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What COA amount is worth it (without interest)?
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- Thread starter CreameBiggums
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Someone asked a similar question, I'm not sure how to link to a post, but I'm going to cut and paste my previous response:
That's a bit of a difficult question to answer, but I'd look at it from a few objective parameters and the type of dentist that you are. I will assume that your student loan will be 1k/month for every 100k borrowed. I will also assume that base pay is 750/day*22 days, total of about 16.5k/month pre-tax, 11k/month post-tax. So, for an average/below average dentist, we will assume low living expenses of 2k/month if single. This brings you down to 9k. So, if I were a dentist, I'd want to have saved up 100k by the first year (or two years if you can't go above 750/day) to be able to start an office. I'll need to save at least 4-8k/month if I'm going to cash it, unless I can do it via credit cards and other loans. You can't pay construction loans via credit card, but you can with equipment, so from my experience, you can probably put equipment on loan and credit at the tune of 30-40k, dropping cash requirements to 60-75k for construction. Either save all of it or leverage yourself even more. If you choose to leverage yourself, then borrow the money first before utilizing credit cards so your credit doesn't tank and you can borrow more. Paying 1k/month does not seem feasible, so this is where IBR can come in.
This also assumes that you have to start making payments to your loans immediately. If you can hold off on paying your loans for 6 months or so, you will have a major headstart (if you can save almost all of that 9k/month for 6 months, that gives you 54k to start, 30-40k to put on CC for equipment (or equipment finance), to start your office.
Once you get your office started, you can start writing off all sorts of expenditures to drive your income down for IBR while you're in the ramping stages of your office. Work for someone while you're ramping up and this is where the largest risk exists... can you ramp up your office for maximum profitability. The key to making this work with this highly leveraged route is to go beyond 750/day and getting fast.
If your associate takehome is 9k/month, then I'd say a comfortable buffer for student loans is 3k/month if you are a dentist who's never going to get better, faster, or earn more money. That would equate to 300k at most. 6k/month is not great, but enough to live a middle/lower middle class life. If you hate dentistry, then I wouldn't consider this path.
If you can ramp up to 1k/day or more, lets assume worst case it's 1k/day @ 22 days, that's 22k/month, 15k takehome, minus 2k for living expenses giving you 13k for pre-student loan, then 600-700k in loans may be doable. With 6-7k/month in loans. Again, this depends on interest rate, I decided on 1k/100k because it's easier, but plug in your own numbers.
So, I hope this logic makes sense. It's all about getting to the starting line of owning your own office. Once you get there, 600-700k doesn't really matter so much anymore. It's just a lot because associate incomes tend to be paltry in comparison to owner incomes. Tons of assumptions here, lots of oversimplications, but add your own variables to my simplified calculations for a better modeling and approximation of how much you should borrow for dentistry to be worth it.
Edit: If you really don't want to read all that, if you're slow and stuck at base pay of 750/day, 300k would be my estimate. If you can get faster and go 1k/day, 600-700k would be max. If you are in an area where you make 400-500/day, I'm going to say don't go to dentistry unless you can get away with 100k-150k (at the absolute max) in loans
That's a bit of a difficult question to answer, but I'd look at it from a few objective parameters and the type of dentist that you are. I will assume that your student loan will be 1k/month for every 100k borrowed. I will also assume that base pay is 750/day*22 days, total of about 16.5k/month pre-tax, 11k/month post-tax. So, for an average/below average dentist, we will assume low living expenses of 2k/month if single. This brings you down to 9k. So, if I were a dentist, I'd want to have saved up 100k by the first year (or two years if you can't go above 750/day) to be able to start an office. I'll need to save at least 4-8k/month if I'm going to cash it, unless I can do it via credit cards and other loans. You can't pay construction loans via credit card, but you can with equipment, so from my experience, you can probably put equipment on loan and credit at the tune of 30-40k, dropping cash requirements to 60-75k for construction. Either save all of it or leverage yourself even more. If you choose to leverage yourself, then borrow the money first before utilizing credit cards so your credit doesn't tank and you can borrow more. Paying 1k/month does not seem feasible, so this is where IBR can come in.
This also assumes that you have to start making payments to your loans immediately. If you can hold off on paying your loans for 6 months or so, you will have a major headstart (if you can save almost all of that 9k/month for 6 months, that gives you 54k to start, 30-40k to put on CC for equipment (or equipment finance), to start your office.
Once you get your office started, you can start writing off all sorts of expenditures to drive your income down for IBR while you're in the ramping stages of your office. Work for someone while you're ramping up and this is where the largest risk exists... can you ramp up your office for maximum profitability. The key to making this work with this highly leveraged route is to go beyond 750/day and getting fast.
If your associate takehome is 9k/month, then I'd say a comfortable buffer for student loans is 3k/month if you are a dentist who's never going to get better, faster, or earn more money. That would equate to 300k at most. 6k/month is not great, but enough to live a middle/lower middle class life. If you hate dentistry, then I wouldn't consider this path.
If you can ramp up to 1k/day or more, lets assume worst case it's 1k/day @ 22 days, that's 22k/month, 15k takehome, minus 2k for living expenses giving you 13k for pre-student loan, then 600-700k in loans may be doable. With 6-7k/month in loans. Again, this depends on interest rate, I decided on 1k/100k because it's easier, but plug in your own numbers.
So, I hope this logic makes sense. It's all about getting to the starting line of owning your own office. Once you get there, 600-700k doesn't really matter so much anymore. It's just a lot because associate incomes tend to be paltry in comparison to owner incomes. Tons of assumptions here, lots of oversimplications, but add your own variables to my simplified calculations for a better modeling and approximation of how much you should borrow for dentistry to be worth it.
Edit: If you really don't want to read all that, if you're slow and stuck at base pay of 750/day, 300k would be my estimate. If you can get faster and go 1k/day, 600-700k would be max. If you are in an area where you make 400-500/day, I'm going to say don't go to dentistry unless you can get away with 100k-150k (at the absolute max) in loans
