WCI #102: How to Pay for a House

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dahli. Welcome to White Coat Investor podcast. 10230 year mortgages to all cash how to pay for a house still not.

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Thanks for what you do. Your daily work is difficult and challenging. Your training for it was long and hard and a lot of people don't understand just how much difficulty there is in what you do. And unfortunately, few of your patients even probably tell you thank you on a daily basis. So I want to make sure that somebody is telling you that. So so thank you from me for what you're doing. I hope you're excited for the upcoming White Coat Investor conference in March 2020 in Las Vegas at the Paris Hotel. The registration for that will open in July. There'll be plenty of notice as to the date and time that registration opens. I'm kind of hoping it doesn't fill up in 20 minutes, but I'm worried it might. So I want to make sure that you know it's coming. Hopefully it'll be a couple of days before it fills up. Last time it took six days to fill up, but I'm sure it's not going to take that long this time, even though we're having twice as many people come to it. So be aware of that. It's going to be great. There's going to be 27 hours of good stuff there and it's going to be great. You know, even if you miss a few things because you want to hit the tables or want to go see a show or whatever, you'll be able to catch that on video as well. Afterward make sure you're also signed up for the monthly newsletter. One benefit of doing that is you get the 12 emails, the financial Boot Camp emails. When you sign up for that, you can do that on the website under wci. Plus there's a newsletter sign up page. We'll have a link to that in the Show Notes as well. Speaking of Financial Boot Camp, the book is doing great. It's selling like hotcakes. The White Coat Investors Financial Boot Camp, which is a 12 step high yield guide to bring your finances up to speed, is available on Amazon. They're usually selling it for around 25 bucks. The paperback is out. By the time you hear this, we'll probably be getting close to getting the audible version out. And if I can ever get Kindle to quit giving me the runaround, I should have a Kindle version up anytime. Thanks. For those of you who are leaving us great reviews about it, those reviews do help us to spread the word on Amazon. Alright, let's take some Speak Pipe questions. The first one is from Kyle. This is Kyle from Georgia and I'm a radiology resident doing a surgery intern year. I have two questions for you. The first question is what is a typical day or week like in the life of the white coat investor? I feel like this would be pretty.

Interesting to hear about as a long term listener.

