Why? What better time to have the debt? Once you pay OFF student loans? People are really going to be in the mood to sign up for new debt once student loans are paid off? Not likely.
$200,000 in student loan debt for 30 years at 6.8% would be: $1303/month.
A practice that nets a doctor $150,000 per year would be expected to sell for AROUND $300,000 (usually twice the net is the ball park in this day and age.)
So if you make $12,500 per month, after taxes (this is with ZERO deductions) and assuming you live in CT, which is one of the HIGHEST rates for state income taxes would leave you with after tax income of $8352. (In reality, it would be much more than this because any accountant will have stuff run through the business, etc. etc. but for argument, let's assume worst case scenario)
So after taxes and your student loan payment you have $7049 left over.
A ten year note on a $300,000 practice purchase at 7% (high, given what interest rates are....I'm using figures from Matsco or other similar companies that lend based on cash flow and are willing to finance 100%) would result in a monthly payment of $3483.25 which leaves disposable income after huge student loan payment and practice loan payment of $3566.
Or....you can do like you said.....work for some commercial guy or some ophthalmologist for $100,000 per year.
What does that come out to?? Hmmm....let's figure that out.....
A monthly after tax income in that scenario would be $5796 per month which then after the student loan payment turns out to be $4493 per month.
That is a difference of $927 per month, you could own your OWN practice which, if you have any brains in your head will grow over time, allow for generous "business deductions" and which once you pay it off will be an extra $3493 in your hot little hand.
On the other hand, working for a commercial place or an ophthalmologist isn't going to allow you to see your salary go up at all because you're going to max out within a few years. A doc with 15 years experience is no more valuable to a commercial joint than a doc with 1 year experience.
Yep....you go right along and do that. Your postings have shown you to be incapable of success in private practice.
For the rest of you, I just laid it out in black and white. Still want to work evenings and weekends at the mall?
You forgot to mention that one would be paying $270K+ in interest, if one chose the 30 year repayment plan. Not a wise decision, especially when interest rates are high @ 6.8%. If the rate was 3% or lower, then it might be a good decision. Yes, $270K is $70K more than what you took out to get your OD degree.
As far as netting 50% of gross, that is not a reality. Let's just assume for a second you purchase a practice that grosses $300K. A $300K practice is probably a practice with old equipment, having a small patient base with limited growth over the past years, with limited staff personnel.
Off the top of my head, business expenses including staff, COG's, rent, general office overhead, equip. and marketing need to be deducted in order to find out the docs true compensation, which is definitely not $150k.
300k (.30 COG + .15 STAFF + .08 RENT + .04 EQUIP + .02 MARK + .07 O-HEAD) =198K in expenses.
So, 300k -198k = 102K - .15 tax(since the PP is itself a small business, I would imagine the tax rate would be much lower than that for an employee/IC)
The net earnings for the OD after working ~45hrs/week would come to a massive ~$ 87,000. But were not done yet!
Remember the 200K loan you took out while trying to earn your degree? What about the practice you just purchased? Well, lets factor that in and see how much you truly make.
~$1300/month or ~ $16K/yr = student loan repayment (30 years)
~$3500/month or ~ $42k/yr = pp loan repayment (10 years)
So, the grand total is: $87k - $16k -$42K = $29K. Yes folks, $29,000 for an individual who has gone through roughly 8 years of school to earn a doctorate degree, whom, might I add, is considered a doctor, I.E. professional.
$29,000 seems like a lot, and is beyond breaking even, but lets consider living expenses.
Mortgage - well, you can't buy a house since you have two loans amounting to over $500K, so let's just keep it a secret and say you rent @ $900/month.
Vehicle and Vehicle insurance - well, since you can't purchase a vehicle right away, you could try to get a auto loan. But you already have two very large loans, so that's out of the question. Leasing seems like the only possibility. It would cost roughly ~$200/month for insurance + a stable vehicle.
Food- since you're loaded with debt, no one in their right mind will want to marry you, so you only have to pay for food for yourself. After eating ramen noodles whilst in school, because you couldn't afford to dine out like your lawyer friends due to the massive 200k loan, you feel you need a reward, and so you spend $150/month for food.
Misc- Internet, phone, association dues, vehicle maintenance, clothes etc etc total approx ~$150/month, which could be slightly increased/decreased.
All in all, necessary living expenses amount to roughly $1400/month, or $17,000/ year, leaving you with roughly $12K of disposable income per year. But wait, couldn't you have made $29K NET working in construction, or perhaps as an optician and have virtually no debt and be 8 years younger!?
So clearly, pp will initially make you its slave, i.e. you're not actually working for yourself, but rather the practice. On the other hand, you could walk into walmart, work 40hrs/per week without having to deal with all the necessary business mambo jumbo, you could be in less debt, be able to afford a house, a car, a family etc etc.
As far as my ability to succeed in private practice, I would have to agree with you, KHE. I much rather be happy earning $150k instead of just $29k.
