Pathologist Reaches Multiple Milestones - MtoM Podcast #180

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 180, pathologist reaches multiple milestones. This podcast is sponsored by bob baiani@drdisabilityquotes.com he's an independent provider of disability insurance planning solutions to the medical community in every state and a longtime White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies. If you need to review your disability insurance coverage or to get this critical insurance in place, contact bob@whitecoatinvestor.com Dr. Disabilityquotes today you can also email infodrdisabilityquotes.com or you can call 973-771-9100. We got a pretty interesting interview today, but stick around afterward. We're going to talk a little bit about rules for evaluating an investment property. My guest today on the Milestones to Millionaire podcast is Stel. Stel, welcome to the podcast.

Thank you. Thank you for having me.

Jim, tell us what you do for a living, how far you are out of training and what part of the country you're in.

I am five years out of training and I am a pathologist and I practice in the state of Texas.

Okay. Well, the exciting thing about this podcast is you have reached not one, but not two, but three significant milestones. Tell us what milestones we'll be celebrating today.

So today we are going to celebrate me actually completing PSLF program and also paying out $120,000 in credit card debt. And then I believe that the third one is actually saving about $30,000 in travel hacking with my family of four. So those are the three milestones that I would like to celebrate today.

Okay. Somehow I got in here, there was a net worth milestone as well. Yes, that is a net worth milestone.

Yes. We finally are not broke anymore and we are now pretty much half a millionaire. That's how it is.

That's a long way from being not broke. Awesome. You say we. Who's we? Is there a family?

My husband and I. Yes. Yes. We have two boys.

Two boys. How old are they?

They are 10 and 8.

So significant. They've been around for a significant part of this journey.

They have been around. They are residency babies, I call them, because I used to have them sitting next to me as I preview cases late in the evening. So yes. Yeah.

Okay. They've been along for the ride. And your husband, for most of your education, it sounds like, is your Husband work. What does he do?

So he's an electrical engineer. He works for Flyspace, which is a aerospace company here in Texas. So, yeah, that's where he works at. And he's had to do a lot of compromise, so I had to find a sweet spot to bring him on board because, you know, wherever you match is where you go. You just kind of drag him along. So. And this move was pretty much to kind of balance things out to where he wants to be and where his career is taking him. So it's been a fun ride. Yeah.

Okay, so give me some sense of what your household income has been over the last five years or so.

So right out of residency, we were pretty much in the high two hundreds, and we've been. We've been in the five hundreds now since I moved jobs once. Once I got pslf, I figured I'll say goodbye to the academic sector.

Okay, how long ago is this transition?

A year ago.

Year ago. Okay.

Yes.

All right. So we talked a lot about PSLF last week on this podcast, so we're not gonna spend too much time on that. But it sounds like you did everything right. I mean, you got PSLF five years out of residency. Three and a half of those years were the student loan holiday. Right, Exactly. This all worked out great for you. How much money did you get forgiven?

Pretty much $288,000. 288,000. $2,000 of. Of those. 288,000.

2,000.

Yes.

That's it.

Huh.

It's got to be some kind of a record. Oh, my God.

Yeah. That's how much I paid. Yeah. Yep.

Family of four, right? I mean, family of four.

Exactly. A family of four.

Pathology is still a five year residency, right?

It is still a five year. No, it's a four year residency, but I did two years of fellowship.

Okay, so six years and my husband was in school, and then three and a half. Three and a half years of student loan holiday. I mean, it all. It all checks out exactly.

Exactly.

What IDR were you in? What. What payment program were you in?

I was in Income Repayment. Income Based Repayment Program.

Ibr. You were in ibr?

Yes, that's the one I was in.

Well, congratulations on psl.

Thank you.

Program worked out spectacularly for you. And you just stayed in academics. Do you stay at your program or where did you stay?

Yes, I stayed in academic, which was actually very interesting transition because you applied for the program so long ago and you don't really read the fine print. Right. And it wasn't until I had now put in my resignation that I realized that PSLF said you had to still be active in the public service for 90 days until forgiven. And I had submitted my resignation.

Yeah. So it was tight, huh?

It got very tight. But yeah, so I literally got forgiven a day before I started working because I was telling them, I was like, you either pay my loans or I'm going to have to stay here. So. But it worked out.

That's a good warning. I hope people listen to that. You got to stay with the PSLF qualifying job until you get the pslf.

Yes.

All right, well, okay. Well, did you have a negative net worth when you came out of training?

Oh, yeah, I think we were negative 600,000.

Negative 600?

Yes.

I mean, you had your 300,000 plus in student loans, and we were talking about some credit card debt. What was the rest of the debt?

We had car loans. My husband also has 65,000 doll in student loans. We also did take out about $18,000 in residency, personal loan for application interviews, relocation. So that was in addition to that.

