Today, we are talking about real estate decisions, from comparing REITs and syndications to understanding the tradeoffs in liquidity, structure, and risk. We also cover how to spot red flags in private deals before you commit your money and talk about avoiding PMI when buying a home. In the transcript below, you can read a dentist’s take on how dental insurance really works.
The question is whether buying individual publicly traded REITs is a reasonable way to invest in real estate, or if it ends up being an inefficient middle ground compared to REIT index funds or private real estate. The short answer is that while you can invest this way, it is generally not the most effective approach. Publicly traded REITs sit on the most passive end of the real estate spectrum, and the typical recommendation is to use a broadly diversified index fund like the Vanguard Real Estate Index Fund ETF, which essentially owns the entire publicly traded REIT market. This gives you diversification, liquidity, and simplicity but without the tax advantages or control that come with private real estate investing.
Trying to pick individual REITs introduces the same challenges as picking individual stocks. These markets are highly efficient, with analysts and institutional investors constantly evaluating pricing—which makes it very difficult to consistently outperform a simple index fund. While selecting a few REITs may feel more targeted, such as avoiding healthcare exposure or focusing on single-family housing, the odds of beating the broader market are low. You do gain more diversification than owning a single rental property, but you lose the built-in diversification of a fund. In practice, this becomes a bet that you have an edge over the market, which is unlikely for most investors.
On the other hand, if your goal is to add value, gain tax benefits, or have more control over your investments, those opportunities are found in private real estate, not in publicly traded REITs. Direct ownership, syndications, or private funds allow for hands-on improvements, leverage, and tax advantages like depreciation that simply do not exist in the public markets. Because those markets are less efficient, there is more opportunity to outperform. This is why the conclusion is that picking individual REITs often gives you the worst of both worlds. You miss the diversification and simplicity of index funds while also missing the upside and control of private real estate.
They want to know whether the private real estate deal held inside a Roth IRA, promising to turn $250,000 into $1 million in about five years, is legitimate or a potential scam. The answer is nuanced. This type of investment is not inherently a scam, and yes, real estate syndications or private equity deals can be held inside a Roth IRA, where most gains are tax-free. However, the situation raises concerns depending on the investor’s overall financial picture, diversification, and expectations. If a large portion of someone’s net worth is tied up in a single private deal, that is generally a poor and risky approach. On the other hand, for a wealthy, well-diversified investor, this could simply be one of many higher-risk investments.
A key issue is whether the investors truly meet the spirit of being an accredited investor. It is not just about meeting income or net worth thresholds but about having the experience and ability to evaluate complex deals and the financial resilience to lose the entire investment without it impacting their life. Private real estate investments are inherently risky. They may involve high leverage, inexperienced operators, or aggressive business plans like heavy renovations or ground-up construction. Even experienced investors will occasionally lose money in these deals, and that is part of the game.
The biggest red flag in this case is the expected return. Turning $250,000 into $1 million in five years implies roughly a 32% annual return, which is far above what would typically be expected from a reasonable real estate investment. A more realistic expectation for a well-run private deal is closer to 10%-15% annually. While high returns are possible, projections that aggressive often signal overly optimistic assumptions or marketing that may not match reality. That does not automatically make it fraudulent, but it should lead to a much deeper level of scrutiny and skepticism.
At this point, there may not be much the parents can do if the investment is already in progress and illiquid. Private deals typically lock up capital for years, and outcomes depend heavily on execution and market conditions. There are also additional complexities when holding these investments in retirement accounts, such as potential unrelated business income tax when leverage is involved. The bottom line is that this could turn out fine, but it could also underperform or even lose money entirely. Importantly, none of this type of investing is required to build wealth. A simple, consistent approach using diversified index funds is still the most reliable path for most investors.
They are asking if a physician ARM loan as a bridge strategy and then refinancing later into a 15-year fixed mortgage makes sense, or if it is overcomplicating things. The short answer is that this plan will likely work, but it is more complicated than necessary. The good news is that the fundamentals are very strong. With a $350,000 income and a target home price of $400,000-$600,000, this is a very affordable purchase that keeps the home well under 2X your gross income. That puts you in a solid position to avoid becoming house poor and gives you flexibility in how you structure the mortgage.
Because you are unlikely to have a full 20% down payment and want to preserve liquidity, a physician mortgage is a very reasonable solution. These loans allow you to avoid PMI without needing a large down payment, which is a major advantage early in your career. From there, the choice between an adjustable-rate mortgage and a fixed mortgage matters less than you might think. A 10-year ARM can make sense if you do not expect to stay in the home long term, since the rate is fixed for that initial period. If you stay longer, you are taking on some interest rate risk, but given your income and conservative purchase price, that risk is manageable.
In reality, most people in this situation either choose a 30-year fixed for flexibility or a 15-year fixed if they want to aggressively pay down the debt. Your instinct to refinance later is reasonable, and there is a good chance you will have opportunities to do so within the next several years. The main thing to watch out for is paying unnecessary upfront costs—like buying down the rate—if you plan to refinance before breaking even on those costs. Overall, the plan is sound, but it does not need to be as complex as you are making it.
What actually sets you up for success in your first year as an attending? In this episode, we break down a physician’s strong start after training and the key decisions that built early momentum. We also get into practical tips for landing your first job, negotiating well, and putting yourself in a solid position financially and professionally right out of the gate.
Financial Boot Camp is our new 101 podcast. Whether you need to learn about disability insurance, the best way to negotiate a physician contract, or how to do a Backdoor Roth IRA, the Financial Boot Camp Podcast will cover all the basics. Every Tuesday, we publish an episode of this series that’s designed to get you comfortable with financial terms and concepts that you need to know as you begin your journey to financial freedom. You can also find an episode at the end of every Milestones to Millionaire podcast. This podcast will help get you up to speed and on your way in no time.
Annuities are best thought of as insurance products, not investments. At their core, they are contracts with an insurance company that can provide guaranteed income—most commonly through something like a Single Premium Immediate Annuity, where you trade a lump sum for monthly payments for life. The problem is that the annuity industry has taken this simple concept and layered on complexity, fees, and commissions, making many products difficult to evaluate and easy to oversell. Like whole life insurance, annuities can be useful in the right situation, but they are often used far more than they should be.
From a tax standpoint, annuities have their own set of rules. Money placed into an annuity outside of a retirement account does not get a tax deduction upfront, but it does grow tax-deferred. When you take withdrawals, the earnings are taxed as ordinary income. If the annuity has been annuitized into an income stream, each payment is partially taxable and partially a return of principal. If not, withdrawals are taxed last in first out, meaning earnings come out first and are fully taxable. When held inside retirement accounts, annuities simply follow the tax rules of that account.
Annuities can make sense in a few situations. They can be useful for creating guaranteed lifetime income, especially when combined with delaying Social Security. Deferred Income Annuities can act as longevity insurance, providing larger payments later in life. Multi-Year Guaranteed Annuities can serve as a CD alternative, and low-cost variable annuities can help shelter highly tax-inefficient investments. Outside of these use cases, most annuities, especially complex and high-fee products, are best avoided. Simpler is better, and if you are considering one, you should get advice from someone who is not being paid to sell it.
Transcription – WCI – 469
INTRODUCTION
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.
Dr. Jim Dahle:
This is White Coat Investor podcast number 469.
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All right, welcome back to the podcast. This is going to be a fun episode. By the way, your feedback matters, not just about things I get wrong on the podcast, but about everything we’re doing here at WCI. And our annual survey helps us to understand how we can serve you better. So if you can take just a few minutes to tell us about yourself and share your feedback, telling us how can we serve you better? How can we improve WCI for you? What would make it better for you? We want that, okay?
