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!