continue to add up. I have had another friend who decided not to pursue medicine and ended up becoming a pilot. And so a pilot, you know, is still an incredible career and have high income potential. And so those things help. But unfortunately, some of the ones that maybe I lost connection with in first term or second term, I'm not 100% sure, you know, what their plans are. I will say overall, a lot of my friends are either in PSLF or they are working towards paying off their loans aggressively. And when you have $400,000 in debt, obviously that is very challenging. And so what that means is your lifestyle changes pretty drastically to make sure that you can afford to pay off those loans as fast as you want to, because as many of our listeners know, the interest is absolutely insane. And so if you're not paying it off aggressively or if you're not in a forgiveness program, then that those that lo burden is just going to keep climbing and climbing and climbing.
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Jim Dahle
Yeah. Now, I understand not all, and I'm not an expert in this, but I understand not all Caribbean medical schools qualify for US Federal loans. Was that a significant factor for you in deciding where to apply and where to go to school?
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Tommy Martin
Again, I was very naive going into all of this. And so when I was applying to medical schools, I was waitlisted to one US school. And then I literally just heard about St George's from a doctor in town as like, oh, great, I'll apply. I applied, got in, and I literally went within like two and a half weeks. And so I didn't think about any of it. All I knew is that I was going to become a doctor, I got into a medical school and I'd worry about the debt later.
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Jim Dahle
Yeah.
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Jason
If you had somebody come to you now, right?
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Jim Dahle
They're like, they come to you and say, hey, I hear you went to St. George's now you're chasing your dream. You know, I've got. I've been accepted, you know, at a Caribbean school, but that's all. Should I go? What advice would you give them? Would you tell them, yes, go for it. No, wait another year, Apply to more stateside schools. What advice would you give that person?
- [12:56]
Tommy Martin
There's two sides of this coin. And the first one, I would say it doesn't matter to what school you're going to, and that is to count the cost of being a physician. And what I mean by that is to count the financial cost, count the sacrificial cost of your life. You're going to spend 8 to 12 years of your life dedicated to medicine, where that is the sole thing and the only thing that truly will be involved in your life during that time. And that is a very, very large sacrifice. I would say count the cost of sacrificing time with your family, missing family events, and then count the cost of the financial situation, whether that be a state school or a Caribbean medical school. And if you count that cost, and at the end of all of that counting that you did, which is a very large number of sacrifice, if you still believe that being a doctor is worth it, then I would say pursue being a doctor. Now, the next side of that is, after you've counted the cost and you say, no matter what the sacrifice is, I think being a doctor is worth it, then you have to decide, would a Caribbean medical school be right for me? And in that decision, a lot of it needs to come from how independent are you? Can you make it on your own? And not saying that if you go to a Caribbean medical school, there's zero help, but you're often going to an island where you will know absolutely no one. You may not have the resources that you have in the United States. You may not have your favorite food, your favorite drinks, your favorite, you know, restaurants. You may not have any of those things. And maybe comfort things that you're used to, you will not have. Would you be able to handle all of those additional factors? Also knowing that oftentimes the cost is more expensive and the schooling may be harder to make it through. So you have to decide, would you be able to succeed in that environment? There's no right or wrong answer. Everybody's different, right? I'm extremely independent. And so for me, I was like, hey, if it's just me on that Island, I'm going to make it happen, you know. And so you have to decide would you be able to succeed in that environment? If the answer is yes, and you're okay with the additional cost, then I would say do not delay and go. If your answer is, I don't know, I might need my friends, I might need my family, I'm scared about the financial cost now. I'd say wait and you know, try to get into a state school. Another caveat to that is what specialty do you want to go into? I would never tell anybody that they would never get into orthopedic surgery, go to a Caribbean in medical school. But I would tell them, you need to be real and you need to know how extremely challenging it is to get into orthopedic surgery, dermatology, plastic surgery, interventional radiology, you know, some of these high earning careers, but also very competitive careers. Because if that's your dream, it may be beneficial to wait and go to a state school.
- [15:54]
Jim Dahle
Let's turn a page and talk a little bit about balance. I mean, what specialty is your wife in?
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Tommy Martin
She's pediatrics, peds.
