WCI #268: When Is It Time to Stop Being Cheap?

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

This is White Coat Investor podcast number 268. When is it time to stop being cheap? If you're looking to boost returns, lower taxes and build wealth, join the WCI Monthly Real Estate Opportunities List for tips and strategies to maximize your real estate returns. And for introductions to exclusive investment opportunities. Expect educational emails that introduce you to syndicators, fund companies, online courses and online real estate platforms. Go to whitecoatinvestor.com reopportunities to sign up today. You can do this and the White Coat Investor can help. Welcome back to the podcast. We've been having a great summer here. Hope you have as well. Summertime means scholarship time here at the White Coat Investor. So if you are a full time professional student in good standing, you can apply for the White Coat Investor Scholarship. We give away tens of thousands of dollars every year to professional students, usually medical students, but dental students and other professions can also apply. You can get more information about this@whitecoatinvestor.com medical school scholarship or you can find it under the wci tab@whitecoatinvestor.com but we need not only applicants for the scholarship, we need judges. Because the White Coat Investor staff wants to be completely unbiased. So none of us are judges. None of us are deciding who's getting the money. It's our audience that decides that. So if you are a practicing clinician, practicing professional retiree, et cetera, you can be a judge. No students, no residents can be judges. But if you'd like to be a judge, email scholarshiphicoatinvestor.com with the words volunteer judge in the title. So let's start this episode out with a correction. I got an email from a listener who said, I was just listening to podcast 262 when talking about getting bonus depreciation with the person who wants to use a second home as a short term rental, the bonus depreciation is actually not through reps. Well, bottom line, we had a long conversation about this by email. But what you need to be aware of is what they call the short term rental loophole. So here's what it is. Basically, as you'll recall, rep status, real estate professional status allows you to use depreciation against your ordinary income. If you work at least 750 hours a year in real estate, you or your spouse, and you don't work more than that in anything else. And then you can use depreciation, including bonus depreciation against your ordinary income. So that can be a huge tax break for those who do a lot of real estate. But you don't have to do that if you have a short term rental. The requirement there is that you have to spend 100 hours, which is a lot less than 750 hours, and you have to spend more hours on your rentals than anybody else. And so you can't have a manager. But if you're actually doing it, you can use that bonus depreciation, which is the same depreciation you get if it's a short term or long term rental against your ordinary income. So be aware of that loophole. But might make sense if you're going to have a rental property, even if you want in the long run it to be a long run rental, long term rental, maybe you want to have it be a short term rental for a year or two so you can use that depreciation against your earned income. The writer also pointed out that there are a lot of lenders out there that will allow you to use a second home mortgage and not use their due on sale clause when you transfer it into an llc. You just have to talk to the lender. A lot of them don't require that. It's no big deal to them. But there are some, some that are kind of sticklers about it, that aren't used to working with investors. All right, let's talk about being cheap. That's the title of this podcast. When's the time to Stop being Cheap? And this kind of comes from a request from email. The listener writes in one topic I would be fascinated to hear you discuss on a podcast is not investing money, but spending it. For example, I've heard you discuss spending money on home renovations, travel, but you're still driving an older car and you're not getting a Tesla. How do you decide what to spend money on and what not to, especially after reaching fi? Is it after college, Medical school, residency, fellowship? Two to five years living like a resident? How does one transition to a degree to increasing spending after never really doing this? If you haven't worked on your spending muscle, how do you approach this? All right, let's talk about spending. There are really five money activities that you need to become good at in your life. The first is earning, the second is saving, the third is investing, the fourth is spending, and the fifth is giving. Most of us are better at some of these than we are at others. You know, frankly, I'm a pretty good saver. I also earn a lot of money, so I guess I'm pretty good at that, too. And obviously, I run a blog called the White Coat Investor, so