The Cost of a Dream Home – Episode 309

It may be the most emotional decision you make in your financial life. And one thing is for sure, rushing into it can be the biggest money mistake you ever make. On this episode of the Dentist Money™ Show, Ryan and Matt look at three things you should consider before buying that dream home. Don’t end up overwhelmed by the unexpected. Find out how to keep your dream from becoming a nightmare.

 

 

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Podcast Transcript

Ryan Isaac:
Hello everybody, welcome back to another glorious episode of the Dentist Money Show, brought to you by dentist advisors, a no commission fiduciary, fully comprehensive financial advisor just for dentists all over the country, check us out at dentistadvisors.com. Today Matt and I are talking about the most emotional decision anyone ever makes in their financial life. I’m tentatively gonna call this the cost of a dream home. Thanks for being here. If you have any questions about your own financial life or your own dream home purchases, go to the dentist advisors discussion group on Facebook, post a question, we will post an answer or use it for a future podcast topic. Or if you wanna chat with us directly about your own financial planning and life and getting on track and a plan, go to dentistadvisors.com, click to book free consultation link, schedule a chat with one of our friendly dental specific advisors today. We’d love to talk to you. Thanks for tuning in and enjoy the show.

Announcer: Consult an advisor, conduct your own due diligence when making financial decisions, general principles, discussed during this program, do not constitute personal advice. This program is funded by Dentist Advisors or registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money Show, where we help dentists make smart financial decisions and avoid the bad ones along the way. I am Ryan Isaac, and I’m here with the Hollywood Matt Mulcock, What is up, Matty.

0:01:23.9 Matt Mulcock: Ryan, how are you?

Ryan Isaac:
I like how you just rest your head forehead on the microphone and stop talking. Thanks for being here man, really appreciate it.

0:01:34.3 MM: Yeah, it’s good to be here as always. The highlight of my week really.

Ryan Isaac:
Honestly, I love doing our content, it brings me out of my daily routine and grind sometimes, and it’s just like…

0:01:44.5 MM: It’s does break up the day, especially this time of year, I’m doing all my… We’re doing all our end-of-year meetings and… Which I also love, by the way, for all my clients listening, I love those meetings, I love talking to you, but it does wear on you. And so it’s a nice just break up of the day and of the week.

Ryan Isaac:
It is. It’s nice, I will say this though. I think if you get into this career as a finance advisor, you probably want to be having these kind of human personal interactions and relationships, that’s a desire you have to be part of your career. I will say that… Yeah, sometimes the days, you got all the… A bunch of phone calls on the calendar, and sometimes you start a call and you’re like, “Man, I’m so tired.” But for me, and I think everyone who gets into this career, two minutes into the call, you’re just like, “Oh, these people are my friends, and this is cool to hear from them, and I’d love to hear what’s going on.” And I tell this to people sometimes, I don’t wanna sound weird, so I try not to say a lot, but I’ll say it here in front of everybody.

Matt Mulcock:
[laughter] I only say this in private, like in private interactions with my friends and then also on the podcast.

Ryan Isaac:
Also in our biggest source of…

Matt Mulcock:
With thousands of people listening. Yeah cool.

Ryan Isaac:
I think about people… Like my clients randomly, all the time, it’ll be… And I know dentists do this with their patients. You’ll be laying in bed, you’ll be driving on the street and a name just pops in your head and you’re like…

Matt Mulcock:
Happens to me, all the time.

Ryan Isaac:
All the time. All day, every day, seven days a week, vacations, weekends, nights, mornings, it doesn’t matter. And I guess I’m just trying to say, when you get into this career as an advisor, it’s probably because you genuinely enjoy having relationships like these. And that it’s just part of your maybe nature to have people coming to your head and be like, “Man, I hope… ” And you know so much about them. So, you’re just like, man, I hope that building thing is going well or man, I know that person who went through a divorce or that person lost their parent, or… So many things, you just know what’s going on in their lives and then you just constantly worry that they’re okay, constantly. It never ends.

Matt Mulcock:
All the time.

Ryan Isaac:
Now I sleep. I sleep fine, I have hobbies, I enjoy my life.

Matt Mulcock:
I don’t but I have a baby that’s why.

Ryan Isaac:
[chuckle] That’s why. But I guess is just to say that I really enjoy those interactions. And like you you get on the phone and in a couple of minutes in, you’re just like, “Oh, this is just rejuvenating to talk to people and it gives me tons of energy.” I know it does to you too, and all the advisors.

Matt Mulcock:
It really does.

Ryan Isaac:
As does the podcast. That’s where we’re going with this. Alright, let’s get it into it. Today we’re gonna talk about the… The, the… Capital The. The…

Matt Mulcock:
The.

Ryan Isaac:
Yeah, there’s two words there, the and the… But it’s like the most, but it’s really the most. Capital The… The most emotional decision any human ever makes with their money…

Matt Mulcock:
Here it goes, here it goes.

Ryan Isaac:
Matt, I’m springing this on you, ’cause I like to do this to you. I like to outline the podcast and then not tell you what it is.

Matt Mulcock:
Yeah, it’s like you’re… It’s like you’re… You love this. So let’s plan this out. No, no no, I’m just gonna jump on, I’m just gonna do it.

Ryan Isaac:
I’m just gonna spring it on you, but you know what… Matt, you tell us, without even knowing what is the most emotional money decision any human ever makes. It is…

Matt Mulcock:
I mean, 100% the house.