And now your net worth is half a million dollars.

Correct.

Somewhere along the way, you had something happen to you. Was it like a financial awakening or how did you get from minus 600 to 500,000 in five years?

It was a crisis. I was. I was. As a new attending, I was burned up. It was a few months before COVID and I recall this conversation I had with a fellow thoracic surgeon at UPMC where I trained. And he was like, you should listen to white coat investor. And I was like, what are you talking about? So I brushed it off. Six months later, I was so burned out. I just saw this YouTube video by a couple that retired at the age of 40 and moved to Portugal, Outreach journey. And I was like, why can't that be me? So then I went into the rabbit hole of finding WCI Tuesday 5, the mad scientist. I mean, and then I realized I was paying for two insurance, two dental insurance, because I wasn't looking at my paycheck. I mean, who does that? Nobody teaches you to do it. I pretty much. It was just all learning and going through the process. I had a 457B that I never knew about, and I was like, so. So it was a lot of learning and a lot of application that really got us on track with where we are today.

Yeah.

And I've attended your conference three times already. So I attended two virtual conferences. I was there at this in Florida, so. So I've definitely been very active in learning and also walking the walk. So that's been helpful because, I mean.

Five years ago your finances were a mess, right? I mean, $120,000 in credit card debt, $18,000 in personal loans. What happened to your husband's student loans, by the way? Did you guys just pay those off or.

No, we haven't paid those off. So that's our next step. That is that next step. And actually the credit card is actually really interesting if we could talk about that. But I've had. So I was born and raised in Cameron and moving here in college, nobody. I mean, I went to college, they gave me a free T shirt. I signed up for a credit card. So in graduating I had a full scholarship actually when I graduated college. But when I went to college and they were giving me stipends every semester for my GPA, but I still graduated with $10,000 in credit card debt because I wanted the shoes. I want to, you know, I still have the shoes with my initials on them. It was cool, you know. So then I work for two years to prepare for medical school. I pay off the $10,000. And then during res. During medical school, I was really good with it. But then we got into residency with the kids, the daycare, we went back to $25,000 in credit car. And I think that's when my sister did. My sister's an investment banker. I think she had like an intervention for me. She literally put me on a budget, which it was a humbling experience, I have to say, because she's seven years younger than me, whereby every month she had to review my finances and make sure I was on budget for her to lend me money to pay some of those 9% interest a personal loans and this, you know, 17% APR credit card debt. So that was, that was a very humbling moment because there were months where I did not qualify for a check. So I realized that it was not a joke. She was taking it very seriously. And I had to do the same because this was all about me. So that's where she got me to. She's like, okay, you have to at least meet the match contribution for your 401k. Just start with that. I don't care what, what you do. I don't care if the fall drops. You have to do that and then you have to save this amount of money. That's when you could qualify for this. So we were on that. She put me on that program for two years. So it was.

Yeah, she must be so proud of you now. Is she proud of You.

She is. It's amazing that we actually. We actually talk finance together.

An intervention. That worked, though. It worked. She did this, and it worked. This is while you're in residency or when was this?

This was in residency, yes. This is in residency when we had two kids, we had two daycares. My husband. And we're just dragging these 9% loans because the personal loans we took were 18,000. We ended up paying $29,000.

Wow.

At the end of two years.

What's your sister's name?

My sister's Leticia.

Leticia. Leticia. Thank you so much for watching out for your sister. That was incredible what you did. I'm so impressed with you. Thank you so much. There's about a million doctors in the United States that also need your services, though. So we got to figure out a way to scale up what you're doing. Wow. That's pretty awesome story.

I love that. That was that first trench of loans. So then I learned about you. We got our ducks in a row. We paid off our cars. We made the mistake of we had not mistake. We had already bought a house as a new attending, which, you know, you don't recommend. So we were already in that hole. But. But then what we did was we were actively paying for that house. We refinanced. We got a 2. 2.1%. So we were active. So we had about a principal of like $180,000 at the end of the full year. Cause we were very aggressive pay. But then moving, so we had to move. And that's what we accrued the rest of the debt. So the 120,000 was accrued within the last year. You know, I got into a lot of side hustles, maybe not for the best. You know, I figure I'm a pathologist. I'm in a small hospital. There's not really much after work. So one of them was Turo. So we got another car for Turo, and it really wasn't a good deal. It was the worst deal possible. I realized after buying the car that three banks declined our loan because the dealership was asking too much money. It was the 2015 Mercedes that was not even worth $20,000, but they were charging $40,000 for it. And they tagged on a whole bunch of taxes. And I had flew to New York to pick up this car and drove it back. And I was just like, I have to take a car when I go. So I literally was thinking, okay, I'm making the right decision. And the interest that was 10% so the car turn to be $34,000 at 10%. When I saw that first payment, I was like, there is no way in hell. And having a long history of credit card, I think I've used this technique quite a bit, the balance transfer with banks. So I have credit cards that have limits of $60,000. So I was able to do a balance transfer at 4%, pay off the car immediately instead of paying the 10% in 60 years, get rid of it, and then put it on my credit card and now start paying it down actively. So we not only did that with that one car, we also had another Jeep that we were using that had $15,000 on it, that we did the same balance transfer from 6% to 4%. And, you know, people could debate whether it was worth it. But to me, it's, you know, it worked for us. And on top of that, moving to Texas, we had a new home. So we had to put our home in the market. That was another $16,000 of. And making our home beautiful. Just to put it on the market that we had to shell out. We had to repaint here. We had. And then when we moved here, our H Vac fell the same day that the septic pump failed.