I'm a halfway decent investor. I like to think I'm not as good at spending. It's something that's harder for me to do and to do well. And what do I mean by doing well, well, well. Spending well is spending money on stuff that's actually going to make your life better. You know, where you're trading your time for money. I mean, rather trading money for time, more time in your life where it is something that you would really value and yet you're still not spending the money on it. You know, that's a problem. That's being overly cheap. I'm not that good at shopping, like comparison shopping. I shop like a hunter. I go out, I slay the beast, and I bring it home right? The first beast I find. And so I'm not necessarily good at shopping. My wife is much better at it. She's far better at, you know, comparing deals, finding good flights. You know, she's always in charge of planning our overseas vacations because she'll take the time to go through and. And look at the Airbnbs and make sure they're close to what we're actually doing and get a good deal and make sure it's a nice place and all that kind of stuff. I tend to buy the first one. I see. And so there is a skill to spending money, and you have to practice it and you get better at it as time goes by. But I think mostly what we're talking about here is kind of when's it okay to spend more of your money? And let me give you a few guidelines that you may find helpful. One, if you don't have the money, you should be very frugal when you are spending borrowed money, like you're a medical student living on loans. That should be probably the most frugal time in your life. You should probably not be buying anything that isn't an absolute necessity. You know, maybe a little something, little splurge here and there, but nothing big. You know, this is not the time in your life to be taking European vacations on student loan money. It's not actually even legal, right, because you sign your promissory note that says you're just going to use the money for education. You know, that's not the time to be spending tons of money. Same thing as you move into Your training, right? When you are a resident, when you are a fellow, you're making the average American household income. You need to be living like the average American household. And if you've never done this before, I know many people grew up in the upper middle class or in the upper class, and this is their first time ever living in a household with the average American household income. It might be a little weird for them to live on 50 or 60 or $70,000 a year, but I assure you it doesn't involve brand new cars, it doesn't involve fancy vacations, it doesn't involve eating out all the time, it doesn't involve $2,000 handbags, it doesn't involve bottle service and heliskiing and all that kind of stuff that you can spend money on. So that's another time in your life where really you ought to be watching what you're spending. I tell people to live like a resident for two to five years after they finish their training. And it's more of a principle than it is a fixed prescription, right? The idea is that you live your lifestyle much more like what you could afford as a resident than what you can afford as an attending. And since there's a huge gap between an attending income and a resident income, you use the difference between those two to build wealth, to pay off your student loans, to pay off credit cards you might have had left over, to pay off your car, to save up an emergency fund or a down payment, to max out your retirement accounts and really get a jump start on your retirement savings, to do all those kinds of things, all those great uses of money that we have right when we come out of training, that's what you live like a resident for two to five years after training for is to do that. Obviously, most people don't do that. And that's okay, right? Give yourself a little raise. Give yourself a 10% raise or a 25% raise. Heck, give yourself a 50% raise. That would be huge in corporate America. Instead of living on $50,000, live on $75,000. Assuming you've got, you know, a median or better physician job and don't have crazy student loans, that's probably going to work out just fine anyway. So you're all this time, you're spending a little bit more money as a resident than you did as a med student, you're spending a little bit more during your live like a resident period than you did as a resident. And then as you finish that period, you can also loosen the purse strings up some more Right. My recommendation for attendings is that they save 20% of their gross income for retirement. And this is obviously after the live like a resident period. Presumably, you've got medical school paid for at this point. But I believe that if you're saving 20%, you can spend the other 80% and should not feel guilty about it whatsoever. Go have a great time. You can have a wonderful life on 80% of what a doctor makes. You really can. It's pretty incredible. All the fun stuff that you can do and all