How Much House Can a Dentist Afford?

On this episode of The Dentist Money Show, Matt and Jake break down the realities of today’s housing market and share practical guidelines for making a smart home purchase. From mortgage payments and down payments to savings goals and debt management, they explain how dentists can evaluate what fits their financial situation. Whether you’re buying your first home, considering an upgrade, or simply wondering if your housing costs are on track, tune in for a framework to make a confident decision.

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Podcast Transcript

Matt Mulcock: Welcome back to the Dentist money show where we help Dentist make smart financial decisions I am matt and i’m here with the one and only hot take jake jake. How are you? Yeah good You haven’t any ⁓ Any hangovers from our retreat last week?

Jake: What’s up? I’m doing great. Yeah, life’s great. Excited to be here no, had a great weekend. This past weekend. 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. did sprinklers and lawn stuff this whole past weekend, which I find, yes, I find energizing and refreshing to do.

Matt Mulcock: You’re speaking my language. Yes. I love it. If I, yeah, I could, I’m to have an encore career at some point, as they say. ⁓ 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.

Jake: Yeah. Got the sprinklers all rounded up and went to Lowe’s, I think, three different times for different sprinkler heads and whatnot, getting everything ready. That was my last weekend. It was great.

Matt Mulcock: The best Yeah, there’s certain play I know there’s certain places people can’t go and like whether it be you know I can’t just shopping in general like 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

Jake: Yeah. Yeah, it’s fun.

Matt Mulcock: Okay. Well, speaking of plants 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 plants in and the yard in and take care of the yard. So.

Jake: Yeah. Yeah.

Matt Mulcock: We want to talk today, how much house can you afford? ⁓ let’s just break it. Let’s just kind of like, what are your thoughts on this? Jacob, give us your intro.

Jake: Yeah, 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 are like renting versus buying or remodeling or upgrading a house or downsizing just like housing questions in general.

Matt Mulcock: Half downsizing. Funny.

Jake: I know we can 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?

Matt Mulcock: Yes, I would say it’s got to be number one or top three for sure. Just yeah, easily top three. especially as you broaden it out to buying a new home or modeling a new home, building a new home, any of those things, it’s it’s easily top three for sure. And number one, most emotional of all of the financial decisions we make for sure.

Jake: Easily top three. Yeah, houses. Yeah. Well, that’s what I wanted to talk about to his house is I kind of, do get a little nervous. I think Matt talking about homes because people have such strong opinions about homes and especially now again, I, we talked about this in our other podcast on two cents. I think, you know, 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. ⁓ and I think

Matt Mulcock: Yeah.

Jake: And we’ve talked about this that our economy as a whole is doing pretty well. Right. Like the stock market as well, like unemployment is really low. People are still traveling and spending and it keeps turning along. But there’s this one big like 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.

Matt Mulcock: Yeah.

Jake: Comes down to a houses are really expensive and I wish I can 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, it is 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 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 with you.

Matt Mulcock: Yeah. Yeah. It’s the, what the, it’s the cornerstone of the class of the proverbial, ⁓ American dream. Right. So to your point, think no matter, like it is the most important data point for the, for the general consumer. Yeah. I think it is. If housing’s more too expensive as it is, I know you’ve got some numbers here to back that up. This is not a myth. Like this is not, this is not like this. The data doesn’t match the narrative thing. This does match.

Jake: Mm-hmm. Yeah, I think so, which is wild. Yeah, we can talk about it.

Matt Mulcock: And I think it has a ripple effect on the psyche of Americans across the board, for sure.

Jake: 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 in affordability or the expansiveness of homes currently, right? 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.

Matt Mulcock: Yeah.

Jake: that the annual income needed to afford a median priced home, right? So like just the average home in America, you would need to make $126,000 in 2024 is kind of like recommended income for the median price tone. 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

Matt Mulcock: Wild. It’s wild. Yeah.

Jake: 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.

