MtoM #101 - General Dentist Buys Private Practice

This is the White Coat Investor Podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom.

This is Milestones to Millionaire podcast number 101. General dentist buys a practice and becomes a millionaire. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance, or investing questions? The white coat investor community is a great place to turn. We we have a thriving community across all of our social Facebook, Twitter, Instagram, Reddit, and our WCI forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other white coat investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the White coat Investor. You can do this and the white coat Investor can help. All right, we've got a great guest today, and our interview is a little longer than the normal interview, so let's get right into it and. And talk about buying a practice and becoming wealthy as a general dentist. Our guest today on the Milestones to Millionaire podcast is Will. Welcome to the podcast.

Thank you so much for having me.

Well, congratulations on your recent accomplishment. We are celebrating the fact that you have bought a private practice, which is a big step in the career of a dentist.

Absolutely. Yes, it is.

Awesome. Well, let's learn a little bit about you. To start with, tell us when you came out of school, what you've been doing since.

Yeah, so I graduated dental school in 2015. I did a residency through the military, so I joined the Navy right out of dental school. So I did a residency through them and then kind of been practicing in the military through the NAVY since about 2020 is when I separated. So right in the middle of COVID is when I decided to get out and buy a practice, which may not have been the best timing in at the time, but in hindsight, it worked out. So.

So your residency was what, general dentistry or what?

Yeah, so it's aegd, is what they call an advanced education in General Dentistry. So I chose that over a gpr.

Okay, and what. What part of the country are you in now?

So I'm in the Southeast.

Southeast? Is that where you were with the military, too?

So we were kind of stationed a little bit. I never got to go overseas. I was supposed to go on a ship out of Jacksonville. At the last minute, it kind of got canceled, and so I ended up getting stationed in the Southeast, and so that's where I ended up kind of being stationed and settling down after I got out.

Well, tell us a little bit about the decision to get out. Right. I mean, obviously your commitment was up for paying for dental school. Was that always the plan to get out as soon as your commitment was up or. Tell us about that.

No, not necessarily. So in 2019, DHA took over military medicine. And there were a lot of kind of structural changes, lot of budget changes. And so, you know, prior to that time, there was kind of money aplenty, so to speak, especially from the medical community and dental community. So it was kind of. I was always considering doing some advanced residency programs through the military. There's an operative residency program that was very appealing. So I was really interested in that and was kind of pursuing that as the, the option. But in 2019 was when kind of a lot of those changes happened and they were really kind of cutting back on some of those residency programs. And so the timing just being what it was, you know, a blessing, a blessing from God in disguise, I guess. So that was kind of made my decision to get out.

So you leave in 2020 and what job did you take? I mean, clearly after four years in the military, you're not financially independent. So what job did you take coming out of the military?

Well, so that was really interesting because at that time, you know, it's kind of right in the height of the pandemic, dental practices had been closed for quite a period of time. So a lot of offices weren't necessarily, you know, definitely not hiring employees, you know, as associates. And there also weren't that many job opportunities as well because businesses had kind of slowed down. And so business owners were kind of looking to get their practice up, back, running to full steam. So that way if they did sell their practice, it would be kind of at the valuation of what they could get. So I looked for associate opportunities. You know, in the military, the experience that you get can be hit or miss depending on the duty station where you're located. And so I felt very comfortable in my clinical skills. But at the same time, I knew that there was, you know, plenty of things from a private practice setting that were much different than a military setting. So I looked at different job opportunities and it kind of just worked out that there was one opening for a small practice that kind of fit all of my criteria. And he was an older dentist kind of looking to retire, and he had kind of built this practice from scratch as kind of a retirement slash, you know, twilight year practice. And yeah, when I say it was all a blessing from God, it definitely was. I don't think it would have worked out any other way.

Is that the practice you ended up buying?

Yeah, so I. I bought that right out of. Out of the military. So as I was transitioning out, I was working with banks to, you know, to make that purchase. And I ended up purchasing the practice and the real estate together, which was kind of my goal. And so I've been in that practice since 20. Yeah, since the middle of 20. 20 is kind of when I took over.

Okay, so can you tell us a little bit about how the purchase was structured? I mean, I presume you didn't have a whole bunch of capital sitting around that you could, you know, just buy this outright with cash. How do you structure it? Was there, like a sweat equity component to it? Did you just borrow all the money from the sba or how did you structure this purchase?

I borrowed it all. I borrowed as much as they would let me. So in a typical situation, maybe pre Covid or even today, dental practices from a banking standpoint are a pretty safe investment. There's a pretty low default rate on dental practices, and so it was pretty easy to get money pre2020 for a dental standpoint. And most of the time, banks would lend you up to 90% or more of the valuation of the practice. So you would do their valuation, and you would be able to get 90%, sometimes 100% of the valuation. And so the way that it was able to get structured, and I would never tell the bank that lent me the money this, but a lot of the big banks that were doing dental lending ended up, you know, pulling out right in the middle of COVID They just kind of stopped all dental practice lending. And, you know, they have these divisions for dental practices, and it was just silent. They were. There was nothing. And there was one bank that still was able to lend me money. And so they were able to do, I believe, 90% of the valuation or the asking price of the practice, as well as lump in the real estate aspect as well. And so as far as the sweat equity or the, you know, the liquidity that I needed, you're right. I did not have a large net worth or anything to show for, you know, buying that practice. So what I had to do was take out what's called a seller's note. So the seller of the practice, the previous owner, he had. He took on the remaining amount of the equity needed. So I have a payment to him, a payment to the bank for the business, and a payment for the real estate.

