How Much House Can a Dentist Afford 3

Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dennis Advisors, a registered investment advisor. Welcome back to the Dennis Money Show, where we help Dennis make smart financial decisions. I am Matt, and I'm here with the one and only Hot Take Jake. Jake, how are you? What's up? I'm doing great. Yeah, life's great. Good. Excited to be here. You having any, uh, any hangovers from our retreat last week? Uh, no. Had a great weekend. This past weekend, I don't know if listeners care about this, but it was the, our secondary water finally turned on for sprinklers and getting the yard ready. I did sprinklers and lawn stuff this whole past weekend. You're speaking my language. Which I find, yes, I find energizing and refreshing to do. Yes. I love it. If I, yeah, I could, I'm going to have an encore career at some point, as they say. Uh, and it will be something to do with landscaping. I've literally thought at one point doing landscape design in my retired years. So, not for a while, but I love working in the yard. It's my favorite. Got the sprinklers all rounded up. I went to Lowe's, I think, three different times for different sprinkler heads and whatnot. Getting everything ready. The best. That was my last weekend. It was great. There's certain places, I know there's certain places people can't go, whether it be, you know, I can't, just shopping in general. I need to take the Amazon app off my phone or whatever. For me, it's like, I can't go anywhere with plants. I was at Costco this weekend and they've got all their plants out. And I'm like, this is a problem. This is an issue. I love it so much. So, I'm with you. I think a lot of people are. Okay. Well, speaking of plants. Yeah. And speaking of yards, we're linking, I'm making this leap here, Jake, to a really important topic. One that we, questions around this, we get so much. You just had, you're mentioning three client questions about this exact topic, which is, how much house can I afford? So, you got to buy the house before you can put the plant in and the yard in and take care of the yard. So, we want to talk today, how much house can you afford? Let's just break, let's just kind of like, what are your thoughts on this, Jake? Yeah. Give us your intro. Well, I brought this to you, Matt, over this past weekend. I had a couple of emails and questions about just housing stuff, and it just got me thinking. I think, and I want to hear, Matt, if you disagree with this, but I think questions around homes or houses or like renting versus buying or remodeling or upgrading a house or downsizing, just like housing questions in general. Downsizing. It's funny. I know. We can talk about that if we want to. I think housing questions are the number one type of question that I get. Like, I think I have more housing questions than any other financial questions. I think I'm willing to go out on a limb. I think that's true. Do you see the same thing? Yes. I would say it's got to be number one or top three for sure. Easily top three. Yeah, easily top three. And especially as you broaden it out to buying a new home, remodeling a new home, building a new home, any of those things, it's easily top three. And number one most emotional of all of the financial decisions we make. For sure. Well, that's what I wanted to talk about, too, is houses. I do get a little nervous, I think, Matt, talking about homes because people have such strong opinions about homes. And especially now, again, we talked about this on our other podcast on Two Cents. I think the housing market over the past handful of years, really since COVID, it's been pretty nuts and pretty crazy. We're still in a place where housing is pretty unaffordable. Yeah. And I think, and we've talked about this, that our economy as a whole is doing pretty well. The stock market as well. Unemployment is really low. People are still traveling and spending and it keeps churning along. But there's this one big, massive, like the housing market thing has people up in arms. And I think that people really care about that more than any other thing. Like I think a lot of the discomfort or people's complaining or anxiety about the economy as a whole comes down to, well, houses are really expensive and I wish I could move, or I wish my kids could buy a house or whatever that may be. And because that the housing market is a bit broken, they just can't see that everything else is going well. And I just think all that is to say, houses are really important to people, like really, really important. And that's why I just wanted to talk about it today. I don't think we've talked about it a while. And so I'm stoked to dive into a few different things here. It's the cornerstone of the class of the proverbial American dream, right? So to your point, I think no matter, like it is the most important data point for the general consumer. Yeah, I think so. Yeah, I think it is. If housing's too expensive as it is, I know you've got some numbers here to back that up. Yeah, we can talk about it. This is not a myth. Like this is not like this. The data doesn't match the narrative thing. This does match. And I think it has a ripple effect on the psyche of Americans across the board. For sure. Yeah, so let's go through a few of these. I just brought a few stats that we can talk through here. There was a Harvard study done. Like we can start with just the inaffordability or the expensiveness of homes currently, which is the monthly income. Harvard did a study just in 2024. So we're a couple of years out of date here, but we kind of get some of this data backlogs to us. So this is kind of the best that we have. That the annual income needed to afford a median priced home, right? So it's the average home in America. You would need to make $126,000 in 2024. It's kind of like recommended income for the median priced home. That's a 60% increase since 2021, which is wild. 60% increase is insane over a handful of years. And then like we can compare that with what the actual median household