What Dentists Want to Know — Listener Q&A #5 – Episode 132

Do wealthy people offer the best financial advice? What benefits should I offer my employees? Remodel my home or buy a new one – what’s the right choice? Reese and Ryan tackle these three questions on this Q&A episode of Dentist Money™. You’ll hear Ryan list four types of people Forbes says you should avoid taking advice from — it might surprise you. And you’ll find out what other group practices do when it comes to employee benefits. Plus, Reese has a lot to say about buying or remodeling as he recently went through that decision himself.

Podcast Transcript:

Reese Harper: Welcome to the Dentist Money™ Show, where we help dentists make smart financial decisions. I’m your host, Reese Harper, here with my trusty old rusty old co-host, Sir Ryan Isaac.

Ryan Isaac: Especially rusty today. I’m old! I had a birthday recently, and now I’m older.

Reese Harper: You did! We celebrated that with excessive amounts of fish and rice.

Ryan Isaac: Where did we go? I had tacos! Remember, that was the extreme, picky taco ordering I did that day?

Reese Harper: Oh yeah, that wasn’t sushi day. I think that was– whose day was sushi day?

Ryan Isaac: I don’t know. Someone got a sushi day?

Reese Harper: We only celebrate sushi on rare occasions. And I think that was–

Ryan Isaac: I love tacos, and if I were to build the food pyramid, tacos are the foundation, and doughnuts are above it. But it’s tacos, doughnuts, and then–

Reese Harper: The capstone is the chocolate doughnut (laughs).

Ryan Isaac: Wait, the capstone, isn’t that the top? No, then that’s like actual vegetables. The little tiny triangle is actual vegetables. Yeah, it’s tacos, then doughnuts, Swedish Fish, all other carbs, then meat, and then the little veggies.

Reese Harper: Well, I think it’s an important segway today to pivot right into our Q&A episode that I’ve been excited about for another month here.

Ryan Isaac: Yeah! Thanks to everyone for submitting questions; it was good to get another variety of questions. Just as a reminder, you can go to our website, dentistadvisors.com, click on “Podcast” at the top, and then there’s a button that says “Submit a Question”, so, ask us anything! Ask us about our food preferences, ask us–

Reese Harper: I’d prefer for it to stay within the financial realm, but you’d be surprised at the kind of questions that come through.

Ryan Isaac: Throw a food question in there!

Reese Harper: People really trust our opinion about a variety of topics, apparently.

Ryan Isaac: Yeah, we have a wide range today! We’re going to start with one, but before we do, I found a couple of things that have to do with this first question. Do you want the question first, or a few of the things that I found first that relate to it?

Reese Harper: I think we should go whichever direction you’d like to go.

Ryan Isaac: I’m going to ask the question first, and then two things came to mind: an article that I read, because this is a common question, and then a quote from a really famous philosopher that I’m going to read. The question, though, comes from a specialist in Oregon, but this is also something that a lot of people ask pretty frequently: “I’ve heard that you should only get advice from someone who makes more than you or does better than you financially. What do you guys think?” Alright, pretty common question.

Reese Harper: Yeah, I hear that a lot.

Ryan Isaac: Okay, so before we dive into that, there is an article on Forbes about the four types of people that you should not take advice from, and I had read this before, and then I went and found this the other day. They listed as #1, don’t take financial advice from coworkers or close friends. They said that often times, they just don’t know enough about you to give you good advice. #2 was family members; they said in their article that those people are too close to you to give you proper financial advice. #3, and this is why it relates to this one, don’t take advice from people with more money than you, and I thought it was worded exactly like that, and… this question is a really intuitive question, like, shouldn’t I just get advice from people who are wealthier than me, or make more money than me? It seems really intuitive, but in this article they were saying don’t do that, because sometimes, people with a lot more money than you… they make a lot more mistakes, but they have such a buffer of cash and income that they don’t really realize that they are mistakes, because it doesn’t hurt them.

Reese Harper: Yeah, I feel like people project a lot; when you ask a more wealthy person than you, or someone who is in a better financial situation than you, they project their experience on you, and don’t realize that you are not them. But, you’re like a multi-billion dollar real estate investor: “I’m still teaching school.” Like, “you speculate on the building, I mean it’s fine! If it doesn’t work out, then it doesn’t work out.” It’s really hard, I think, if people haven’t given a lot of advice, and a lot of wealthy people actually haven’t given a lot of advice in their life, they don’t really know how to translate it and scale it to the person that they’re giving it to.

Ryan Isaac: Yeah, so we’ll get into that. #4, if you’re interested, was don’t take advice from people who sell financial products.

Reese Harper: That was from Forbes.