Okay, very cool. So, I mean, you walked in and it's yours on day one. And he walked out or what was the transition like?

Yeah, so the initial transition was for him to stay on. It's very common in the dental community, or at least I think it's more common to try and at least have the owner stay on to pass on that goodwill. That's part of kind of what the valuation of the practice is, is to, to have them transfer that goodwill over to let the patients know that, hey, you know, I, I brought this patient in to, you know, to treat you as, as my patients that I've been treating for X number of years. And he's not just some, you know, Joe Schmo off the street that's gonna, you know, take advantage of you. And so he did that. He did a great job. His wife was a part of the practice as well. So they did a really good job of talking to patients and kind of really talking me up as a, a dentist in that practice. But I think his love of the golf course outweighed his love of dentistry. And so he didn't last too long as, as kind of a part time. So it worked out for the best. He still is able to, you know, keep his licensure. So he'll still come in every now and then, you know, to help me out with the practice if, if we get busy or if I get sick or something like that. So it's nice to have kind of a backup.

So that's pretty exciting, I think, to, for him to have somebody that's going to buy him out and get this big boost to his nest egg. And of course, for you to come into something that's already been preassembled for you. And as far as the goodwill, what do you think it was worth? I mean, what percentage of the patients do you think left and what percentage do you think stayed with the practice?

Yeah, so I'm sure there's ways to run reports for these type of things. But anecdotally, I guess in hindsight, I would say probably less than 10% of the patients left the practice. And we've actually grown, I would say, pretty substantially since he or since taking over the practice. So it's been, you know, a good ride up, up the hill, so to speak.

Very cool. Very cool. So, you know, obviously you didn't go from an associate job, you went from a military job to owning. But what do you think your income was that first year as an owner compared to what you could have made as an associate coming out?

Yeah, that's a good question because, you know, looking at my military income, you know, it probably ranged from $90,000, you know, coming in as a brand new.03 to, you know, maybe 120 somewhere around there when I, by the time I was ready to get out. And so transitioning into ownership was a little interesting because you have all of this, you know, equity, you know, that you've just put into this practice in terms of, you know, taking out loans and things like that. And so you get a lot of depreciation as a part of that business acquisition and all of the equipment and things like that.

So especially in 2020 with bonus deprecia.

Exactly, exactly. So, you know, my income that, that year, you know, the first year of the practice, I, I honestly couldn't tell you. I was just hoping to make ends meet at that point and being able to make my payments and I was able to do that. And then so in 2021 I started working with the business accountant that I have. We started setting some goals for the practice in 2021. We went, you know, above and beyond that goal for the practice and so set, you know, same thing, an increase for 2022 and have continued to go above and beyond. So we'll see how it, how it goes in 2023.

So how long are your notes for the real estate and for the business?

Yeah, so the real estate I believe is on a seven year with a balloon payment, I believe at the end. I know the seller's note is also on a balloon payment after about three years and that was a smaller amount. So I should be able to have enough equity to pay that off as one lump sum at the end. The business is on a 10 year note and I believe I got 3.5% on all of those, which was pretty good at the time, so. And really good right now. Yeah.

Do you expect to have all those paid off in that time period?

I do. I'm a pretty debt averse person, so I've always kind of been debt averse. So the plan is to definitely pay that off within that time, if not before. You know, that big practice note payment does make a big difference in your take home when you look at overhead and you know, the cost of running a business. So having that additional, you know, thousands of dollars per month income that's going out as a payment that you don't have anymore, same as a mortgage. You know, there's a lot that you can do with that additional income.

What do you think? You know, and approximate numbers are fine. What do you think your net worth was when you came out of the military versus now, two and a half years later.

Yeah, so I was actually doing some, some research on that before, you know, before the podcast and you know, coming out of school we were definitely, I was married at the time, so we were definitely in the, the negatives but not a lot, thank goodness, because of the military scholarship, so that really helped. But I did have have to take out some cost of living loans, you know, for school. So we were probably around negative 10 to negative $15,000 coming out of school. And then by the time I left the military, I would say, you know, we, we were putting into our tsp, but we weren't necessarily maxing out anything on top of that. So we definitely had paid off all of our loans. We didn't have any car debt or anything like that. We also didn't purchase a house. So we were in the positive and I would say maybe around a hundred thousand dollars, you know, would be a good estimate, approximate for coming out of the military. And then if you take into account obviously the equity of the practice, the real estate as well as we purchased a home last year, end of last year as well. So taking all those into account, we actually just recently hit the one million dollar mark, so.

Wow.

So also a millionaire at the same time.