Ryan Isaac:
The house.

Matt Mulcock:

You and I just bought. [laughter] House buddies, house buddies.

Ryan Isaac:
one person, okay. I always feel like sometimes I’ll bring up a subject that I recently had a conversation about and then someone will… They’ll text me and be like, “Hey, I got the anonymous shout out” I’m like no, “This is like four of you this week.”

Matt Mulcock:
Everyone. Yeah exactly.

Ryan Isaac:
And this happens weekly, this is the house decision, I was just on the phone with a client and friend as we’ve already established earlier this week. And same conversation, like a lot of people, he’s in a good spot with work and practice, liquidity, cash flow, savings rate metrics are looking good, but wants to buy an expensive house. Or maybe the spouse does more than he does but someone always wants to and it’s… If someone wants to buy a nice house and…

Matt Mulcock:
No, no, no, again, they blame it on their spouse, but they are excited.

Ryan Isaac:
He’s excited.

Matt Mulcock:
It’s like, I’m doing that right now. I’ll tell everyone it’s my wife, but it’s really me.

Ryan Isaac:
It’s you man.

Matt Mulcock:
I’m at least excited about it and I admit it.

Ryan Isaac:
So Look, man, we’ve got clients all over the country, and it’s actually kind of fascinating to see real estate purchase… Real estate’s cool. Contrary to popular belief, we love real estate.

Matt Mulcock:
Everyone is asking like, “What?” No, you don’t.

Ryan Isaac:
Real estate is so cool, man, because it’s just unique and it’s cool and the decisions we all make on real estate it’s just… They’re all so personal. And so I’ve seen tiny houses that are millions of dollars because of the city they’re in or just the location. I’ve seen insanely cheap houses in the Midwest sitting on a 100 acres…

Matt Mulcock:
Mansions.

Ryan Isaac:
In lakes and they’re gorgeous. Again, it just seem cool things. So, it’s kind of fun to watch people make real estate decisions. Like why? I’ve seen people buy houses that have underground shooting ranges and bowling allies and…

Matt Mulcock:
Oh, my gosh. What houses are you going to? I wanna hang out with your friends.

Ryan Isaac:
Like theaters. And then you see people buying little condos that are sitting on an ocean front somewhere that are just as much money. It’s cool. So, we’re gonna talk about this today. The conversation I was having with a client and that I’ve had in my own head as I moved recently, you’re probably having in your life, Matt, as you’re moving. This is the thing everyone wants to know is, what are the costs here? How is this going to impact me? And what am I gonna have to give up if I make this expensive housing decision? And so I guess I also wanted to point out by what I was just saying that houses can cost a lot of money for a lot of different reasons. It can be because it’s gigantic and it’s totally sweet and it has every kind of amenity that you could ever dream of, or it could just be close to… It could be an inexpensive city close to something like an ocean or a mountain range or a ski resort or something that just makes it expensive, even though it might be super old and tiny, it doesn’t even have closets.

Matt Mulcock:
Location, location, location.

Ryan Isaac:
Yeah. It’s just funny what makes real estate expensive. The first thing I want you to talk about though, Matt, is give us a sense for how do we as advisors talk about the house decision with clients? What’s the vibe? What do we always say? What’s the rule of thumb? How do we talk about this?

Matt Mulcock:
Yeah. Let’s just put this to rest right now. And this is… I get more pushback on this lately ’cause real estate’s been going wild, but I live in a market right now where real estate is going…

Ryan Isaac:
Who doesn’t?

Matt Mulcock:
Who doesn’t? Right?

Ryan Isaac:
Who doesn’t live in a market where they’re relative to where their market was 18 months ago, they’re like, “This is insane. Who’s gonna pay for this?”

Matt Mulcock:
True. It’s across the board.

Ryan Isaac:
It’s insane.

Matt Mulcock:
But when I tell people, and I still stick to this, this is a hill I will die on, Ryan, so buckle up, people. Your personal residence is not a financial investment. It just ended there. And I’ll give you a perfect example. So, it is an investment, but it’s a lifestyle investment. And there is a big difference. So, I’ll give you an example from what I’m dealing with right now. We moved into our home that we just sold and we’re moving. When we moved back from California…

Ryan Isaac:
You moved in… Wait. You moved in to the new place?

Matt Mulcock:
No. So, we’re doing a few things. We’re doing a few updates, and that’s another thing we’ll talk about as far as cost of a house. Nothing major. We’re just doing paint and carpet and a few just minor things before we move in. So, we moved back from California three and a half years ago, bought the house we’re now. It has gone up significantly in value, which has allowed us to make this upgrade, this change. So, on one hand, someone would say, “Well, look at, Matt. Look how much money you’ve “made” on this house in equity growth,” which is true, but what am I doing with that? All I’m doing is taking it and I’m upgrading my lifestyle.

Ryan Isaac:
Yeah.

Matt Mulcock:
It is not a financial investment. It is a lifestyle investment. Just deal with it, people. It’s okay. But the money you make on your house is only going to go into another house. In retirement, you might say, “Well, I have all this money. I’ve got a $1 million home or a $2 million home.” Great, you’re… “And I’ll downsize.” You might tell yourself that when you’re 40. “When I’m 65, I’ll downsize.” You might downsize, but you will not down-quality.

Ryan Isaac:
Downgrade.

