Disclaimer: My wife does not want me to reveal our net worth online, so for the purposes of this blog post, I will normalize my net worth to $10 million. In reality it might be more or less, but ten million makes it easy to understand on a relative basis. Every number I discuss in this post is modified to represent a percentage of this net worth. Hopefully this isn’t too difficult to follow, but I wanted to discuss how I think about debt while respecting my wife’s right to privacy.
If you feel like you can’t relate, just divide everything by 10 and think of this as a $1 million net worth. For medical professionals just starting out, if you’re reading this blog and following our advice, you’ll have a seven-figure net worth before you know it.
I have written posts like 12 Money Tips for New Residency Graduates And 1 To Avoid specifically for new grads. I have also discussed how I got started with My First Real Estate Transaction and have an entire series on Personal Finance Basics for Medical Professionals.
Introduction
I recently introduced Business is the Best Medicine’s Personal Financial Statement. I now want to demonstrate how this tool can help you analyze your finances and help you make decisions. After completing my 2025 PFS, I realized I have over three million dollars of debt!
Obviously, I knew I had a lot of debt, but the PFS showed me the exact amount: $3,326,657. And yet, I’m remarkably non-plussed about it. In this article, I will discuss what makes up this astronomical figure, why I owe so much, why I’m not worried, and what I plan to do about it.
Just Semantics?
First, I want to clarify that I have three million dollars OF debt but am not three million IN debt, which is not just semantics. I’m not in debt. I have a highly positive net worth. However, I have debt secured by assets in which I have equity. Being in debt implies you have a negative net worth, usually because of unsecured debt like student loans or credit card balances.
People often obfuscate this distinction. I recently heard a guest on the Bigger Pockets Money Podcast proudly declare that she was $300,000 in debt before discovering financial independence. Her story revolved around clawing her way out of indebtedness, obtaining a seven-figure net worth, and now teaching other women how to pay off their debt.
Inspiring, right? Sure, but when you pay attention to the details, she had around $75,000 of student loan debt and $225,000 of mortgages. However, the houses were worth more than what she owed. She also had money in investment accounts, and her overall net worth was positive. She wasn’t IN debt; she had debt. And how did she claw her way out? She sold her house and used some savings, which wiped out most of what she owed. To be fair, she worked hard to pay off the rest and increase her net worth. While admirable, this is not the same as someone working and scrimping paycheck to paycheck to pay off three hundred thousand dollars of unsecured debt.
I could sell assets to pay off my loans, then go on a podcast in early 2026 bragging about how I paid off $3 million of debt in one year. It’s not so impressive when you think about it like that, huh? I’m not trying to bag on the podcast guest; I’m just trying to illustrate the difference between being in debt and having it.
A Deeper Dive into the Numbers
All my debt is from real estate (RE) mortgages, which I break down into three categories: Personal RE, Residential RE, and Commercial RE. The red portion of the following table outlines the amount of debt I have in each category, while the black portion is the fair market value of the underlying properties.
Personal Homes
For those wondering if I practice what I preach regarding personal finance, let me get this out of the way: I do not live in a multi-million-dollar house. You can see from the portion of my PFS above that my homestead loan balance is an adjusted $419,907, so let me explain my personal real estate holdings.
I knowingly made a bad financial decision by recently moving to a new primary home. The personal RE value you see above is inflated because we haven’t sold our old house yet. We needed to make some repairs and slow-played listing it to avoid the holiday lull in the real estate market. We bought that home at a reasonable price, remodeled it, and watched the value rise over the past few years.
Additionally, I still own a home where I work in West Texas, which was our primary home before making the move to Austin. It was easier to keep it than purchasing a new, smaller home, and it became cheaper as well when I refinanced it at 2.99%.
Residential Real Estate
This debt is related to three rental properties that we own that still have mortgages. The bulk of the balance is our home in Hawaii, financed at 3.25%. The house is a short-term rental when we aren’t using it in the summer, so I don’t include it in personal debt. We also have two remaining mortgages on our rental property portfolio.
Commercial RE & Personal Guarantees
My commercial RE debt is for one large property I own 50/50 with a partner. I included the entire value and mortgage balance for this property because of the way it is structured. The shopping center is held in an LP, or limited partnership, which limits liability for the owners. However, in order to secure the loan, my partner and I had to give personal guarantees. If the LP can’t repay the bank, my business partner and I will be liable.
Another condition of the liability is that it is joint and several, making all parties on the note responsible for the entire loan amount. This means that if either my business partner or I can’t pay our share of the loan, the other is responsible for all of it. I obviously trust my partner, or I wouldn’t have formed a business with him. Still, with these conditions, I consider the debt entirely mine to keep my finances even more conservative.
You can argue that I have inflated my debt by including the entire amount of the commercial debt despite having a partner. But, I have another source of liability that I didn’t include – personal guarantees on commercial leases.
If you run a brick-and-mortar business, you must understand commercial leases before you sign them. My companies have three leases that contain personal liability. As we grew, I stopped signing personal guarantees – if the landlord doesn’t accept the credit of a business that has been open for over ten years, I won’t sign the lease.
Unfortunately, the three remaining leases have an outstanding obligation of around $330,000. I own 60% of the businesses, but again, those pesky joint and several clauses potentially leave me on the hook for the whole amount. Fortunately, the companies keep enough cash on hand that they should be able to pay off the leases even if we cease operations.
How Can I Sleep at Night?