Yeah, yeah. So I mean, $900,000 swing in two and a half years is pretty awesome. You know, some of that, some of that's the benefit of leverage and a nice real estate market obviously, but some of that's your hard work and the risk you took. So I tell people all the time, own stuff. When you're an employee, you're going to get what they contracted to give you. Most of the time you're not going to get more, you're not going to get less. When you're the owner and things go well, you get more money. And that I think is particularly true in dentistry. I am appalled when I find out what associate dentists make. You know, it's not very much money considering their expertise and their training. So I still think that's probably the pathway for most general dentists is to take on that risk, take on even more debt, and eventually get yourself into an ownership situation. I think long term, even for most people, it might not even be possible to pay off their student loans on an associate salary. You know, they start taking 20 year IDR repayment plans or having to find a PSLF qualifying job in order to get rid of their student loans. The other alternative, of course, is to make more money. And the way you do that is by owning the practice so congratulations to you on doing that and showing people that it can be done and that it can work out very well. Obviously there's some risk there and you're doing what you can to manage that, but it's pretty awesome to see what you're doing. Any secrets or tips for somebody else that's looking to do what you've done?

You know, it does take a lot of risk. So I think you have to know yourself a little bit and your personality, you know, being a business owner of a dental practice, you know, can range from, you know, I have five employees currently, you know, right now, but there are other practices that, you know, grow and grow and you can have 20, 30, 50 plus employees. And so you kind of have to be self aware of what your risk tolerance is, your personality, how well you're able to kind of manage or delegate to other people. And so I think that plays a lot into who is best suited for maybe business ownership versus associateship. Because you're right, I'm actually may not be making as much money as a business owner because I do have that debt that I have to, you know, pay off of every month. But the, the equity that I get in the long run, having that asset that will, just like the dentist I bought the practice from, that hopefully one day I'll be able to sell that asset and that will be a large percentage of my retirement. You know, that, that definitely makes me feel good and helps me sleep better at night.

Yeah, for sure. You know, I mean, nobody's going to be getting dentistry over the Internet, you know, it just doesn't lend itself well to teledentistry, fortunately. And, and the truth is, in seven years or five years or whenever you get rid of this debt, your income is going to be substantially higher, you know, and so that's, that's pretty exciting too. So congratulations to you. Thank you so much for coming on the Milestones to Millionaire podcast and sharing your story with our listeners. I'm sure there's some out there that will find it very inspiring and I want to follow in your footsteps.

I hope so. I hope so.

All right. I hope you enjoyed that interview as much as I did. I think there's a lot of principles, some dentist specific, some not, that are inherent in this story that we've heard. It's very intimidating to come out of dental school owing half a million dollars in student loans, buy a house with a half million dollar mortgage, and then buy a practice with another half million dollar loan. It is a very scary thing when you've never made any money in your life to now owe a million and a half dollars. And the alternative is also pretty scary to take that half million dollars in student loans and go take an associate job paying you 120 or $150,000 a year, you know, and wondering if you're ever going to make any progress against those loans. And so it's a scary decision you guys have. I'm grateful you go to dental school knowing that you have that decision ahead of you, or maybe you don't know and that's why so many people go to dental school, I don't know. But it's a tough decision. And I think the right decision most of the time is to eventually get into practice ownership. That's where the money is at. And not just a higher income, although that's there at least eventually. But also to be building some equity and usually own some real estate with it, as this stock did. There is risk there, though. There's a lot of leverage risk. Right. And you know you're gonna have some hard work ahead of you to pay off all that debt and to keep that practice going. But if you believe in yourself and your ability and can learn the business things, you already hopefully know most of the dentist things you need to know, it is a pathway to success. And it's probably still easier to own your practice as a dentist than it is as a physician. So I think that's probably still the route to go if you have the option. Do you ever find yourself wishing there was somewhere to go to ask your finance, insurance or investing questions? The White Coat investor community is a great place to turn. We have a thriving community across all of our social, Facebook, Twitter, Instagram, Reddit and our WCI forum. We have been discussing solutions to your money problems since 2011. Join the Conversation with thousands of other White Coat investors. Follow WCI on your favorite social media platform for financial resources, tips and strategies. Just head to your platform of choice and search for the White Coat Investor. You can do this and the White Coat Investor can help. Thanks for listening to this podcast. If you'd like to come on this podcast, you can do so. Apply@whitecoatinvestor.com Milestones. We will celebrate any milestone with you. I don't care if you paid off your beater or if you became a multi deca millionaire. We'll celebrate with you and use your experience to inspire somebody else to do the same. There are tens of thousands of people that listen to this podcast and and there are some of them that are struggling with whatever you're struggling with or just recently overcame, and your story can help them. So thank you. For those of you, I think 101 of you so far who have shared your stories on the Milestones to Millionaire podcast and for the next 101, I thank you in advance. Keep your head up and shoulders back. You've got this and we can help. We'll see you next time on the Milestones to Millionaire podcast.

The hosts of the White Coat Investor Podcast are not licensed accountants, attorneys or financial advisors. This podcast is free 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.