The cost of homeownership.

Right, Exactly. So that was another. The H vac was a $12,000 cost to replace, and then the septic pump was $10,000. So it was just like in the middle of somewhere in Texas. 110 degrees. You just have to shell it out. So pretty much. And then, you know, we had to do some mold cleaning and all of that. So that's what brought. In one summer, we amassed $120,000 in credit card debt.

So what lesson do you take away from this experience of having six figures in credit card debt? I mean, have you. Have you gone and done, you know, plastic surgery, cutting up these credit cards and have a bigger emergency fund now or. Or you just, you know, still got 12 credit cards in your wallet. What lesson do you take from that?

Well, Jim, actually, I think I probably treat my husband and I will probably have over 30 credit cards still. 100, you know, 800 credit score. Our utilization is 7%. So we had a plan. It's all about having a plan. Right. So our emergency fund was pretty much extinguished in one blow. It was gone. But we knew that we're moving out. We sold our house. So we got $180,000 in equity from that sell. That pretty much wiped it all out. And that was always in a plan. So we always had a plan that, you know what, we have these credit cards, our house is going to go on the market. This is how much we're going to have in equity. If we get within this range of payment, this is how much we're going to be able to pay off. And we already knew we will get rid of them. This is not something that was going to drag on, but the benefit of that was the millions of points that we amassed in the process.

Yeah, sounds like you said $30,000 in travel hacking benefits.

Correct.

Where'd you go with those?

Oh, let's see. So as a family of four, we went to San Francisco for the first time with the boys. We went to New Orleans that year. I went to a conference. So it makes it easy to pay for the husband and the k come and join me. We went LA on a two week street to Asia where we stopped in Japan, Singapore, Bali and then we went to Barcelona and Lisbon and all of that was paid with points, even hotels and everything. So we only spent on food. And I think that really is the moment that my husband under like he didn't think I was crazy anymore and quartering money because he can actually physically see network grow while we were still living a comfortable life. Because this problem was like, well hsa, that means we don't have insurance anymore. I was like, no, we do. We're just investing a lot of it, you know, like 401k. No we're putting it but we are spending and it was really important to know what was important to him and travel and family time was the one thing. So I made sure I learned all about travel hacking. So now he's literally flying first class around the world and you know, at no cost. Lost the witch to me. I couldn't have done that. Did I not get the education?

Yeah, that's pretty interesting. Pretty interesting, you know, pathway you've had over the last five or ten years it really your whole life. So we appreciate you coming on and sharing that with us and congratulations to you on three or four or five of these milestones you've reached and it's pretty exciting. What are you working on next? What's your next milestone?

My husband's student loans is our next milestone and we would love to actually not have a mortgage anymore. So we are trying to see if we can pay off our mortgage within the next few years.

Very cool, congratulations to you. I know you can do it and thanks so much for coming on to inspire others to reach their financial goals.

All right, thank you for Having me.