Matt Mulcock: And I believe we don’t have this in front of us, but the median home price in America now is like 400, 420.

Jake: Yeah, we can do a quick Google. That sounds right, Matt. What do we have 400 around there? Yeah.

Matt Mulcock: Okay. So now we’re saying 126,000 to afford about a foreign $1,000 home. Um, the 60 % increase is just wild. Yeah.

Jake: 60%. And that’s again, house prices went up also with interest rates run up right over the time we all know the story if you’ve even peripherally following following the house market. That’s just how that goes. And so

Matt Mulcock: I think that’s a huge factor here really quick. 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. Like that, this is why this become such a problem for people and, and

Jake: yeah.

Matt Mulcock: 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%. If rates would have stayed normal, this would have not been nearly as big of a problem.

Jake: Yeah, but… 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. Again, I’ve gone through a ton of housing stats. I think there was another one where

Matt Mulcock: Not at all.

Jake: 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.

Matt Mulcock: Well, and it matters what you’re, this is why we say the speed matters because it matters what your, because we had such a long period of time with such low rates, right? It’s it 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 and average.

Jake: Yeah.

Matt Mulcock: 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’s still, it’s so painful and no one cares about what the historical rate is.

Jake: Yeah, historically speaking. Yeah. And that’s.

Matt Mulcock: So I guess we’re saying is we understand, we understand why it’s so painful.

Jake: 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 like a three or four percent rate as well. These higher rates have not affected you. And so your payment has stayed low and you built up a ton of equity.

Matt Mulcock: Yes.

Jake: You’re kind of in a good spot, right? If you’ve been a homeowner from eight, 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 and 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. 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?

Matt Mulcock: Yeah. Well, and could you say, mean, I’m just, I don’t know this for sure, but I would, I would, 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.

Jake: 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, honestly, 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.

Matt Mulcock: buy home. Yeah. Yep. Yeah. Yeah. It’s interesting. And then you had some numbers comparing this to kind of give you more context here of comparing this to the stock market.

Jake: Tough to get into. 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 that are people who save a lot of money in the stock market. Housing is really important. Traditionally, 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. Right? I kind of we can 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 % on 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 owns 60 % of the housing market.

Matt Mulcock: Yep. Yep. So you’re saying the stock market is very concentrated with the people who hold most of the wealth. And let’s be honest, this is skewed because the baby boomers have so much money. They’ve accumulated so much wealth over the last 40, 50 years, which makes sense. They’re old, the oldest generation right now that’s still living is baby boomer. But you’re saying, and then the housing market, it’s really the asset class of the people. It’s 90%. Yeah. A lot of people own houses.

Jake: Yes. Yes. Yes. Yes, everyone owns a house. 65% I think of adults is what the recent number was on a house where it’s like 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 like building wealth through a home where we don’t think it should be your primary wealth builder. We can get into that more. But it’s really the only thing that people would just like put on a mortgage and put

Matt Mulcock: Yeah.

Jake: $2,000 a month and two for 15, 20 years ⁓ helps them build brother. So yeah, all of that is homes are very important to people.

Matt Mulcock: Well, and to circle back to what we said at the very beginning, that those numbers right there show why there can be like the, the general population when the stock market, we, 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 what, know, why are people still to kind of discontent with what’s happening? It’s the numbers you just highlighted there are exactly why because 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.

Jake: Yeah, somebody who has $5,000 and a work 401k isn’t really concerned and like a target day fund is not concerned about what the stock market is 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 right type of thing there. So ⁓

Matt Mulcock: Yeah. Yeah. Yeah. So I think we hopefully did an ample job of highlighting the problem here and giving some, 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 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 household or 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, but it all, and it almost makes the problems bigger. Cause now we’re dealing with bigger numbers because you can, because you make more money, can, the bank’s going to approve you for more money, you know, for bigger loan, you’re out there searching for bigger homes, consequences are higher, but we just want to highlight like it’s still a problem in dental space. It almost could be even a bigger problem with bigger consequences because we’re dealing with bigger money, bigger amounts of money.