The second question is a bit more technical. Is the classic roth during residency 100% true? With the new repay PSLF pathway, shouldn't contributing to my tax deferred accounts lower my student loan payments and in turn have more forgiven? Thank you for everything that you do. I am very grateful for the impact you have had on my life. Okay, Kyle's asking what's a typical day or week in the life of the white coat investor? Well, I don't know. There is a typical. There's a lot of variation for sure. Let's just talk about this week. All right, so we'll start on. Let's start on Monday. Monday I did a bunch of white coat investor work kind of for the first six hours, got up at 7 or 8 o' clock in the morning, had breakfast with my daughter, answered a bunch of emails, responded to some comments on the blog, checked the Twitter and Facebook feeds, took care of some contract issues with some of the businesses we work with and I think I write a wrote a blog post. That morning before I went to my shift I worked a 2 to 10 evening shift at the hospital and that's what I did on that day. I think I was in bed by 11 o' clock that night. It was great. I got right out at the end of my shift Tuesday. I had, you know, I basically spent the whole day working on white coat investor stuff. I know I wrote one blog post. I did my taxes. That was a big part of it. A chunk of my 2018 tax, as well as the quarterly payroll for the white coat investor. That is ridiculously complicated. It turns out to do Form 941 that I do each month or each quarter. So that took up a fair chunk of time. And that was pretty much it for the day. That evening I had a webinar ASEP sponsored that. And so we did a Q and A right from my basement, answered questions for about an hour for I think there was 170, 180 people on that webinar. And that's available on ASAP's website if you're a member. If you missed it, it's like a whole nother podcast episode or two. Check it out. Then Wednesday, woke up, got ready to do these podcasts, went over to the school, watch my daughter, she was in a talent show and rushed back. And now I'm obviously recording podcasts or recording two podcasts. Today we're doing the one that was number 100, that ran a couple of weeks ago, as well as this one. And then we've got a white coat investor team meeting that's probably going to go three hours. Got to take my son to a doctor's appointment this afternoon, and I'm not sure what I'm gonna do this evening. Tomorrow we are gonna go on vacation. We're gonna go down to Southern Utah and we're gonna spend the weekend riding mountain bikes and doing some canyon airing, doing some rock climbing and just hanging out with some friends. So that should be the rest of the week for. For this particular week. Now, we don't go on vacation every week, but, you know, a typical week for me probably involves two to three shifts in the emergency department. And I probably work on white coat investor stuff three to four other days. Quite honestly, most days I do at least something on the website, even if it's just checking email and answering a few emails or looking at the comments on the blog and moderating those a bit. But that's kind of a typical week in the life of the white coat investor. The nice thing about it is I don't have to stay up all night anymore because I don't work any night shifts. And that's made a dramatic difference in my, you know, quality of life. And so I think I can keep practicing emergency medicine at the level I'm doing it until I'm 70. I mean, it's really. I've eliminated almost all the bad parts of the job. Okay, second question from Kyle. Is this issue about Roth in residency. Now, my general recommendation, the general rule, the rule of thumb is that when you're in low earnings years like residency or fellowship or a sabbatical or early retirement, then you use a Roth account. And the other years you use your peak earnings years, you use a tax deferred account. That's the general rule. Are there exceptions to both of those? Absolutely. In residency, one of the biggest exceptions now is if you are trying to get public service loan forgiveness, if you think there's a pretty decent chance you're going to go for that, it can make sense to do a tax deferred account. And the reason why is because it lowers your taxable income, it lowers your pay or repay payments, and thus because you're paying less in residency, there's more Left over after 10 years to be forgiven. Now, do I think everybody ought to be doing that? I don't, because I don't think most people are gonna end up going for public service loan forgiveness. I mean, not only is there some legislative risk there and some people just sick of, get sick of dealing with the runaround from fed loans, but a lot of people just end up in private practice. You know, they just don't want to spend that much time in academia or working for a 501C3 or they didn't enroll during residency or what, you know, for whatever reason, they don't end up going for public service loan forgiveness. And it's not like it's a terrible idea to do Roth IRAs then, but it probably does decrease the amount of money you'll have forgiven. I would probably still convert it all to a Roth IRA the year I leave residency, though. My portfolio used to be 100% Roth for a long time and then it gradually became less and less and less and less and now it's about 10% Roth. And so don't miss out on that chance to get a bunch of money into tax free accounts early in your career. You will want that later, I can assure you. All right, next question comes from Brian.

Hi, Dr. Dali. Thanks for what you do. I have a question about trying to balance aggressively repaying student loans with the consideration of possibly buying a new home in the next couple years as a bit of a backstory. I'm a fairly new attending in my second year of practice, but we are currently paying down our loans at a rate that would have us all paid off within five years of graduating. We're putting about 40% of our pre tax income towards wealth creation in the form of retirement accounts and paying down student loan debt. And considering the 30% effective tax rate that we have, I think that we are doing fairly well in this respect. That being said, I commute a long way to work several times a week and we have a growing family. So one consideration that we've had is starting with a 30 year loan. If we were to go ahead and get a new house that is starting with a 30 year loan while repaying our student loans and not changing that plan, then paying down the 30 year loan like a 15 year loan once the loans are all paid off. The second scenario will be the same thing. Starting out with a 30 year but then refinancing into a 15 year as soon as the loans are paid off. Third scenario that I've considered is aggressively paying down all of the student loans so that they're completely gone and then getting a physician mortgage with absolutely or very little money down which would then result in a high monthly payment. Thanks for any help or advice you can provide. I appreciate it. Thank you.