All right. I hope you enjoyed that interview as much as I did. This was an interesting journey. You know, lots of us have very similar journeys. This was not similar to what lots of white coat investors have. This was a pretty unique journey and I think it's good to hear what's happened to other people and the different routes they've taken to get to financial success and to reach their financial goals. I think there are some lessons in there, right? Lots of lessons about debt management and getting in trouble with money and then digging your way out. And also lessons on the importance of income. Right. Not only income, including things like pslf. Right. Because that counts toward your income, but also, you know, the fact that a physician income, especially if you make sure you're getting paid fairly, can really clean up a lot of financial mistakes, a lot of financial messes, and, and that there is hope, there is light at the end of the tunnel. No matter how bad a shape you're in, whether you've got six figures in credit card debt and a negative net worth of -600,000, you can, if you are a physician and you take care of your income and you take care of your finances, you can have a million dollar swing in your net worth over the next five years. So I think there's some awesome hope in that. I told you at the beginning of the podcast, we're going to talk a little bit about investment properties and I just wanted to give you a few kind of basics for evaluating a rental property investment. The first rule to keep in mind is that you really make your money when you buy. A lot of what determines your investment return is how much you pay for the property. And everyone says location, location, location. But you know what, when it comes to your investment return, price, price, price is probably at least as important as location, location, location. If you overpay for something, you're just not going to have a very good return. Not only do you have less protection if it goes down in value, but there's less, you know, difference between what you sell it for and what you bought it for when you go to sell in a few years. So always try to get a good price on the property. You're not buying a place that you and your kids are going to live in, right? You're buying a place by the numbers. It's got to make financial sense. Or don't buy it in the first place. Okay? The second rule is what I call the 55% rule and use this to determine your net operating income, your noi, probably the Most important number for a direct real estate investor, that's basically what's left after paying all your expenses, not including the mortgage. So basically you need to think about 55% and what that is is what's left after you pay all the expenses of owning. Right? The expenses of owning are 45%. There are things like vacancies, insurance, maintenance, property taxes, snow removal, lawn maintenance, repairs, and management costs. Whether it's your time doing that management or whether you're paying somebody else to do it, it's really the same thing. So if that's 45%, you only get 55% of the rent to cover the mortgage and your profit. So if that doesn't cover the mortgage, you're going to have a negative cash flow situation. Now, expenses vary, right? This is just a rule of thumb, but that's something to keep in mind. If 55% of what you're collecting in rent is not more than your mortgage payment, you're probably going to be in a cash flow negative situation. You don't want to be in that. Now, while a doctor Income might be able to carry one or two properties that are cash flow negative, you can't carry an infinite number of them. You need cash flow positivity. All right, the third rule is to use the capitalization rate to compare one property to another. Once you know what the capitalization rate is in your area at that period of time for that type of property, then it's a lot easier to compare one property to another. Right? Think of the cap rate as like the equivalent of a stock dividend. While the property is likely to increase in value at about the rate of inflation, the net operating income is really what's going to provide most of your investment return, both as cash flow and as amortization on the mortgage that you might have on the property. So, you know, if you have a 6% cap rate, property capitalization rate really is what you would get in cash flow on the property if it were paid off. You know, if it's $100,000 property and you get 6% on it, that's a cap rate. So 6, $6,000 in cash flow from it. But if you get in 6% cap rate, property inflation is 3% and appreciates by that, your return is 9%. If you have a little bit of leverage on it, you might get a little higher than that. Obviously, there's risks that come with leverage. All right, rule number four, you got to put down a significant down payment. If you want positive cash flow, whether that down payment is in the form of sweat equity. Whether that down payment is the form of get of getting an absolute steal on buying the property, or more likely just cash that you put down when you buy it. That's the key to positive cash flow when you've owned. When you've got a debt to income or debt to value ratio of 90%, you're probably not cash flow positive. It's got to be better than that. Typically you can have 25% equity in there, 30%, 33% equity. That's the sort of range it takes for most rental properties to have positive cash flow. It's maybe even a little worse these days as interest rates have gone up. But expect to put money down. These no money down deals, yes, they can be done, but they are often negative cash flow properties and you don't want that. And then the last rule is to minimize your transaction costs, right? One of the most significant downsides of real estate investing is it just costs a lot to get in and out of a house. You know, I tell people that are buying houses, you know, to live in that their transaction costs are probably 15% round trip, you know, 5% to get in, 10% to get out. And that's pretty true. So $200,000 property, that's going to cost you 300,000 or $30,000 round trip, $500,000 property, right, that's going to cost you $75,000 round trip. So you want to minimize those as much as you can. Sometimes becoming a realtor so you can be, you know, you don't have to pay a realtor that can really minimize your transaction costs. Everything you can possibly do to reduce those increases your investment return. Hope that's helpful to you. All right. This podcast was sponsored by Bob Baiani@drdisabilityquotes.com One listener sent us this review. Bob has been absolutely terrific to work with. He's always quickly and clearly communicated with me by both email and or telephone. With responses to my inquiries usually coming the same day. I have somewhat of a unique situation. Bob has been able to help explain the implications underwriting process in a clear and professional manner. Contact bob@whitecoatinvestor.com Dr. DisabilityQuotes today by emailing infodrdisabilityquotes.com or by calling 973-771-9100 to get disability insurance in place today. All right, that's the end of another great episode. You can apply to be on this episode whitecoatinvestor.com Milestones but whether you apply and come on or just listen to the successes of other people. We thank you for being here, thanks for spreading the word about this podcast, leaving five star reviews, and thanks for what you're doing to contribute to the White Coat Investor community. It really does make a difference. Keep your head up, shoulders back. We'll see you next time on the podcast.

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