- [16:01]
Jim Dahle
Okay, so you guys have moved, you know, large student loan burden, you're in a relatively high cost of living area, not necessarily in specialties that have the highest average pay. Obviously there's a huge range of pay within every specialty. Talk to us a little bit about how you balanced all those factors since you've been out of residency, you know,
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Jason
doing some investing, paying off some student
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Jim Dahle
loans, paying those high cost of living expenses. Talk to us about how you guys have found a balance that works for you for sure.
- [16:30]
Tommy Martin
So I would say that we try to steer away from luxury items. So for example, we did not buy new cars out of residency. If people have watched some of my videos, they will see that I still mainly drive a. I think it's a 2010 Scion XD with 200,000 miles on it. Her name is Roly and she's a great car. My wife has a Telluride that is paid off that we actually paid off in residency. We were fortunate enough to be able to do that. And so we did not buy new crazy high expenses. When we were looking for a house, we did decide to buy a house and in doing so we did not buy the most expensive house that we could find, but we bought one outside of the city limits in the suburbs that were was much more affordable. That makes our mortgage every month very, very doable as well. I will say it's probably close to a forever home. Just because of our neighborhood that we live in and things. And then outside of that, we really tried to budget our money on things that are most important to us and then put the rest of our money towards student loans and investing. And so for us, vacationing is pretty important to us and we want to still be able to vacation as a family every year. And so we do that as affordable as possible. We go to Disney a lot, but I'll say our in laws have Disney vacation club for those that like to go to Disney. And so the expense of us going to Disney I would say is truncated by that. So one example of a vacation we recently went on is we went to Savannah, Georgia and all of our family and friends are like, why are you going to Savannah, Georgia? And well, it was because the flights were $69 each and it was warm. And so we went to Savannah, Georgia. And so I would say the balance aspect of that is continuing to live the lives that bring us joy and fulfillment while going into the luxurious lifestyles that is kind of, I guess like entertained after residency because you've been paid so little. But we kind of try to avoid that. And then the investment parts of it is maxing out our Roth IRAs every year. And now with the income that we have, we have to do the backdoor Roth IRAs, which we do that we make sure to max out our 401ks through our works in any matching that they may do. So we make sure to max those out every year. And then additionally additional money that we may have to invest in we will put in mutual funds or you know, through my, our financial advisor. And then I do dabble, some mainly for fun but in like crypto and other things.
- [19:11]
Jim Dahle
So how did you decide how to balance how much goes toward. Obviously you're not paying extra on your
- [19:17]
Jason
student loans, but how much extra goes
- [19:18]
Jim Dahle
toward her student loans versus is invested.
- [19:22]
Tommy Martin
Yeah. So I'd say like we just max out the low hanging fruits I guess you could call it. So the Roth IRAs and our 401ks and then after that majority of the money I would say goes towards the student loans. And then if we still have extra money for whatever reason, I guess you could say that go towards the student loans, but we may put that more towards, you know, index funds or things of that nature. And our financial advisor helps us a lot with this. I will say we've gotten to the point on her student loans that the 6 and 7% interest loans are now gone and what have left are between like I think it's 4.2 and 5.1% interest. And so if you balance that versus, like what you may get in the stock market and things of that nature, you may in 20 years be on the higher side in the stock market than paying off those additional ones. And so it's a little balance between that and just what we feel. And we know that the student loans are kind of on a two more year time frame. And so we have a rough estimate about how much money that'll cost to do that. And then if we have extra money outside of that, then we invest it. One other thing I'll just add, and this I think is I mentioned briefly earlier why our student loans may be extended a little longer, is we did decide to invest in some property in New Hampshire. And so we bought some proper about 1.6 acres in New Hampshire at a pretty high tourist area that we eventually, over time, planned to put cabins on and do Airbnb on those.
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Jim Dahle
Very cool. So that's not a second home for you guys. Your plans to actually use that as a rental property or is it going to be a mix between a rental property and something you use?
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Tommy Martin
It'll be a mix between. So we plan to put two cabins. So it's 1.6 acres. We'll divide it up into 0.8 acres each, and then one would be primarily like a vacation area for us, and then the other would be an Airbnb, but we will probably Airbnb them both out when we're not using the other.
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Jason
All right, Tommy, somewhere out there, there's somebody like you that's going into, you know, a relatively lower paying specialty with, you know, a large student loan burden, living in a high cost of living area.
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Jim Dahle
What advice do you have for that person?