Alright. Brian's a new attending. He's got a good plan in place to pay off the student loans within five years. I like that. He's putting 40% of his income toward wealth building. I like that. And he's basically asking, you know, a question that doesn't matter all that much. Is it okay to do a 30 year loan? Yeah, it's okay to do a 30 year loan. Is it even better to refinance into a 15 year loan at some point? Sure, if it makes sense. Do that. You know, who knows, maybe rates went up and it doesn't make sense to go into any different loan at that point. You just keep the 30 year, even if you're paying it like a 15. It's also not an unreasonable option to do a doctor loan, remember a physician mortgage. And you can get a whole list of the companies that offer physician mortgages on the White Coat investor website under the recommendations tab. For physician mortgages, you can use those as well. Especially if you have a better use for your money like paying off student loans. There's not just three options here in this scenario though, there's a fourth one. One is we pay off all the student loans as fast as we can, then we save up a down payment and get a conventional loan. That's also reasonable. Nobody says you have to buy a house in your first year out of residency. I wouldn't feel like you can't buy one, though. I usually Recommend you wait 6 to 12 months or so. Make sure the job likes you and you like the job. Make sure your family situation, your personal situation is stable and your job situation is stable. And then I think it's okay to buy if you don't have a down payment because you've been putting all your money toward retirement accounts and toward paying down student loans, I think that's okay. To use a doctor mortgage and put 0% or 5% or 10% down, I think that's okay. The real key is what percentage of your income is going toward wealth. If you're putting 20, 30, 40, 50% of your income toward building wealth, you're going to be okay. The rest is just details. You know, maybe you save a few bucks here or there by picking the right mortgage, but it's really a pretty minor issue in the grand scheme of things. All right, our next question on the Speak pipe comes from Dr. D. Hello.

Dr. D. This is also Dr. D. I'm three months into my crash course on White Coat Investor, read almost every blog, listened to over 80 podcasts, and read countless Facebook posts. Loving it. I have two questions for you, both related to backdoor Roth IRAs of course. I'm in my mid-40s, owner of a concierge solo practice with two employees who do not want a 401K. So one year ago I opened a SEP IRA and now it has about 8,000 in it. After creating our retirement plan I now intend to save 25% of our income via retirement accounts on Vanguard except for the HSA infidelity. What should I consider to do with this sep since I prefer to also do an annual Backdoor Roth, I do have a traditional ira with about 33,000 in all which has been non deductible contributions over the past years. What options do I have? It seems maybe the Backdoor Roth is not in the cards for me. Backdoor Roth Question number two My wife is an MD doing research restarting work as an independent contractor as a kids get holder. I created an LLC for her and plan to open a solo 401k for her as well. She has a rollover traditional IRA with 29,000 in it which is almost all non tax deductible contributions over the past 8 years. The first 5000 was a rollover from her previous jobs 401k in 2011 so that was pre tax contributions. Can I and should I roll over all that money into the solo 401k or perhaps into the Roth IRA and Vanguard knowing that we'd have to pay taxes on the gains. Or is there a better way or idea prior to converting the annual contributions to the backdoor for 2019. Thank you very much.

Okay, Dr. D has a $30,000 SEP IRA. Well, as a $33,000 traditional IRA that is mostly non deductible contributions. And he's asking, what should I do with the SEP IRA? Well, SEP IRAs generally are not the right investing account to use for a doctor. You know, this is a type of self employed retirement account that is available to independent contractors. It's easy to use. It does have the benefit that you can open it after the calendar year has actually ended, but in general it's an inferior account to an individual 401k or a solo 401k. So if you find yourself in a SEP IRA, what you probably want to do is roll that SEP ira into a 401k to allow you to start doing backdoor Roth IRA contributions. The other benefit of using an individual 401 instead of a SEP IRA is that you can max it out on less income. It actually takes more income to max out a SEP IRA than it does to max out an individual 401. So if you don't make enough, you simply can't put as much into the account. Also, if you're an S corp and you want to lower the amount you're paying in salary so that you can have more of your income coming to you as a distribution on which you don't have to pay Medicare taxes, that's another good reason to use an individual 401k. So in his situation, what should he do? Well, just roll that SEP IRA into the individual 401k when you open it up. Just remember, Vanguard doesn't allow IRA rollovers into their 401k, so you probably have to go someplace like E Trade or Fidelity as far as that traditional ira. Just convert it. Yes, some of it in there is going to be tax deferred money. So there will be a small tax bill on that $33,000, but most of it's going to go across tax free and then you've got an extra $33,000 in a Roth account. That's a good thing. He notes that his wife also has a traditional IRA with mostly non deductible money and wonders whether he should put it into the solo 401k or what. Well, if it's mostly non deductible money, just convert it to a Roth ira. You know, if you only have to pay a couple thousand bucks in taxes and you get all kinds of money now in a Roth ira, that's a good deal. So that's what I'd do with that. Our next question comes from Carmen.