income is in the US, which hovers around $80,000 or so. Again, we're talking households. So this sometimes can be made up of two incomes in a household. But median is about $80,000. So there's a big discrepancy between median $80,000. You need about $126,000 to afford the median home. There's a pretty large discrepancy there. And a lot of people are getting priced out kind of of general houses currently. And I believe, we don't have this in front of us, but the median home price in America now is like $400,000, $420,000? Yeah, we can do a quick Google. That sounds right, Matt. Yeah, $400,000 around there. So now we're saying $126,000 to afford about a $400,000 home. The 60% increase is just wild. 60%! Yeah. And that's, again, house prices went up, also with interest rates went up right over the time. We all know the story. If you've even peripherally following the house market, that's just how that goes. I think that's a huge factor here, really quick. I think that's a huge factor is whenever we talk about any type of data that works against us, right? So inflation or prices of homes, whatever, the price of eggs. Whenever we talk about specifically inflation or raising prices, the speed in which it increases matters. Oh, yeah. This is why this has become such a problem for people. And not only has the housing market, to your point, not only has the price increased over homes, but I think in lockstep, because of rates, to your point, that's where it's gone 60%, right? If rates would have stayed normal, this would have not been nearly as big of a problem. Yep. It's a combination of the two. And, yes, the speed affects that. I think about this with inflation, too, which we talk about often. For most of the 2010s, we did not get huge inflation numbers. We had some really low inflation years. And so I think about this. We kind of had a decade of hardly any inflation, and people got used to that. And then we sped everything up, and we recouped all of the other inflation from COVID on. And I think that was just painful for a lot of people. Same thing with houses. I've gone through a ton of housing stats. I think there was another one where, like, we've already seen, like, for a typical decade, most houses appreciated a certain price. And we've seen that price appreciation already from, like, 2020 to 2023. It was like a full decade's worth of house appreciation in just three years. And so, yeah, we're living in abnormal housing market times, I think. And it matters what you're—this is why we say the speed matters, because it matters what you're—because we had such a long period of time with such low rates, right? Try telling somebody that, hey, this is actually— where we're at right now with rates is pretty normal, historically. It's true. It's also not useful, because try telling someone looking for a house right now, hey, don't worry about it. It's actually pretty historically accurate, pretty historically normal on average to have somewhere in the high fives, low sixes. That is a totally normal rate. That doesn't matter, because our reference group and what we're comparing it to and what we're anchored to is 3% rates for over a decade. So that's where—and because it moved so quickly, it doubled so quickly. And because we still have such a shortage of homes, it doesn't matter. It still is so painful, and no one cares about what the historical rate is. So I guess what we're saying is we understand. We understand why it's so painful. Yes, I am 100%. If you want to complain about the housing market, go for it. I won't stop you. I get it. And I'm talking particularly for the new home buyer. You can make an argument that for people who owned homes before 2019, 2020, you've been able to build up a lot of home equity over these past handful of years, and you probably have a 3% or 4% rate as well. These higher rates have not affected you. And so your payment has stayed low, and you've built up a ton of equity. You're kind of in a good spot. If you've been a homeowner from 8, 10 years ago, you're probably doing okay. It's for the people looking to buy a home right now who do not have any home equity built up. And you could say, and we'll talk about home equity and how important in things it is, but if you're an existing home buyer and you're looking to buy a house, you're like, dang, things are really expensive. This is a big jump in monthly payment. I get that. But you have had the past handful of years to build up some equity that you can roll over to this new home and hopefully lower your payment. So if you've been in a house before the past couple of years, I think you're doing okay or you feel okay about it. It really is these millennials, first-time home buyers that are really struggling. Like, how do I break in to this space? Well, and could you say, I mean, I'm just, I don't know this for sure, but I think it's not unreasonable to say that we went from the best time to purchase a home as a first-time home buyer to the worst in a matter of a decade. Yeah, I mean, 2012 to 2014 is probably one of the best times. Honestly, looking at historical data, one of the best times in the history of America to buy a home because of where rates were at and because like deflated house prices from the 08 crash and 09 crash, it was an incredible time. And we've seen the past decade, bigger housing gains than we've ever seen in any decade before. So yes, we went from like 2012 to 14, like a once-in-a-lifetime buying opportunity to now things are pretty dang expensive. Yeah, it's interesting. And then you had some numbers comparing this to kind of giving more context here of comparing this to the stock market. Yes, where this is why housing, I think, is so important for most people. For pretty much everyone in America, your house is your biggest asset, right? For non-business owners or things there, people who save a lot of money in the stock market, housing is really important. Additionally, people want to buy a home because it's part of the American dream and that's how you build up, really, some equity and