the great stuff that you can have and all the wonderful people you can help on 80% of a physician income. So go ahead and loosen the purse strings up a little bit more at that point. Now, a lot of us who are good savers, we probably didn't do that. We were probably still saving 30, 40%, whatever of our income and rapidly building wealth, you know, became millionaires within a few years, maybe multimillionaires, maybe became financially independent. Right. And at a certain point, you go, what am I doing? What's life about? How much is enough? And you start loosening up a little bit more. I wrote a post on the blog in early 2015. I probably wrote it a few months before that and just didn't run it until then. Called Loosening the purse Strings. Now, where was I at in 2015? Well, I'd been a partner at that point for about two and a half years, and I had. We'd become millionaires at the end of 2013. So this was, you know, a year and a half or so after becoming millionaires. And I'd been a partner for two and a half years. WCI was starting to make some money, but it wasn't making a lot of money by early 2015. And we decided we're gonna spend a little bit more money. So we started splurging on stuff that we hadn't bought before. You know, we bought a fancy dining room table set. It was a lot of money for us at the time. It was 10 or $15,000 or something for all this nice furniture. And we started buying some other stuff. You know, we did a little bit of a home remodel that was a relatively minor one. You know, we went on some more expensive vacations. You know, started spending more on trips. I bought a new mountain bike. It was a five or $6,000 bike, which was a huge upgrade from the one I'd had for years that I think I paid $1,000 for. We got a fancy new furnace. We upgraded our beater boat to a Nice wake boat, you know, so we were clearly loosening the purse strings at that point. And in that post I give 10 questions that you should ask yourself and your partner before you start splurging. And let me give these to you. Number one. Are you keeping your fixed expenses as low as possible so that in the event of economic downturn you can rapidly pare back your lifestyle? 2. Have you honestly determined your needs versus your wants? And I'm amazed that even doctors can't figure this out. You know, your needs are surprisingly little most of your life, in the words of Mr. Money, mustache is an exploding volcano of wastefulness. And until you acknowledge that and recognize that, it's going to be hard for you to sort out needs versus wants. I'm not saying don't buy some wants. I'm saying understand what they are. 3. How many months have you been considering this purchase for? Right. Good spending is not spending on a whim. It's plan spending. It's something you really want that you've been thinking about for quite a while. 4. Do you have the money in cash to purchase this item? You know, it's really easy to be able to tell if you can afford something. Can you buy it in cash? If you can, you can afford it. If you can't, you can't afford it. It's really pretty straightforward. Number five. Is this item going to make you happier than any other use of this amount of money? 6. Are you already saving 20% of your gross income for retirement and enough to meet your other investing goals? 7. Do you have any consumer or student loan debt at all? 8. Do you have a plan to pay off your mortgage in less than 15 years total? 9. Are you buying this item at the best time of year to purchase it? You know, there's lots of things that have a seasonality to them. You're better off buying a boat in November, for instance, than you are buying a boat on Memorial Day. 10. How much time have you spent researching and shopping around for this purchase? And I think if you can go through and have those discussions with yourself and with your partner, if applicable, then you can have some better guidelines on whether it's a good use of your money. But as time goes on, you'll find yourself being able to spend much more easily. Most of the time it's far easier for me to spend money than it used to be because after a while you get out of that scarcity mentality. You realize you have enough and to spare. And that means you can not only give some of your money away, but you can spend some of it on yourself as well and should not feel guilty about it whatsoever. At a certain point in life, you will realize that time is the more valuable commodity, that health is the more valuable commodity, that you have far more money than you have time and ability to use it. And as you move into that stage of life, you'll start looking at some spending going how can I not buy that? How can I not do that activity? How can I not purchase my time back by purchasing whatever it is a service or good or whatever? So I hope that's helpful to you as you consider spending one of those five important money activities that you'll do in your life. All right, let's take a question off the speak pipe here. This one is about Asset Protection for.