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Tommy Martin
Yeah, I think the most important advice I could give them would be to live within your means. Try to invest early in what you can and live a lifestyle that is fulfilling to you, that's not overly luxurious, and that will still allow you to pay off your debt and invest what you're able to. At the end of the day, your debt will still be there, but I think your happiness and your wellbeing as a family unit is also extremely important and so did not destroy that happiness just for the sole goal to get completely rid of your debt, whether you do it in one year or two years. I do not think it makes that big of a difference, especially to sacrifice your happiness as a family. And so I think striking that good balance of what that means between you and your significant other in Your family unit is extremely important, and that answer is different for every single person. For one family, it may be be extremely aggressive. That's going to make us the happiest. For another, it may be let's be moderately aggressive and live a little bit more, and that may make them happy. And that's completely okay. And I do not think there's a right or a wrong answer. It's different for every family.
- [22:46]
Jim Dahle
Yeah. Awesome. Well, congratulations on your success.
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Jason
Thank you for being willing to come on the Milestones podcast to share it with others and to inspire them to do the same.
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Tommy Martin
Yes. Thank you so much for having me. Truly an honor and privilege. I wish you guys all the best. Thank you again. Okay.
- [23:03]
Jason
I hope you enjoyed that interview as much as I did. You know, I worry a lot about people who go out of the country for medical school. I worry about them being able to match back in the country and be financially successful. It can be very expensive to go to, quote, unquote, a second chance university for medical school in the Caribbean. The match rates tend to be in the 60% range. 63%, I think, is what I saw the last time I looked. And that includes only the ones who apply in the match. A fair number of other students drop out in the first year or two, as Tommy mentioned. It's a bit of a risky move,
- [23:44]
Jim Dahle
but those who have success, when I
- [23:46]
Jason
talk to them, generally say things like what Tommy said that they had no doubt whatsoever that they were gonna do just fine. They were willing to put in the work, and they weren't necessarily trying to match into interventional radiology or whatever the most competitive specialty of the year is. But you certainly can have lots of success by going to a Caribbean medical school. I've met lots of docs that have, and they've done just fine. You just have to be a little bit careful about it. But it's been fun to see him find balance in the other parts of his life. Right. It's a high cost of living area. It's two people working, raising kids, trying to balance their financial goals.
- [24:27]
Jim Dahle
And I like his perspective.
- [24:28]
Jason
That is true. It doesn't matter if you pay off your student loans in one year or two years. You don't want to take 22 years to pay them off. But if you get them knocked out in one year or two years, while you're balancing it with investing, while you're balancing it with some other things you want to spend money on, that's okay. Find that balance in your life. You got to do what's Right for you. So I love that piece of advice that he provided.
- [24:53]
Jim Dahle
How much house can you really afford? What are we balancing here? Well, you don't want to be house poor and have all your wealth and income tied up in the place you live in. But you also want to be able to enjoy as nice of a house as you can in as nice of an area, as nice of a school district as you can, while still being able to meet your other financial goals. And so people often have this dilemma. How much should I buy? Because the sky really is the limit when it comes to buying a house. You can spend millions and millions and millions of dollars on a house. On the other hand, you can often rent a place, a one bedroom apartment or a studio apartment for really not that much money in a lot of areas of the country. So there's a huge range. And people want to know, how much can I spend? How much should I spend? And that's hard to say because it's such a personal decision. It requires you to apply your values to your financial life and decide what you really care about. Because when you spend more on a house, you have to spend less on something else, whether that's saving for your future or giving money away or just spending on other things, cars, vacations, other activities you enjoy, clothing, whatever. So let's provide a few rules of thumb for you. In general, I recommend you keep your mortgage to less than two times your gross income income. So if you're making $300,000 a year, that would suggest you keep your mortgage to less than $600,000 per year. So if you want to buy $1 million house and you have a $300,000 income, that would suggest you put down $400,000 in order to buy that house. And that's a pretty good rule of thumb. Obviously, when interest rates are really low, your payments are lower than they are when interest rates are really high. And that's just a rule of thumb. It doesn't come with an interest rate adjustment of any kind. But obviously some people do feel a need to stretch that rule, particularly when they live in a high cost of living area. Bear in mind, when we're talking about stretching that rule, we're talking about 3 to 4x your gross income, not 10x. If you buy a house that's 10x your gross income, you are going to regret it. You're going to end up in foreclosure and having to fire sale that house or short sale that house. Please don't do that. At 3 to 4x, you're going to be making some sacrifices, right? You might be working longer, for instance, before you can retire. You're going to spend less on vacations, you're going to spend less on nice cars or private schooling or whatever. There's going to be some sacrifices, but it may be