some wealth. So like the stock market and the housing market are quite different in this sense where the top 10% of households by income in America own 90% of all stocks. I kind of repeat that. 10%, the highest 10% income cohort owns pretty much everything, 90% of all stocks. But with housing, that amount is far less concentrated. The other 90%, the bottom 90% of, I guess, sorry, I'm saying this. I guess how I want to say this is, so 90% own the top 10% of stocks. So that means the rest of 90% of the population in America only owns 10% of stocks, right? That's kind of how those numbers work. It's different with housing where the bottom 90% of income cohorts in America own 60% of the housing market. Yep, yep. So- You're saying the stock market is very concentrated with the people who hold most of the wealth. Yes. And let's be honest, this is skewed because the baby boomers have so much money. Yes. They've accumulated so much wealth over the last 40, 50 years, which makes sense. The oldest generation right now that's still living is this baby boomer. But you're saying in the housing market, it's really the asset class of the people. Yes, everyone owns a house. Yeah, a lot of people own houses. Only 5%, I think, of adults is what the recent number was, own a house where it's closer to 50% of people who own stocks in a 401k or anything there. But yeah, so it is the house and house equity really is the asset that most people can hang on to. It's really the only asset, we've talked about this, of building wealth through a home where we don't think it should be your primary wealth builder. We could get into that more. But it's really the only thing that people would just put on a mortgage and put $2,000 a month into for 15, 20 years. Helps them build wealth. So yeah, all of that is homes are very important. Well, and to circle back to what we said at the very beginning, those numbers right there show why there can be, the general population when the stock market, we see it live and breathe it every single day. We're talking to Rob about it every week. We're like, wait, the stock market's crushing right now. Why are people still bothered? Or why are people still kind of discontent with what's happening? The numbers you just highlighted there are exactly why. Because housing has changed so much and become so unattainable for so many people, especially the younger generations now, they don't care what's happening with the stock market. There's probably never been a bigger disjointment of what's happening in the stock market versus what's happening in Wall Street versus what's happening on Main Street. Yeah, somebody who has $5,000 in a work 401k isn't really concerned in like a target day fund. Is not concerned about what the stock market's doing. They're far more concerned about, man, I kind of want to buy a house because we just had a new kid and we have a third baby and we have to increase this. And so they're like, this is untenable, that type of thing there. Yeah. Yeah, so I think we hopefully did an ample job of highlighting the problem here and truly trying to show some empathy of we totally get this. This is a legitimate problem. And there's a reason why we're getting all these questions. Let's just highlight really quick though, the data we're just talking about is the general population, which we only work with dentists. Dentists are different in a lot of ways. One of the main reasons they're different, it's obvious, is they make a lot more money than the average household in America. On average, four to five times the average household in America. And so that makes the problems, there's still problems because we still have a massive shortage of homes, and it almost makes the problems bigger because now we're dealing with bigger numbers because you make more money, the bank's going to approve you for more money, for a bigger loan, you're out there searching for bigger homes, consequences are higher. But we just want to highlight, it's still a problem in the dental space. It almost could be even a bigger problem with bigger consequences because we're dealing with bigger amounts of money. And so we gave the kind of what's happening in the housing market. I think we want to transition more into some concrete advice for people who are like, okay, I understand the housing market situation, it is what it is, but how do I go about framing how much house can I afford? What's my price range? What can I look at? So we wanted to give you just some key principles and things to follow. Do you just want to dive in, Matt? Start with the first one here. So yeah, I think exactly your point. General principles here, we highlight this saying, as our boy Taylor Sutterfield says, general advice is not really great. Specific advice, but I think this gives some good direction for people out there listening. If you're not a client of ours, to at least give you kind of a narrower focus of financially, what should I be thinking about if I'm out there hunting for a home? Okay. So the first place I would start is I don't really like to look at homes from the just sticker price of the house, whether it's 500,000, 800,000, whatever. I like to frame things. Most of us are getting a loan for a home. And so frame that as part of how much house you can afford is how much of a monthly payment can you afford? So I would say to try to keep your monthly mortgage payment at 25% or less of your gross income. We can get into some of the nuances and details behind this. If you read a personal finance textbook, it'll tell you to keep your housing costs at 28% I think is still the gold standard that you'll learn in school. They come into school to study these things, about 28% or less. I like to do 25% or less, kind of gearing this more towards dentists, the clients that we work with. A primary reason for this being is you have a lot of other debt outside of your home. For most dentists, when you're buying a home, you will have student loans that we have to factor in. You'll have a practice loan, maybe a practice building