Ryan Isaac: Yeah, Forbes, we can endorse that. The quote that I found, though, about advice, comes from a philosopher names Michael Scott. He said that “Wikipedi–

Reese Harper: From The Office? (laughs)

Ryan Isaac: Yeah, from The Office.

Reese Harper: Okay (laughs). Just making sure. He’s not a philosopher, Ryan.

Ryan Isaac: I consider him one. Look up his quotes. You tell me he’s not a philosopher (laughs). He says, “Wikipedia is the best thing ever: anyone in the world can write anything they want about any subject, so you know you’re getting the best possible information” (laughs). I just thought, you know, it’s great information; take advice from your rich friends. So, let’s go back to the original question: “I’ve heard you should only get advice from someone who makes more than you or does better than you financially. What do you guys think?” How about giving us some of your first thoughts, Reese Harper.

Reese Harper: I think this is the worst advice ever given to man on the history of the planet. That’s not a hyperbole, that’s not an overstatement. Not, I just think that’s really– so if you follow this logic, then it’d be like, Charles Barkley and Shaq, during the NBA finals, because they make more than me, and they’re worth a lot more, I’m going to get advice from them on… anything. Obviously you wouldn’t do that, and obviously that’s crazy, but there is this big assumption that if someone is doing better than you financially, then they know more. That’s not true. Like, take PhD’s that teach economics, or finance, or any academic. Take higher education, for example: many people who teach at colleges and who have personalities that made them prefer academics might actually be– in some cases, they might give great advice, and in some cases they might not give great advice, but it almost all cases, many of those people will make less money than some of the people listening to this podcast, right? And would you not considering getting advice from someone who spent their life doing research on a subject matter that is precisely the area that you are interested in? Of course you would think to do that! But, in almost all cases, they will make less. Another example would be someone who is– a lot of people who run large non-profits consciously take lower paying jobs because of the impact that they want to have, and that’s a very common trait as well. A lot of people are willing to sacrifice income in order to do more research, or make a bigger impact, or see their ideas come to fruition, and the CEO of Red Cross, for example, has a lot of experience and background, but that person earns similar to what an average GP would earn, but they run an organization that’s massive, they have a lot of experience… and so, I think a lot of people– I think who you should get advice from is very– it should be based on topics that are unrelated to their income and wealth, which often times is either just a factor of luck– sometimes it is skill, and many times it is skill, but many times it’s luck; many times it’s just the industry that someone chose to be in; in a lot of cases, it can be a combination of inheritance and family wealth, on top of a job that was gifted to them, or handed to them. And I’m not trying to take anything away from uber wealthy people, I’m just saying, there’s not a real correlation, in my experience, between people I get advice from or respect and income level and wealth. At least, there might be some correlation there, but not as strong as people would think.

Ryan Isaac: Yeah, well I mean, I’ve I were to ask you if you have ever seen a dentist get really bad advice from another dentist who is wealthy who has high income, how often have you seen it?

Reese Harper: In the last 48 hours, like five times, you know? Like I’ve unwound multiple conversations in the last 24 hours. The advice that the wealthier person would give is probably fine and applicable to his circumstances, but it definitely doesn’t apply to the profile of this other person, and a lot of it has to do with your personality, your temperament, your goals, how much money you need before work is optional for you, the level of risk that you want to take, what is fulfilling for you in life, what you enjoy doing, what you do not want to do… there are a lot of conversations about finances and wealth; how much money you want to make is an entirely personal decision, and it’s not like more is better for everyone, and it’s also not that every personality should pursue the same strategies.

Ryan Isaac: There are plenty of people who have really high income who make bad financial decisions, and might give bad financial advice. Have you ever met any dentists who have really have high income that has made up for the bad decision they have made? Like, if they had less income, they would have been buried but because their income was so high–

Reese Harper: Yeah, there are a lot of cases where because of the state they lived in, the insurance environment that they’re in, or the market that they’re practicing in, or their specialty, I mean, they’re making a disproportionately high amount of money, or maybe twice as much as another specialist, or twice as much as another GP, and so one big mistake can set them back maybe six months where that same mistake might set someone else back four or five years, because the make more money–

Ryan Isaac: Which is what Forbes said in their article: they said that some people who have a lot higher incomes can absorb those mistakes easier–

Reese Harper: And they forget about them faster too. And to some degree, I can relate to that. I think we can all relate to that: if you think of a friend, or a family member, or anyone in your life who is not in the same financial situation as you are, and some things that you will kind of just say “that’s not a big deal, I don’t really care…” I mean they’ll be bothered by it for a long time! It could be as simple as getting a parking ticket, which could be extremely frustrating, or a surprise medical bill, or a tax bill or something, or bad service at a restaurant, and you having to pay for a meal that you didn’t like… I mean that can bother some people!