Cars hey Dr. Dali, I was just reading your new book, the White Coat Investor's Guide to Asset Protection, which is awesome by the way. I think everybody listening should get a copy. And I had a follow up question. Both my wife and I are physicians, so we are doubly concerned about medical malpractice and we both also bought new cars relatively recently. Ideally, those assets would not be exposed to our creditors, but unfortunately your book lists that in our state of Florida, you only have about $1,000 of automobiles protected, and $1,000 doesn't get you a whole lot these days with cars. But you also discuss how tenants buy entirety is an option in our state. When we purchased the vehicles, I thought I had set it up under tenants by entirety, but in hindsight I think I did it incorrectly. So I had the dealerships put both of our names on the car titles, but looking back at them, they put an or in between our names rather than an and in between our names. So the car title says Husband or wife rather than husband and wife. Is this something that I could just go to the DMV to fix or is it too late? Is this something that you have to do correctly from the start or it's not going to work at all? P.S. i've listened to all the podcast episodes, so I have a feeling what your first comment's going to be. And I'm going to proactively defend myself by saying that while we did buy two expensive new cars, we bought them in cash and we were both very overdue for new cars, previously driving beaters that were more than a decade old with lots of problems. So it was well overdue. Thanks.

All right, let's talk about asset protection for a minute. Remember that asset protection strategies. You know, once you get beyond insurance, primarily require you to declare bankruptcy in order to work or at least be willing to threaten to declare bankruptcy. The idea that you have these assets that are exempt retirement accounts, homestead exclusions, you know, attendance by the entirety kind of strategies, right? The assumption here is that you go to the creditor, this person that has a judgment against you, and you say, if you keep pursuing this, if you don't settle for some tiny amount, I'm just going to declare bankruptcy and you're going to be stuck. So this isn't something that you do willy nilly. This is a big deal. When you are actually using these strategies for asset protection, if you actually have to implement this strategy, life is not going well for you, Right? It means you've got some huge judgment against you, more than, you know, in the case of a car sort of thing, or a malpractice sort of thing, more than what you have in personal liability through your umbrella policy, more than you have in your malpractice policy, et cetera. Right? So this is a huge judgment against you. You owe somebody $10 million or something, and you're going, ah, I think I'll declare bankruptcy and keep whatever, you know, asset protection law allows me to keep. So, thinking of it that way, now we're talking about cars. Okay? How much is your car worth? So you bought a nice car, you bought a new car. It's worth 30 or $40,000. Maybe it's a really nice SUV. It's 60 or $70,000, right? Maybe you got a Tesla X, maybe it's $120,000. But whatever it is, it's pretty small compared to that five or $10 million judgment against you. Yes. State asset protection laws, they're all over the board, how much they'll protect, but typically they're only going to protect $1,000 or a few thousand dollars of your car. So if you're having to declare bankruptcy because you have this huge judgment against you, you're probably losing the car, right? Unless it's a total beater, you're probably losing the car. You're having to sell it at least. And maybe you got to keep 1000 bucks of what it's worth and the rest is going to your creditor. All right? So this is like, it's pretty small change when it comes to the big asset protection picture. So when I think about asset protection strategies, and Katie and I have put some asset protection strategies in place, the vast majority of our assets would be protected in the event of some huge judgment against us. But we didn't put the cars in there. You know what? If we have declared bankruptcy, they're going to get the cars. Enjoy. Right. But it's such a tiny percentage of our wealth that it's really not going to move the needle. We'll turn around and we'll go buy new cars and that'll be okay. So if you have serious asset protection concerns, because you have a serious amount of assets, your cars probably shouldn't be the thing you're worrying about. That said, when things are easy to do, when asset protection moves are easy, things like tenants by the entirety. Right, that's an easy thing to do. It doesn't cost you anything, you might as well do it right. And you would have to talk to expert in creditor debtor law in your state as to how much of a difference this would make in your situation. But typically when you title something as tenants by the entirety, you title it as Joe and Jane Smith, husband and wife, not husband or wife. It sounds to me like somebody just got confused at the dealership. So maybe that's worth spending a few bucks to change the title. I probably would. Tenants by the entirety doesn't work in my state though, so it's not really an option for me. We have to use totally different strategy, it turns out, in order to protect our home equity and obviously brokerage accounts. And we haven't bothered doing anything by the cars. We just own our cars in our own names. Which is probably fine, I suppose, for my old beat up Sequoia. But, you know, I guess if I had a really nice car, maybe I'd think twice about it. Speaking of which, going back to that first topic about spending, why do I still drive a Sequoia? It's because you can't buy a new car. Have you tried buying a new car lately? I ordered a F250 back in December. They haven't even started building it yet. You can't buy a new car these days, so I'm still driving my Sequoia. I like it. It's got 268,000 miles on it. I don't know what it's worth. $6,000 maybe, but it runs fine and it meets my needs and it'll even pull the boat. And so that's why I'm still driving it. You know, just because you upgrade one area of your life doesn't mean you have to upgrade all areas of your life. That's a total fallacy. And it's kind of fun to just upgrade one part at a time. So it was actually A really funny story. Some of Whitney's friends came over to the house one day and they drove by and, you know, we've done a nice renovation on the house. We did that a couple of years ago. And so it's a really nice house now. And they drove by the house and they're like, oh, this can't be her house, because we've seen her phone and we've seen her car. This must not be her house. So they went around the block once and came back and realized, I guess it is her house. They had assumed based on the fact that she had a crappy old dumb phone and that she was driving a beater car, that she must live in a crappy old house. And that's not true. You're not what you drive. You're not what you carry around in your pocket. You're not what your handbag looks like. And so spend your money on what you care about not trying to impress other people. I mean, what a shame to spend your money trying to impress people that you don't even care about. All right, let's take another question. This one's about brokerage accounts.