Jake: Yep. 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? Like what should my price range be? 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.

Matt Mulcock: Yep. Some guidelines. Yeah. So yeah, I think that exactly your point general principles here. We highlight this saying as our boy Taylor Sutterfield says, general advice is no, 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?

Jake: Okay, so the first place I would start is I don’t really like to look at homes like 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 like how much house you can afford is how much like 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 if you went to school to study these things, about 28 % or less. I like to do 25 or less, 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 of that’s included is we generally don’t like to see that above 40 % of your gross income, right, ideally.

Matt Mulcock: Yeah, not for extended periods of time, for sure.

Jake: That’s when like, yeah, if there’s any stoppage of income or things, you’re getting sticky situation with the debt payments you also first thing 25 % of it is the lease towards the house that only leaves another 15 % for student loans, practice loan, car loans, and the other type of things that you may have there.

Matt Mulcock: Yeah. And by the way, we’re, saying just to highlight, or just to make sure we’re, we’re clarifying, we’re saying housing costs, right? And we’re not saying just your, your principal and interest. you were to run some back of the napkin math, we’re talking about actual house, like your total housing costs, including your utilities, insurance and taxes. What is your total housing costs every single month? And you have to factor in like maintenance.

Jake: Yeah, yes. Insurance and taxes are the big ones. Yep. So 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 tax. So yeah, like for example, if you make $100,000 a year, we would recommend about $25,000 as a comfortable amount to go towards housing, which comes out about like $22,000 a month.

Matt Mulcock: property taxes are

Jake: $20,083 a month is kind of what that would look like.

Matt Mulcock: Yeah. If we’re giving like a dental, a dental specific example, let’s say you’re making $30,000 a month before taxes. about 360 grand a year, that’s $7,500 a month for all one housing costs.

Jake: Mm-hmm. Yes, which sometimes I’ve had this conversation 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 their 20 that 25 % rule of thumb is actually higher than they can fit in their cash flow budget. Right. If that makes sense where it’s like, I’m making $500,000 a year gross income is my top line number but I have a big practice loan, student loans and different things. I only have like four grand extra in the budget, 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.

Matt Mulcock: Well, this is exactly what we’re saying. This is a rule of thumb. This is general advice. know, ChachiBD is going to tell you one thing. By the way, a bank’s going to go way higher than this. Way higher. A bank’s going to 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. So, and again, this is where emotions come into play. Cause all of a sudden you get a pre-approval. I’ve talked to Dentist about this before where they’re like, holy cow.

Jake: Good note. Yeah.

Matt Mulcock: 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 got to 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 got to factor in your actual detailed cashflow for your unique situation.

Jake: Mm-hmm. I would honestly prefer closer to 20 % for a lot of my clients, if I’m being honest, I think is a lot more comfortable. A few more context things here of, you know, adding onto this rule of thumb. It is entirely possible where you could be starting out your career. You want to get into a home, you’re buying a practice, you know, where you want to stay long-term. And you could say, well, I’m, this is my income right now.

Matt Mulcock: Yeah. Yep.

Jake: But I expect my income to go up over the next five to six years. I really do expect it to grow. I’m going to build this practice. I’m going to 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 like 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, just want to get into this house right now. It’s going to 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. in a couple of years, this payment is going to be a healthy percentage for me.

Matt Mulcock: Yeah. And I, I’m okay with that in some cases, like you go in pushing yourself a little bit more depending on your situation, depending on your career goals, your family situation, ⁓ income, obviously. And so, yeah, I think there’s some validity to that, but I think that that taken too far can, especially when you mix in the concoction in that concoction of emotions, ⁓ it’s easy to justify and it’s easy. It’s really, really easy to be disciplined in the future.

Jake: Yes, yeah.