Ryan Isaac: You’re like “it was 150 bucks, man, it’s okay.” You didn’t like the meal, and you’ll never go back, but if you’re in college and you’re waiting tables, and you have one $150 meal per year– you get one of those on an anniversary or something–

Reese Harper: Yeah, or a birthday. And you wasted it! Yeah, and I think that that translates all the way up the incomes scale to things like investing, and lifestyle purchases–

Ryan Isaac: They’re like, “throw 50 grand at a thing. If it disappears, it’s fine!” And for that guy, it might be fine! (laughs)

Reese Harper: And I think it makes people at the lower end of the income spectrum sometimes take risks that are not good for them, trying to chase after what worked for someone else.
Ryan Isaac: There’s this quote from Daniel Kahneman in his book Thinking Fast and Slow where he’s talking about this bias of hindsight, you know, and he’s specifically talking about how it also related to another bias called “outcome bias,” where we judge– we overlook the process that someone went through to get to an outcome based on just how the outcome went. So he said, “sometimes we can assess the quality of a decision not by whether the process was sound, but by whether its outcome was good or bad.” And we hear that all the time with investments: someone will call and say, “my buddy just made a killing in this thing,” and the process wasn’t sound, and it might have been a total speculation, a complete gamble, and it could have gone–

Reese Harper: Massive amount of luck that was based on no skill, or any research–

Ryan Isaac: Yeah! But the outcome was, like… he made money, so therefore… and that’s what Daniel Kahneman is saying, is that we have this tendency, this bias to place the value on the outcome and not the process by which we arrive. There’s another quote from an author that we had on the show, Dr. Daniel Crosby, and he said, “you can be right and still be a moron.” So, thanks doc.

Reese Harper: Yeah, that’s one of my favorite quotes from “D Town.”

Ryan Isaac: (laughs)

Reese Harper: I think it’s the wrong takeaway for a dentist to say, “hey, the last couple years I’ve gotten x y z return in my account; I’m a genius.” And that happens a lot! Like, “man, I’ve nailed it! The last couple of years, I’ve killed it. I’ve got like a 71% return over the last four years.” What they’re saying is like, “I’ve read books, I’m intelligent, and I’m responsible for these returns.” Well, the right way to approach that is, how did you get the 71%? What was the process that you went through to get that? If there was no process, and it was entirely just luck, and random happenings, then you’re still a moron. If it was a process that you went through, then I want to know which investments you actually put the money in, and let’s look at what those investments did without your picking ability over that time period. So in the last four years, you had your money in european equities, or emerging countries, or maybe the S&P 500 might have gone up 74% over that same four-year period, so you actually are dumber than just putting it into the index that got higher than you did with no effort at all. So don’t just like assume you’re a genius just because some outcome you had in your life is good! Have a little frickin’ humility to tell yourself that you’re not the smartest person in the world, and that maybe some of the things that happen to you are a product of your environment, your circumstances, or capitalism in general, and that you’re not God’s gift to man, and that you’re not the– like it just drives me nuts! Have some humility, people! It’s really refreshing to meet someone who’s like, “you know I’m actually really grateful. The last four years have been pretty good, but I haven’t felt like I’ve really been that strategic with it. I don’t know why it happened; it just did.” But no! It’s like, “I read four books, and now I know I’m a genius!” I’m like, well, there are seventeen PhD’s who just finished their program who are also trading securities every day, they have fifteen years of experience, but they’re not taking credit for all of their returns. I feel like there is something about the financial industry that makes people take credit for everything, like it’s their brains–

Ryan Isaac: But responsibility for nothing.

Reese Harper: Yeah, and income too! Income, and wealth… it’s like, always about your skill, but it’s not an acknowledgment that maybe there was an element of luck, maybe there was an environmental condition that propelled you forward– I mean, we just have to be a little bit more cautious before we take credit for everything.

Ryan Isaac: Yeah. Maybe you were the guy who just happened to be willing to live in a tiny town in the middle of nowhere in the midwest, and you make a seven-figure income because you just like to live in the country and have no neighbors. But, your friend who wants to live in a bigger city where it’s more competitive, and maybe reinsurance reimbursements are different, he might be a better clinician, he might run a better business, better process, better trainer, better manager, better marketer, but he makes less money–

Reese Harper: He’s in a tougher environment, you know? I mean, this happens in sports all the time: really really really talented people sometimes just don’t even get the positions, and not because of skill, it’s just because of a lucky break. Someone saw someone play for five minutes somewhere, and they got a break that someone else didn’t get.

Ryan Isaac: It happens a lot in the arts, in music, you hear stuff like that all the time.