We want it so badly, we’ll bribe you to give it to us. We’re going to give away 20 t-shirts to random entrants. We’re going to give them away. Those can have pretty significant value to people who complete this survey. So you can go to whitecoatinvestor.com/wcisurvey and just entering it will enter you to win prizes just by filling out the survey. That’s all there is to it.
We really appreciate the feedback. I know a lot of you have spent some time in the past over the years giving us that feedback and it has made a difference in what we do with everything, with our conference and our blog and our emails and how we monetize and what sponsors we partner with and all that sort of stuff. It absolutely does affect what we do. So thank you so much to those of you who have filled it out and those who will fill it out this year. I promise not to bug you about it for another year.
Let’s get into some of your questions here. This one’s coming off the Speak Pipe.
IS INVESTING IN PUBLICLY TRADED REITS A SUFFICIENT REAL ESTATE PORTFOLIO?
Speaker:
Hi, Dr. Dahle. I wanted to get your perspective on whether or not you consider investing in individual publicly traded REITs as a reasonable way to participate in real estate investing. On the passive extreme of your real estate investing continuum, you have publicly traded REITs.
But whenever you mentioned REITs, you were universally pretty much referring to cap-weighted funds like BNQ. BNQ is a lot different than the private real estate market. For example, single family homes make up less than 4% of the fund. I also don’t love that the biggest market cap subsector in publicly traded REITs is health care, which doubles down on my exposure as a doctor.
Do you feel that buying a few publicly traded REITs is a reasonable alternative to buying a few syndications or rental properties? Or would it feel more like unnecessary stock picking to you? Is someone who buys individual REITs just doubly confused by missing out on both the diversification of a fund while also missing out on the tax and leverage benefits of the private market? Have you met anyone who was serious and successful in real estate through individual REITs? Does your course focus much on this topic? Thank you.
Dr. Jim Dahle:
All right, a lot of questions in there and a fair bit of nuance here. Here’s the way I look at it when it comes to the real estate continuum. Those of you who aren’t aware of what he’s mentioning, this is something I’ve used in a lot of presentations I’ve given, in blog posts I’ve done, and is heavily used in the White Coat Investor No Hype Real Estate Investing course.
If you want to learn more about real estate investing, I think it’s a great resource. Like all of our online courses, it comes with a one-week money back guarantee. If you don’t like it, just ask for your money back. We’ll give it back. So check that out if you really want to get into the weeds on real estate and you’re considering investing in it.
But at the far passive end of the real estate spectrum is investing in publicly traded REITs. And typically when people ask about that, I’m talking about investing in something like the Vanguard Real Estate Index Fund. There’s a traditional mutual fund version and there is the ETF version or VNQ. And it basically buys all the publicly traded real estate investment trusts out there, just buys them all. So, it works basically like an index fund that buys all the stocks, except it only buys the real estate stocks.
I think it’s a great way to get what is sometimes derided by hardcore real estate investors as real estate flavored stock. But you get them all, it’s very diversified, it’s very liquid. You can turn to cash any given day, but I wouldn’t expect all the tax benefits and all the control benefits you would have on the other end of the spectrum, where you see direct real estate investing, including ground up construction or short-term rentals or fix and flip, or even building a long-term rental portfolio. And so, you can’t expect all of those benefits.
It is very tricky, I think, to do better in publicly traded real estate than an index fund. With publicly traded real estate, you have the same issue you do with publicly traded stocks. You have all kinds of analysts looking at them, all kinds of people trading them all day long with very fast computers. And because of that, it becomes very hard to beat the market. Because that’s what you’re talking about doing. You’re talking about, “Well, I’m just going to buy the good REITs. I’m just going to buy the ones that invest in single family homes, not the ones that invest in healthcare.”
Yeah, you can do that. And it’s probably more diversified than buying one rental property, so you get that benefit. But I think the likelihood of you outperforming an index fund in that way is pretty low. And frankly, if you can do it, you ought to be running your own mutual fund or your own hedge fund. It’s hard to do. That’s the reason why most people don’t try and most people shouldn’t try. But can you try it? Sure, I guess. If you think you’ve got some edge that nobody else has, I guess you could try picking your own publicly traded REITs.
But I think if you want to put a bunch of time into your portfolio to try to add value to it, the best place to do that is to get out of the publicly traded markets. They’re not perfectly efficient, but they’re efficient enough that the right thing to do is to act as though they’re perfectly efficient.
That is not the case when you’re buying the properties down the street. There’s not that many people looking at those properties. It’s not that efficient of a market. And there’s a lot of opportunities to add value. You put up a wall in the basement and all of a sudden now it’s a four bedroom house instead of a three bedroom house. Or you got a chance to house hack. You’ve bought a duplex, you’re living in one side of it. And that helps you with all kinds of economies of scale. And maybe you get the very best renter in the world because they’re living right next to the landlord.
There’s all these things you can do to add value when you’re talking about private real estate that you’re just not going to get in the publicly traded real estate market. And so, I think if you want to be investing in publicly traded REITs, the best way to do it is via an index fund. And if you want to try to add value to your portfolio and get a little bit more control and have your portfolio focused on single family homes or something like that, I think you need to get into the private markets, maybe even the direct real estate investments.
Obviously, that’s going to be more work than just buying a syndication or more likely if you’re doing single family homes, buying some sort of a fund that invests in single family homes.
But that’s up to you, how much work you want to put into it in hopes of having this fantastic long-term investment that’s passing you all kinds of depreciation and all the other tax benefits you can get from real estate investing. I hope that answers your question. But yeah, I think picking publicly traded REITs has given you the worst of both worlds to answer your question.
IS THIS PRIVATE EQUITY REAL ESTATE DEAL WITH ROTH MONEY A SCAM?
Dr. Jim Dahle:
All right, this one’s about somebody whose parents are interested in private real estate.
Speaker 2:
Hey Jim, I’m a longtime White Coat Investor listener. I have a question about something that my parents are doing and I’m not sure if it’s a scam and something that I should be counseling them against or if it would be a legitimate investment option.
Their wealth advisor essentially has helped them invest in what seems to be a private equity real estate investment where they purchased an apartment complex, some land, doing the typical renovations, going to raise the rent, getting the payout in about five years. They’re about two years into it.
My dad said that because he used Roth IRA money to invest in it, all of the earnings will be tax-free. It’s the type of deal that sounds way too good to be true. He invested about $250,000 and said he’s expecting about a million dollar payout. To me, it sounds like some sort of a tax fraud scam of some sort and I’m just worried that he’s getting himself into something dicey.
If there’s anything that you’ve heard about this type of a deal or something that maybe could be finicky and legal in some weird ways, but he’s trying to get me to invest in it and I just get some red flags. I’d appreciate if you know anything about this or something similar. Thanks so much.
Dr. Jim Dahle:
Okay, great question. A lot of questions there. I guess that’s what happens when you give you a minute and a half on the Speak Pipe. You can ask lots of questions all at once. It’s hard to give it secondhand advice. I’m giving you advice to pass on to your parents without being able to ask your parents any questions or getting any idea of their expertise on the topic, what they’re concerned about, what their financial position is.
For example, if you told me that they have a $500,000 portfolio and $250,000 of it is in some sort of a private real estate deal, I think that is a terrible idea. Pretty universally, that’s a bad idea. It’s not diversified enough. They’re not wealthy enough to be playing this private real estate game.
On the other hand, if you told me they’re a decamillionaires and they’ve invested in a hundred different real estate syndications over the course of their careers and this just happens to be one of them, it’s $250,000 into some sort of deal that they vetted, great, wonderful.