Matt Mulcock:
You’re not gonna downgrade. Just accept it. I’ve accepted it. It’s okay. It is a lifestyle investment. It is not a financial investment. I don’t even know what your question was, Ryan, but I’m done with my zero box.

Ryan Isaac:
That’s it. I love it. And we always just talk about how when a client… And this isn’t like specific to dentist, this is a human thing. When a human calls us and says, “Hey, we’re just kind of kicking around the idea of moving… ”

Matt Mulcock:
Yeah. Sure you are.

Ryan Isaac:
“100% you’re moving.”

Matt Mulcock:
It’s done. Yeah.

Ryan Isaac:
You’re not… You’re moving. If you’re like, “We’re kind of thinking in the next two or three years,” you’ll do it next weekend.

Matt Mulcock:
Yeah. Yeah. Offer is in. Offer is in.

Ryan Isaac:
Yeah. That’s just the nature of houses, they’re just really emotional, they’re very exciting. They’re just so central to our lives that, of course, they are. So, when you think it’s a few years out and you’re driving around you’re like, “Oh, my gosh, there’s the place. It’s got the schools and it’s got the… ” It’s gonna happen. Yeah.

Matt Mulcock:
I’m sorry. I was gonna say…

Ryan Isaac:
Yeah. Go ahead.

Matt Mulcock:
Oh, sorry. We’re just… My bad.

Ryan Isaac:
We’re excited.

Matt Mulcock:
We’re so pumped about this. I was gonna say, just to piggy back off that is, and to circle back to what I was saying about it being a lifestyle investment, it’s okay. We’re not saying that’s a bad thing. You should be upgrading your lifestyle and you should be… You should be investing in your lifestyle and in your family and in your joy. That’s the whole point of this.

Ryan Isaac:
Totally.

Matt Mulcock:
So, I don’t say that to disparage that and be like you should only be optimizing for wealth. If I was optimizing for wealth in my own life, I wouldn’t be buying this house, but I’m accepting that it’s a lifestyle investment and upgrade and we’re doing it thoughtfully and we’ll talk about what that means. But I just wanted to be like, I’m saying that as a fact, it is a lifestyle investment, it is not a financial investment, and that’s okay.

Ryan Isaac:
Yeah. And it’s totally fine. And we all do it. Me personally, in my family, we just did it.

Matt Mulcock:
Yeah. You just did it.

Ryan Isaac:
Our goal was to move where we live now in 10 years from now. But like I said, when it’s just emotional and when the opportunity feels right and you feel like you can actually afford it and then you’re like there’s the opportunity, we all just do it.

Matt Mulcock:
Can you actually… If you wouldn’t mind, can you go on that for a second? What you and your wife were talking, what accelerated that for you?

Ryan Isaac:
Well, we would probably tell two different stories, although we would agree with it like, “Hey.” I can afford to make the move, I’ve been in my career for 15 years, and I can…

Matt Mulcock:
And you’re dang good at it, let’s be real.

Ryan Isaac:
Afford is a subjective word, ’cause it’ll eat me alive a little bit but for me, it was like, “Alright, financially, I could see how this could work.”

Matt Mulcock:
You go to bed in cold sweats, but you can afford it.

Ryan Isaac:
Yeah, I don’t sleep anymore, but I can technically afford it. Yeah, so financially, I can see how it work, I could do it and still save money and should end up okay, that’s the hope, right? That’s what we all hope. My wife would tell you she’s a really feelings, emotional-oriented person, so she would just tell you is like, “She’s just feeling like it was totally the right time, so we did it.”

Matt Mulcock:
Yeah, but you and I talked about it…

Ryan Isaac:
But that’s why it’s emotional like that’s… Feelings and emotions are involved in this stuff, that’s very normal.

Matt Mulcock:
Totally, and they should be, again that is totally normal.

Ryan Isaac:
Yeah, that’s the emotional side of it. Where we’re at now, we always wanted to be, and it’s a place that our family travel to all the time monthly. And we were like… That’s the emotional part of it. We were like, “Let’s do it with our kids so we can have some memories and go make some memories with them instead of wait till they’re gone and then go do it.” So, yeah, but see, that’s the emotional stuff that works in real estate. I’ve heard these… Like you, I’ve heard these conversations like 100 times like, “Oh, you know, it’s really expensive, but that backyard, that’s where I want my kids to have their memories in that backyard. Oh, it’s really expensive, but I want to have those views, when I wake up every… ” I mean it’s just… Or “I wanna ride my mountain bike out of my garage get into the hills.” And it’s just very emotional, I think we established that deeply.

Matt Mulcock:
Yeah, again that’s totally okay.

Ryan Isaac:
Yeah, okay. So let’s get to some of the… I was going through this list with a client… But we do this all the time, you’re doing this in your head, I’ve done this in my head, when you just move, this is kind of the list I’ve put together of the costs that you need to think about when you’re gonna make that house upgrade. Now, right off the bat, none of this is to excuse a decision that is clearly poorly made. I also have met people and just watch this play out that really rushed the big expensive house decision way too soon, and it buried them, I’ve seen that happen. We’ve all seen that happen, we have friends, family, neighbors.

Matt Mulcock:
It could be the biggest financial mistake you make.