Reese Harper: It happens in music, in the arts… I mean some of the most prominent, wealthy, high-income people produce some of the worst art in the industry by far. And they don’t even produce it! That’s what’s crazy. They’re literally doing nothing except for putting making on before every show. And I’m talking about men or women here, okay? Everyone who’s on stage puts on makeup, people; don’t take that the wrong way.

Ryan Isaac: Okay, so how about, let’s wrap this up with– and here is what I was going to say: we’ve done a few episodes on how to select someone to give you good advice, so if you go to dentistadvisors.com, click on podcasts, at the top, or you can just search for these on the website… episode 96 was on how to know how people are getting paid who give you advice; episode 83 was questions that your advisor or someone giving you advice should be able to answer; episode 81 was reasons dentists get bad advice; 58: when to hire someone to give you advice; number 11 and 12: questions to ask before hiring someone. So, we’ve got hours of resources on the website, dentistadvisors.com if you want to go to there. Okay, question number two, this comes from a general dentist in Austin, Texas. He says, “our group practice is thinking about adding health insurance for our team. At what point should we consider adding health insurance, and what are some health insurance companies that you recommend? Thank you.” So, I would take this a little bit higher level, and I would ask the question, what are some things that a dentist should consider before adding benefits in general to their practice? Maybe some questions like, “what’s the stimulus to adding benefits?” Whether it’s a 401k, a liberal vacation policy, paid vacation policy, health insurance plan… you know, what are some things that someone should ask in general before even adding benefits so that they do it for the right reasons and pick the right things?

Reese Harper: Well I think the default here is that the average general dentist practice doesn’t ever give health insurance to its team members. One of the questions for me is, should dentists actually have group health insurance in their practices? That might actually be something that allows you to have better longevity with your hygienists especially. If you’re a small enough practice… I mean, for how profitable the business of dentistry is, I often wonder why they don’t. I mean it’s not like… I don’t know. I haven’t spent enough time researching this to figure out if there’s really a reason, or it’s just like no one did it at the beginning, you know, chiropractors generally don’t do it, podiatry practices don’t do it, small medical practices don’t do it, and then dental practices don’t do it, but a lot of CPA firms do, a lot of law firms do, and we do, and there’s a lot of–

Ryan Isaac: Is it the nature maybe of the turnover in a dental practice? I mean–

Reese Harper: I think one of the challenges that a lot of dentists have is that they’re worried about turnover. They don’t want to recycle their hygiene; they don’t want to recycle their assistants; they would prefer to have their office manager be there for twenty years. I mean, why do we not, in dentistry, provide a better benefits package, just for the sake of providing a better culture? You know, why do we not do that?

Ryan Isaac: It’s kind of a double-edged sword though, because on one hand, you think, “a lot of these people won’t be here very long, so I’m not going to pay a lot of expensive benefits on their behalf,” but then the other side of that coin is, if you don’t– maybe they would stick around longer if you had a better environment, or a better package.

Reese Harper: Yeah, I’m just looking at saying– let’s say you have ten people in your practice, and the average person you’re going to put 200 bucks a month towards. Okay, so you’ve got $20,000 to $24,000 a year in premiums: you don’t have to do $500 a month or $600 a month per person. You can do something small, but the fact that it’s offered, and there is some subsidy… I mean, let’s say you’re doing a million in collections, and you’re spending $24,000 dollars a year on peoples’ insurance premiums: will you get a year and a half more longevity out of each employee? I guess what I’m saying is, yes I have that extra cost, but do I get extra longevity of my team? Which, there is a big cost to that, and turnover is a big deal. Like, over my career, if I could turn over my staff maybe a third less than the average person, or maybe as much as 40% or 50% less, it’s significant! Which, I don’t know! I mean, I’m still kind of up in the air on it. I wouldn’t recommend people go out and get health insurance, but philosophically, I do think that given the environment now where each state has–

Ryan Isaac: Well I was going to say that it’s gotten a lot more complicated, and expensive as time has gone on.

Reese Harper: Yeah, I think it’s something employees really appreciate; I know that’s the case in our business, I know that’s the case in a lot of companies, and, you know, should a small service business have health insurance? I think ultimately this is not a financial decision, where more of these questions come from; it’s coming from the doctor saying, “if I offer a group policy, is it going to make my insurance cheaper personally?” That’s where it’s usually coming from. Sometimes it’s coming from the issue I’m talking about, like, “should I do this? Does this make sense?” And I think it will never be cheaper, okay? It’s never going to be cheaper. Even if it makes your policy be cheaper, it will never make you save money. It’s just more a question of, should you have a 401k for your team–

Ryan Isaac: Okay, so that’s interesting. I was going to say, if you look at all the practices, it feels fairly easy to say most practices don’t have group health insurance, but it is fair to say that most practices have some sort of retirement plan. Now, the driver for that was not, “I want employees to stick around longer and be really excited about the retirement plan,” the driver was, “I need my taxes lower.” So, that’s what you’re talking about: there’s this personal incentive for the owner to go, “I’m going to put something in place because it helps me. That’s why you’ll see way more offices with 401k’s that don’t have health insurance.