To invest in these private investments, you need to be an accredited investor. The legal definition is an income of $200,000 a year each of the last two years or $1 million in investable assets. I think that’s a terrible definition. It hasn’t been updated in decades. You should probably double those numbers and be required to have both of them, not just one of them.
In my opinion, if you’re going to be investing in these things with $100,000, $250,000 minimums, you ought to have a lot of money to be able to diversify a portfolio when those are the minimum investments on the deals.
But more importantly than having money, you need to be a real accredited investor. That means you can evaluate the investment without the assistance of an advisor, accountant, or attorney, much less calling up your daughter.
Number two, that you can afford to lose your entire investment without it affecting your financial life in any sort of significant way. So, if you’re a doctor with $8 million and you got a $25,000 investment that requires you to be an accredited investor and you’re wiped out, it goes to zero. It’s no big deal. It’s $25,000. You got $8 million. It just doesn’t matter.
And that’s the position you want to be in when you’re investing in these private investments. A lot of them are pretty risky. They might not be experienced operators. It might be a lot of leverage. It might be adjustable rate leverage. It might be a risky business plan. It might be ground-up construction, or it might be a heavy value add. There’s a lot of risk there.
And you can choose how much risk you take. You don’t have to invest with the person that’s borrowed 80% of what’s going into this project. You can invest with the person that only borrowed 50% of what’s going into the project. You don’t have to invest in ground-up construction. You can invest in something that’s already built, it doesn’t need any more value add.
It’s a core plus investment. Instead of a value add investment, it’s less risky. You can invest on the debt side. You don’t have to invest on the equity side at all. And you’re obviously in a better position in the capital stack when things go bad, when you have that sort of an investment.
So there’s a lot more to it than just, “Oh, this is private. It seems risky to me.” Well, it is private. You’re going to have to do a little more due diligence than you are just buying an index fund that owns all the stocks in the world. You have to do more due diligence. Every single one of these investments is unique. Some of them do great. Some of them do poorly. Some of them you lose all your money on.
And if you haven’t lost all of your money on any sort of a private investment, you are either extremely good at choosing them, you haven’t been doing it very long, or you just got lucky. Because most people, if they do this enough, they’re going to lose some capital. They’re going to lose some principle on one of these investments because they do tend to be risky.
And when the risk shows up in years like 2022, a lot of these can go bad. So, I’ve got a number of these private real estate investments. Most of them are in funds, but I’ve had some that were not funds. For example, one of these funds had a property, it was an office property, and it just fell and fell and fell in value to the point where it was worth less than what the fund had borrowed to buy it.
So, what’d the fund do? It mailed in the keys. The fund still did okay. It still gave me about a 10% per year return, despite one of the properties going to zero. But we lost principle in that. I’ve got another fund that’s struggling right now because two of its seven or eight properties are in significant trouble and may lose principle on those two properties. So I might have a negative return on that fund.
I’ve had a different fund that was invested in single family homes that basically had not managed the debt very well. And so when interest rates went up, too much of the debt was adjustable, the cashflow wasn’t there, so they had to start fire salient properties. And by the time they sold enough properties to pay off the debt that had been called, there wasn’t any equity left for any of us.
I’ve also been involved in a scam where an operator borrowed money against the properties that was against the operating agreement. Well, the operator went to jail, but that didn’t help me get any money back. So there are scams out there, and there are far more scams in privately traded companies than publicly traded companies.
Publicly traded doesn’t mean there’s no scams. Look at Enron. There’s a huge scam being run. So it can happen. It’s just a little bit harder when there’s so many regulatory bodies looking at the books, et cetera, et cetera.
So what should you tell your parents? Well, it probably doesn’t matter what you tell your parents. They’re in year two of five. This is almost surely a totally illiquid investment. They almost surely can’t get any money back until it goes round trip, and nothing they do or say at this point will make any difference on how this investment turns out for them.
So hopefully it does as well as they’re hoping, but I’m guessing if they’ve owned it the last couple of years when real estate hasn’t done that great, that they might not be that happy with the returns they get from it.
On the other hand, maybe now’s the time when the next few years real estate’s going to do really well. And so they may end up, especially getting in after 2022, this might work out just fine for them. It’s hard to say.
But keep in mind, you’re talking about turning $250,000 into a million dollars in five years. That’s a fantastic rate of return. If I put that into my spreadsheet here to get a rate, five years, no payment, let’s put in $250,000. Let’s take out a million dollars. That’s a rate of return of 32%, 31.95% in order to turn $250,000 into a million dollars in five years.
I would not expect that out of any real estate investment. If that is truly your expectation, I do worry that the operator, the fund manager, whatever it is, has been a little too rosy and maybe suckered you in by suggesting that could be your return. I’m sure the paperwork doesn’t promise you that return, guaranteed. And I would expect that you wouldn’t get that.
A much more typical return for a private real estate investment that’s appropriately managed, that has a reasonable amount of leverage on it would be something like 15%. That’s about what I would expect out of that. I would not expect 32%.
Now, can you invest in these in a Roth IRA? Absolutely, you can. You can invest in them in a 401(k). It usually has to be a self-directed 401(k), but the White Coat Investor 401(k) would allow me to invest in something like this. So, that’s not necessarily a scam just because it’s in a Roth IRA.
I do worry that your parents own this investment in a Roth IRA because that’s all the money they had. I worry that could have happened. You should also be aware when you’re investing in leveraged equity real estate in a retirement account that an extra tax often applies, unrelated business income tax. If there’s no leverage involved, you probably won’t own that, but typically there is in most real estate investments. And so, there can be some tax that you pay as it goes along and when the investment goes round trip as a result of that. So, don’t be surprised by that.
But in general, most of the tax inside a Roth IRA, you’re not going to owe tax. That’s the way Roth IRAs work. That part’s not a scam. That’s just how a Roth account works. So, I’m not sure what to tell you to tell your parents. I would say give us more information and look at it carefully and make sure you’re in the right place to be investing in any sort of private investments.
Recognize that private investments are not required for success. There is a very simple as I said in the first White Coat Investor book, road to Dublin. You finish medical school, you finish residency, you get a typical physician job for your specialty, you save 20% of your income, you put it into a boring old portfolio of index mutual funds, you fund that for 10, 20, 25, 30, maybe 30 years. And guess what? You’re going to retire a financially independent multimillionaire. You don’t have to do anything special in order to reach all of your reasonable financial goals given the income you’ve worked so hard to get. You just have to manage that income well.
So, none of this is mandatory. None of this is required. You don’t have to do it. But if you’re interested in it, if investing is fun for you, and you like the possibility of getting some of these benefits you can get in private investments, then check it out. We’ve got a bunch of sponsors at the White Coat Investor, that offer private real estate investments, both on the equity side and on the debt side.
We have somebody that’ll help with individual syndications. Most of them are fund managers. They’ll get you into a fund. It gives you a little bit more diversification. Some of the funds are evergreen, some are closed end, where you can’t get your money back for three to 10 years. That’s just the way the investment works.
One of our sponsors will even help you if you’re interested in turnkey direct real estate investing. Where you can buy a house in Florida with a tenant already in it. The whole house just got built. They finished building it last month, put a tenant in it. Now they sell it to you. They’ll manage it for you. When you’re ready to sell it, they’ll sell it for you. You never even have to go to Florida, and you can be a direct real estate investor. You get to decide when you sell it. You get to decide if you want to have a cost segregation study. You can use that depreciation in your life as best you can.