Hi Dr. Daly, can you talk about any tax strategies for those who won't qualify for the 20% pass through deduction? My husband is a W2 employee and I have a small medical practice structured as an S Corp. Due to our combined income this year, my business won't qualify for that 20% deduction. Is there any strategies I can use to help with the next year's tax return for the business? Thank you so much.

Carmen's asking for some tax strategies for those who don't qualify for the 199A deduction. Her husband's an employee and she's an S corp. Well, here's the deal. A lot of doctors can't get the 199A deduction. None of the employee docs can. And any doc making more than the limits, the income limits on that deduction can't take that deduction because they are in a specified service business. Those who practice medicine or law or financial advisors, those sorts of people can't get this deduction if they make too much. So the only real strategy there, unless you're going to go into something else, you know, open a side gig or something, is to get your income, your taxable income below those limits. And those limits are a phase out range that goes from 315,000 to 415,000 married. It's half that for single people. So what can you do to get your taxable income down? Well, probably the biggest tax deduction is retirement accounts. So max out all your tax deferred retirement accounts for both spouses and you might consider adding on a personal defined benefit cash balance plan. A lot of times you can put a lot of money into those 50 or $100,000 or even $200,000 and that will help you lower your taxable income and maybe get it into the range where you get that deduction. And so that's a great thing because not only do you have more money saved for retirement, but now you get this awesome new tax break in addition. So take a careful look at that. Consider doing that. All right, next question is anonymous.

My question is in regards to funding the TSP while in a tax exempt location. My husband is preparing for a six month deployment to a tax exempt location. I am a 1099 contractor and plan to maximize my solo 401k contributions this year. We have already funded our backdoor Roth IRAs and likely will have fully funded his traditional TSP prior to his deployment. As you know, when in a tax exempt location the allowable contributions are significantly higher. I am not sure if we can switch to the Roth TSP while he is deployed because he has fully funded his traditional TSP prior to the deployment. We are likely in our highest tax bracket now as he plans to fully retire next year and I am hoping to cut back on my hours as well. We do not currently have a primary mortgage and no other debt except for a rental property which we hope to sell next year. Do you suggest maximizing the contributions to his TSP during his deployment in lieu of the money going towards our brokerage account? Also, do you know if you can fund a Roth TSP while deployed? If you have already fully funded a traditional TSP while in a taxable location, any other information you have regarding this topic is welcomed. Thanks again.

Okay, so basically they're asking here about what to do with when you get deployed with your tsp. Well, here's the deal. You know when you're in the military, I know you might be in your peak earnings years but that's probably still not all that high. Your military income, a lot of it isn't taxed. Your bah and your bas that isn't taxed at all. Usually not paid all that much. And when you get deployed that's all tax exempt income. And so when you're in the military most of the time it makes sense to do Roth TSP contributions. It makes even more sense to do that when you're going for a pension because all that pension is going to be totally taxable in retirement. So that should make you lean more toward doing Roth TSP contributions. I think it's actually a pretty rare person that should be doing tax deferred TSP contributions in the military anymore these days. So at any rate that's not the question. They've already maxed out the tax deferred TSP contribution this year, although I might talk to finance and see if you can change that. Maybe you can recharacterize that towards Roth, but that's not the question. The question is what you do when you're deployed. And when you're deployed you can put additional money into the tsp. This is after tax money. It's tax exempt money. It's money you didn't pay taxes on and you don't have to pay taxes on because you earned it in a war zone. And then you can put it in the tsp. The downside is all the earnings on that money are taxable and the TSP doesn't let you do an in service Roth conversion. So you can't really do a true mega backdoor Roth IRA strategy in the tsp. And so you got to be a little bit careful there. And what you're really trying to do is eventually get that tax exempt money into a Roth ira. Now what I did after I separated from the military is I rolled almost all the money out of the tsp. I left a couple hundred bucks in there, and then I rolled a bunch of money back into the tsp. The TSP only accepted tax deferred rollovers. So that left behind all of my tax exempt money. It was all basis left behind in an ira. Then I just converted that tax free to a Roth ira. So maybe you can do something like that when you separate from the military as well and make that a smart move. But that's kind of the general strategy with what you do when you're deployed. Also, be sure to use the savings deposit program. It's only $10,000 you can put in that, but they pay you 10% on it. So while you're deployed and for three months before you come home, you make 10% guaranteed on your money. So put your 10 grand in there and at least make that on it. But otherwise the main benefit is just that, tax exempt income. It lowers your income for the year and allows you to do lots of other things like contribute to a Roth TSP instead of a regular one or perhaps even do some Roth conversions that year. All right, next question comes from Dan.