Reese Harper: And that’s what I’m saying, like– I’m just questioning whether this should be the case in the industry, and whether group health insurance really should not exist in dentistry, like it doesn’t right now.

Ryan Isaac: So basically, general dentist in Austin, we’re leaving you with the question (laughs).

Reese Harper: I’m thinking– okay, let’s just answer your actually question though. My question is, you should never consider adding group health insurance, unless you’re willing to lower your profitability, by– and I would not lower my profitability lower than a couple of percentage points; this shouldn’t be a 5% or 6% overhead burden, okay? This is like a point or two, maybe 2.5%, but you’re lowering your profitability, and you’re adding this benefit, because you’re trying to create a culture of longevity among your employees, better retention, and it’s probably not going to be popular in a resale to most buyers. So, if you’re trying to sell and grow and exit as a DSO, and try to find a corporate buyer, or find a large exit, you’re probably not going to be viewed the same way– I mean, they’re not going to like that, because they’re going to be like, “you don’t have to do it!” So, from a pure capitalist economic perspective, you don’t need to do it; the market’s not providing it, and it won’t affect wages that much. I mean, with or without health insurance, you probably have to provide similar wage; that’s what is tough about it.

Ryan Isaac: Well, this is another point too: any time you add benefits in a practice– and we will see this, where people want to have a bigger retirement plan, and again, for the owner’s tax deductions, but it means that they have to give more to employees, and they start wondering, “well, can I cut some wages out if I’m going to give them more in the profit sharing or the pension plan, or can I cut down bonus because we’re going to fund a cash balance plan with more than they’d normally get?” And that’s one of the things you have to ask: if you’re going to implement something, and it’s going to cost you money, and you’re assuming that the staff is going to value it… that has to be measurable at some point. You have to know, do they actually understand what’s happening? Do they know the dollar value that’s being provided to them, and are they willing to trade that for after-tax money in a paycheck that might even be less? They might pick fifty bucks after-tax payment in a paycheck over $200 in healthcare insurance premiums; it’s possible. Or, retirement contributions. If you do it, my advice would be, make sure that you get to a point where you’re really allowing your employees to see the full value of the benefits packages that’s being provided to them on a regular basis, because they won’t understand it. Anything that happens in payroll just kind of disappears, and gets confusing, and no one really understands their pay stubs; even the owners don’t. And so, I would say that the more that you leave to the pay stub, the worse off you are; you have to have a benefits statement.

Ryan Isaac: But didn’t you read your pay stub? Didn’t you review your W2? (laughs) what’s wrong with you? Okay.

Reese Harper: I would just make sure that you have a clear benefits packages, and that that’s presented in a format, just a nice PDF that gets emailed out every year; take a little bit of time to make sure that you’re able to display that to each team member on a regular basis.

Ryan Isaac: To answer the other part of the question about how you should go about doing any companies, we don’t have any companies we would recommend; I would say go find someone local that only specializes in health insurance and group health plans, because that world changes dramatically all the time, especially–

Reese Harper: Okay, yeah. Let me give you some tips on what to ask for when you’re trying to find a broker; that will be helpful. Number one, make sure that person is intimately familiar with the local market with the state that you live in. Most brokers don’t know a lot about anything outside of the state you’re in. So, since you’re a GP in Texas, in Austin, find someone who is not only from Texas, because it’s a really big market, but find someone who’s intimately familiar with the Austin market; make sure they don’t sell life insurance, or disability insurance. I mean, they can, but make sure that they’re not primarily life and disability insurance brokers that do health insurance on the side.

Ryan Isaac: Like some fries, it’s just on the side.

Reese Harper: Make sure they primarily do health insurance, and then they might have a little group life and disability business. If they’re a 401k person, and they’re also doing 401k’s, I’d say they’re not a purist health insurance broker, because the purist health insurance people generally don’t also then– I mean they might have someone in their form that does 401k, but your person should be a deep expert in group health insurance that is a small group benefits practice, okay? So there’s a difference between fifty employees and up, and fifty employees and under, and there’s a difference between individual policies and group policies, and the people that do individual generally don’t do group that often. I mean, individuals should be individual specialists, small group people, fifty and under, that’s what they should focus on, and then there’s people that are fifty and above, and in my experience, you’re in either of those three camps. And you’re going to want to find someone who has the maximum amount of experience in that small group market, not someone who is individual or large group, because the strategies won’t apply to you, and I promise that you’ll end up having an implementation that is not favorable.