Hi, Dr. Dali. I have a question regarding non retirement brokerage account. I put monthly deposits into a total stock market index, an international stock market index, and Vanguard Intermediate tax exempt fund. And the latter is probably about 25% of my contributions each month. I'm just wondering if I should still be contributing to that Vanguard Intermediate tax exempt fund. It is essentially just keeps going down and I guess it's essentially a bond equivalent. And I'm not sure if it really makes any sense to be owning that in a brokerage account right now. I'd like to get your input. Is there anything else that you would do to replace that? Is there any other bond equivalent which is worthwhile? Also, I have accumulated a decent amount within this Vanguard Intermediate tax exempt fund over the last several years. And is it worth selling this and buying stocks or something else? I'd like to get your opinion on this. I'd really appreciate your advice. Thank you very much.

Interesting question. Let me rephrase your question so that you understand exactly what you're asking me. And it'll sound a little dumb when I rephrase it. And there's a reason for that. And that's because it's a dumb question that's not entirely true. Right. It's a question we all have until we start realizing how investing works. But you're going to look back on this question and you're thinking, oh, yeah, that is a dumb question. What you are asking me is to peer into my crystal ball and tell you if municipal bonds are going to go up in value in the next year, two years, five years. And the answer to that question is I have no idea. My crystal ball is cloudy. The reason why that particular bond fund, and that's what it is, it is a municipal bond fund, it is a tax free bond fund, has gone down in value is because the bonds in the fund have gone down in value. Why did they go down in value? They went down in value because interest rates went up. When interest rates go up, bond values go down. Now their yields go up and thus their future expected returns go up, but their value goes down. So you've listed the three main holdings in my taxable brokerage account, Total Stock Market Index Fund, Total International Stock Market Index Fund, and the Vanguard Intermediate Tax Exempt Bond Fund. Those, those are major holdings in my account. And guess what? In 2022, I lost a lot of money on all of them. You know what? They're all going down in value, but that is not a reason to sell them. Aside from tax loss harvesting. Tax loss harvesting is a way to make some lemonade out of lemons. And I have been tax loss harvesting all three of those funds in 2022 so that I can use those losses to offset ordinary income, to offset future capital gains, et cetera. But I'm not going to bail out of my chosen asset allocation because something went down in value. If you do that, that's called performance chasing and it does not work out well in the long run. You are far better off sticking with a static asset allocation throughout the course of your investing career. You know, 30 years of working, 30 years of retirement. That's your investing career. Maybe 60 years. There will come a day when those muni bonds have their day in the sun. Okay, that day is not the first half of 2022. This has been one of the worst markets for bonds in years and years and years. They're now have higher future expected returns than they did six months ago, but they haven't had good returns. And anybody who tries to tell you they are has no idea what you're talking about. They're probably down, I don't know, 6, 8, 10% at this point. Not as bad as stocks, obviously. Stocks are down 15% plus, but they haven't had a good return recently. But if you look in the long run they've done fine. And you should expect them to do better going forward than you expected them to do. Six Months ago, given what the valuations were at at that point. So what do I do in that case? When something has gone down in value that I think is a good long term holding for my portfolio, I buy more of it. Yep, I'm buying all three of those. Have been all year. I'm pouring money down the rat hole, just like I did in 2008, just like I did in 2011, just like I did in December of 2018, just like I did in March of 2020. This is what you do when markets go down. You rebalance, you put money into the lagging assets and you know what, five years, 10 years, 20 years down the road, you're really glad you did that because those are the best returns you got on those assets. Now, if you decide you don't want bonds in your asset allocation for whatever reason, then I guess you got to change your asset allocation. But doing that typically results in you buying high and selling low. I would submit that there's probably a reason you have bonds in your asset allocation. You ought to go back to your written investment plan and realize what that reason is and then stay the course with whatever your plan is. Hope that's helpful. All right, let's do our quote of the day today. This one comes from Margaret Bonanno. She said being rich is having money, being, being wealthy is having time. And that is certainly the truth. All right, let's hear a question off the speak pipe about tax loss harvesting Bitcoin.