doable. When you talk about this number, this 20% of your gross income, what that is really is a debt to income ratio or dti. And if you look at the mortgage industry, you will find that people are willing to give you a mortgage for up to 43% of your income. In your debt to income, all of your debts together, what it costs you to service them and pay them, compared to your income is up to 43%. But just because a bank will let you borrow that much doesn't mean you should borrow that much. Oftentimes the percentage is lower when it comes to just a mortgage, like 28 to 35% debt to income ratio. But I'm telling you, if you're spending 35% of your gross income as DOC on housing, there's not going to be a lot left over for you to spend or for you to save to meet your other financial goals, right? Because you got to assume 25, 30, 35% of your money is going to taxes, okay? So you got to live and save on the rest of that. And if you're trying to save 20% of your gross income for retirement, like I recommend you do, that's not going to leave a whole lot for you to live on. So what happens? People don't save for retirement, end up being house poor, and you don't want that. You know another useful rule of thumb that might be a little more useful in times of, you know, different interest rates is the 20% rule where you are only using 20% of your gross income for your housing costs, right? Mortgages, insurance, taxes, HOA and utilities less than 20% of your gross income. And I think that's a pretty good rule of thumb as well. And that adjusts with interest rates, unlike the 2x ratio that I mentioned earlier. Okay, so what determines how much house you can afford? Well, your debt to income matters. And your credit score does have an influence on this because it affects what interest rates you can get and whether you can borrow money at all. Now I hate to see people worshiping at the altar of the FICO score, right? This is not your financial gpa. Your credit score is far from the most important number when it comes to your finances. Your savings rate matters a whole lot more. Your net worth matters a whole lot more. But when it comes to getting a mortgage or borrowing money, they care about your I love debt score, AKA your credit score. So you do want to pay a little bit of attention to it. But honestly, it doesn't take much to have a great credit score. Having one credit card that you put your gas on every month and have it paid off automatically out of your bank account is probably enough. And most doctors have far more debt than that, especially if they borrowed from medical school. So you don't have to do anything special most of the time to have a really high credit score other than pay your debts as you agreed to do. And that's really the main component when it comes to credit scores. But if you're on the borderline, you can do some research on other ways to improve your credit score to get it up a few points and get that best possible interest rate available to you. When you're going for a mortgage. Don't forget that there are other costs when it comes to owning a home. One of the dumbest things you can do is say, hey, my mortgage is less than rent. It must be a good idea to buy. That's the dumbest way to think about buying a home out there. Okay, don't do that. There are lots of other costs associated with owning a home besides the mortgage. Think about it like a real estate investor, right? If you're a real estate investor, you got to pay all the expenses using rent, and then you're hoping there's something left over for profit. What are all those expenses? Well, if you've never owned a home, it's a lot more than you might think, right? There's closing costs and property taxes and homeowners insurance, flood or earthquake insurance. In some areas, you might have to pay private mortgage insurance or pmi. You might have to pay for maintenance and utilities. You got to get a new snowblower and a lawnmower and a snow shovel and the brooms and all this stuff. It can be really expensive to own a home, you know, not even to mention furnishing it with drapes and furniture and all those kinds of things, okay? So don't forget all that when it comes to owning a home, okay? The rent is supposed to be much higher than the mortgage. You cannot just compare the mortgage to the rent. The key in deciding whether you should be buying a home at all instead of renting is how long are you going to be there? Because you need that home to appreciate enough to offset the transaction costs of buying and selling a home. Those are typically about 15% of the value of a home. You know, maybe 5% to get in, 10% to get out, more or less. That's a pretty good rule of thumb for what it's going to cost. So it's a half a million dollar home. We're talking about $75,000 round trip. You needed to appreciate $75,000 while you're in it or else you're going to come out behind on buying that home. And how long does that take to appreciate $75,000? Well, on average it's going to take about five years. So if you're going to be in a home for five plus years, it almost always makes sense to buy it. If you're going to be in there for less than five years, you're rolling the dice right? At five years, it's a 50, 50 proposition. At three years, it probably works out a third of the time and doesn't work out 2/3 of the time. If you're going to be in there for a year or two, you're really gambling. Yeah, houses might go crazy in that year while you're in it, but you're going to need them to just to make up for those transaction costs. So in general, buy a house when you're in a stable personal and professional situation where it looks like you're going to be able to stay in that house for at least five years. And that can make a lot of sense. So what does that mean for people in medical training? Well, lots of residencies are only three years long or a fellowship might only be one to three years long. Those are not periods of time where you're likely to come out ahead despite the urge to feel like you've made the American dream by buying a house. So don't get suckered into buying a house for one, two, three year period,
- [33:20]
Jason
then ended up regretting it.