loan, all of these other debts that will pile up. And so we can't be too aggressive, I don't think, on the housing front, at least early on in your career. Again, if we're saying our overall debt-to-income ratio, Matt, that we like to use, all debts included, is we generally don't like to see that above 40% of your gross income, right? Ideally. Not for extended periods of time, for sure. That's when you're like, yeah, if there's any stoppage of income or things, you're getting sticky situation with the debt payments. So if we're saying 25% of it is leased towards the house, that only leaves another 15% for student loans, practice loan, car loans, any other type of things that you may have there. Yeah. And by the way, we're saying, just to highlight, or just to make sure we're clarifying, we're saying housing costs, right? Yeah. And we're not saying just your principal and interest if you were to run some back-of-the-napkin math. We're talking about actual house, like your total housing costs, including your utility, insurance and taxes. What is your total housing costs every single month? And you have to factor in like maintenance. Yes, which that's one I think people forget about sometimes. Insurance and taxes are quite a bit and they will add up on you there. Particularly if you live in certain areas, Florida, California, New York, right? Property taxes. Even in Texas, right? They don't do any state taxes, but they'll get you on property taxes. Oh, property taxes are wild. So yeah, like for example, if you make $100,000 a year, right? We would recommend about $25,000 as a comfortable amount to go towards housing, which comes out to about like $22,000 a month, $2,083 a month. Yeah, if we're giving you like a dental specific example, let's say you're making $30,000 a month before taxes, so about 360 grand a year. That's $7,500 a month for all one housing costs. Yes, which sometimes, and I've had this conversation about before with clients where their income is quite high early in their career. But because of, again, like we talked about student loans or practice loans or other things that they're paying off or working towards, that 25% rule of thumb is actually higher than they can fit in their cashflow budget, right? If that makes sense, where it's like, hey, I'm making $500,000 a year. Gross income is my top line number, but I have a big practice loan and student loans and different things. I only have like four grand extra in the budget. Yep, right? I can't jump up and like even though that 25% is our rule of thumb, we're really gonna have to move some other things around to fit in that big of a house payment. So this is where context matters too, where 25% is a good starting point, but we also have to make sure that this fits within your current budget of savings and other debts and spending that you have going on. Well, this is exactly what we're saying. This is a rule of thumb. This is general advice. You know, Chat GPT is gonna tell you one thing. By the way, a bank's gonna go way higher than this. Way higher. A bank's gonna go up to 42% debt-to-income ratio if they were to like, if you were to go get like a pre-approval letter from a bank, they'll go up to 42%. And again, this is where emotions come into play. Because all of a sudden you get a pre-approval. And I've talked to Dennis about this before where they're like, holy cow, I just got approved for $3 million. Right? And then it's, that all of a sudden becomes like this, well, what could we get for $3 million? So, to your point, Jay, keep it, you gotta keep context there because even though 25% is our rule of thumb, the CFP, which you might find through like a Chat GPT or something like that would tell you 28% and then a bank will go to 42%, you gotta factor in your actual detailed cash flow for your unique situation. I would honestly prefer closer to 20% for a lot of my clients if I'm being honest. I think it's a lot more comfortable. A few more context things here of, you know, adding on to this rule of thumb. It is entirely possible where you could be starting out your career, you wanna get into a home, you're buying a practice, you know, where you wanna stay long-term. And you could say, well, this is my income right now but I expect my income to go up over the next five to six years. I really do expect it to grow, I'm gonna build this practice, I'm gonna work harder, et cetera. I think there's wiggle room where it's like, well, this house is 30% or 33% of my income currently each month. But I really, I'm fine buying it because I expect my income to go up. I really do. Now that's again a dangerous game to play for some people. You have to make sure that we're being smart about things there. But I think that's a valid point and opinion where it's like, I just wanna get into this house right now. It's gonna be like a bit of a pinch currently but here's X, Y, and Z things I'm going to do to increase my income and in a couple of years this payment's gonna be a healthy percentage for me. Yeah. And I'm okay with that in some cases. Like you going, pushing yourself a little bit more depending on your situation, depending on your career goals, your family situation, income obviously. So yeah, I think there's some validity to that but I think that that taken too far can, especially when you mix in a concoction and that concoction of emotions that's easy to justify. And it's easy, it's really, really easy to be disciplined in the future. So we hear a lot of like, yeah, this will, you know, my cash flow will be tight but like, I'll be fine. Like six months from now I'll cut this or that or whatever. You start to like, rationalize it. So just be careful with that mindset. I agree. It's also likely that other spending will go up too when you buy a house where it's like, again, we talked about trees. Yeah, there's trees. You need to plant in bushes and I want to paint this or do that and yeah. You get pumped. I get it. You get pumped. You want to go to Home Depot and Costco and do all these things and all of a sudden you're