PFFAP EP 4 Final
[00:00:00] Ben: Welcome to the physics family, financial advisors podcast, where we turn to days where worries about taxes, investing, and extra money into a comfortable feeling of financial security to last a lifetime. I'm Ben Utley and
Nate: I'm Nate Reineke. Today's question is how much, how should I buy as a mid-career?
So Ben, you've been talking to mid-career physicians for over 20 years and, um, you've had the housing conversation a lot. Is that right? Yeah. Correct. Tends to be kind of a, every house you buy as kind of a milestone in your life. At least I've noticed that with physicians and I'm, I'm really curious from your perspective and over the years, um, imagine you are.
Mid-career physician.
Ben: Okay. Hold on. Hold on. I gotta, I gotta put on my stress. Uh, yeah. Uh, I
Nate: you're right. Yeah. Your [00:01:00] years of training and never having a place to stay. And now you've got two kids and yeah, the works. Okay. Um, why are you actually buying the house that you're looking at? Or why are you calling to discuss changing homes?
Ben: Oh, gosh, that's a great question. I'm going to try to put myself in the role of, of the, of the many docs that I've worked with in this, um, Uh, sometimes I'm buying a home, uh, because my, my current home isn't large enough and that could be a couple of reasons. Maybe my family has grown. Uh, maybe my mom and dad are, are coming to live with us for one reason or another.
Uh, maybe we don't have room for our guests, uh, or. You know, maybe, um, I don't feel so good about the, the size of the location of my home. So, you know, I S I see, uh, for basic motivators for physicians who are kind of buying that third or fourth home, [00:02:00] uh, it boils down to power security status. And for. So let's say that I want to spend more time on my practice.
Uh, less time on the yard, less time on the commute. Uh, I want to spend less money on the house, so that gives me some options at work. Maybe I value my freedom. Uh, let's say that I value, I value power. I want to improve my referral patterns. Uh, I want to, uh, I want to be able to be. Uh, an entertainer I want to, uh, be seen or perhaps my spouse wants to be seen or perhaps it's good for their career.
So I buy a home that has more entertainment spaces. Uh, maybe it has a, a deck where, you know, cooking can be done and we can throw more parties or, um, Maybe something about the way that I was raised makes the, the way that my home looks important to me. And so I want to buy in a quote unquote, good neighborhood where it can be near other people, my socioeconomic status.
Uh, maybe I'm buying a home where the other docs are, or perhaps [00:03:00] I'm, uh, I'm interested in security. I want a nice, safe place for my kids. Maybe I want something that's out in the country or, uh, you know, maybe I want to be able to buy in a gated community. So I think that there are all different reasons that physicians buy and.
As we have those conversations with them and I'm hearing them express to me, w you know, what's important about this house to them? Uh, it varies. And I, I think we kind of uncover those, those reasons that are not always, uh, baked into the question of, you know, how much should I spend on the
Nate: house? Yeah. I was just gonna ask that you say that, and we do end up getting to that point because, um, everybody has a different reason for why, but usually the call starts with a totally different question, which.
How much can I spend,
Ben: right. Or how much should I
Nate: spend or how much what's it, how much is it a good idea to spend? Um, and then by the end of, you know, after you really dig deep, it [00:04:00] turns out that most people, once they search within, find out that their house has an actual purpose. That isn't just maybe serving them, serving other people or serving these, this, this bigger picture.
So what are some of the, you know, now you're multiple physicians instead of one, but what are some of the big jobs that these houses are serving or these jobs that these houses are, I guess, doing for these families?
Ben: It tends to boil down into a few categories again. Most of the time it has to do with, you know, where I'm living as a physician, you know, proximity to work, particularly if I'm taking call, you know, I have to be within driving distance of the place where I'm going to do procedures.
So freedom location again is super important. Um, an equally important concern for many of the docs we serve who have children [00:05:00] is the schools, you know, where where's my kid going to go to school, uh, this year as well as in the coming three to four years. So those are the. Primary drivers. Um, I guess we also work with a number of families who are maybe second generation Americans and they want to have a mom and dad come stay with them or, uh, be, uh, a bigger part of their, of their families so that they can help raise, uh, children.
And so, so, you know, kind of who who's going to be in the home is a big thing, you know, are my parents going to come visit with us? Are they going to come stay with us for extended periods of. So those are the kind of the big three that I see. ,
Nate: you know, that, uh, uh, I'm obviously not a doctor, but that was my family situation few years ago.