Matt Mulcock: So we hear a lot of like, yeah, this will, you know, my cashflow will be tight, but like, I’ll be fine. Like six months from now, I’ll cut this or that or the whatever. You start to like rationalize it. So just be careful with that mindset.

Jake: 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, there’s more trees. Yeah, there’s trees you need to plant in bushes and I want to paint this or do that and yeah.

Matt Mulcock: Yes. The Diderot effect. You get pumped. I, 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 D2R effect is real for sure. Uh, what about down payments, Jake?

Jake: Yeah. Yeah. Yep. Okay. Yes. 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 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 that to get into a home, you’re just exposing yourself to some risk until it takes you to build that money back, right? Type of thing there. I do like talking. I did want to use this opportunity to talk about down payments and their impact. I think this is a good point I talked about 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 about 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 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 who are generally high income runners. 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 runners is you don’t need a huge down payment.

Matt Mulcock: Yeah.

Jake: In most cases, I know the Dave Ramsey 20 % people will tell you, 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.

Matt Mulcock: Yeah. I tend to agree with this, generally speaking, that, that you don’t have to be too put too much pressure on yourself. I know the kind of rule of thumb is like, you need 20 % down. of all, Dentist 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. It’s people forget about PMI. ⁓ I’ve owned a couple of homes in my life.

Jake: No one does. People freak out about it,

Matt Mulcock: 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, again, general advice, general advice, but I do agree with you that people. Uh, feel like it is like a, the 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, a hundred K would you have that invested elsewhere? Or have that just in liquidity or.

Jake: Mm.

Matt Mulcock: scrimp and save and put every last dime you have. And then the home’s 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, I’m paying an extra five, 600 bucks a month, but I had that a hundred K in the bank. Big, big difference.

Jake: Exactly. And generally speaking, we do not consider homes to be an investment, right? Where it is, it’s 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, right? You always have to have somewhere to live. So but if you did want to view your house as an investment, if we’re just like talking math and numbers here, the less you put down, the bigger the return you’re getting on your home. Because when you get a home, even with a loan on it, you get 100 % of the appreciation. All right. So let’s say you bought

Matt Mulcock: Then lifestyle investment, yeah.

Jake: a $500,000 home and you put $100,000 down. Unless they agree with the value went from 500 to 600,000. You had a 2X return technically on your investment that you put in. I put in 100,000. Yeah, cash on cash, I got 100,000. 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’s actually smarter to use the bank’s money to get a bigger asset. You’re actually leveraging your return. Yeah, we don’t usually don’t view houses.

Matt Mulcock: Called it cash on cash return. Are we becoming real estate guys right now in live?

Jake: As an investment, but like you’re getting all of the appreciation no matter what. ⁓ I think my philosophy would be like, I would actually want to put these little money down as makes sense for my budget kind of is my general stance. ⁓ Yeah, anyway.

Matt Mulcock: I think that’s, yeah, I think that’s totally right. And, can we double down on this really quick of this, this idea of a financial asset versus 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, that, the other, 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. Yeah. Yeah. Yep.

Jake: Yeah, more than I can count. 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 $100,000, but it’s increasing the value of our home by X amount of money, so it’s worth it. It’s an investment type of thing there.

Matt Mulcock: Yeah. Which, by the way, like the reason we bring this up, the reason I bring this up for with clients and Dentist 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 a pool just buy a pool and

Jake: Yeah, love it. Yeah. You can just buy a pool if you want to pull just by the pool. It doesn’t need to have some financial financially positive outcome for you.

Matt Mulcock: 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.

Jake: There you go. Yeah. Yep. Yeah. I love that point. Okay, let’s do our third here. My third principle is do not stop saving. So we generally recommend that in the gold standard for saving should be about 15 to 20 % of your gross income. ⁓ 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 of your home is typically not an investment, right? 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 a newer, 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?