Hey Jim, this is Dan from Indianapolis. Want to ask a quick question about fixed income? My current advisor has me in about 35% of fixed income. This seems way off the mark as I'm relatively young, 40, with many years of investing left ahead of me. Am I way off and thinking that this is incredibly conservative at my age and that we should move this into things like stocks as this is currently, while it's giving me some stability, doesn't appear to be giving me the most bang for the buck? Thanks in advance.

Dan's basically saying his advisor has 35% fixed income and he's 40 years old and feels like he should be more aggressive. Should he be more aggressive? I don't know. I don't know Dan's risk tolerance. But if you're wondering if you should be more aggressive, there's a Good chance. Maybe you should be. But 35% bonds is not crazy at 40. I mean, if you use Jack Bogle's rule of age in bonds, he would have you at 60. 40. At 40 years old, some people use a more aggressive rule, age minus 10 or age minus 20, which would put a 40 year old at 20 to 30% bonds a little bit less aggressive than Dan is being, but he's not. This isn't like a crazy recommendation from the financial advisor. What I would do is I would talk to them and say, hey, I think I can tolerate more risk. Do you think I can? Can you help me make sure I don't bail in a down market? You know, I think that's a worthwhile conversation to have with the financial advisor for sure. Just bear in mind that you don't want to want to be careful that you're not performance chasing. Just because stocks went up in the last couple of months doesn't mean you should jump on the bandwagon. Invest all your money in stocks. How did you feel back in December when stocks tanked 20%? Did that bother you? Did that make it hard for you to keep putting money in there? Did you wish you had fewer bonds then? You know, those are kind of the scenarios that allow you to test your risk tolerance. The general rule for risk tolerance is it's kind of like the price is right. You want to get as close as possible to your risk tolerance without going over. Because when you go over and stock market risk shows up and you end up selling low, that's a financial catastrophe. You would have been much better off just having a less aggressive asset allocation the whole time than selling low just once during your career. Our next question comes in from Twitter where they're asking, will people abandon passive investing in the next downturn? I've been seeing this a lot in the media lately that for some reason people think no one's going to index when the stocks tank. Well, guess what? People were using index fund before 2008. I've been investing in index funds my entire career, including several years before 2008, and kept doing it after 2008. Stocks go up, stocks go down. But that's no reason to pay extra to active mutual fund managers who are actually subtracting value from your portfolio. If they can't beat the market, there's no point in time paying an active manager. And the data is pretty clear that the vast majority cannot beat the market over the long run, especially when you consider the cost of doing so and the tax bills that come from trying to do it. Alright, this one comes in from email. I would like to see a transparent explanation of how refinancing student loans really works. The new company buys your loan at a higher rate and gives you a lower rate. Where do they make their money? Is the term of the loan extended? Alright, here's the truth about student loans. Government is loaning you money at a very high rate. 6, 7, 8%. There is money available in the markets at a much lower rate. These student loan refinancing companies are often borrowing money at 1 or 2% and that allows them to lend you money at 3 or 4 or 5% and make a profit. That's how they make their money. Seriously, that's how they do it. They borrow at one rate, they lend at a higher rate, and that's all there is to it. So as long as interest rates, you know, are moving around and they can just adjust the rate, they can borrow at that, they can stay in business with that model. As long as the federal government is really overcharging for these crazy rates they're giving to doctors for student loans. You know, sometimes they make some fees if you make late payments, sometimes you got to pay fees and that sort of stuff, but they really often don't accept, extend the term of the loan. A lot of times people are paying, you know, for 20 or 25 years on their government loans and they can refinance those to a five year term. So often they're paying for a shorter term and that's why they can get a much better interest rate. But you know, there's really no secret here to the business. Even if they pay you a little bit of cash, like if you go through the deals on the White Coat investor website, on our recommended student loan refinancing company's page, they'll pay you a few hundred dollars and they'll pay me some money too for recommending them. And despite that payment, there's still plenty of money there from that difference in interest rates for them to make a solid profit. Okay, this one comes in by email. This is actually an exchange of a few emails that I thought was worth sharing on the