There’s lots of different ways to invest in real estate, but it’s not required. I can’t tell you if what your parents are involved in is a scam or not. I hope it’s not. I suspect they’re just going in with rose-tinted glasses and probably aren’t going to get that 32% return they’re hoping for. Hopefully, they still get a 10% or 15% return, but it is possible, especially how real estate has done the last few years since interest rates went up 4%, to lose your entire investment.
That’s also a possible outcome for this investment they’ve made. I hope they’re in a position where they can absorb that without it affecting their financial life. If not, it’s probably too late at this point.
QUOTE OF THE DAY
Dr. Jim Dahle:
Our quote of the day today comes from John Templeton. He said, “Buy at the point of maximum pessimism, sell at the point of maximum optimism.” Well, that’s great if you can do it, but it’s a little harder to identify than just that. Certainly, there are times when the pendulum does swing and markets get a little bit carried away. You want to make sure you’re the one with your head on straight when that happens.
Don’t be one of those people who sell low, especially late in your investing career when you can never recover from that, just before the market recovers. On the other hand, remember that trees don’t grow to the sky. After U.S. stocks had gone up 25% in 2023 and 25% in 2024 and went up significantly in 2025, no surprise, as I’m recording this, that they’re currently underwater for the year in 2026. Don’t expect 25% a year out of your index funds. You’re not going to get it.
On average, long-term, it’s been more like 10% a year, but most years are not 10%. You’re either positive 25% or minus 10% or positive 8% or minus 40% or positive 12%. You don’t get an even 8% or even 10%. That’s not the way markets work.
Okay, let’s talk a little bit differently, more about buying a home I think you’re going to live in rather than one to rent out.
HOME PURCHASE STRATEGY
Speaker 3:
Hi, Dr. Dahle. I’m looking for some insight regarding a home purchase strategy. Right now, we’re looking to buy a home in the next nine to 15 months with a household income of around $350,000, targeting a home price between $400,000 and $600,000. Our debt is minimal. We have a $1,500 monthly credit card bill that we pay in full and our student loans will be completely paid off in the next two months. Outside of that, we’re debt-free.
Given our timeline, I don’t believe we’ll be able to hit the full 20% down payment for a conventional fixed loan. Additionally, maintaining high liquidity and cash flow over the next few years is a major priority for us. The plan that we were looking at doing to keep long-term interest low and monthly payments manageable, we looked at doing a physician 10-6 arm to secure a lower rate of avoiding PMI.
Then once we hit 20% equity, we plan to refinance to a conventional 15-year fixed rate mortgage. Ideally, we want to do this before the 10-year mark to lock in a more favorable rate. The question I have is I haven’t found much documentation on the specific bridge approach. I’m just looking at if I’m overthinking this or is there a big blind spot that I’m not seeing? I would appreciate your input
Dr. Jim Dahle:
Okay. Yes, you’re overthinking this. It doesn’t have to be quite that complicated. The good news is you thought about this. You might have overthought it, but at least you thought about it. Look at all the things you’re doing right. You got an income of $350,000. You’re buying a house that will cost less than two times that gross income. You’re talking about $400,000 to $600,000. Twice your gross income would be $700,000.
This is an affordable house is the bottom line for you. This is not going to be something that’s going to make you house poor. In fact, you could probably even push it a little bit more. I wouldn’t have felt bad if you said you were going to buy a home that was $700,000 or $800,000 if that gets you something that you’re likely to stay in longer and not have to deal with the transaction costs of doing down the road.
People in high-cost living areas, they’re often trying to stretch this guideline, this 2X gross income guideline. When they do that, I tell them stretching is 3 to 4X, not 10X. Because people do that. They’ll try to buy a $3 million house on a $300,000 income.
That is not a good idea. That is a good way to be house poor and you’re never able to build any wealth besides your house. If the house doesn’t work out great or if you’re not willing to sell the house later, you end up just not being able to reach your other financial goals.
The other things you’re doing great. You’ve got your student loans just about done. They’ll be done before you buy the house. You don’t have a bunch of consumer debt. You’re thinking about this 9 to 12 months in advance. You can be strategic buying. This doesn’t have a good connotation, but a predatory buyer. You can take advantage of someone that’s desperate to sell. Maybe the house has already been on the market for 6 or 8 months by the time you come along to buy it. You can make them a little bit of a lowball offer and get a better deal on the house.
I’m surprised how little we negotiate something when it’s such a big-ticket item in our lives. Saving $30,000 on buying your house might be the equivalent of working 2 extra months. If you can negotiate in an hour enough to make more money than you can make in a couple of months. Of course, you want to do that.
As far as your strategy with the mortgage, I think you’re buying such a reasonable amount of house that you can do just about anything you want with the mortgage. I think most people in your situation that don’t have a 20% down payment because they have a better use for their money, like paying off their student loans or whatever you’re doing that you need the extra cash flow for. Typically use a physician mortgage. That means that you don’t have to pay PMI, private mortgage insurance, that insurance you buy to protect your lender from you defaulting. It doesn’t do you any good. But if you put 20% down on a conventional, you can avoid buying that.
Well, the other way you can do it is use a physician mortgage. Physician mortgages, docs who use those don’t have to pay PMI. Plus, you don’t have to come up with 20% down payments. You can use the money to do something else. Plus, you can usually buy it with just an employment contract in hand. It’s sometimes a little harder. If you’re an independent contractor, you often need two years of tax returns to qualify for that.
But they also only look at your student loans. You’re not going to have any by then. They only look at your student loans based on the payments you have to make. Which for a lot of people is close to zero because they’ve been in an IDR program, their income just barely went up.
So, a physician mortgage loan is definitely the way to go if you’re putting down less than 20% and you qualify for a physician mortgage. No doubt about that. And no doc should really ever pay PMI.
Now, as far as which physician mortgage you get, whether you get some sort of an ARM, an adjustable rate mortgage, or whether you get a 15-year fixed or a 30-year fixed, I don’t know that I’m terribly I care all that much about. If you get a 10-year ARM, it’s fixed for 10 years. If you know you’re not going to be there for 10 years, there’s no risk at all in taking that. If they’ll give you an eighth of a point or a quarter of a point less than they’d give you on a 30-year mortgage, great, take it. If you know you’re not going to be there for 10 years.
If you think you might be there longer than 10 years, you’re taking on some risk. You’re taking on some interest rate risk. Now, it’s not a lot of interest rate risk because it doesn’t even show up for 10 years. Or if it’s a 7-1 ARM, it doesn’t show up for seven years. Or a 3-1 ARM, it doesn’t show up for three years. The three is how many until the rate starts adjusting. And the one is how often it adjusts. It’s a 3-1 ARM. It doesn’t adjust for three years, then it adjusts once a year after that. And if you can afford that interest rate risk, which you probably can, given the ratios you’ve given us, that’s totally reasonable to use an ARM.
But most people probably use the fixed mortgage. If they want to be done with their debt relatively rapidly, like I suspect you do, given how you’re approaching all of this, probably a 15-year is the way to go. I’m sure you’d be able to afford a 15-year mortgage on this. And that’s probably what I would do in your situation. But if you want to use a 10-year ARM or a 7-year ARM, I think that’s fine.
Now, you mentioned a 10-6 ARM. I’m not sure I’ve ever heard of a 10-6 ARM. And when I Google that, let’s see what comes up. Yeah, apparently they’re fairly common. It just means it adjusts every six months. So it doesn’t adjust for 10 years, then adjust every six months after that, rather than a 10-1 ARM, which would adjust every year after that.