Owing three million dollars is a tremendous burden to be under . . . unless it is the right kind of debt under the right circumstances. I have no consumer debt, no credit card balances, no car loans, etc. I have paid off all my student loans.
Debt should only cause anxiety if you are (1) over-leveraged, (2) undercapitalized, (3) produce insufficient cash flow, and/or (4) have poor terms and conditions on the loans.
Leverage
I have substantial equity in the properties I own that have mortgages. The black portion of the following table shows a conservative estimate of the property values.
As you can see, my portfolio is comfortably in the black, with the assets backing the loans having a much higher value than the mortgages. In fact, these properties are only 48.4% leveraged. I also own other paid-off real estate that is not included in this table. When you add the value of these properties to the total, my total real estate portfolio is only 40.0% leveraged.
Capital
While I love real estate, it is not my only investment. I have a diversified portfolio of stocks, bonds, cash, personal property, and business assets. I keep a large cash reserve in case my rental properties stay vacant for an extended period. My businesses are also well capitalized in their accounts, so I never have to dip into personal money.
Cashflow
The non-personal RE portfolios are cashflow positive after accounting for all expenses, including the mortgage principal and interest payments. Banks use something called a debt-service coverage ratio (DSCR) to evaluate the cashflow of a commercial property they are underwriting. This metric measures how readily the cashflow of the building can cover the debt. A DSCR of 1.25 indicates annualized cashflow that is 1.25X the annualized debt, which for real estate usually includes principal, interest, taxes, and insurance.
My commercial RE’s DSCR is over 2.1. The residential real estate portfolio, minus our Hawaii property, has a DSCR of over 2.6, buoyed by all our paid-off properties.
The Hawaii house is the outlier of the group. The house annually loses money despite being used as a short-term rental. Since we use the home every summer, it is still worth it for me to keep the property. I have already outlined the financials of this property in The Realities of Using Your Vacation Home as a Rental. Fortunately, the other properties produce enough cash flow that I am not concerned about the losses on this one.
Additionally, I still work as an emergency medicine physician, earning a high income. While I only work part-time, I consider my labor the “cashflow of last resort. I already live far below my means and could still cut back on non-essentials in a crisis. Additionally, I could ramp up the number of shifts I work on very short notice.
Loan Terms & Conditions
All of my residential and personal mortgages have 30-year fixed terms. My commercial property has 4 years remaining on a 7-year loan at 4.375%. Commercial loans have much stricter conditions than residential mortgages, so I carefully monitor things like DSCR.
My Plan
So, how will I get myself out from under this mountain of debt? The answer is . . . systematically . . . methodically. As demonstrated above, I have plenty of assets to cover these debts, but real estate is not exactly liquid. It takes time to make moves and to pay down debt.
The mortgages will be paid off in 30 years if I do nothing. However, as I’m about to turn 50, I would like to have a more manageable amount of debt much sooner than that. So, I need a plan.
Personal
First, I will sell our old home. We have accepted an offer and are waiting for the closing date. Since I already hold too much cash, I will use the proceeds from the sale to pay off my current home loan and then add the rest to my cash reserves. This move alone will knock off around $660,000, or almost 20% of the total. In the coming months, I will run a financial analysis on my WTx home to decide the best course of action and publish the results on the blog. The possibilities are:
- Keep it to continue using when I am working.
- Sell and rent an apartment.
- Keep it as a rental and rent an apartment for myself or stay in a hotel.
Rental RE
My rental portfolio is profitable, producing significant free cash flow. Previously, I used the debt avalanche method to pay down my highest interest-rate mortgages, which is why I only have three remaining in this category. The highest rate I have left is 4.375%, so I stopped paying extra last year when the money market accounts were paying 5%. I will resume this practice, which should pay off the next mortgage within three years.
Commercial RE
We have a fixed rate on this debt for another four years, so I will continue to monitor interest rates. We increased the NOI of the building by fully leasing the property, but in the current interest rate environment, the cap rates have expanded, with the net result being a wash in the property value. If the interest rates drop, I may refinance. If the cap rates compress, I may try to sell. This one is a wait-and-see. In the meantime, we will keep saving our profits to maintain our optionality.
For the business lease liability, I will attempt to negotiate away the personal guarantees when the leases come up for renewal. Additionally, one of the leases is for a business that I plan to sell in 2025 . . . more details to come. Subscribe so you don’t miss anything!
Conclusion
Three million dollars is a helluva lot of money. I never thought I’d be worth three million, let alone owe that much. But as I have invested in real estate for nearly 20 years now, the debt has come about naturally. Each loan served a purpose – for my family, business, or net worth.
I am not stressed about this debt because it is the right kind – long-term, fixed, low-interest, and asset-backed. Additionally, my real estate portfolio is only moderately leveraged and produces enough income to service the debt with plenty of cushion should something go wrong. I am also well-capitalized personally, with a diverse asset base that includes stocks, bonds, cash, and businesses.
I have a direct plan to knock off around $660,000 in the next month. The remaining debt is financed at a blended average of 3.78%, with a collective mortgage paydown of around $71,430 annually. Using this number and additional payments to the highest-interest loan, as noted above, I should be able to reduce the amount by another $360,000 in the next three years.
This will still leave me with just over $2 million of debt, but at an even lower blended rate. I’m not sure what I will do after that. Three years is a long time. I might sell something, I might buy something else, I’m not sure. What I am sure of is that I will continue to actively monitor the debt and my projected cash flow using the Personal Financial Statement, adjusting my plan as circumstances change.