podcast. It kind of goes in with our theme for this podcast, which is all about mortgages. Remember we had that question early on about what to do with a mortgage and now we're going to talk a little bit more about a couple other issues with mortgages. This email comes from a pulmonologist in Chicago. Says I'm a pulmonologist in practice almost 10 years now. We bought a house three years back worth more than a million. I know that wasn't very frugal. It was a 15 year loan with a 3% rate of interest. That sounds pretty good. And we put some equity into the house with the down payment and payments on principal. Doing the growing family. We wanted more room with a live in nanny. Recently got a more expensive house, $2 million. I know I've always been frugal except these two times. Well, they're pretty big times. And sold our old house after buying the new one. I put 20% down in the new house with cash in the bank and selling our taxable brokerage account. I had no cash left after this except my 401k and 403 for me and a SEP IRA for my wife. It was scary for a few weeks. Now I sold my old house for some loss but got some decent equity out. $300,000 or or so. Considering the monthly payment will be high for the new house and that I have cash on hand, would you advise putting more money down at this time towards principal or investing in a stock market, taxable account and index funds? I have a 30 year loan on the new house with a 10 year ARM with a 3.8% loan. Well, I told him there wasn't really enough info here to give advice, but that two million dollar house seemed pretty expensive for a typical doc. You know, I know what pulmonologists make and I don't think they get paid dramatically more in Chicago. And $2 million is a heck of a house. So my general rule is to keep your mortgage to a 15 year fixed mortgage and keeping that to less than 2x your gross income. So if you're making $500,000 a year, you ought to keep your mortgage to less than a million dollars. I suspect that this particular doc was well beyond that, but it was a little bit hard to say without more details. I asked if the doc was planning on paying off the mortgage in less than 10 years and if not, why did you get a 10 year arm? Because who knows where interest rates are going to be in 10 years. What are you going to do if interest rates are 9% at that point? You know, are you still going to be able to even afford to live in that house? And I also wasn't sure how the doc had lost money on a house in recent markets. But I guess if you're only there for three years it's possible that you could and maybe probable when you consider the transaction costs as far as that $300,000. There's not really a right answer on what to do with it. But if the goal of sending it to the mortgage company isn't to lower your payment right, it's to save interest and pay them blown off faster. If you can't afford to meet your financial goals and make the current payment on the house, especially a 30 year payment, you just bought more house than you can afford. Buying a house should not feel scary. If you buy too much, a house becomes a curse instead of a blessing in your life. And if the house doesn't make sense, just sell it and buy something smarter or less expensive. If it does make sense, the only way to know whether it's better to pay it down or to invest is to use a functioning crystal ball, which I don't have and neither does anybody else. So I told the doctor, do whatever he likes or split the difference. And I also told him that, you know, it doesn't matter if you're frugal. Generally, if you're not frugal, when you buy the biggest purchases of your life, you know, you can buy a lot of lattes with what it costs to buy a one or two million dollar house. The doc got back to me, noted the income was around 550 between him and his wife and that the house three years ago is 1.2 million with 20% down and they needed more room. And so they sold it for 1.14 million plus the transaction costs, but took around $300,000 out, bought a new place for 2.2 million with 20% down and was just nervous because he had to put in all his cash into it. Yeah, I'd be nervous too with a $2 million loan. You know, that's a pretty darn big loan for somebody that's only making $550,000. Says the bank wouldn't even qualify him for a 15 year fixed mortgage, which I'm not surprised because it really is a huge loan. So I told the doc, if you put that you got $400,000 down. Now as a down payment, if you put the other $300,000 in, that's 700,000. That leaves you with a 1.5 million mortgage, which is almost 3x his gross income, which is well out of my recommended 2x range. So I told him he's on the house poor end of the spectrum with $700,000 in the house and only $300,000 in investments. I mean, there's lots of people in the Bay Area and Manhattan with similar issues. And those people are simply going to work longer, they're going to spend less in retirement, they're going to travel less, they're going to drive crummier cars. But the difference has to be made up somewhere. Something has to give. You don't get a pass on math just because you buy an expensive house or just because you live in the Bay Area or Manhattan. And remember, of course, that just because a bank