Ryan Isaac: Okay. Question number 3 actually comes from a client; you’re going to like this one; I feel like this is going to hit home for you; there was huge pun intended on that. Let me recap the situation: he sent me an email, and him and I were discussing this, but he said he’d love to hear this on the podcast, and he said he feels like a lot of people go through this, and it’s true, and you have a lot of insight on this too. Here’s the situation: it’s a general dentist back east in New Jersey, he’s currently living in his primary residence, loves his neighborhood, loves his house, the kids’ schools, everything is great, right? The house is almost sixty years old, so it’s getting up there. I don’t know if your neighborhood if that’s considered old or not, Reese, because sixty is new–

Reese Harper: That’s still pretty old anywhere.

Ryan Isaac: Okay. It is in need of some pretty big cosmetic and structural renovations, like, he needs to get a roof done, and he needs to redo siding on the side of the house. The issue, though, is if he’s going to redo roof and siding, he also– the kitchen is still original, from the sixties, and the house is running out of room, and so, if he’s going to go through the trouble of redoing the outside of the house and the roof, they want to just expand the house too to give a little bit more room on the main level. Big renovation; it’s probably $250,000- $300,000. The prices in the neighborhood easily support that kind of investment in the house, because there are very expensive properties and houses in the area. Here is the question he has though: does he go through the trouble of remodeling an old house that still, after an expensive remodel, isn’t going to be perfect and that is still going to leave him with a few things that he can’t do or that he wish he had, or does he go get the new house? Now, he has found a new house that is a lot more expensive but doesn’t need remodels, it’s the size he needs, they’d never have to change it, but right now, he’s nine years left on a fifteen-year mortgage, and if he went to the new house, he’d have to start all over again on a thirty-year mortgage, and it would be significantly more expensive to where he’d have to cut into savings rate for probably a few years until the practice grows, and he can make more money to save more money. So, this whole, “do you stay in a place and spend a lot of money or a remodel”– and I’ve probably got at least two people that I can think of off the top of my head that are going through this right now, so I know that this is common– do you spend the money to stay, and spend a lot of money on the remodel, or do you go get the newer, bigger, more expensive house that cuts into savings rates for awhile so you don’t have to deal with the remodel? I know you’ve thought through this a lot, and there are a lot of factors here on non-financial factors. There’s the fact that he has nine years left on the fifteen-year mortgage, and that’s feeling really good, and he’s getting really close, and he’ll have to reset this big mortgage again, there are savings rate things, so how about we start with the– I know you’ve thought about this in your personal life for a few years, so, where would you start with this? Well, I would say, who are we kidding here? Of course the new home would be, like, better, funner, more enjoyable, nicer, probably has better amenities, you’re not worried about something rotting out on you, so for me, it’s obvious which one we want, right? Like, if money didn’t matter, and if financial stuff wasn’t a factor. To me, this all boils down to, how much do you care about having financial flexibility versus financial pressure? And I don’t think that there’s a right or wrong answer for each person, but I will just answer it from my own perspective, which is that hardly anything homewise could ever make up for me feeling unnecessary financial pressure, like, I just don’t care enough. I love architecture; I love design; I’m envious of better architecture than I’ll have; I’m envious of better houses than I’ll have; I would rather have taller ceilings than I have; I would rather have bigger spaces; I’d rather have a bigger closet; I’d rather have bigger bathroom dimensions–

Ryan Isaac: Windows that go all the way to the ground.

Reese Harper: I’d rather have just better looking massing on the house, and gables, and I don’t like the roof shapes in my house. There are a lot of things that I don’t like about my house, but I care way way more that I just don’t– I’m not stressed out; the money that I’m into my house, I’m well under the market. I’m not the biggest house in the neighborhood, but I have a nice house. The finishes are really nice–

Ryan Isaac: You’re saying by putting some remodel money into it.

Reese Harper: Yeah. And so, when you go and you do this remodel, you’re going to be able to pick the finishes that you want, the color pallette that you want, you’ll be able to do a lot of things to really make the home feel ten times better than it does right now. It’s still going to feel better, and it’s a big improvement over what you have; it won’t feel as good as the other one does, the new house, but you haven’t lived in that yet. You’re still in a really old home that’s not meeting your functional needs, even, with the kitchen being too small, and then it’s also really dated, and so, when you improve the finishes on that house, and you add the extensions on to that kitchen, it’s a big improvement, so you’re going to feel like it’s a big upgrade anyway. There will just be a tendency that you’ll have when it’s done to just wonder, “maybe I should have just done the big one. Maybe I should have just done the new one. If I would have just spent a little more. If I had just got a little bit bigger mortgage and stretched it out a little further.” You’ll always wonder that.

