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Practice Buyout Save, Invest, or Loan

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  • Practice Buyout Save, Invest, or Loan

    All,

    I'm switching practices. In about a month I'll get my buyout from my current practice and will have the opportunity to buy-in to my new practice in 2 years. For reference, I live and work in Colorado, my marginal tax rate is 32%, I'm W-2 for the next 2 years, emergency fund covered, retirement and 529s on track. I have a car loan (1.9%), student loans (2.875%), and mortgage (2.75%) that because of the low rates I have not been aggressively paying down. Investing the equivalent in a total market index is my preference.

    I'll need something to do with the money for 2 years. Here are the options I'm considering:

    1) Save. Ally bank, presently at 1.6%
    2) Bonds. Thinking VWIUX vs VBILX (essentially munis or not question here).
    3) Payoff loans. All <3% and I like the inflation hedge but it's a sure return.
    4) Invest. Just put it into a total market index and consider options in 2 years. Business loan or HELOC currently prime -1%. This is currently what I'm thinking.

    One major variable that I can't answer is the cost of the buy-in. NDA so I probably won't know until last minute. My estimate is that it will be more than I'm getting from my present practice by a few multiples. A final variable is that my new practice may not be something I want to buy into or stay with for the long haul. Because of the NDA I have yet to see the deep details of the group.

    Any input appreciated!

    -ThatGuy



  • #2
    Dollar amount debt and cash would be helpful. Different advice $100k v $1M

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    • #3
      I'd either pay off the debt or put it in a taxable investing account with my current asset allocation. No wrong choice between the 2 at those interest rates. However as my name suggests, I'd probably pay off the loans. I hate debt.

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      • #4
        IMO there is not a significant 'cost' to determining/understanding the terms of your future buy-in. Waiting a bit appears to add a significant amount of context to your save/reduce debt decision. In the absence of buy-in information, short term nature, low potential investment choices/returns, I would lean more towards debt reduction.

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        • #5
          The safest option would be to park the money at Ally or in VWIUX or some combination of same. If your new position works out, buy in is probably more likely than not and I would not want to expose short term cash to the whims of the broad market.

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          • #6
            Park it in Ally until you gain more clarity. It is only a potential.
            You have two MAJOR variables.
            • Terms of the buy in
            • Whether you want to take it
            Take your financial decisions one step at a time. The buy in may have financing options attached. Option of paying from human capital or financial capital. Sit tight because you have no need to make a decision. Deploy your capital after you make your plan. You may need every bit or you may not.

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            • #7
              Four of your are aggressive. Three of you are conservative.

              Keeping money in cash for something that may not even happen when you have better options (4) or bigger needs (3). If the practice is worth buying, banks will line up to loan you the money. I was recently quoted 3.375% for a business loan. That's pre tax.

              I wouldn't do two or one.

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              • #8
                Can't the new practice give you an idea of the buy in amount despite the NDA? I'd be a bit worried if I knew I was joining a practice but had no idea how much becoming partner may cost me. Years ago, when I was looking at different jobs, I always asked about this. The group. Ended up joining was very open with their estimates (based on recent buy ins for other partners). Another practice was open but they included a huge "goodwill" component as well as a 51%/49% type arrangement "to account for the administrative duties and such". Quickly told the second group NO but was glad I knew before I joined

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                • #9
                  Originally posted by Molar Mechanic View Post
                  Four of your are aggressive. Three of you are conservative.

                  Keeping money in cash for something that may not even happen when you have better options (4) or bigger needs (3). If the practice is worth buying, banks will line up to loan you the money. I was recently quoted 3.375% for a business loan. That's pre tax.

                  I wouldn't do two or one.
                  Would you wait two months to find out the options?

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                  • #10
                    Save for 6 months while at your new job. That should give you enough time to decide whether the practice is for you and a rough idea how much the buy-in is.

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                    • #11
                      Get an estimate of the buy-in. It is a bad sign if they will not give you a ballpark figure. Also ask ballpark how is this determined. Is it based off accounts receivable?
                      We really need the amounts on the student loans, mortgage, and car. I would pay off the car. I might make a big student loan payment depending on the buy out money and the amount of student debt. I would not accelerate the mortgage at this time. I agree you will find financing for a buy in. I would invest the rest.

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                      • #12
                        Originally posted by Tim View Post
                        Would you wait two months to find out the options?
                        I would, but op won't get the terms of the buy in for 2 years.

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                        • #13
                          Originally posted by Molar Mechanic View Post

                          I would, but op won't get the terms of the buy in for 2 years.
                          I didn’t read it that way. Eligible in 2 years meant details to follow. Your interpretation is “employee” and we will let you know in 2 years.
                          That is a really strong “maybe”. OP hopes for a partnership. Just different.

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                          • #14
                            Do you need the leverage to reach your goals? If not, I'd pay off the debt and start saving aggressively for the buy-in.
                            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                            • #15
                              Welcome to the board.

                              The interest rates are low. Financially you should save & invest. Maybe ~50-50.

                              Emotionally you should pay off some/all debt.
                              "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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