Ryan Isaac:
It honestly can be. And it’s really similar to like the practice building, I’ve seen the same thing happen on a practice building, just for the sake, it’s not because it’s real estate, it’s because they’re huge transactions, and they come with big monthly obligations that don’t go away for a long time, that’s why. So just because we’re kind of joking about it being emotional and people are gonna do it whether… Whatever the math says or not, there are people who have put themselves in really tough situations. And I wanna say this, too, dentistry is such a great career, it’s so lucrative, it can last a very long time, there’s plenty of money to be had. A dentist can have their practice, they can have the building, they can have the dream house, the vacation home, it’s just… There’s a sequence of when you should do it, it’s time, that’s a priority.

Matt Mulcock:
You’ve gotta do it thoughtfully.

Ryan Isaac:
Yeah, so alright, I’ve got my list here of things. Matt, chip in where you want, of things that you’re going to have to be willing to give up maybe, some people earn so much money that it literally doesn’t matter.

Matt Mulcock:

It doesn’t matter, yeah.

Ryan Isaac:
You do whatever you want, have fun, a great problem to have…

Matt Mulcock:
Why did you just wink at me when you said that, right?

Ryan Isaac:Yeah, yeah, that’s me.

Matt Mulcock:
Yeah. That’s me, buddy.

Ryan Isaac:
That’s the situation I’m in.

Matt Mulcock:
I paid for my house cash.

Ryan Isaac:
Yeah, yeah. So here’s the list of costs that you’re gonna have to really think about when you make the decision, I wanna start with the easiest, most obvious one, you were just talking about this, I know this as good as anyone having moved too many times recently, the extra cost of moving. We don’t have enough time to even list all the things, but there is… Every single time you move, there are probably tens of thousands of dollars, if not hundreds, for some people, of things you were not planning on paying for when you moved. And especially… What’s crazy? Like at this time, we’re recording this in 2021, in what November now, as a buyer, you don’t have a lot of leverage on sellers to make them fix a bunch of stuff and pay for a bunch of stuff.

Matt Mulcock:
Take it as is.

Ryan Isaac:
As is, man. So…

Matt Mulcock:
A lot of times they’re not even contingent on appraisals anymore.

Ryan Isaac:
Yeah, mine wasn’t.

Matt Mulcock:
Yeah, most of them are not. It’s like, “Deal with it.” If you give them money at the table, bring them… It’s up to you.

Ryan Isaac:
It’s crazy, man. Appraisal contingencies are leaving. Inspection contingencies are off the table, it’s wild, but there are just things that you will have to pay for, even if you think you have all the beautiful furniture and decor that you have in your current house, and you’ll just transfer it to the new one. No, it won’t. The rugs won’t fit. Couches won’t fit. There’s something about a new place and old furniture that you just… It doesn’t mix.

Matt Mulcock:
Can I actually give just a quick personal anecdote here on my own situation, it is just funny, you bring this up. My wife has been wanting this new couch forever, we’ve been having this conversation for a while, and by the way, we were not planning on buying this house, it truly came out of nowhere. Actually, we’re buying my brother’s house and that’s why it came out of nowhere. But we ordered a new couch, my wife finally… We were like, “Kay, this is like… ”

Ryan Isaac:
In the current house, right?

Matt Mulcock:
In our current home, our old home, she bought this custom couch for our living room back in like March. It still is not here, it’s going to be here at the end of this month, and in the interim, we bought a new house. So, how often does that happen? It’s like, we bought a new couch, by the time it got here, we bought a new house, and now she’s freaking out. I mean not really, but she’s like, really antsy about, “We have this new couch, it may not fit in our new…

Ryan Isaac:
It won’t.

Matt Mulcock:
In this new room, and so, “What do you do?”

Ryan Isaac:
Furniture, either it just literally won’t fit, or there’s just something about moving it into the new place, and then being like, “Ahh, that old couch,” even if it’s a year old.

Matt Mulcock:
The color is different, yeah.

Ryan Isaac:
It just doesn’t feel… You just kinda want new stuff in the new place, there’s landscaping. I mean, it’s insane. Number one, just please plan for way more extra costs than you think, and it can last… I’ve watched people think that they’ll move in and they’re like, “You know, this will probably be disruptive to my savings for three or four months.” and a year later, we’re barely still wrapping up the landscaping and the furnishing and the basement finishing and the re-roofing and the tiling, and… I mean, it’s just…

Matt Mulcock:
It’s a lot.

Ryan Isaac:
It’s a ton. It’s a ton, so you just have to plan on that. And ideally, as advisors, we would implore you to not put yourself in a situation where you have to dip into emergency funds and investment accounts to have to do that.

Matt Mulcock:
Yup.

Ryan Isaac:
Cashflow it or have the money saved up, ideally, that’s just… That’s where you wanna be. Number two, I want to stress this, and this isn’t for everybody, but a lot of times, if you are moving to a significantly expensive house or you just happen… Maybe it’s not even a choice. A lot of people just happen to live in cities where there is no choice, like you will live in expensive real estate if you own. There’s no other choice.

Matt Mulcock:
Yeah. And move or if you’re gonna buy, it’s just gonna be pricey.

Ryan Isaac:
It’s just what it is.

Matt Mulcock:
Yeah.

Ryan Isaac:
What you have to accept is that we would call this asset location or I would call it net worth location. We have to accept the fact that a chunk of your future net worth that you might have to use is now going to be shifted from either other investment real estate, other business assets, or stocks and bonds and mutual funds and liquidity. So, instead of… And it can be easily, easily to the tune of multiple seven figures, easily. Because if we’re talking about a 30-year mortgage versus 30 years of investing in the stock market, for example, right? This like extra… If your payment jumps four, five, six grand because you just went to the new big expensive place or expensive city, or you’re just born and you live and practice and work there, and you’ve got $7000 to $10,000 of house payment every month or more…

Matt Mulcock:
I’ve seen bigger.