will loan you the money doesn't mean you should take it. So I told the doc that without that $300,000 going toward the mortgage, he's got a $550,000 income and a 1.8 million mortgage. So that'd be a 3.3x rather than a 2.7x ratio. So I thought the right answer was probably to put it toward the mortgage if he was set on buying a house that expensive. You know, I think it's going to take a long time to chew through that mortgage, though. And I think he really probably ought to take a careful look at reducing his housing expenses and maybe even leaving Chicago at some point. You know, not only does the cost of living go way down, but so do your taxes and so does your asset protection risk. You know, Cook county can be brutal for malpractice risk. By the way, if you need a Realtor this spring, check out Curbside Real Estate. This is Peter Kim's company, you know, the passive income MD guy. They'll connect you with a Realtor experienced in working with doctors. So if you let them know that I sent you or go through the links on the website and in the show notes, you'll get an extra hundred dollars back at closing. So that's a little incentive to go through these links. Our next question also comes in via email. I just had a quick question. I'm a dentist and I just finished paying off my student loans. After the whole experience of paying them off, I personally never want to take out another loan for anything ever again. I can relate to that. I kind of feel the same way about debt at this point. I just wanted to get your thoughts on delaying retirement savings for four years in order to save up for a house with cash. I am currently 32 years old. Just let me know your thoughts. Thanks so much. Well, I'm no fan of debt. I think people know that. But I think that approach of paying cash for a house is probably a little too extreme. There's three issues working against this approach. First, interest rates could go up. I guess it doesn't matter much as long as you definitely don't have to Borrow, but I think that's a pretty rare doc that doesn't have to borrow for their home. The second issue is that the house could appreciate significantly while you're saving up. Meanwhile, none of your housing payment is going toward principal. And so I think, you know, the house is kind of constantly moving away from you. If you wait until you have all the money before you buy it, you could also be making more on your investments while borrowing at a relatively low interest rate with non callable debt. So I think that all argues for, you know, using a mortgage to buy a house sooner rather than waiting until you can pay all cash. Four years isn't forever. I guess if you could save it up in just a few years, maybe it's not that big of a deal. But I think it's reasonable to take a mortgage and I don't think we have to tell people that they can't even use a mortgage to buy a house. I feel kind of the same way about paying for medical or dental school. As long as you only take out enough debt that it's 1x your future gross income, I think that's a good investment. I think it's a reasonable way to pay for medical school. But I don't think you should borrow forex what you're going to make when you get out of school. I think that's a huge mistake. And it's kind of the same way with a house. As long as it's a reasonable mortgage, I think it's okay to use a reasonable amount of debt to pay for it. But I'd recommend that this dentist do this instead. First buy a house you can definitely afford. That means less than two times your gross income in a mortgage. Put down at least 20%, buy it on a mortgage that's no longer than 15 years, maybe a 15 year fixed, maybe even a 51 ARM and then pay it off quickly. If you direct every dollar you can at it above and beyond what you can put in retirement accounts, I'll bet you can pay it off in less than 10 years. That's the approach we took with ours. We paid ours off in seven years without ever missing a retirement contribution. That of course required some frugal living and hard work. But we were able to do it. Remember that once you miss out on those retirement contributions that tax protected an asset protected space is gone forever. And those are the dollars that have the longest to compound. Well, I think we probably ought to wrap it up at this point. We talked about a lot of cases about housing. I think there's a lot of people thinking about buying houses this time of year. That's pretty common. Be sure to check out our Recommended Realtor resources and our Recommended Mortgage resources available on the website. And of course, be careful. Don't buy too much. Probably don't buy as a resident, that's usually the wrong move. Consider at least renting then, until you're in a stable family and professional situation. And just be smart about housing. It's a big expense and it can really keep you in the poor house if you're not careful.

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My dad, your host, Dr. Dahl, is.

A practicing emergency physician, blogger, author and podcaster.

He is not a licensed accountant, attorney.

Or financial advisor, so this podcast is for your entertainment and information only and should not be considered official personalized financial advice.