Ryan Isaac: Especially when your practice gets bigger and you do have more money to save, like, “ah man, I could have afforded this.”

Reese Harper: And I hear that all the time from the people that went more conservative, and later on, they’re like, “I just should have stretched it.” And I’m like, “what do you mean you should have stretched it? Why don’t you go buy another new house right now? Go do it right now!” They’re like, “I don’t know, man. I’ve already– I don’t know if I want to lever up now and do it.” I’m like, exactly! Even today, you still wouldn’t do it. Even though you’re regretful– there’s not a situation where anyone is ever going to be content with their housing decision; you’re not going to be! I don’t have one client who is like, “this is the perfect house for me; I did it perfectly.” They’re either regretful of the choice they’ve made a teeny bit, or want something better, or wish they would have done something different… I mean, housing regrets are a big deal, because it’s so expensive! It’s such a big part of your life savings, and it’s where you live every day! And so I would say, it’s really important to love your house, it’s really important because it’s a big part of your life, but I do think that the primary benefit, or the primary thing that we need to make sure is: is this situation that you’re talking about… are we talking about $500,000 of difference? It’s all relative to your income and your net worth. To me, if that new house fits your net worth, and it fits your income, and you aren’t going to have debt that pushes you uncomfortably out into your late sixties with mortgage payments, or early seventies with mortgage payments– for me, I just don’t want that kind of financial pressure, and I feel like life is pretty dang good with just new finishes and improvements. The challenge is, you’re still going to have to hire a good architect, and you’re still going to have to hire a good designer, because you can’t just slop together a remodel. If you slop together a remodel, it’s going to feel really slopped together; there is still going to be a similar amount of cost in either scenario in terms of good design and good architecture, or you’re not going to be happy in the end. You’re going to do this remodel, and you’re going to be like, “oh geez, we forgot about that,” or, “that doesn’t even function right!” And I think people, when they go down the remodel right, they get so budget conscious that they cut corners a ton. They’re like, “I’m just going to do it this way,” or, “we don’t even need to hire someone to ask them about that; we know how to do it.”

Ryan Isaac: “I’m sure that truss supports that new deck.”

Reese Harper: Yeah, and a lot of it is just like storage, and finish selection, making sure it looks good… I just don’t think there’s a big difference between cost that you should spend on design and architecture in either scenario. It will be less because it’s a smaller space, but you should still invest in it either way, and it will just be nice. I’m not saying never go new, it’s just in some markets at some age in your life with some income level that you have, I just don’t feel like it’s worth it for a lot of people. But, you know. I don’t know how structurally sound this foundation is in this house, this thing might be an absolute disaster–

Ryan Isaac: Yeah. Plumbing, or electrical, or asbestos and mold everywhere–

Reese Harper: Like if it’s really really bad– and the one way you can tell is you can have someone do an estimate of what your structure really is worth. I mean, what would it cost to replace the structure that you’re keeping? And if there are some cost savings there, that is one element. There might be $200,000- $300,000 of cost savings just because you’re keeping the structure, most of the framing, the roofline, and the exterior walls and everything, but the second thing that you’re saving– beyond just the cost savings of the structure you’re keeping, you’re constraining your possibilities, right? You don’t get all the options, and so it forces you to have a smaller house in the end; you’re forced to have a little bit tighter spaces; you’re forced to have the kitchen be limited by whatever setback is stopping him on his lot, and ultimately it’s just going to cost you less. And that’s what I’ve found, is that people who remodel save some money because they are preserving some of their structure, but the real reason they save money is that they’re forced to constrain what their possibilities are, and it makes them have a smaller home. Because forty, fifty, sixty years ago, I guarantee that this house was a lot smaller than what people are building today, and the ceiling heights are smaller, the room sizes are smaller, and that’s why he has to blow out the kitchen. And so, if you’re really trying to save money and be frugal, don’t just estimate– like if you care to really do the analysis, you’re not just estimating the difference between the costs, you’re estimating the difference between how much this will constrain you with furniture, with all your finish selections, with everything–

Ryan Isaac: Yeah, get the new house all done and see if you still like your old furniture in it. Spoiler alert: you’re going to want some new furniture.

Reese Harper: Yeah, and some people who are listening to this, they’re probably not contemplating– this guy might even be contemplating a tear down and reconstruction. It might not even be possible in New Jersey; I don’t think it is. I don’t think you can tear down foundations.

Ryan Isaac: It’s not. Yeah, we’re gonna blow out the back. If we’re going to do siding and roof anyway, then let’s change the structure a little bit and get some more room in the family living space and the kitchen.