Hi Dr. Dali, I have a question regarding Bitcoin. I listened to your recent podcast on Bitcoin and I was interested in the fact that you stated that bitcoin is not subject to the wash sale rules. My question is, I bought Bitcoin at approximately 4,40,000 and now it's hovering approximately 30,000. If I were to completely sell my bitcoin investment and then immediately buy it back at $30,000, can I go ahead and harvest that tax loss? The entire purchase was done in the last couple months, so I guess this will not be subject to a long term gain. But maybe you could tell me a little bit more about that as well. Thank you very much. I appreciate it.

Great question. Well, I'm sorry for your loss. You lost ten grand. That sucks. And that's unfortunately something that happens a lot in highly volatile speculative investments like bitcoin. I have no idea if it's going to go up from there or down from there. By the time you hear this podcast, it'll have changed again, I'm sure. But here's the deal at least it's really easy to tax loss, harvest crypto assets, Bitcoin, Cardano, Ethereum, etc. Unlike stocks, there is no wash sale rule. You can sell that bitcoin today, buy it back 10 seconds later and book that loss. Yes, this is not fair. Yes, this is a loophole in the tax system. Yes, Congress has proposed changing this in their build back, better build. They were going to eliminate this so that you had that 30 day waiting period before you could buy it back or else it would be a wash sale, just like it is with stocks and mutual funds, et cetera. But right now with cryptocurrency, there is no 30 day wait. You can buy it right back as soon as you sell it. So what does that mean? Well, assuming you're investing inside a taxable account, you should never be holding a crypto asset with a loss. You should tax loss, harvest it. If it goes down again tomorrow, you should tax loss, harvest it again. If it goes down the day after that, you should tax loss, harvest it again. Now, there may be some transaction costs to consider, but assuming the transaction costs are zero or minimum, then yeah, you ought to tax less, harvest it every time you have a loss. And you don't even have to come up with the tax loss harvesting partner. You can just go right back into Bitcoin. And So kind of a cool feature of crypto assets, but that's the way it is. Until Congress changes the rules, that's how it's going to work. All right, let's bring somebody on for a few minutes. We're going to talk a little bit about real estate investing in today's market conditions. Our guest on the White Coat Investor podcast today is Don Wenner, founder and CEO of DLP Capital. That's Dream Live Prosper Capital. Welcome back to the podcast, Don.

Hey, thanks, Jim. Pleasure to be here.