Ryan Isaac:
Oh, yeah, easily.

Matt Mulcock:
Yeah.

Ryan Isaac:
So, you just have to realize that there will be probably over multiple decades, probably a couple seven figures worth of net worth, maybe more, few $5 million, that are…

Matt Mulcock:
Yeah. A baker’s dozen.

Ryan Isaac:
A baker’s dozen. [chuckle] That is sitting in the house you live in as part of your net worth. Now, is it accessible? Totally, it’s accessible. Can you get at it? Yes. Should you use it if you need to? Please, for the love.

Matt Mulcock:
Maybe.

Ryan Isaac:
Okay, I’m just projecting, I’m like… And I think of myself older, which isn’t hard these days, but I think like, alright, if my 80-year-old self is sitting around and I’ve got a lot of home equity in a house that I live in, and I’m watching my retirement accounts dwindle as I spend out of them, I will a million percent, go get my home equity out.

Matt Mulcock:
Yeah.

Ryan Isaac:
I don’t care at all if my kids get the house. It’s money that I saved, it’s money that I technically… We’re not gonna call our primary residence an investment, but it was saved somewhere and it grew over long periods of time.

Matt Mulcock:
Yeah, it’s money that you put into it. Yeah.

Ryan Isaac:
It’s my money…

Matt Mulcock:
Yup.

Ryan Isaac:
And I’m gonna have to spend it, but the trick is, it’s so much harder. A, it’s just not as easy to access because you have to get a reverse mortgage or a line of credit, or just pull a full mortgage with that…

Matt Mulcock:
Or re-leverage the house with the cash out.

Ryan Isaac:
Re-leverage it, which comes with some heavy emotional baggage. Like, thinking of paying off the house that you’re in, it’s finally paid off, and then you’re just gonna get a loan back on it like 10 years later, and then die with this loan against the house that’s… Mathematically, it’s your money, like, go get your money if you need it.

Matt Mulcock:
Yup. Yup.

Ryan Isaac:
Like, don’t skimp on your lifestyle when you’re 75 years old, if you’ve got money sitting in your house, that would be my personal advice, other people might just see that differently, but it’s not as easy to get, but it’s very emotional.

Matt Mulcock:
You’re looking at it coldly rationally.

Ryan Isaac:
Cold, robot.

Matt Mulcock:
Like, you are looking at your house as an investment in that sense of like, I put money into it…

Ryan Isaac:
It’s a bank, it’s got money in there.

Matt Mulcock:
For 30, 40 years, I’m getting my money back out.

Ryan Isaac:
I’m getting my money back out.

Matt Mulcock:
Yeah. Yeah.

Ryan Isaac:
But the emotional side of it is like, “Well, man, the kids were gonna get this, and this was like the kids’ inheritance.” Or just emotionally having to wrap your head around putting a loan back on a property that took three decades to pay off.

Matt Mulcock:
Yeah, well, how many times do we hear from people that are like, “I can’t retire until my house is paid off.”

Ryan Isaac:
Yup.

Matt Mulcock:
Okay. Well, then in that case… And depending on… To your point, depending on where you live, depending on your overall situation, like, you may have to delay retirement then by an extra 10 or 15 years, depending on how expensive your house is.

Ryan Isaac:
Point number two. Point number two, extended career. So, every time someone is kicking around this idea of like, “Man, I’m gonna make a significant jump in home cost, what is it gonna do to me?” Point number two would be, just be okay with the… I don’t wanna say the fact that your career will be extended, but the total possibility…

Matt Mulcock:
Right. Yeah.

Ryan Isaac:
And likelihood that…

Matt Mulcock:
The probability… Yeah, probability, yeah.

Ryan Isaac:
Probability, that you’re gonna have to work longer. Now, the good news is, dentists, your career path has longevity, and you don’t have to be like a five day a week, 100% owner, grinding, grinding when you’re older. You can sell off portions or all of your business, or you can be a W-2 associate and you can work a couple days a week, but just realize that if you start… If you just start sticking money into a more expensive house and you’re gonna make that move, it’s highly likely that you will have to work longer. I had to go through the same thing myself and asked, “Okay, do I like what I do? Can I… Do I have enough balance? Can I envision doing this for a long time? Am I even in a career that can go for a long time? Or am I forced out at some age due to some kind of inability?” Which, to be determined. We’ll see.

Matt Mulcock:
Yeah. Maybe, who knows.

Ryan Isaac:
We’ll see. Mental inability, we don’t know. If people will have me, I’ll be an old financial advisor with you, that’s fine. But I had to go through the same motions like, “Man, what if this put me back like five years? What if instead of 60, now I’m at 65? Or what if I stayed in my cheap house, I could have been done in my 50s, and now I’m gonna be done in my 60s. Am I okay with that for the trade-off?” That’s just a question you’re gonna have to ask yourself and really give that a lot of thought, because one of just the most detrimental things to someone’s like mental and emotional health, not to mention physical health, is when they’re still mid-career and they’re hating it.

Matt Mulcock:
Yup.