And, um, my in-laws, my mother-in-law is actually lives with us to help with the kids. And, um, oftentimes I hear that from, uh, just much like my mother-in-law is second generation [00:06:00] American and, um, you know, I've I've reflected back on this. And I've reflected back on this with physicians that, uh, that I made the similar choice to me.
And, uh, the house that I bought was quite a bit more than my first, quite a bit larger. And I was, uh, knee deep in the money conversations for a long time about, should I buy this house or not? And turns out all the closing costs and all the things involved that you think are really important about that.
While they were important. What was much more important was buying this house to fit my family. And I see this all the time with physicians. If they buy a house for any other reason than what is this, you know, purchasing a house for the job it's supposed to do, they tend to move again pretty quickly too, within a few years.
Whereas if they're focused on the one thing this house must do in order for it to make it worth all this effort. [00:07:00] They can feel content in the house and move when the time is right again, or stay there forever. Right? Which bigs question, um, you know, beyond just power and status, it's kind of who will be in this house.
And a lot of times that helps you with price because you can determine the size of the house.
Ben: Right. Exactly. I've seen a lot of, uh, creative arrangements, particularly where it deals with extended family. Uh, uh, you know, one reason to move is to be closer to family and your children get to that age where, you know, they need to be closer to grandma and grandpa kind of having the built-in babysitting.
If you will, makes it easier for you to go on a date, uh, and know that your kids are in good hands. So, uh, you know, creative arrangements with, uh, You know, uh, home with basically two properties, you know, there's kind of the front house and the back house, uh, what they call mother-in-law cottage. Uh, I seen, uh, situations [00:08:00] where it was on a call with a doc the other day.
And, uh, there's a crying baby and they're like, oh, I'll, I'll silence the baby. I'm like, no, I love babies, you know, but this baby got suddenly very silent and I was like, wow, that's, that's a good baby. And they said, well, actually, uh, my, uh, my mom and dad live with us upstairs on the opposite end of the house.
And we lived downstairs. I was like, oh, that is so sweet. So they, they made a housing decision around that as well. So, um, I've also seen docs who are not very close to their mom and dad, or maybe they have a poor relationship that live literally thousands of miles away too. So, uh, I think who's going to be in the house, uh, has a lot to do with the.
That's kind of the size of the home, the location that you, you pick as well. Uh, and it, of course it does tend to drive the price, but I find that price is not, uh, you know, within a certain range it's important, but it's, it's not the governing factor. You know, the, the more important thing is like, how will the house be used?
Nate: Right. And if you can understand how the house will be used, I don't know if [00:09:00] you've talked about it, uh, on the podcast yet, but I remember a story about a physician that specifically chose a smaller home and it allowed them, which is the use of the home is literally just to, you know, be free really. Um Hmm.
And to enjoy other parts of their life. Uh, this, this physician, I imagine it goes on more vacations and they also live in an area where people don't travel a lot to visit their home. So instead of taking the HGTV, you know, cookie cutter house and wanting a giant property with a bunch of square footage, they really bought what they needed at the time.
And they feel much freer. That was a powerful story when I heard it, uh, from you. And then there's the other side of the coin. Like you're like you're saying, which is we need a house for everybody. And, um, you're right. Price is not, what's meaningful, you know, after you buy it or at least that's what I, what I'm hearing it does mean something.
[00:10:00] If you convince yourself that you should have the biggest home in the state, uh, you know, you're probably going to be in trouble. How do you approach the price conversation or how do you find out what, what someone's truly willing to pay for? I
Ben: think it really comes down to, you know, what you, what you actually want most out of your life.
Uh, you know, a home is just one goal. Uh, sometimes the money that goes to home in terms of payments or down payments, competes with other important goals, like, uh, being able to retire when you want to. Or being able to send your kids to a great college or, or even, uh, you know, a great private school in K-12.
So, you know, determining which one of those is most important is a huge deal. And I find that with our clients, you know, they're physicians with children, uh, putting the needs of the child. Tends to be the winning strategy. So, you know, when you think about what that [00:11:00] kid's going to need in terms of the school, if they have special needs, or maybe they're in a situation where they're really bright and you want to make sure that they're academically challenged, focusing on the school and the location of the school is important.