I think a 10-6 is fine to use. I suspect you will refinance it. I wouldn’t be surprised to see refinancing it within just two or three years into a 15-year fixed or something like that. And I wouldn’t be surprised to see you pay that down in seven years or something like that. That’s about what we ended up doing with our 15-year mortgage when we bought the place we’re in now, is we paid it off in about seven. We’re just not huge fans of debt. We don’t like it.
But I think you’ll probably have an opportunity to refinance in the next 10 years. There is a risk you wouldn’t be able to, that interest rates go to 12%. They stay there for the next 20 years. But that risk probably isn’t very high.
If you do think you’re going to be refinancing relatively soon, try not to pay a bunch of money in fees upfront, especially to buy down the rate. You don’t want to buy down the rate and then turn around and refinance before you’ve even gotten the benefit of buying down the rate. So keep that in mind. But I think you’re probably making it a little more complicated than it needs to be, but I’m confident you’re going to do fine either way.
CORRECTIONS
Dr. Jim Dahle:
We’ve got all kinds of great corrections. We’re going to talk about all kinds of things that people have been emailing me, saying we got wrong, or usually it’s just that I should have given more information on this topic.
And I get that, we can’t put all the information on every topic in every episode. I get this response a lot on the podcast actually. And people are like, “You should have mentioned this, you should have linked to that.” And sometimes they’re right. And sometimes it’s just like, I guess if you want every blog post to be 5,000 words, we could do that. But I’m apparently not succinct enough to be able to get everything into every post.
So we’re going to go over a lot of clarifications today. Don’t worry, I’ve got plenty of questions, most of them about real estate and mortgages to go through afterward. But in the meantime, let’s move through some of these. I do like getting them. And the reason why is it tells me you’re actually out there listening. You actually care that we get things as accurate as we can.
In fact, one of these folks that wrote in for a correction, I invited on the podcast and he came on the podcast. He was a little bit nervous about it and wanted to have a disclaimer as well after talking to his advisors about that. So we did that. But I think it’s worthwhile hearing it directly from his mouth. So we’ll get to that in a little bit.
All right, let’s do our first correction. I get an email that says, “I did want to add a little clarification on using 529 money for K-12 tuition. In New York State, I’m not sure about others, 529 withdrawals for K-12 tuition will trigger a recapture of prior state income tax deductions on contributions. I was excited about using the kids’ 529s for this, but losing the state tax benefit more or less defeats the purpose.”
Wow. Thank you, New York. If you need another reason to do some geographic arbitrage, there’s another one. I don’t know of any other states doing that. That’s the first time I’ve ever heard anybody doing that.
K-12 is a legitimate way to use a 529. You don’t pay taxes on any gains to the federal government via income taxes for doing that, but apparently, that results in the recapture of your state tax benefits in New York.
You have to be a little bit careful. There are some states that will, if you move your 529 dollars from their state 529 to another one, Utah or Nevada or Ohio or Michigan, whatever the really good one of the year is, then they actually do recapture those state tax benefits when you do that. But I’ve never heard about it for somebody using it for K-12 tuition. Be aware of that, all of you New Yorkers.
We have another one, also about 529s. “One more little hack I recently learned about regarding 529s. Alaska has a great deal. If you just put $25 into an Alaskan 529 for your kid, keep it there a year, they give you a free $250. Not going to move the needle, but better than a kick in the teeth. Maybe worth mentioning your next 529 post.”
Well, we’ll just mention it here on the podcast. This is great because here’s the deal. If you’re an Alaskan, you might not choose to use the Alaskan 529. There’s no state income tax, so there’s no state income tax benefit. So if you’re Alaskan, you’re probably going, “Maybe I should open a Michigan plan or a Utah plan or a Nevada plan.”
But this is one reason to definitely use the Alaskan plan. Get your $250. You have four kids, that’s $1,000. That’s a nice little benefit to putting $100 into 529s for your four kids. And anybody can go do that. Maybe if you’re going to open 35 529s for your nieces and nephews, you should do it in Alaska and put $25 a piece in there. That’s a little more hassle than it’s worth to me. But some people might choose that as a way to make a few bucks.
I don’t think there’s anything keeping you from then transferring that 529 to a Nevada 529 later, if you want. But I guess it’s possible that Alaska will recapture that if you do. I’m not sure about that little detail. But I know people have moved money around for less. There are all kinds of people moving their money from one brokerage to another just to get a $1,000 signup bonus. This could be worth even more than that if you have a bunch of 529s.
Okay, our next correction is about HSAs. “This is a correction on your previous episode, the person writes. Not sure about the episode number, but I remember you talking about it a couple of times previously and once with Tyler on the HSA topic. You mentioned that when you have a high deductible HSA plan, you have to pay all of your health care cost out of pocket until your deductible is met.
We have a Blue Shield Bronze high deductible plan in California. And the way it works is that preventive care, including your annual visits, is covered and is not subject to your deductible. In other words, you do not have to meet your deductible before these preventive visits get covered. Just thought you should know. Not sure if this is true for all states.”
Well, I am aware of that. It is true in all states for those plans, and they are now required to pay for those preventive visits. Now you have to be careful on those preventive visits because sometimes you’ll do something else. You’ll bring something else up that’s not covered by the preventive care visit, and then it gets billed out as a regular visit as well. And of course, your deductible would apply to those, but the preventive stuff, it does not. That is true, and that’s a fair point. Thank you for writing in to make sure we get that right.
INTERVIEW: DR. ADAM STOTTS REGARDING DENTAL INSURANCE
Dr. Jim Dahle:
Okay, now let’s do this interview with this dentist. I had said something about dental insurance, and he felt like it was worth more of a discussion. I think the bottom line is that medical insurance is not exactly the same as dental insurance. They don’t work the same way, and there are a lot of downsides for dentists who are taking dental insurance.
And so a lot of them are starting to do things that we’ve heard about in the medical world, with organizations like Doctors for Patient Care, they’re starting to do similar things in the dental world. But the bottom line is you need to be aware of how it works, especially if you’re buying it for yourself or for your employees. Let’s get him on the line. We’ll have that discussion.
Our guest today on the White Coat Investor podcast is Adam. Adam, welcome to the podcast.
Adam Stotts:
Hi, Jim. Thanks for having me. Just before we get started on the topic, I just want to make a quick disclaimer that the views expressed in this podcast are my own and are provided for general information purposes only.
Any statements I make, or information I provide in this podcast is general in nature and based on my professional experience in the dental field. Nothing that I state in this podcast constitutes professional, financial, or legal advice, references to insurance products, plans, or carriers, and are not endorsements. And listeners should consult their own legal and professional services on their specific circumstances. Thanks for having me. I appreciate you inviting me on.
Dr. Jim Dahle:
Yeah, this is a good example of what happens if you send me too many emails about an episode we did or something I said on a podcast. You end up getting invited on the podcast because we needed more of a correction or clarification than I was going to be able to do myself on this topic.
But our topic for this segment is dental insurance. And Adam, clue us in a little bit on why we’re having this conversation. What did I say about dental insurance that got you fired up enough to shoot off an email to me?
Adam Stotts:
Well, nothing that you said was wrong. I think that you made some good points. I just thought that we could clarify what dental insurance is and make sure that people understand what the limitations of dental insurance are, and really know what you’re getting when you buy dental insurance, because it is not the same as medical insurance, as you know.
Dr. Jim Dahle:
Yeah, I’ve often said it’s like the opposite of insurance. It pays for the cheap stuff and none of the expensive stuff, as opposed to vice versa, which is what you’re typically looking for with medical insurance. Maybe that’s too much of a generalization. But I tell you what, I saw a patient in the emergency department yesterday with dental pain. I asked her, “When’s the last time you saw a dentist? – It had been eight years. – How come?” I asked her, and the answer was, “Well, I don’t have insurance.” So it was an interesting conversation. But tell us what you think White Coat investors ought to know about dental insurance.