Matt Mulcock: No, I mean, I just think the last two here, I think it’s really all three. It’s just be careful being, being house poor, right? Like if you don’t check some of these bar, 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. So 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’ve got the down payment. We’ve got the mortgage, whatever we got to figure it out. Our savings going to go down to 16%. Like, I think that’s okay. I think, you know, that’s a totally fair trade off there. Um, it’s where we’re saving 20%. Now we’re going to go buy this monstrosity and we’re only saving 4 % or no money at all. Like that’s.

Jake: Yeah.

Matt Mulcock: there’s a wide range there. So if you can keep it within that 15 to 20 % range, even if it drops a little, I think you’re going to be okay.

Jake: 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 maybe like 12 or 11 % because of this new house. And that’s okay because your assets are still growing and things there. So yes, just be conscious of that. Know your long-term numbers. Know your current numbers.

Matt Mulcock: Yep. Yeah. Yep.

Jake: House is not an asset, so you still need to make sure you’re putting money in other assets while you have the

Matt Mulcock: 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, 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.

Jake: 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 when we bought it. Yes. 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.

Matt Mulcock: Just shut it off. Yeah, everyone hates you right now. All the younger listeners hate you right now. We have an inside joke here. we tell really quick? Can we tell really quick? a, fond, a story we hold fondly here in DA, the, the hallways of DA, ⁓ it was especially Will and I. So several years ago, whenever you bought this home was years ago, we get a message 21. Yeah. So five years ago, we get a message from Jake, both Will and I, and Jake’s like, man, can we talk? We need, we need a chat really quick. You hop on. And so we all get on together and Jake.

Jake: Yeah, let’s talk about it. It’s great. Yeah. anyone.

Matt Mulcock: Was, ⁓ stressing, understandably. So, well, it’s 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, you do. Okay. Shares the numbers.

Jake: Very much so, very much so. I know. Yeah. So I’m an optimizer. So during this time again, people who are trying to buy a house now we’re getting the roller eyes so hard at this, which you should. Um, the rates are like fluctuating between like 2.75 and 2.9, 2.95 % at this point. And I was stressed because there were 2.75 % rates, but I could not get those. And I was bumping up to 2.9%.

Matt Mulcock: Yep, yep. You’re freaking out.

Jake: And I was losing my mind, financial optimize like, 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 going to 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. I was like, am I being dumb or am I being not dumb? And they’re like, you are for sure being dumb here. Yes, but it was amazing.

Matt Mulcock: That’s good contact. I think we were nicer than that. I think we were just like, dude, buy the house. Like, does it fit with your life? Like buy the house.

Jake: Yes. So hopefully people get a good chuckle out of that. So anyway, fast forward to today. I’ve thought about this is everyone like, okay, do we upgrade lifestyle moving homes? When does that happen? I’ve just thought a lot recently about why 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 to have good rates old homes like if we do a new house, better home, it’s going to 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, OK, let’s say just again, throwing numbers out there like your home is three thousand dollars more per month to kind of upgrade and get the nicer home that you want. Three thousand dollars a month is not nothing. And if you just like I just think of this in the context of OK, well, what could I do with that three thousand dollars a month? Can I buy a country club membership? Can 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 3000 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? What you get 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 of like, okay, well, like a cheaper house for some more expensive house can determine a lot of how you want to live lifestyle wise. And so I just think it’s an interesting conversation.

Matt Mulcock: Yeah. I’m glad you brought this up. Honestly, first of I’m glad you told your personal story. I really do. Cause 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. don’t think enough dentists actually think, cause I think what most dentists do is they understand this in theory. They’re like, yeah, totally.

Jake: Yeah.

Matt Mulcock: Like I, you know, I understand the idea like, hopefully I buy this home. I’m not going 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.

Jake: Sure, which if you do that, that’s awesome, right?

Matt Mulcock: and not really change their lifestyle. As long as you actually can save for the future and build up your wealth. Yeah.

Jake: Yes, if we’re checking out your boxes, we’re saving on Facebook, 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, OK, you can get this new or 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, right? Where it’s like maybe like that is like you might have to stay working your four or five days a little bit longer.

