Have you been thinking about buying a dental practice when you’re in debt? Wondering whether it’s a good idea? This year, we bought a dental practice even though we have over $400,000 left to pay back on our student loans (we’re down from $650,000!) So we definitely can appreciate all of the stress and things you should consider. And if you want to buy a dental practice when you’re in debt, you’re in good company. I’d wager that the majority of dental practices are purchased when the owner still has student loans or other debt.
BUYING A DENTAL PRACTICE WHEN YOU’RE IN DEBT:
(1) Do you actually WANT to own a dental practice?
First, you need to consider whether you actually want to be a practice owner before you buy a dental practice when you have debt. Do you have an entrepreneurial spirit? Do you like business? You don’t need to worry so much about whether you know how to run the business– that part can be figured out. After all, you are a smart person who got through dental school. But what you need to think about are things like, are you comfortable taking on more risk/debt? Do you know how to manage people? Are you good at delegating tasks and hiring help so that you can focus on actual dentistry? I’ve met a lot of dentists who simply don’t want to run a practice. They want to be able to just go into work and leave when their shift is over and not have the stress of the business hanging over them. THAT IS TOTALLY OK. There is so much pressure in dentistry to own but the reality is, it’s not for everyone. So take time to consider and research whether ownership is actually right for you.
(2) Do you have a good credit score?
While dentists have it pretty easy when it comes to lending (i.e., banks are usually pretty happy to lend to dentists. This is true because more than 99% of dentists actually pay their loans back), one of the factors the bank will consider when deciding whether to loan you money is your credit score. So if it’s not in good shape, you’ll need to patch that up before buying a dental practice when you’re in debt.
(3) Do you have some money saved up?
Banks are going to want to see that you have some money saved up before forking out hundreds of thousands of dollars to you, regardless of what kind of student loan debt you have. As a general rule of thumb, you’ll want to have about 10% of the purchase price of the practice saved up before a bank will give you a loan. In reality, I’ve seen this far less (like 3-6%), but either way, you’ll want a good chunk of change saved up before you can buy a practice. And that can be hard to do when you have significant student loan debt. For us, we took a break from making aggressive payments on our student loans for about 9 months while we saved up for a practice.
(4) Will you earn more money owning than being an associate?
Next you should consider (and have an accountant help you) whether you’ll actually be making more money owning a practice. I personally know several dentists who are earning more than $300,000 a year being associates. While they don’t get a lot of the perks of ownership (tax write offs, business schmoozing, etc), they are earning a ton of money without the stress (and debt) that comes with owning a practice. Arguably, they’re actually making MORE money than some dental practice owners. When they leave work, their work is done for the day– they don’t have to worry about things like managing staff, payroll, talking with insurance companies, etc. So you need to analyze the practice that you want to purchase well, and make sure it’s actually going to make you more money than remaining an associate if you are interested in paying off debt.
(5) Does the thought of debt stress you out?
Another really important factor you should consider is whether you can emotionally handle taking on even more debt. For us, we went from being half a million dollars in debt, to being well above a million bucks in debt. And that thought can be really scary. So take time to think about how debt-averse or debt-comfortable you are. I’ll say, even though we had to take on more debt to buy the practice, Danny has more than doubled his income, which will help us pay off our student loans even faster.
Buying a dental practice when you’re in debt isn’t for everyone, but it is definitely an option you should consider if you are a dentist who wants to own a practice.
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Here at Deeply in Debt, we offer tons of personal finance advice based on our own journey paying off $650k of student loan debt. If you have student loan debt and aren’t sure where to start or what to do, I highly recommend the CFA’s over at Student Loan Planner to help you put together a solid financial plan for your student loan debt. We personally used them and it literally saved us over $200,000 on our student loans. You can check out the Student Loan Planner here.