Adam Stotts:
Well, kind of like you pointed out, Jim, dental insurance is not insurance in the traditional sense. Dental insurance is more of a coupon than anything else. And that’s what I tell my patients. When you buy medical insurance, it’s for drastic coverage. And most insurance is there for drastic coverage. You buy auto insurance in case you wreck your $60,000 vehicle or kill someone, or medical insurance if you fall off a cliff, what have you. Dental insurance is different. You buy dental insurance so that when you go to the dentist, you get a discounted rate.
Dr. Jim Dahle:
Basically, the discount the insurance company has negotiated for you.
Adam Stotts:
Yes, exactly.
Dr. Jim Dahle:
But it covers some things. It’ll cover your exam once or twice a year. It covers your cleanings.
Adam Stotts:
Yes, it does cover your exams. And yes, it does cover cleanings. But there should be a little bit of clarification there. As far as exams go, yes, it does cover exams to an extent for the most part. Usually, your dental insurance will cover two exams per year. Sometimes they will cover an additional limited exam per year. But let’s say you have tooth pain in March and then a tooth breaks in August. And then something pops up again in December. Dental insurance is not going to cover every one of those exams. There are going to be limitations on how many times you can be seen at the dentist.
And the same thing with cleanings. For example, if you have a patient who is a periodontal patient that is prone to gum disease, bone loss, what have you, our standard of care is that they get cleanings. After they get their deep cleaning, they get cleanings four times a year, every three months, three to four months, depending on what the dentist recommends.
So if the dental insurance company only covers two cleanings per year, but your dentist recommends three or four cleanings per year, that falls outside of the standard of care, just receiving those two cleanings per year. And the same thing with the exams. Some insurances will only cover X-rays once a year, or I’ve seen it where the insurance will only cover X-rays once every two years. For some patients, that’s okay.
But for patients who are high caries risk, that’s a disservice to the patient not getting the X-rays on shorter time intervals to be able to catch those cavities before they become problematic and lead to root canals, crowns, and cavities.
Dr. Jim Dahle:
Because it’s sending them the message that they don’t need them.
Adam Stotts:
Correct. And that’s a big misconception, that dental insurance tells me when I deserve my cleanings, when I need my cleanings, when I need my X-rays, and that’s just not the case. For example, most insurances will only do panoramic X-rays between three and five years.
Dr. Jim Dahle:
And what’s the standard of care for panoramics? Should you get them every year? What does the ADA recommend?
Adam Stotts:
In reality, you should be getting them one to two years, depending on your risk level. Panoramics can be great images that can show metastatic cancer, ameloblastomas, genocratasis, a lot of different malignant things that don’t present as symptoms of pain, that sort of thing.
Dr. Jim Dahle:
Now, I’ve run into this before. I talked to my dentist, and they recommended an X-ray that’s not covered by my insurance or a fluoride treatment that’s not covered by my insurance. How successful are you in talking patients into buying items like that, preventive care kind of items that their insurance doesn’t cover? Does this mean that 98% of people never buy it? Or do a lot of people just pay cash?
Adam Stotts:
I think it depends on the patient. We really try to educate patients in my office about what is important. And I’ve had a lot of discussions with patients about what my standard of care is. A lot of times, that falls outside of what their dental insurance covers.
And I think that’s one of the big shortfalls of dental insurance, which is why a lot of colleagues are getting away from dental insurance because they feel like the dental insurance companies are demonizing dentists or pitting dentists versus patients because the insurance is only going to cover this many X-rays or these sorts of treatments, whereas my dentist is recommending this and I’m being told I shouldn’t have an out-of-pocket expense.
And so the patient is upset because they owe more. But if we didn’t take the x-ray or didn’t do the treatment, then the patient is not getting the quality of care that they frankly deserve.
Dr. Jim Dahle:
Are there a lot of dentists? People are doing this on the medical side, particularly for primary care. They call it doctors for patient care, or sometimes it’s some sort of a concierge label, where they’re literally, we’re not going to do insurance. And there are a lot of benefits to that. You often get a little better access to the doctor. Sometimes the doctor does CBCs in the office for $3. There can be all kinds of really cool benefits of doing it. What percentage of dentists are basically saying we don’t deal with insurance anymore?
Adam Stotts:
There are a lot of dental offices that are getting away from doing dental insurance altogether, mainly private practices. The larger DSOs and corporate companies will still take a lot of different insurances. But the hard part is that dental insurance maximums have not increased since the 70s and 80s, which was before I was alive.
Dr. Jim Dahle:
You mean what they’re paying the doc?
Adam Stotts:
Yeah, what they’re paying the doc. And also, it doesn’t allow me as a provider to treat patients the way I need to. The way that a lot of membership plans work, it’s not insurance, but a membership plan at an office like mine includes two cleanings, your exams, and all X-rays that you need.
So it’s one global fee. It doesn’t piecemeal everything together. And it allows me to be able to treat patients the way that they need to be treated, because not every patient should be treated the exact same way. Whereas dental insurance tries to fit people into this cookie cutter mold, which I think is where it falls short in a lot of ways.
Dr. Jim Dahle:
So does a membership plan typically cost more or less than insurance? How does it compare?
Adam Stotts:
It depends, Jim. It depends on how you want to look at it from a price perspective. A lot of people get their dental insurance through their employer, so they’re not technically paying for it. And I recognize that there’s a benefit to having an employer that will cover dental insurance if they cover it 100% or what have you.
If you’re paying for dental insurance out of pocket, it kind of varies based on the terms of the policy. There are a lot of dental insurance plans that have waiting periods, or co-insurances, or downgrades. And so those are things that need to be taken into consideration.
For example, a downgrade, amalgam fillings, the silver fillings, were a great material when they first came out. They’re not used very often nowadays, but it’s a less expensive type of filling than a white filling. Most people want to get white fillings done when they go to the dentist. But if your insurance company has a downgrade, you’re going to pay the difference from the silver filling to the white filling. And that’s not something that’s always clearly disclosed to the patient.
The same thing with crowns. The dental insurance company may downcode it to a metal crown, and most people want a white crown. So the patient is one who’s responsible financially for replacing that gap from the metal crown to the white crown. And that’s where there’s a little bit of discrepancy there.
Dr. Jim Dahle:
Okay, there’s a White Coat Investor out there listening to this podcast. Should he or she buy dental insurance? Their employer’s not providing it, or they’re self-employed, or whatever. Should they buy dental insurance, or should they go find their dentist and just pay cash, or see if they have a subscription plan, or what would you recommend?
Adam Stotts:
I think that honestly, Jim, you should find a dentist that you like, is close to you, does great work, and have a conversation if they do a membership plan or what have you. The hard part about getting dental insurance is that it can pigeonhole you into dentists that you can go to.
Now, most dental insurance plans have out-of-network benefits, and so that’s one thing that we work on educating patients at our office with. Just because you have private insurance that’s out-of-network with the dentist that you like, it doesn’t mean that I can’t see you, and it doesn’t mean that your insurance company won’t pay on that. It just means that the dental insurance company is going to pay less on that.
I would tell you, Jim, if I were a person on the street, and knowing what I know now, I tell patients now, there’s really not an insurance company that I recommend, Jim.
Dr. Jim Dahle:
So you wouldn’t. You’d pass. I mean, if you weren’t a dentist, you’d pass on insurance.