Matt Mulcock: Yeah.

Jake: Because we’re getting to this home is that okay with you? Like is this new house worth it? You know, every day being in 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.

Matt Mulcock: Yeah. And I think there’s an important thing to note here as well, because, ⁓ what we hear a lot from people is, I’ve, I’ve joked about it in the past is, ⁓ and this is all related. lot of times we hear in the past from Dentist of like, I’m doing this for the kids. Right? Like I’m Jake, how many times have you heard about it? I’m doing this for the kids. It is a good thought, but here’s a, here’s a, here’s a pushback thought. Because if you, if you counterbalance this with.

Jake: Yeah, yeah, a lot of times it’s a good thought. It’s a nice thought. Yeah.

Matt Mulcock: This is backed by data. 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. Obviously that’s obvious outside of health and safety of their children. The number one fear is entitlement. Is there kids being entitled? This is like backed by a lot of data. Yeah. Every parent out there is going to say, I would imagine if they’re listening to this, they’re like, yeah, I don’t want my kids to be self entitled.

Jake: Yeah, I think that’s true. Sure, sure.

Matt Mulcock: or spoiled. So think about this. I’m doing it for the kids, but I fear 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 to go buy this mat. 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,

Jake: Mm-hmm.

Matt Mulcock: 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 going to 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?

Jake: Yeah, 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 at 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 at all these gears. There’s a TV, yada yada. And his daughter was like, where’s our old car? I missed the old car. She had no idea or didn’t even want the upgrade. 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.

Matt Mulcock: Yep. And they don’t care as much as we think, at least about the material things. They care about titime and attention from you as a parent. They don’t care as much about the material things as much as we do.

Jake: But this leads back. Yes, this leads back to really is just be intentional with the house purchase. We say 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. 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 is like consider all those things rather than just be like, it’s kind of we’ve been in our house for six or seven years. My neighbors are all getting new homes.

Matt Mulcock: time.

Jake: 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 will tell you, do it for you and for the things you want, not for any outside reason there.

Matt Mulcock: Yeah. Yeah. I think that’s a great takeaway message. We’re not saying don’t go by 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 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.

Jake: Yes, sir. 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, so they 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 W2 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 if you’re moving somewhere, buying the practice like, 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. Just 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’ve all the practice and now we have to wait another year, two years, and that can 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 L.O.I. already in place or purchase like something there, maybe you can

Matt Mulcock: home.

Jake: You can get the home in the area anyway just something of note that we didn’t bring up for I think is important there.

Matt Mulcock: Yeah, that’s a whole other discussion. I think that’s really good because that’s a, that’s a discussion we have a lot with Dentist 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 when it comes to hindering future, ⁓ lending options or timelines.

Jake: Yes. Yeah, I don’t think I have 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. Do not. That’s be a gross before taxes, we’re giving you actually some more room there, rather than that. Don’t use all of 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%.

Matt Mulcock: before taxes.

Jake: 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 going to be in a pretty good shape, I think.

Matt Mulcock: Yeah. I think that’s great. Uh, great topic, Jake really appreciate the thoughts and the wisdom. Uh, if you’re out there listening, 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 even, we can’t even tell you how many times we’ve had Dentist just think or just say, you know, say, and really feel like, 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 and to my goals, ⁓ is, is massive. So critical, ⁓ to, 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. Click on the book or click on the book free 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 Dentist money summit coming up, Dentist money summit.com June 11th through the 13th. We’d love to have you there. ⁓ and, ⁓ you know, with like-minded Dentist there in midway Utah, it’s going to be a great time. So for now, Jake, thanks for being here and sharing your words of wisdom. Everyone. Thanks for listening till next time. Take care. Bye bye.

Keywords: home affordability, housing market, financial planning, real estate, dentists, mortgage tips, savings, down payment, interest rates, wealth building

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