Ryan Isaac:
And it doesn’t mean you hate dentistry totally, but maybe you hate what you built, maybe you hate the fact that you’ve got four locations and you wish you still had one, or maybe you hate that you have no partners or associates and you need some, or that you have partners and associates and you wish you were alone. Or that you’re an owner at all, and you wish you were an associate, like, maybe it’s a gut check time in career when you start thinking about, this house is gonna make me work longer and I freaking hate my job.

Matt Mulcock:
Yep.

Ryan Isaac:
This is a great time to start wondering about how to shift… Don’t get out of dentistry, but how do you shift inside of dentistry, there’s so many options to have some balance and enjoy yourself, but yeah that… You said it though.

Matt Mulcock:
Well, what you’re saying is that you shift your focus away from, should I buy this house or not to like, let’s change my career path.

Ryan Isaac:
Yes.

Matt Mulcock:
Let’s do something… Let’s completely change the focus. I’m asking you as my advisor, should I buy this house or not? And then we have this conversation, and we uncover that you just hate your job, it’s like, we’re asking the wrong question here. Forget the house for right now…

Ryan Isaac:
Yeah, we got some bigger decisions.

Matt Mulcock:
We got some bigger things to figure out.

Ryan Isaac:
And it’s not uncommon to meet people who are like, I hate this, but I’m gonna go real hard for 10 years, and then I’m gonna be done.

Matt Mulcock:
Yeah. Don’t. Yeah, don’t that.

Ryan Isaac:
That’s a tough path. Some people pull that off, but more often than not…

Matt Mulcock:
Yeah. And then have a midlife crisis breakdown, existential collapse.

Ryan Isaac:
Yeah, man.

Matt Mulcock:
On the Dentist Money Show, we teach dentists how to make smart financial decisions.

Ryan Isaac:
You’re correct.

Matt Mulcock:
I mean, is that all it takes, Ryan to make smart financial decisions, listening to our show?

Ryan Isaac:
Matt, it’s a good first step, but to put your financial future on the fast track, the next smart decision is to go to dentistadvisors.com, what you do there is you click on the book free consultation button, right in the middle of the home screen, and then you schedule a time to talk with one of our very friendly dental specific financial advisors today. You mentioned this earlier, point number three would be opportunity cost, that’s just a fancy way of saying, Look, if you take your extra cash, and you buy down a loan that’s at like 3% today, and you put it into an asset… I looked to this up, by the way. Historical residential, since 1940, the annualized rate of return of residential real estate across the whole country is 5.5%. However, there’s a…

Matt Mulcock:
: Is that gross?

Ryan Isaac:
Yes, it’s gross, it’s not after inflation, that’s before inflation, of course. But there’s a huge thing in real estate data that’s kind of a caveat. The average home in 1940 and along for decades was 1200 square feet, [chuckle] and it’s more than double now, the average home in the United States. So, adjusting for home size, the annual increase on per square foot is about 4.6% for long periods of time. So, slightly above inflation, I’m sure the most recent years have helped with this a lot, but here’s what we’re saying, if you choose to put money, you’re making a conscious choice to take your free cashflow, and you’re putting it… You’re buying down a rate that today… I mean, who knows where this will be if you listen to this five years from now, but right now, rates are silly low, stupid low.

Ryan Isaac:
So you’re consciously choosing to pay down rates that could be as low as the twos, threes, I don’t know how many people even have fours anymore, maybe a few…

Matt Mulcock:
Yeah.

Ryan Isaac:
Like a little bit. And you’re putting it into an asset that is growing slightly more than inflation, we’re talking, like, houses are growing a little less than conservative bond funds are growing over long periods of time, right? So, the opportunity cost is that you’re taking money that could grow somewhere else at a much higher rate, and you’re putting it on something that will grow lower. What does that do? It just makes your net worth smaller, that’s it. So, the opportunity cost of choosing to put your money into a house that you… Especially, a house you live in is going to make your net worth smaller, because it won’t grow as much as… Look, just S&P 500 stock market data from the S&P 500 is more than double that over long periods of time. So…

Matt Mulcock:
Easy.

Ryan Isaac:
Going from a five to a 10% rate of return is not just a doubling of money, it’s exponentially compounded.

Matt Mulcock:
Yeah. And the other thing I was gonna say is, I don’t know this for sure, but I’m pretty sure on those numbers, they’re not factoring in things like transaction costs, right?

Ryan Isaac:
No.

Matt Mulcock:
Every time you buy and sell a house. And I think they’re probably just taking data aggregate over the course… Over that time period.

Ryan Isaac:
Yup.

Matt Mulcock:
It’s not necessarily factoring, like, every time you sell a house, every time you buy a house, there’s transaction costs, there’s obviously interest, ’cause most people are taking out loans on their house, interest costs, taxes, so…

Ryan Isaac:
Oh, yeah. It’s not a high rate of return…

Matt Mulcock:
It’s not a high rate of return.

Ryan Isaac:
And it’s not… It’s what you were saying earlier, this is not a high returning investment. Yes, after 30 years, you’re gonna be sitting with a paid off house, and you’ll be like, “Oh, I got a million bucks, this is really cool,” but if you did the math, you’re probably negative rate of return after taxes, fees, maintenance costs and insurance, and…

Matt Mulcock:
My guess is, you wanna know why most people think that real estate is such a high rate of return is, ’cause the only thing that you will, without question, hold on to for multiple decades.

Ryan Isaac:
Yeah, until there’s equity in it.

Matt Mulcock:
Yeah, exactly, but it’s like…

Ryan Isaac:
It’s the house you live in.