Adam Stotts:
I would, and the reason is that knowing what I know about standards of care and all the things that can go wrong, and the shortfalls that private insurance places on patients and dentists, I’m confident that I will receive better care for a comparable price. Finding a dentist that I know, trust, and that I can pay either a monthly membership plan, or some of them do lump sums by the year, or what have you. There are a lot of variations, but then it creates a lot more transparency, Jim, on the cost of treatment, what the treatment is going to look like, and frankly, provides better outcomes overall.
Dr. Jim Dahle:
Okay, related question now. Now we’re talking to an employer. This is a doc with four or five employees, or somebody like me, a white coat investor. Nineteen of us are working here. Is it a benefit I should offer my employees, or should they get something else instead, more salary instead? Do you think it’s something that people find attractive about a job to get some of their dental care covered by the employer via dental insurance?
Adam Stotts:
It’s tough. Because dental insurance, from an employer standpoint, can be a nice benefit to attract employees, that sort of thing. I think the hard part is, if I sent you over a dental insurance contract, reading through the entire thing, and being able to understand really what was a good plan for all your employees, it’s tough to know what’s good and what’s not.
Dr. Jim Dahle:
I guess my worry is, I think there are a lot of people out there that would be like this lady I saw in the ER yesterday. No insurance, she just doesn’t go at all. And I think there’s a certain amount of feeling like, “I’ve got insurance, my cleaning is covered, so I’m going to go get my cleaning.” I think there’s probably some behavioral benefit to that, don’t you think?
Adam Stotts:
Sure. I think one of the things that needs to be discussed is that dentistry as a whole has become a very expensive profession, not only from a patient perspective, but a provider perspective.
I spent half a million dollars going to undergrad and then to dental school, but I think the cost of training dentists is part of the issue. Frankly, I think that if it weren’t so darn expensive, it’d be easier for dental providers, dentists, and practice owners to be able to charge a more fair rate, and run a successful business that is prosperous, but also able to provide care to patients that is less expensive.
Dr. Jim Dahle:
Yeah, for sure, that high upfront cost. And the problem for most dentists, especially if you’re interested in private practice, is that it doesn’t end with the student loans. Then you need to borrow half a million or a million dollars to build out the practice, and you probably want to buy a house about the same time, so there you go with another half a million or a million-dollar mortgage, and it just gets to be this huge debt burden at the beginning of the career, for sure.
Adam Stotts:
And it’s scary. I graduated from dental school in 2021, and I purchased a practice about a year after that. When I look at my balance sheet, it is not great. And most of my colleagues and I got into dentistry, just like you, to treat patients and improve the quality of life of our communities.
If I am forced to take on such a high debt burden, you want a return on your investment at some point. And I tell my patients all the time, I just want to be able to take my family on a nice vacation once a year and retire at 60. And I think that’s reasonable. I’m not trying to make a billion dollars. I just want to make a decent living for myself and my family.
Dr. Jim Dahle:
All right. Well, anything else you think white coat investors ought to know about dental insurance?
Adam Stotts:
The hard part is that dental insurance places a lot of restrictions on the patient as far as what it covers, and on the dentist as far as what the payouts would be. And that lack of transparency, I think, is where private dental insurance falls short.
Dr. Jim Dahle:
It sounds like the bottom line is to recognize that your dental insurance is different from your medical insurance. Consider going bare. Consider using a subscription plan and have a discussion with your employees if you’re in a small practice or some other sort of small business about how much they would value that type of benefit versus paying for it themselves.
Adam Stotts:
Yes, exactly.
Dr. Jim Dahle:
All right. Well, thank you so much for being willing to come on the podcast and explain a little bit more about how it works behind the scenes.
Adam Stotts:
Jim, thanks for having me. I really appreciate all the work that you do and for having me on the podcast.
Dr. Jim Dahle:
I hope you enjoyed that as much as I did. He was pretty nervous to come on. You might be able to tell. But I think he was able to provide a lot of valuable information to help you with your decision about whether you’re buying dental insurance. If you’re a dentist, whether you’re going to take dental insurance and maybe some of the other options out there.
SPONSOR
Dr. Jim Dahle:
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All right, don’t forget to fill out the White Coat Investor survey. You can get that at whitecoatinvestor.com/wcisurvey. We’ll bribe you to take it with a chance to win some swag or even an online course. You could take that No Hype Real Estate Investing course. That is one of those that if you want it, that’s what we’ll give you if you win this prize from the survey.
Thanks for leaving us five-star reviews, by the way. We do appreciate it. It helps others to learn about the podcast. This last one came in from a gobbledygook, number of letters, but said “Amazing knowledge. All docs, high earners, or just typical income optimizers should listen. Thank you all for what you do. Thumbs up.” Five stars.
Thank you for that. Even if you don’t give us your name, it still helps others to find the podcast. Thank you for spreading the word about the White Coat Investor over the last 15 years. I know some of you do it a lot. You buy books. You pass it out to your students, to your residents. You tell your colleagues about it. You come to the conference and you bring people with you. We’re very thankful for it. We know that your trust is our most valuable asset. We don’t plan to do anything that would cause you to not be able to continue to have that trust in us.
Keep your head up, shoulders back. You’ve got this. We’re here to help. We’ll see you next time on the White Coat Investor podcast.
DISCLAIMER
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.
Dr. Jim Dahle:
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 272. This podcast is sponsored by Bob Bayani at Protuity, an independent provider of disability insurance planning solutions to the medical community in every state and a longtime White Coat Investor sponsor. Bob specializes in working with residents and fellows early in their careers to set up a sound financial and insurance strategy.
If you need to review your disability insurance coverage or get this critical insurance in place, contact Bob at whitecoatinvestor.com/protuity, by emailing [email protected], or by calling 973-771-9100.
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All right, this is the Milestones to Millionaire podcast. We feature you and your successes. We use them to inspire others to do the same. Some of my favorite episodes have been those that tell the rest of the story, and this is one of those episodes. I hope you enjoy it.
INTERVIEW
Dr. Jim Dahle:
Our guest today is Cody. Cody, welcome to the podcast.
Cody:
Hey, thanks so much, Jim. It is really nice to be here. I have been thinking about this for a long time.
Dr. Jim Dahle:
Yeah, what I found out, and I feel bad because I am not that good with names and faces, and I am even worse since my fall, is that Cody has been to my house. Cody was a medical student here locally and came to a Dinner with a Doc many years ago, where I dispensed some financial advice. Apparently, he took it to heart. This is another one of those “rest of the story” podcasts. So Cody, welcome. Introduce yourself a little bit. Tell us where you are, what you do, and how far out of training you are.
Cody:
I am a neurologist. I graduated my fellowship in Clinical Neurophysiology in 2024 and have been working in central Montana ever since.
Dr. Jim Dahle:
Central Montana. Not Timbuktu, but not that far from it, right? As some people like to think. It is not quite the great white north, but it is halfway there. How do you like Montana?
Cody:
I love it. It is so nice and open. There is so much to do around here. It has been great.
Dr. Jim Dahle:
Yeah, do not tell anyone. Do not say that too loudly. We used to say that about Utah, and now everybody has moved here. Tell them it is not a good place to live so you can keep it to yourself. We are celebrating a great milestone today. You crushed your first year. It took us a few months to get you on the podcast, but we want to focus on your first year out of training. Tell us what you did and how you prioritized those things.
Cody:
Leading up to the first year, I knew there was going to be a big swing in my finances. I went from a resident/fellow salary to selling our house, getting an attending salary, and receiving sign-on bonuses. Between all of that, there was about a million-dollar swing.
