Question about “borrowing money from the bank to invest”

I have a question about “borrowing money from the bank to invest.” My husband & I own a few businesses & we have always talked about also starting an Airbnb business. We own the commercial building that our dental practice pays rent to. We have a network marketing business which brings in abt $40-$50K/year with little overhead. And our dental practice is just over 2 1/2 years old. With the dental business, we have been making a decent amount of money for about a year. Career change was made late into starting our family so we are “behind”. We are ages 41 and 43 with 5 kids (ages 8-18).

Now that we are beyond the start up point, we are trying to figure out the best next step. One of us wants to follow the Dave Ramsey path - aggressively attack student loans (we’ve paid off $70K of our $185K just this year + $35K car), build up our emergency fund, & start building retirement accounts before taking on anymore debt for an AirBnB business.

We can get a $150K loan at 3% interest so the other wants to get this loan to help us buy and furnish to rent a lake house to Airbnb. There is one near us that is $699K for the house plus 3 neighboring lots for future potential rentals(in Texas). Potentially a family member would be interesting in investing into this with us. The one sees this as an investment to earn more on short term rentals and build equity. The other sees this as more debt. Both of us are open to doing what will serve us best so curious what your thoughts are

We have no investments other than $5K in Roth IRAs, our commercial building, house, & businesses.

Welcome @mrwright5!

Before I answer, would you mind sharing more about your other current debt obligations? i.e. do you have a mortgage on your commercial property and your home? How much and what are those properties worth about? About what is your household income?

How would you rate your stress/worry surrounding money from 1-10? How about your husband?


Yes, we have a mortgage on both our home and commercial property.

We built the commercial building ourselves so the mortgage began when the practice opened 2 1/2 years ago. It is a $1.2 million 23 year mortgage @ 3.5%. Our home is worth around $485K and we owe $385K. Student loans and one car loan but no other debt. Oldest child has an academic scholarship and we anticipate our 16 year old to also get an academic scholarship.

Our household income has changed dramatically in the past year because of the success and growth of our practice. I’m honestly not sure what our income is because when we started making $$ - we started dumping so much towards student loans. Also, our businesses cover some of our traditional expenses (medical insurance, etc) and the practice growth is not slowing down but I would guess we would currently bring home around $250K if we weren’t paying so much towards student loans.

Worry about money? Well, we aren’t afraid to live on very little and we aren’t afraid of work. We’ve sacrificed a lot through dental school and getting this business going. We are not risk averse and enjoy the process of creating and growing businesses. However, my husband has a kidney disease and will need a transplant sometime in the next few years. This will probably not be a huge deal financially because he has excellent health insurance but it creates worry for me. I would say I worry around a 7 because we have a lot of kids, we don’t have a solid foundation, and because of his health. My husband says he is around a 4.

Hey @mrwright5!

So by my back of the napkin math your net worth (everything you own minus everything you owe) is somewhere around -$50,000. I would strongly recommend calculating this number yourself so you have an idea of where you’re really at financially. Instructions here:

So your net worth is -$50K, you have over $1.7M in debt, and you’re asking me if you should take a $150K line of credit to get get a $500K mortgage to buy a vacation home (pushing your total debt to over $2.4M)? Um… no. And that “no” is the understatement of the century.

You’re playing with fire right now. If the bad thing were to happen, you would get wiped out. What if, for some reason, your income were to be disrupted? How do you make the payments on your house, car, student debt, and commercial property? That’s when foreclosures and bankruptcies happen (even bankruptcy won’t erase your student debt, but they will take your car and your business).

Even if that doesn’t happen, right now, you’re on pace to retire never. You’ve racked up all this debt that now you need to have this crazy high income just to service the debt, but you’re not actually investing or building real wealth for yourselves. When you have your money working for you, then you can be work options, you can breathe easy knowing the banks no longer own you, you can weather the storm of income disruption, you can retire with dignity.

Some things you may be thinking:

  • “But the vacation home is an investment”. No it’s not. The investment is an excuse to buy a vacation home. I’ve done a lot of due diligence on a lot of deals and a lake home you hope to do short term rentals on and has a bunch of undeveloped land has never been even in the ballpark of a wise investment property. If you really want to be in the investment real estate business, you should be analyzing hundreds of deals to find the most cash flow positive one. And even that I wouldn’t even CONSIDER until you actually have some money and aren’t swimming in debt. The first vacation home you found that you like (that you guys plan to use, no doubt?) definitely ain’t the way to go.
  • “The practice is our retirement.” Yeah maybe. If everything goes perfectly. But what if the unexpected thing happens and you can’t sell the practice. Or your area is unexpectedly has a decrease in population and suddenly there’s a surplus of dental offices… no one is buying. Or what if more dentists move in and competition pushes prices way down. Or what if what if what if. You don’t want to be in a position where you’re 65, just finished paying off student loans, have a half paid for house, and a commercial property no one wants and no money in the bank.

I don’t mean to be harsh, but I don’t want to risk being unclear. And I want the best for you! And I think you already have this big axe hanging over your head and I really don’t want more bigger axes to join it.

So what would I do? I think you should keep listening to Dave. Go ham on the debt. Car and student loans out of your life forever. Then take those payments and all the excess and start investing for your retirement. Once you’re debt free except the mortgages, get your net worth up to $500K or so, then you might consider the possibility of a cash flow positive investment property, where you’re putting down 30%+ in cash. (Borrowing money for a down payment, is bonkers town).

Oh, and you should both also read The Millionaire Next Door like ASAP. It actually has a section comparing two doctors making great incomes that reminds me a lot of your family! :slight_smile:

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Not harsh!!! I actually feel very validated right now :wink: Thank you very much for taking the time to respond!

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