like, you buy this house. Oh, that bathroom's not great. We'll give it, you know, but we'll remodel it in a couple of years and then you're in it for six months and you're like, eh, let's remodel it now. So yeah, the detour effect is real for sure. What about down payments, Jake? Yeah, so let's just move on to our second principle here, which is do not use all of your cash for a down payment on a home. In general, again, we recommend keeping a three to six month healthy, you know, three to six months of personal expenses as an emergency fund. I would be hesitant to dip into all of that to get into a home. Again, it's just one of those things where that emergency fund is there for emergencies and they buffer against whatever life is going to throw at you and if you have to exhaust all of that to get into a home, you're just exposing yourself to some risk until it takes you to build that money back, right? Yeah. I do like talking, I did want to use this opportunity to talk about down payments and their impact because I think this is a good point I talk about with a lot of people is a down payment doesn't go maybe as far as you might think with a 30 year mortgage. I think about this often. So right now with where rates are at, I'm hovering around 6%. With a 6% rate on a 30 year mortgage, $100,000 down on your house saves you about $600 on your monthly payment. $100,000 is a pretty big chunk of change to put down. I think people expect it to do more where it's like, okay, there's an expensive house but with my equity and I'm going to put some money together and put it down and I'm really going to lower your payment. It doesn't lower it as much as you think. Again, $100,000 for 600 extra a month in free cash flow but that's working with dentists where generally high income renters I would, in most cases would way prefer to keep $100,000 in your pocket or in your investment account than just pay the extra $600 a month. That's a lot of months of $600 before you're breaking even on that $800,000 you put into your home and so I think our general recommendation Matt for our clients because they're high income renters is you don't need a huge down payment in most cases. I know the Dave Ramsey 20% people will tell you I don't think that's feasible in a lot of situations and I think your money is best used elsewhere whether it's keeping your emergency fund on hand or keeping that money in an investment account growing at a higher rate than putting it towards your house. Yeah. I tend to agree with this generally speaking that you don't have to be to put too much pressure on yourself. I know the kind of rule of thumb is like you need 20% down. First of all no one does. Dentists specifically do not even more so than the general population. A lot of times you can actually get it where you're not paying I know this whole thing about PMI is a big deal for people. People freak out about it. People freak out about PMI. I've owned a couple of homes in my life and I've paid PMI on a couple of homes in my life like it's not a huge deal and we're not like in general advice general advice but I do agree with you that people feel like it is like a only way I can buy this home is if I put 20% down and I just think that is not always the case. To your point this example $100K would you rather have that invested elsewhere or have that just in liquidity or scrimp and save and put every last dime you have and then the homes purchased and you look at your bank account and you got no money that is the definition of house poor and your stress levels will be so much higher rather than to your point here this example of like yeah I'm paying an extra $500-$600 a month but I have that $100K in the bank big big difference. Exactly. And generally speaking we do not consider homes to be an investment where it is it is an asset on your balance sheet you can pass it on to your kids when you pass away but in most cases you are not selling your home to fund financial goals you always have to have somewhere to live but if you did want to view your house as an investment we are just talking math and numbers here the less you put down the bigger the return you are getting on your home because when you get a home even with a loan on it you get 100% of the appreciation. So let's say you bought a $500K home and you put $100K down and let's say it grew the value went from $500K to $600K you had a 2X return technically on your investment that you put in I put in $100K cash on cash I got $100K if you put $10,000 down for that same home you still get the $100,000 worth of appreciation that is a 10X cash on cash return it is actually smarter to use the bank's money to get a bigger asset you are actually leveraging your return we don't usually view houses Are we becoming realistic guys right now? As an investment but like you are getting all the appreciation no matter what I think my philosophy would be like I would actually want to put as little money down as makes sense for my budget kind of is my general stance I think that's yeah anyway I think that's totally right and can we double down on this really quick on this idea of a financial asset versus a lifestyle asset because how many times Jake do you have a client or dentist you talk to that tries to justify a lifestyle upgrade in their life like a home with financial justification or like balance sheet justification we'll call it how many times does that happen so for example I'll give you an example someone says yeah we're pushing it here we're not totally ready maybe for this but this area like it's only going up and we can totally sell this in five years for a return if we needed to how many times have you heard some version of that someone justifying a lifestyle purchase more than I can count what about the pools in the backyard too right it's always the house upgrades and the remodels where it's we're gonna put a pool in there but hey the pool costs a hundred thousand dollars but it's increasing the value of our home by X amount of money so it's worth it it's an investment