Matt Mulcock:
It’s the only thing you don’t think about, right? You don’t have this ticker symbol over your house like in your driveway.

Ryan Isaac:
Yeah, my Coinbase, my crypto right now is burning a hole in my pocket. [chuckle] I’m gonna sell that thing, I’m gonna get my money out. Take my gains.

Matt Mulcock:
Right, like, even when there’s volatility in the real estate market, you don’t pull into your driveway from coming in from work every day, and it’s showing you a sign over your house being like, your house is now down 5% today.

Ryan Isaac:
It’s down. Would you like to push this button and sell?

Matt Mulcock:
Yeah, you wanna go push this? [chuckle] It’s the only thing that we are literally conditioned to hold on to for a long period of time, even though it’s a crappy rate of return…

Ryan Isaac:
Yeah, we see it through.

Matt Mulcock:
We think at the end it 10 or 20 years we have a lot of money. Think if you had the same mindset with your brokerage account.

Ryan Isaac:
Oh, I know, I know, just because of the growth rates are so much higher. I went through that exercise…

Matt Mulcock:
So much higher.

Ryan Isaac:
I sold our first house a few years ago, the first house we lived in for 10 years, a few of those years were a rental, which had a little bit of cashflow on it, and when I did the math… ‘Cause I got the check, and I was like, that’s a big check.

Matt Mulcock:
Don’t ever do that math, don’t do it.

Ryan Isaac:
That’s a big check, that’s pretty sweet. And then I did the math of the actual basis, what did I actually put into this house between interest, not my… But my interest and my taxes and insurance and maintenance, and I was negative after 10 years.

Matt Mulcock:
Yeah, it’s like a dollar an hour.

Ryan Isaac:
It was a negative man. [chuckle] I’m sitting on… I was like holding a six-figure check, and I’m like, This is sweet.

Matt Mulcock:
Yeah.

Ryan Isaac:
And the actual return, the math, like the non-emotional and not holding a check return was negative.

Matt Mulcock:
Yeah.

Ryan Isaac:
I’m like…

Matt Mulcock:
And then you cried, you curled up in the corner, and you cried.

Ryan Isaac:
Nah, I didn’t, I put it into another house, like I just…

Matt Mulcock:
Exactly. You took your negative returns, and you went and put it into another house.

Ryan Isaac:
I did. And now, okay. So if you talk to people who do real estate for a living professionally, they’ll tell you that… So some people will do short-term real estate transactions where they’re finding… They’re exploiting, inefficient, illiquid markets in regional real estate places. They’re buying, they’re flipping, they’re fixing up and they’re making a profit, they can calculate it. But a lot of time… Like, most of the time, real estate professionals, you’re holding properties, and then when the note’s finally paid off, someone else is paying it along the way, when the note’s finally paid off and you have a tenant and they’re still paying, that’s when real return kicks in for your rental property. That’s why the house you live in is not your investment, because someone else isn’t paying it off, and then continuing to pay.

Matt Mulcock:
Yeah, you are.

Ryan Isaac:
Yeah, you’re doing it.

Matt Mulcock:
Yeah. Yeah.

Ryan Isaac:
So, it’s not even the real way to build wealth in real estate, like a professional real estate person would.

Matt Mulcock:
Wait, wait. Are you telling me that building wealth in real estate takes multiple decades and a lot of patience?

Ryan Isaac:
Guys, we’re not even gonna get into my pet peeve of instant passive income, we’re not gonna talk about that.

Matt Mulcock:
Yeah.

Ryan Isaac:
So, I don’t know what point that was. Number three, it’s opportunity cost. Your personal residence will be a lower returning asset, no question. Your net worth will be lower than if you took that money and put it into a higher returning asset for the same period of time, so, that’s it.

Matt Mulcock:
That’s all.

Ryan Isaac:
That’s it, no big deal. Now, see, here’s where personal detailed financial planning though kicks in and helps, because despite these downsides, ’cause it’s not all like, well, why would anyone buy a nice house then, it’s all doom and gloom? Well, no, because your numbers might still indicate that despite some of these downsides that you’re still fine.

Matt Mulcock:
Yeah.

Ryan Isaac:
I just did this with a client, we went through this, we went through net worth, spending, savings rate, liquidity, growth rate of investments, profitability, all these stuff. And we said, yeah, these downsides that we’ve listed exist, however, the other data that we’ve been meticulously tracking for years now, tells us that despite it you’re gonna be okay. Like, it’s okay. Which is the beauty of a successful career in dentistry, because there’s a lot of money to be made and you can still make these big housing, exciting housing decisions and still be okay.

Matt Mulcock:
Yeah, you’re paying a financial cost for a lifestyle upgrade and that’s just the reality and that’s okay. I mean, you and I just did this. When my wife and I just sat down and I ran the numbers and thought about it, she just was like, you tell me if we can do this or not, right?

Ryan Isaac:
Yeah, are we good? Yeah.

Matt Mulcock:
I sat there and thought, okay. Yes, it’s just an upgrade, yes, it’s higher expenses. I know all these downsides we’re talking about, and it’s not optimally the best decision to make financially. We decided as our family, we’re doing it and I’m willing to pay the cost for the lifestyle upgrade that we are thoughtfully…

Ryan Isaac:
And that’s what we’re saying here, acknowledge these things…

Matt Mulcock:
Yeah, acknowledge these things.

Ryan Isaac:
Acknowledge these things.