As I thought about that, I decided that if that much money was going to pass through my hands, I should not have student loans at the end of it. So I completely paid off my student loans. I was part of the SAVE program, so payments were on hold for a long time. I stacked cash in a money market mutual fund until I had enough to pay them off. When payments resumed, I made one massive payment, and the loans were gone.
Dr. Jim Dahle:
That is my favorite number of student loan payments.
Cody:
That was pretty much the only payment I made. Payments paused when I was an intern, and I did not need to make payments early on due to income-driven repayment. So that one lump sum was basically it.
Dr. Jim Dahle:
That is funny, because I only made one payment too. I borrowed in 1993 and paid it off with one check in 2010. How much did you have?
Cody:
About $280,000 at the max. When I met you back in 2017 or so, I knew nothing about personal finance. It was not on my radar at all. In 2021, after having our daughter, I noticed our bank accounts were shrinking. I finally sat down and budgeted everything and realized we were losing about $700 a month just from not paying attention. That is when I remembered the book you gave me. I started reading the White Coat Investor book and listening to the podcast.
Dr. Jim Dahle:
People do not read it, but they do not throw it away either.
Cody:
Exactly. I also started listening to Dave Ramsey and The Money Guy Show. I also got lucky with real estate. I bought a condo in med school for $165,000 and sold it for $250,000. I rolled that into a fixer-upper in New England during residency, bought for about $220,000 and sold for around $445,000. That gave us about $250,000 in equity. Then I got a job with a $60,000 signing bonus and a loan repayment program. Between that, my salary, and bonuses, I had about a million-dollar swing and was able to pay off my loans.
Dr. Jim Dahle:
Tell us about getting the job.
Cody:
Getting an attending job is a huge decision. I applied broadly to Colorado, Utah, Idaho, Montana, and Washington. I did six in-person interviews and several virtual ones. Each gave me offers or contracts to review, so I got a clear picture of compensation. One job would have paid half as much for similar work.
Dr. Jim Dahle:
The range is wider than people think.
Cody:
Absolutely. One key lesson from a mentor, Dr. Jason Richards, was figuring out what the job actually is. Employers often say “you can do whatever you want,” but it is really within a narrow box. I found a job that was not the highest paying but fit everything I wanted. I am now debt-free except for my mortgage, with over 50% equity in my home.
Dr. Jim Dahle:
Do you consider this geographic arbitrage?
Cody:
A little. Housing is cheaper in Montana. Our house was a fixer-upper, and with sweat equity, it is now probably worth $600,000 to $700,000.
Dr. Jim Dahle:
You bought without seeing it?
Cody:
Yes. I relied on my agent and my dad, who is a contractor, to inspect it. I would not recommend what I did in med school. I had no income and used creative financing. It worked out, but it was risky. Owning a home means everything is constantly degrading. If you are not ready for that, renting is better. I got back to zero net worth in November 2022, hit $100,000 in 2023, and reached $500,000 by November 2025.
Dr. Jim Dahle:
That is a huge first year.
Cody:
My priorities were to build a strong emergency fund, pay off student loans, and create an investment plan. I now save about 28% of my income and aim to automate everything so I do not have to think about money. We inflated our lifestyle a bit. More vacations, more date nights, but our core expenses stayed the same.
Dr. Jim Dahle:
So basically living like a resident with a few upgrades.
Cody:
It is not that hard. Just pay attention and learn the basics. With a physician income, that alone puts you far ahead.
Dr. Jim Dahle:
Great advice. Congratulations on your success.
Cody:
Thanks so much. I have wanted to be on this podcast for a long time.
Dr. Jim Dahle:
It is always fun to hear the rest of the story. Cody came to my house years ago, and clearly something stuck. He crushed his first year, and it is going to open up a lot of options for him in the future.
FINANCIAL BOOT CAMP
Dr. Jim Dahle:
What is an emergency fund? An emergency fund is a pool of money that you can readily access to keep you from having to go into debt in the event that an emergency comes up. Now, the tricky part about an emergency fund is how you define an emergency. What is an emergency, really? We can think of some examples that are pretty clear. Let’s say your air conditioner goes out and you are living in Houston in July. That is an emergency. It is literally life-threatening to not have AC in that situation, so that is something you might pay for using an emergency fund.
Likewise, let’s say you get a call that a family member is on their deathbed and you need to buy plane tickets right away. That is not going to be cheap, and you are going to need money to get there quickly. That kind of expense can come from an emergency fund.
Now, what is not an emergency? Let’s say you hear about a concert and the tickets are expensive, and you do not have the money unless you dip into your emergency fund. That probably does not qualify. You have to be careful not to treat your emergency fund like a slush fund, or it will not be there when you actually need it.
Classically, an emergency fund is made up of three to six months’ worth of your usual household expenses. So if you spend $5,000 a month, your emergency fund might be $15,000 to $30,000 sitting in cash in an account you can access easily.
Now, how many months should you have? One month is better than none, and six months is better than four. But many physicians think about this in relation to their disability insurance. A lot of doctors do not have short-term disability insurance, and their long-term disability policies often have a 90-day waiting period.
On top of that, payments usually start a month after the waiting period ends, since they are paid in arrears. So it can be about four months before you see any income. That makes four months a reasonable minimum for many physicians, although having more is not a bad idea since emergencies often come with additional costs.
An emergency fund should be a major priority early in your financial life. Even a resident physician should have some version of one, though it will likely be smaller due to lower expenses. When you first start earning money, building an emergency fund should be near the top of your priority list. There are always competing priorities, like high-interest credit card debt, but it can still make sense to build a small emergency fund first, even something like $1,000.
Otherwise, you risk paying off debt only to take on more debt when something unexpected happens. Even a small emergency fund can help stabilize your finances as you work through those early priorities. How quickly should you build it? The sooner the better. Ideally, you should aim to have an emergency fund in place within a year of finishing medical school, and a larger one within a year of finishing training.
If it takes you many years to build an emergency fund, that is usually a sign you are not saving enough. After all, once the emergency fund is complete, you will need to move on to other goals like retirement savings or college savings.
Where should you keep your emergency fund? Some people spread it across different places. You might keep a small amount in your checking account or even some cash at home, but most of it should be in an account that earns some interest. A high-yield savings account is a common option. These accounts typically pay a competitive interest rate, whether that is 3%, 4%, or 5%. You do not want your money sitting in an account earning almost nothing. Some people use CDs, which may offer slightly higher rates, though there can be penalties for early withdrawal. Another popular option is a money market fund at a brokerage like Vanguard, Fidelity, or Schwab.
That is where I keep my emergency fund. It is easy to access, and within a day or two, the money can be back in your bank account if you need it.
Some people worry about the low return on emergency funds, but the goal here is not to maximize returns. The goal is to preserve the money. The return of your principal is more important than the return on your principal.
You do not want to invest your emergency fund in stocks or even bonds and then need it during a market downturn. That defeats the purpose. Keeping it in cash allows you to invest the rest of your portfolio more aggressively.
SPONSOR
Dr. Jim Dahle:
This podcast was sponsored by Bob Bayani at Protuity. One listener sent us this review: Bob has been absolutely terrific to work with. He always communicates clearly and promptly, often responding the same day. He has been especially helpful in explaining a somewhat unique situation in a clear and professional manner. Contact Bob at whitecoatinvestor.com/protuity. You can also email [email protected] or call 973-771-9100 to get disability insurance in place today.
All right, keep your head up and your shoulders back. You have got this. We will see you next time on the Milestones to Millionaire podcast.
DISCLAIMER
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 related to your situation.