which by the way like the reason we bring this up the reason I bring this up with clients and dentists is just accept that not every single investment in your life has to make sense on the balance sheet just accept it so I think you can just buy a pool if you want a pool just buy the pool it doesn't need to have some financial financially positive outcome by the way I think pools are one of the greatest lifestyle investments you can make I really do I've yet to ever talk to anyone who doesn't love a pool or who regretted putting a pool in but it doesn't mean it's a good financial move it's not a good financial move just accept it that's okay um I love that point okay let's do our third here my third principle is do not stop saving um so we generally recommend that in the gold standard for savings should be about 15-20% of your gross income um I would be very hesitant to lower that savings rate percentage because you are getting into the house ideally you want to keep it the same that you've been doing there and work towards that again this goes back to what we've been talking about a lot of your home is typically not an investment right um you are not cashing that out to fund financial goals it's an asset that can be passed on to your kids yada yada and so if you're lowering your savings rate to accommodate in your nicer house you're just hurting yourself in the long run financially there I don't know if there's much else to add to that Matt do you have anything? No I mean I just think the last two here I think really all three is just be careful being house poor right like if you don't check some of these boxes that excitement you feel with anyone that everyone feels when they buy a new home that excitement can quickly turn to stress and anxiety if you're not planning ahead and actually looking at numbers and you're not actually organized around these numbers yeah I think on the savings one you know let's say you're you know you're if you're within that range of 15 to 20% so you've been saving 20% and you're like okay we figured all the numbers we got the down payment we got the mortgage whatever we got it figured out our savings gonna go down to 16% like I think that's okay I think you know that's a totally fair trade-off there it's where we're saving 20% now we're gonna go buy this monstrosity and we're only saving 4% or no money at all like that's there's a wide range there so if you keep within that 15 to 20% range even if it drops a little I think you're gonna be okay and knowing your long-term numbers comes into play here right where we talked about coast fire the other day or some people can reduce their savings maybe you are at a point mid-career where you've done some heavy lifting and have some good savings built up where you can say okay I don't need to do 20% anymore I can go down to maybe like 12% or 11% because of this new house and that's okay because your assets are still growing and things there so yeah just be conscious of that know your long-term numbers know your current numbers house is not an asset so you still need to make sure you're putting money and other assets while you have the home yeah love it I think the last part here Jake we wanted to talk about just kind of big picture trade-offs I love this topic because it I think we try to encourage this mindset of like the trade-off mindset versus like black and white solutions mindset everything when it comes to money really everything is just simply a discussion around trade-offs so we wanted to hit what are these kind of big trade-offs for people to consider when it comes to buying a home so I'll get personal here for a second slightly personal I've just been thinking about this a lot recently so I bought a home for people who are trying to buy a home now and struggling don't listen to the next 10 seconds of this I have a 2.99% rate on my home yeah everyone hates you right now all the younger listeners hate you right now I want to make sure that people know this is not because I'm smart or a genius or anything it just was lucky stupid timing that I got this 2.99% rate on my home we have an inside joke here can we tell it really quick yeah let's talk about it can we tell it really quick yeah a fond a story we hold fondly here in DA the hallways of DA especially Will and I so several years ago whenever you bought this home it was years ago we get a message 21 yeah so 5 years ago we get a message from Jake both Will and I and Jake's like man can we talk we need to chat really quick can you hop on and so we all get on together and Jake was stressing understandably so very much so well very understandably anyone who's ever bought a home knows the stress it's a big purchase but your specific stress was around the details of the rate and the terms and all this stuff and I believe I don't know the exact numbers but it was some oh you do okay share the numbers so I'm an optimizer so during this time again people who are trying to buy a house now are getting to roll their eyes so hard at this which you should the rates are like fluctuating between like 2.75 and 2.9 2.95 percent at this point and I was stressed because there were 2.75 percent rates but I could not get those and I was bumping up to 2.99 and I was losing my mind financial optimizer like oh my gosh do I need to wait can we get back to 2.7 is 2.9 even good can I even afford the house at 2.9 what's gonna happen and now looking back that is the most ridiculous conversation which is great this is value of financial advisor Matt and Will were my financial advisor and I was like am I being dumb or am I being not dumb and they were like you are for sure being dumb here I think we were nicer than that yes but it was amazing I think we were just like dude buy the house like does it fit with your life like buy the house yes so hopefully people get a good chuckle out of that so anyway fast forward to today and I've thought about you know this is everyone like okay do we upgrade lifestyle moving homes when does that happen I've just thought a lot recently about well