Matt Mulcock:
Yup.

Ryan Isaac:
Your net worth will be built in a different, less accessible, more emotional way. If you have an expensive home, you will lose out on rate of return and net worth growth because of opportunity cost in higher returning assets.

Matt Mulcock:
You will have less liquidity.

Ryan Isaac:
You will have less liquidity and your career could be extended. Those are all possibilities, but you also might be just totally fine and happy too. You’re bound to make these decisions multiple times, it really helps when you have someone who knows your data, who knows your history, knows your personality, your decision-making style, knows the way that you kind of debate decisions and just knows how to talk you through those situations, ’cause it’s gonna happen. In practice, partners, acquisitions, building, this stuff is just gonna happen, so.

Matt Mulcock:
And by the way…

Ryan Isaac:
Yes.

Matt Mulcock:
It helps you get comfortable acknowledging, again, the financial cost of this. I would dare say you will feel better about this decision, whenever you go to make this decision. I would say you will feel better about it as opposed to tricking yourself, ’cause this is what happens a lot, right? People make financial justifications for a lifestyle decision. So for example, they’re like, Oh, I’m gonna… Really easy one, I’m gonna make this upgrade to this house, ’cause I’m gonna get it out of… It’s gonna increase the value of the home. It’s your primary residence. And my response always to that is, why would you care? You’re gonna live in it, right?

Ryan Isaac:
Yeah. Yeah.

Matt Mulcock:
So as opposed to do that and trick yourself, just say… I think by you acknowledging and accepting these costs and these trade-offs, I really do think you will feel better about doing it. Just being like, yeah, I know this is not a great financial choice or this isn’t optimally for my financial spreadsheet, but I’m still doing it and I know that it still works out, I still can save my money, I still have enough liquidity, it’s not gonna break me on the cost side, but it’s…

Ryan Isaac:
And I acknowledge these things.

Matt Mulcock:
And I acknowledge the costs, and I’m still doing it, ’cause I value the lifestyle upgrade it’s bringing to my life.

Ryan Isaac:
I love that you said that, we’ll end it there. I like the habit, and it’s a skill, it’s not just a thing that comes naturally of being able to evaluate and acknowledge financial trade-offs in decision-making.

Matt Mulcock:
Yeah.

Ryan Isaac:
And it almost only will happen when someone else is holding you accountable to that learning that skill.

Matt Mulcock:
Yup.

Ryan Isaac:
And if you would like to learn that skill, [chuckle] dear listener, go to dentistadvisors.com…

Matt Mulcock:
Here it is.

Ryan Isaac:
Schedule a free consultation by clicking the green book free consultation button. No, really, if you wanna chat with us, that’s where you can do it, at dentistadvisors.com. If you wanna post a question, if you have a house question, go to the discussion group on Facebook, dentist advisors discussion group, post a question…

Matt Mulcock:
If you wanna send us pictures of your freaking awesome house, please do.

Ryan Isaac:
Yes. Where does everyone live? Hey, you know what? I’m gonna start a thread…

Matt Mulcock:
Black out the address, that’s okay.

Ryan Isaac:
I’m gonna start a thread in the discussion group, I wanna know what’s your favorite thing about where you live? What’s the favorite thing?

Matt Mulcock:
Yeah, I like that.

Ryan Isaac:
Take a picture of your house, I just wanna see it, and what’s the favorite thing about where you live? That’s cool. We’re gonna do that, when you finish this episode, go out there.

Matt Mulcock:
Can I tell you mine real quick?

Ryan Isaac:
Yeah, yeah, tell me.

Matt Mulcock:
Can I tell you mine real quick?

Ryan Isaac:
Yes.

Matt Mulcock:
My driveway is quadrupling…

Ryan Isaac:
Aah, driveway space.

Matt Mulcock:
And right now, the house we live in now is like a single car with driveway, and I have to park on the street.

Ryan Isaac:
Yeah.

Matt Mulcock:
I told my wife, I’m literally buying this house for no other reason other than my driveway is quadrupling, and I love it.

Ryan Isaac:
I get it, man. Yes, some driveway space, man.

Matt Mulcock:
Yeah. Except for the winter.

Ryan Isaac:
See, I wanna hear this. Yeah, then you gotta shovel it.

Matt Mulcock:
Yes.

Ryan Isaac:
But I wanna hear this from the people. When you hear this episode go to Dentist Advisors’ discussion group, jump in that thread, I’ll start it sooner than that.

Matt Mulcock:
Tell us the most… What is it? The best part about your house.

Ryan Isaac:
Take a picture of your house, if you wanna brag a little bit, it’s cool, brag. Some people are gonna have to do the wide angle, like zoom out, to get all in there.

Matt Mulcock:
Oh, yeah. Yeah. You’re gonna have to go to your neighbor’s yard [chuckle] and you have to get up in a helicopter.

Ryan Isaac:
Drone.

Matt Mulcock:
Yeah, a drone shot.

Ryan Isaac:
Yeah. You have the drone shot. Some people have big enough spots, but I wanna see a picture of your place and I wanna know what’s your favorite thing about the spot you live in? That’s a cool thing. Matt, thanks for being here.

Matt Mulcock:
Thanks, Ryan.

Ryan Isaac:
Everyone, thanks for tuning in and listening to us, and if you have any questions, hit the website, we’d love to hear from you. Thanks for tuning in, we’ll catch you next time. Thanks, everybody.

[music]

Real Estate