Reese Harper: Since this is a financial podcast, obviously this isn’t like an architecture podcast, but I would just say that this is one of the biggest financial decisions– it’s the biggest financial decision of your next ten years, because it’s all after-tax money. If this is a $500,000 savings, between the new house and this remodel project– which it might be, right? I don’t know. I mean you’re talking like almost five years of work that is required to get to the same place, okay? Now, with that additional five years of work, you can have a lot of vacations, and travel, and spendings, and lifestyle, and earlier retirement, and better dinners, better meals, or you can get the money into the house, but either way, when you’re done paying for this thing, the money is going to be stuck in the house. You’re never getting it back out, you’re just going to have net worth–

Ryan Isaac: Okay, so I think that this is a great segway to this part of the discussion, because I think that this will be more common for more people than most of us assume, that at the end of our retirement, when we’ve gone through our liquid after-tax money, and our retirement money, and and our practice sale or our business sale, at some point, quite a few of us are going to have to get back into the house money, especially if you live in a house that forced you to put seven figures into the thing over your lifetime, you know? It’s quite possible that the more money you push into a primary residence, the higher the likelihood that you’ll have to go get it later in retirement.

Reese Harper: So what you’re say is, if I have a bigger house, and I put all my money into it, I’ve basically just pushed that money down the drain and I have to say goodbye to it, or I’m going to have to borrow against my house.

Ryan Isaac: Uh huh. Which I don’t personally think is the worst thing in the world; you don’t have to leave your house to your kids, or some heirs.

Reese Harper: But I’m just saying, most people listening do not want to go get debt on their houses.

Ryan Isaac: Not if you pay it for thirty years, and then twenty years after that in retirement, you’re like, “let’s get another mortgage on this thing,” you know? (laughs)

Reese Harper: Yeah, so all I’m saying is the bigger, and the nicer, and the more expensive your house is, the more you just might as well just say goodbye to that money, because it’s not going to be something that you’re going to want to be pulling back out. I mean, that’s the truth of the matter, and you might have to, and so–

Ryan Isaac: The more expensive the house is, the more likely it is that you will have to.

Reese Harper: Yeah, So if you– I don’t know. I’m just saying be aware of that, because this isn’t just a decision in my mind of “well it’s only $500,000 difference, or it’s 400 different,” but it’s really a question of if you want to have debt on your house in retirement or not. Do you want to have to use that for your income? And if so, then maybe you can pivot, and move, and just be like, “well I’ve gotta borrow the money against the house anyway, I’ll just put– I’ll pay more for it, but I’ve gotta get the money out.” But you’re going to have to downsize eventually, but if you can live in a smaller home and be okay with it, I mean it’s just simpler, because you’re gonna have more assets, liquid, for you to spend, and live on, and enjoy, and you can let the money stay in the house, and keep it paid off, and just not worry about it.

Ryan Isaac: Our listeners in San Francisco and New York City, you’re just like, “smaller house.”

Reese Harper: (laughs) yep. Like, “dude, I’m already in 400 square feet, like, what do you want me to do?” I mean, I experience this personally, so for me, this is a really hard thing; I’m not trying to say that it’s easy, but I just think all of us want the more expensive option, like deep down, that’d be more fun, and it’s better, and it feels cooler, and it’s like– you’re working your tail off, and so it would be nice to have it, but I think you really just have to be conscious of your overall net worth, and what percentage of that is stuck in this primary residence, you know? And if you’re getting to the point to where it’s 30+ percent of your net worth, there’s no way you’ll be able to not borrow again, you know?

Ryan Isaac: Well, thanks for all the thoughts. You said that this is not an architectural podcast, but it might be. It might be the subcategory of the podcast (laughs). Well everyone, thanks for listening! We have a new website that has been out for a couple of months now, dentistadvisors.com, we have a ton of new resources on there. If you go to the website, there is a button on the top that says “Education Library” and you can filter by any of these subjects. You can filter by– I think there’s a filter for housing, I think there’s “advice,” there is “investments,” you can watch podcasts and videos we have on there… If you ever want to talk to us, if you ever have questions about your own situation, if you want to kind of work through this with somebody, go to dentistadvisors.com, click on the big button that says “Book Free Consultation,” we’d love to talk to you. Or you can just call us directly, or text us at 833-DDSPLAN. I’m going to close this out with another quote from the non-philosopher Michael Scott from The Office that reminded me of how these podcasts go sometimes, and he said, “sometimes, I’ll start a sentence and I don’t even know where it’s going, I just hope I find it along the way,” and I think we found it today, so thanks everybody for listening.

Reese Harper: Carry on!

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