And then when you think about, uh, you know, what kind of, uh, what kind of environment do I want to foster at home for these? Uh, we bought a home with what I call the teenage containment facility. So it's a bonus. Um, where, you know, we could have, uh, teenagers over and we have a snack drawer and every kid who comes here knows that they can rifle through the snack drawer and find something to eat at any given time.
So, uh, you know, thinking about the home life that you, that you want to have for your, for your children. Um, so kind of putting the, putting the one thing first is, tends to be the best approach to, to housing. Um, but I think ultimately if you want to know how much house you can truly, truly afford. You have to figure out, uh, what you want and start off with, with the kind of a calculation.
So, uh, you figure out how much you, you earn [00:12:00] on an after-tax basis. And then you draw out of that number, all of your costs of living. So, uh, you know, groceries, insurance, those kinds of things, then you figure how much you truly need to save for retirement. In order to be on track for your goals there, uh, figure out how much you need to be saving for college.
And then the money that's left over is money that's available for housing and, and other things. So, uh, you know, if you find that you have $5,000 a month leftover, you can buy a really big house or you could buy a moderate size home with two and a half thousand dollars. And use the rest of it to take vacations, you know, to the tune of $30,000 a year, you can take three really nice vacations or one really huge vacation every year for your family.
And, uh, I think it, you know, again, all the goals compete, but backing into housing tends to be a great way to figure out how much home you can truly.
Nate: Yeah, I agree with that. Um, it seems to be [00:13:00] that people can get tempted to, uh, leverage their lifestyle with their home. And for some people that actually, isn't a terrible decision.
If they're, if they're, uh, one thing for the house requires them to spend quite a bit of money, at least they go into it eyes wide open and they say, yeah, I'm the type of that. I want to host my family. They're traveling here. Maybe I don't travel to my family as much as they will travel to me so I can spend a little bit more on my home, but I'm imagining your life and your happiness based, you know, that this house is going to bring you versus what it takes away in other areas of your spending is a good recipe for.
Finding what payment is right for you. So you're balancing your future with now, which is called your retirement is your future with now, which is vacations in your house. And, um, you know, lifestyle is a huge determining factor. [00:14:00] For how much you'll be comfortable with paying on your home. And that's why I'm not fond of the, you know, spend 30% of your income on your home because some people that's far too much in some that's, that's not it.
Ben: Right. I don't think the rule of thumb that you see, you know, the first off the rule of thumb applies to the middle-class and, uh, many physicians are in the top 1% or definitely the top 5% of earners. So to say that, you know, you should be spending 38% of your, of your disposable income on your home or pre-tax income.
I mean, that's just, that's just garbage and, and I'll give you an example before we wrap up here. So, um, let's say that, that I want to buy a really big. Uh, and you know, I want to make sure that my kids have an experience where, uh, I don't know, God help us. They can ride ATVs in the backyard or, uh, you know, it's something that requires a lot of land and a larger home kind of out in the countryside.
I've seen this quite a few times, so, you know, and you [00:15:00] find that this home is really exciting. Well, that's not a big deal. If you think that, uh, you know, you're only going to be in this home during that time period where these kids really care about it. I mean, if you got, uh, a child who's in their third grade and you recognize it by the time they get to be 11th graders, they're not going to want to have a whole lot to do with you.
So, you know, you've got seven years in there where you're concerned about having the child had this experience of being able to run out in the backyard and, uh, You know, go one and off in the woods. So, uh, you know, that's really only a seven year long thing. So if you buy a home that is quote unquote unaffordable, uh, it's not a big deal if it's unaffordable for five to seven years, because at the end of that five to seven years, in all likelihood you may move and when your kids get into college, you may move.
So, you know, uh, It's not forever homes are a flexible thing. And I think it's just a matter of being careful when you buy them. Uh, so you can be careful when you sell it and you can get as [00:16:00] much out of this life as you really need. So speaking of what you want, um, I'd love to hear what you want in a house.
I'd love to have your questions. So I encourage you to stop [email protected], where you can ask us a question. You can send your questions to [email protected] or you can call our podcast questions hotline, which is 5 0 3 3 0 8 8 7 3 3. Again, 5 0 3 3 0 8 8 7 3 3. Thank you for listening to the physician, family financial advisors podcast.
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