I have a 2.99% rate on my mortgage which is awesome my monthly payment is very reasonable for where my income level and things are at getting into a new home would be a step up which I think there's a lot of people in my situation too good rates old homes like okay if we do a new house better home it's gonna cost us a few thousand dollars more a month to upgrade and get into a better home even with the equity that we built up and I've just been thinking recently Matt about okay let's say just again throwing numbers out there like your home is $3,000 more per month right to kind of upgrade and get the nicer home that you want $3,000 a month is not nothing and if you just like I just think of this in the context of okay well what could I do with that $3,000 a month could I buy a country club membership could we go on more family vacations could we buy more trees for the yard could we upgrade our current house or get new carpet or like there's so much like $3,000 a month $36,000 a year is a big chunk of change that like this is where like what's the trade-off here like could we actually live a better lifestyle do more of the fun things that we want or should we just sink this money into a home which again this is like trade-offs if you just want to have the nicest biggest home that's great that's worth it to you but I just find this fascinating because homes are expensive and it's usually the biggest expense that you have every single month it's like the one lever you can pull if like okay well like a cheaper house for some more expensive house can determine a lot of how you want to live lifestyle wise yeah I just think it's an interesting conversation I'm glad you brought this up honestly first of all I'm glad you told your personal story I really do because I think people can relate to that we've all kind of felt these these feelings and I'm glad you brought this up because I don't know if enough people actually think like this I don't think enough dentists actually think because I think what most dentists do is they understand this in theory they're like oh yeah totally like I you know I understand the idea like if I buy this home I'm not going to be able to travel as much they understand that in theory thinking I'm going to be disciplined in the future and not travel as much because I really want this home right but how many of us how many dentists out there actually that we know are actually living those trade-offs as opposed to just talking like I think most people nowadays are going to justify the home purchase and still take the vacations sure and not really change their lifestyle which if you do that that's awesome right as long as you actually can save for the future yes if we're checking out your boxes we're saving on pay for retirement all those things if you can do it all great please do it all get the nice home go on a million vacations that's great but I think for most of us even the clients that we work with money is a finite resource and there's trade-offs for different things and it's like okay you can get this newer nicer home but maybe that's limiting some flexibility to do other things or maybe that's preventing you from cutting back a day at the office yeah where it's like maybe like that is like you might have to stay working your four or five days a little bit longer because we're getting to this home is that okay with you like is this new enough worth it you know everyday being it worth it for that trade-off and so homes are expensive this is like the same car question too is like if you want to buy a nice new home and spend a lot on it please do that's fantastic but there's the other way of like well maybe I don't need that and we can stay in our current home and I have less stress and maybe we can do more fun things that I'm wanting or I can take more time off work and so I would just I would always think about that whenever upgrading or remodeling or doing anything with the home pretty big trade-off there to consider yeah and I think there's an important thing to note here as well because what we hear a lot from people is and I've joked about it in the past is and this is all related a lot of times we hear in the past from Dennis it's like I'm doing this for the kids right like I'm Jake how many times have you heard that a lot of times it's a good kids it is a good stuff but here's a here is a here's a pushback thought because if you if you counterbalance this with this is backed by data I don't have it in front of me but I've I've read this a few times and I've heard this multiple times on different podcasts the number one fear of parents outside of the safety and health of their kids obvious that's obvious outside of health and safety of their children the number one fear is entitlement is their kids being entitled this is like backed by a lot of data sure yeah every parent out there is gonna say I would imagine if they're listening to this like yeah I don't want my kids to be self or entitled or spoiled yeah so think about this I'm doing it for the kids but I fear of my kids being entitled your luxury becomes their baseline so when you're 45 or whatever years old 50 years old and you're like I'm gonna go buy this man we're not saying don't do it I'm just saying think about the idea of like I'm doing this for the kids you buy this mansion that becomes this incredible luxury for you and your spouse and partner and I've heard this before in the past like the money story people have around like they didn't grow up with much and they were poor and they couldn't you know whatever they never wanted to hang out their house they're embarrassed totally get all that so you want to go like this is kind of like satisfying that old wound you had from back in the day but again you've got to think about the impact you're having on your children and if you're doing this for the kids think about the fact that again you are now establishing a new baseline for your children of what they expect in life and what they're gonna have to do moving forward you're creating a