For an audio version of this post, please click on the speaker icon (top left).
Welcome to this episode of The Doctor’s Bill (Can You Afford It?).
Wonder if you should buy that big ticket item or not?
Well here’s your chance to have a wealth management expert, Johanna Fox Turner, of Fox & Company Wealth Management analyze your overall finances and make a final verdict on whether or not you can indeed swing for the fences and splurge on yourself or whether you should just walk away.
[Johanna and I have no current financial relationship]
Disclaimer: This is not meant to be a substitute for paid professional advice but only meant to serve as a suggestion/guideline.
The following are the details from our submission form:
Item/Experience Desired:
Purchase New House In San Francisco in 1-2 years.
Approximate Cost:
$4.5M
How do you plan on paying for this item/experience?
$1M down payment.
$3.5M Mortgage.
On A Happiness Scale of 1-10 (10 Being Happiest), rate what this item/experience will do for you A) Short Term and B) Long Term:
A) 8 B)8
Age:
41
Gender:
Female
Occupation:
Gastroenterologist
Marital Status:
Married (husband also a physician)
Any Children (If so please provide ages)?
2 kids: 5 and 1.5 years.
How Many Years Till Planned Retirement?
20
What is your total household income?
$900K
State Income Tax (if Any)
11.3%
What is your % Annual Savings Rate? (savings/gross income)
25%
Estimated Annual Living Expenses (Current):
$300K
Estimated/Desired Annual Living Expenses (In Retirement):
$250K
Market Value of Primary Home [For Renter =$ 0]
$2.8M
Additional Real Estate Holdings Equity (Market Value-Debt):
$50K (real estate syndication)
Current Liquid Asset Value (Savings, Checking, Etc.):
$175K
Retirement Assets (401k/IRA/HSA):
$1.2M
Brokerage Account (Taxable):
$1.2M
Miscellaneous Asset Value (Please elaborate):
$250K (529 x 2)
Mortgage Balance:
$800K
Student Loan Balance:
$0
Additional Liabilities:
$0
Unfunded Future College Costs & Years Left Till Needed:
$0
Other Unfunded Goals and Years Remaining (Today’s Dollars):
$0
Any other pertinent information not addressed?
Husband and I disagree on keeping current home as a rental.
I feel like to get the $500k cap gain exclusion, we’d have to sell within the next 3 years so why wait?
Plus I don’t think we can afford 2 mortgages considering property taxes on the new home would be $50k a year (an increase of $15k from current property).
If we do sell our current home we would increase the downpayment to $3M ($2M from home proceeds and the rest from our taxable account).
So based on the financials provided, does this GI doc have a golden (gate) future?
Or will she instead land herself in financial Alcatraz?
Click on the Doctor’s Bill Image and find out the verdict:
Click on the Bill (image) and find out if can afford it or not
After you see the verdict please come back to this page and comment whether you agree or not with the decision (and no cheating by looking at comments first!)
If you would like to submit your own Doctor’s Bill request please fill out the submission form.
Note:
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Major thumbs down on the keeping for rental idea. 15k property taxes plus 800 k mortgage interest of approx 22k a year plus I’m assuming at your income someone to manage the property. That’s 40k a year just to break even before we talk about the lost cap gains tax deduction which might add another 20k in needed revenue a year if spread over five years. Over a five year period you’d need to have maximum occupancy at 5k a month rent just to break even (and I’m ignoring opportunity cost). Add to that you didn’t set out to be… Read more »
Great analysis FTF and meshes with how I felt about it too. I get that everyone plays with the notion of keeping a property when they move and rent it out.
It typically is not worth the hassle and stress and as you said the loss of tax benefit really makes it less desirable in this case
Depends on the location of the first on ease of rental. If great school district, then really easy to rental–even at those costs because of the Bay Area. If using this as a backup for kicking The City life around and perhaps return to the smaller home, you do have 3 years to decide on that. Personally, we don’t like The City while my sister loves it. We’re strictly suburban folk ? The costs are fine. School district was always an issue for sister though- ended private schooling being downtown. Also have to watch when the kids go to school… Read more »
All great points startrek doc. Appreciate the insight
I have one rule for either investments or speculation. It’s a rule I learned when I traded commodities. These people are both “investors” but mostly speculators. 900K whopee shit. 12M retirement doodah. When I started in private practice medicine my income was 3x what it was when I retired 25 years later INFLATION ADJUSTED. There is zero chance of maintaining a 900K inflation adjusted income over the next 20 years as 3 physicians much less as 2. Maybe as a hospital administrator but not a physician. Rule I learned is: You have to know the exit strategy before you make… Read more »
I agree with the physician salary as one of the biggest unknowns in future. Who knows what the medical climate is going to be in the next 5 years. There are already articles about how radiologists will be out of a job as artificial intelligence comes on board. Reimbursement cuts happen every year it seems as well. Radiology has been hit hard by this as I have experienced it first hand. I have to read more to maintain same salary but the hampster wheel does have a maximum setting. Your example about your friend is very beneficial as people just… Read more »
When I started I set up a Pain side gig and made almost as much as anesthesia, and anesthesia paid real well in those days. The town I moved to was one of the top 3 indemnified markets in the state, small medicare population and small medicaid. Pretty much everybody had insurance. By the time I quit minus the overhead pain was paying like 25 bux a case. Cost more to bill it than do it, everybody was self pay medicare or medicaid, HMO bla bla bla. I liked my job and still did it, especially for the bennies but… Read more »
Keeping both properties is definitely dicey when they’re worth so much. Especially when they could increase their down payment by so much in selling the first house. That would make their lives (read: mortgage payments) so much easier!
The idea of liquidating the brokerage account definitely gives me pause too. Shouldn’t they leave that there?
The brokerage account would not be a good source for funding if you are planning on accessing it in 3-5 years. Need to put it in a more stable source.
The 2 property hold has a lot of negative things, the big one in my mind is losing the tax break on the capital gains. Puts you in a more leveraged spot with high monthly debt service needed.