Practicing Home Ownership: The Sword To Kill Student Loans
Many believe that the rising cost of student loans alone is responsible for the increase in the number of dentists employed. Given that the average graduate begins their career with almost $ 300,000 in student debt, it is understandable that recent dental graduates to feel overwhelmed and postponed ownership of the practice.1 Many graduates are looking for guaranteed income to allow them to repay their loans with confidence. A guaranteed minimum wage seems safe and without obvious risk, but it can limit long-term cash flow to pay off student loans.
For the most part, it’s wise to work as an associate the first year or two of school for learning, experience, and mentorship. It also helps gain confidence while working to improve clinical skills and speed. After that, the fastest way for a dentist to pay off student loans is by owning a good dental office.
You do not agree ? Think that the ownership of the practice as a career becomes riskier because student loan balances are increasing? You are wrong.
Do you want proof ? If the cost of student loans changed the risk profile of owning a practice, you would see fewer banks lending to dentists and lending standards would tighten. Instead, we are seeing more banks than ever competing for loans. Not only do banks still loan 100% of most purchase prices plus working capital, but many banks increasing the total amount relating to the collections they are willing to lend. As long as the buying dentist has a good credit rating and some experience, banks will most likely be willing to provide a loan to purchase a practice.
Of course, he feels riskier with increasing student loan balances. But banks don’t deal with feelings. They’ve counted the numbers and know that owning a practice always pays off. They know dentists are the safest small business loans on the planet.
Want to pay off those student loans? The fastest way to do this is to have more money. And the quickest path to more money is ownership of practice. Check how the numbers compare in Table 1.
For a dentist-owner who has an annual output of $ 800,000, purchasing a million dollar dental office can increase income by over $ 100,000. (This assumes that an employee-dentist would receive 25% of production as income.) The annual debt service when purchasing the practice is $ 91,162 for 10 years. Once the office loan is paid off, income increases by $ 200,000 (vs. employee dentist). We assume in this case that the purchase price of the practice is 70% of the collections and 100% funded.
Additional cash flow can do more than just pay off student loans. It is wise to have an ultimate goal of saving 20% of your income for retirement. As a business owner, a dentist can set up a retirement plan for the office. This will allow the owner to save for retirement, reduce current taxes, and provide employee benefits.
As an employee, there are only a certain number of hours in a working day. As a practice owner, there is no limit to how much you can earn. If you reach maximum capacity, you can take advantage of other hygienists or associate dentists (those scared of their student loan balances … not you!) To continue growing your business. Home ownership also gives you a very valuable asset that you can sell when you retire. The average general dental practice sells over 70% of collections.2
Don’t let the burden of your student loans be the reason you don’t buy a practice. In fact, owning a business could very well be the sword that will help you eliminate your student loans quickly. Likewise, it can help you catch up with your retirement savings and improve your family’s quality of life. This is not the easy way out, but it might be the best solution.
1. Nykiel T. Average dental school debt in 2018. NerdWallet website. https://www.nerdwallet.com/blog/loans/student-loans/average-dental-school-debt/. Posted March 14, 2019.
2. Hanks B. How to buy a dental office (Volume 1). 2017.
Warning: Eaglestrong Financial is a Registered Investment Advisor (RIA) with the States of TN and MS. The information contained in this document is not intended to be used as an investment guide or tax advice. This featured material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
TRIPP YATES, CPA, CFP / PFS, is the founder of Eagleestrong Financial, a Memphis-based registered investment advisor. He works with dentists to organize their finances, reduce taxes, and invest wisely. Yates can be contacted at [email protected]
BRIAN HANKS, MBA, CFP, is a buyer advocate who has helped hundreds of dentists purchase dental practices. He is passionate about helping educate dental office buyers. Hanks can be contacted through his website, brianhanks.com.