pretty long road for them to get there just just just food for thought Jake what are your thoughts on that is that a crazy stretch no I don't I think that's a that's great I want to share Taylor won't mind us sharing this I've talked about before he might have even shared on the podcast there's a smaller example of this he got a new car recently like a new van for his family and his funny story is he brought it home this new van and one of his daughters actually started crying because she missed the old van Taylor was so stoked like this awesome cool new van for the family look all these gears there's a TV yada yada and his daughter's like I where's our old car I missed the old car she would had no idea didn't even want the upgrade yeah and so I think that happens a lot with kids is they actually want or expect a lot less than we think and they don't care as much as we think and they don't care as much at least about the material things they care about time and attention from you as a parent they don't care as much about the material but this leads back yes this leads back to really it's just be intentional with the house purchase we said this is all financial decisions just think about it for maybe a day more or a half a second more and just consider some of these trade-offs and if you want a nice new home buy it but consider like how is this impacting retirement how is this impacting future spending my stress levels my workload just like consider all those things rather than just be like well it's kind of we've been in our house for six or seven years my neighbors are all getting new homes you know it's time to upgrade it's like this is just the next step in the things that I'm supposed to be doing we always just recommend interrogate what you think you're supposed to be doing right like that's the thing whatever society tells you or friends would tell you do it for you and for the things you want not for any outside yeah yeah I think that's a great takeaway message we're not saying don't go buy the home we're not saying don't go upgrade the home we're not saying don't go remodel the home just be like the word you used intentional thoughtful curious about what's driving these decisions and be honest about the trade-offs you're making when you're making these decisions so I think it's great Jake any anything else you want to add to any of this any other words of wisdom it's a great topic I guess we didn't mention quick for the people who don't know maybe young dentists who still listening to this if you're buying into a practice it'd be like homeowner thing to take note of when you're buying into a practice banks really don't like business income for the first little bit they like love w-2 income which is crazy and it's weird usually if you're buying a practice banks will not lend to you for at least a year typically for a house so it's like you're moving somewhere buying the practice like oh I'm ready to buy into a house too you might have to wait a year sometimes even like a year and a half to two years depending on the lender that's just a note that I have for a lot of dentists who are kind of confused or they get shocked by that like I bought this practice I'm ready to buy a house now we've been waiting three years already before we bother practice and now we have to wait another year two years and that can really cause some stress and maybe marital problems or different things there just know that it takes some planning or maybe if you like have an LOI already in place or purchase really like something there by the home you can get the home in the area anyway just something of note that we didn't bring up for yeah that's a whole other discussion I think it's really good because that's a that's a discussion we have a lot with dentists of home versus practice and there's a lot of nuance there of which one you should do first so but I think generally to your point generally buying the home first is going to hurt you less than buying the practice first yes when it comes to hindering future lending options yeah I don't think anything else so to recap just quickly if you're thinking okay we want to buy a new home what rules do I need to follow look at 25% or less of your gross income as your monthly payment before taxes that's being gross before taxes we're giving you actually some more room there rather than that don't use all your cash for a down payment do not exhaust your entire emergency fund and try to maintain your savings rate again we recommend 15 to 20% those would be like the three boxes you can look at checking and just considering what can I afford what can I do if you do all three of those you're actually gonna be in a pretty good shape yeah I think that's great great topic Jake really appreciate the the thoughts and the wisdom if you're out there listening I think the critical piece here as we've highlighted is just how important it is to have someone in your corner honestly walking you through this understanding the nuances helping you like I can't we can't even tell you how many times we've had Dennis just think or just say you know say and really feel like holy cow having someone in my corner that knows my numbers that knows the things that I've said are important can hold me accountable to what I'm saying into my goals is is massive so critical to you know getting to a place of making work optional on your timeline so if you're out there listening and you're like I need help with this stuff we are here dennisadvisor.com book on the book or book on the book consultation button we'd love to talk to you and see how we can help you with either future home purchases or really anything else going on in your financial life and then of course we have the Dennis money summit coming up dennismoneysummit.com June 11th to the 13th we'd love to have you there and you know with like-minded Dennis there in Midway Utah it's gonna be a great time so for now Jake thanks for being here and sharing your words of wisdom everyone thanks for listening until next time take care bye bye