- [33:22]
Jim Dahle
Now, lots of docs do this. I can't talk them out of it most of the time. Time. And the truth is they usually end up being okay. But the reason why they're okay is because their new attending salary rescues them. They can afford to pay that mortgage on the old rental house or on the old residency house and whatever new house they're moving to just because they have this new higher income. But that doesn't make it a good financial decision. Don't be so afraid to rent that you make a bad decision. You can rent a house just like you can rent an apartment. It can have a fence, you can have pets. Okay, don't use all these Silly excuses to buy a house you shouldn't be buying in the first place make an informed decision. The New York Times has a pretty handy Buy versus Rent calculator you might want to plug your numbers into. But if you put in typical numbers, you're going to find what I've told you is true. That three to five plus years is what it's going to take for you to be coming out ahead on this home with any sort of reasonable assumptions. Now as a brand new attending, you should keep in mind that about 50% of docs change jobs within two or three years of finishing their training. That means there's a good chance you're going to be moving because there's a good chance that new job isn't going to be in the same geographic area. So it's okay to rent for a little while when you get to that new place, six months, even a year, it's often easier to get a contract for a year. Make sure you actually like the job. Make sure the job actually likes you. If you're in a partnership track, make sure it looks like they're actually going to make you partner before buying a house. And that makes a lot of financial sense. Okay, now what if you don't have 20% to put down? Are you stuck paying private mortgage insurance or pmi? Remember, this is the insurance you pay to protect your lender from you defaulting. It doesn't do any good at all for you, but classically if you put down less than 20% you have to pay it. However, there are doctor mortgages or physician mortgages out there and they're available to some other types of high income professionals as well. We have a whole list of them@whitecoatinvestor.com you can check out where you can put down less than 20% and not pay PMI. Maybe that's not a good idea to put down less than 20% because that 20% not only helps you avoid PMI, but it helps you in case you have to sell that house in a year or two, not be underwater on it. But if it makes sense for you to buy and you have a better use for your money, like paying off student loans or maxing out retirement accounts, it might make a lot of sense for you to get a doctor mortgage loan and use that money you have for a down payment for something else. So tread carefully. But it's not an unreasonable thing to do. Hope that helps you understand how much house you can afford as well as some of the best practices when it comes to buying your first or even a a later house in your life.
- [36:10]
Jason
This is the Milestones to Millionaire podcast. If you'd like to come on it, you can, you just apply@whitecoatinvestor.com Milestones. Our sponsor for this episode is Southern Impression Homes. They take 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 are what they generally invest in. 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 to learn more. You know, the fun thing about a turnkey property is it's a cool blend of direct ownership, right? Because you control the big decisions with this property, you get all the tax benefits of the property, right? You can do a cost segregation study and get bonus and accelerated depreciation. All the things that you can do with direct ownership. And yet because it's turnkey, you get rid of like 95% plus of the hassles of direct ownership, right? You don't have to build it, they do that. You don't have to put the tenant in it, they do that. You don't have to manage the property, they do that. Right. And if you want to sell it, they do that. Right. You basically hired them to take care
- [37:29]
Jim Dahle
of all the hassles.
- [37:31]
Jason
You're not going to get the 3am toilet calls and those sorts of things. Yeah, they say you'll probably spend of time, a lot, about an hour a month taking care of that particular investment. That's a pretty low barrier for direct real estate ownership, so don't be afraid
- [37:47]
Jim Dahle
to check that out.
- [37:48]
Jason
Whitecoatinvestor.com SouthernImpressionHomes Very reasonable way to invest. All right.
- [37:54]
Jim Dahle
Keep your head up, shoulders back.
- [37:55]
Jason
We'll see you next time on the Milestones to Millionaire podcast.
- [37:58]
Tommy Martin
The White Coat Investor podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.