Times have been wild this year. There's been a lot happening in the markets. The stock market's down as we record this. 18% or so. Bonds are down significantly. Intermediate term bonds are down as much as 10 or 15%. With the rise in interest rates, inflation's gone through the roof. For those of us our age or younger have never seen inflation like this, at least at a time period that we can remember. Cryptocurrency, you know, is down 50% plus in the markets. It's been a pretty wild ride the last few months. What has impressed you the most about the markets so far in 2022?

What's impressed me the most? That's an Interesting, interesting question after you laid out that, all those, all those problems. So I'd say what, what has been most impressive to me is the great reminder that when you go through inflationary times, which as you said, we're going through pretty significantly right now, a lot of difference opinions to how significant it is, but it's significant. Real estate's actually an inflationary hedge. And so we've seen the fundamentals of rents soar, continue to soar, which is, you know, good for investors, not necessarily great for individuals renting and many of much of America's workforce. We've seen property values continue to climb both on the residential side and the multifamily or investment side. So for our world, these changes have been positive from that regard, from the fundamentals of the investments, and it's also been positive from us in terms of many investors have felt that volatility and those changes in their other investment asset classes, and it's led to a significant inflow of capital to us as an alternative or a hedge to some of the challenges in the marketplace today.

Yeah, for sure. Real estate's got some great benefits in inflationary times, especially if you've already got your debt fixed at a low interest rate, then inflation obviously makes that debt more affordable. And then of course, rents rising and the value of the property rising with those rents are a nice way to keep up with inflation. The fact that returns are relatively high also helps you keep up with inflation. Even inflation is 9%. If you can make 9%, you're at least keeping up with it. Your firm offers real estate investments both on the debt side and on the equity side. Have you seen pressures on the debt side with your debt funds due to these rising interest rates? Is it harder to find people that want to borrow money to develop real estate or are you having to charge them more? Or how have these changes in interest rates and changes in inflation changed your debt funds?

Yeah, and thank you for framing it up because, you know, as you said, we sit on both sides of owning real estate and lending against real estate. And the effects of interest rates and the effects of inflation are a little different in each case, but a little bit larger side of our world today is our lending funds, where we're making short term bridge loans against real estate. And the great thing about that strategy, especially in times where rates are going up and inflation so forth, is we're only locking in our interest rates to our borrowers for six to 12 months. So I'm not making a 30 year mortgage where I lock in that rate today. Now I'm stuck for 30 years at this low interest rate. If rates go up, fundamentally, if they continue to go up, our rates are going to be able to go up. That we are able to lend money out first and foremost. Second, we're an alternative. A real estate fund like ours is an alternative to banks or traditional financing sources. And in the past couple years, when rates have been at these all time lows, if a bank was charging 4% and we're charging 9%, right. That gap between 4 and 9 is significant enough that we can't win all the business that we'd like to win. Right. A real estate investor will look and say, yeah, it'd be much easier to work with dlp, they're going to do a much better job, they're going to be better to work with, they're going to bring up all this other value. But 5% is a big difference, right? When all of a sudden interest rates go up and banks are now say at 6% and we're at 9, or maybe we went up to 9 and a half, that gap closes a bit. It's worth not the frictional kind of value of working with us versus a bank. The speed, et cetera, drives more business to us. So for us, these, the, the, the, the volatility that's coming from the change in interest rates has been all positive for us. In fact, last month in our lending fund, which is our longest standing fund, the DLP Lending Fund, we're running it for about eight years now, we had our best monthly annualized return or best monthly return in three and a half years last month. So for us it's been a really nice positive, a great inflow of additional borrowers and, and needs because not only that rates have gone up, a lot of lenders out of fear have stop lending or cut back, you know, leverage or so. So it's created a lot of great opportunities for us to bring in new borrowers to pick up a larger amount of their business. And then ultimately this is putting a little bit less pressure than what we faced over the last number of years on our rates. So it's been a, it's been a, a net positive for us in our lending funds.

That's always good to hear, you know, and my stocks and bonds and you know, when cryptocurrency's down to have something that's making Money, that's awesome.

12.89% last month, annualized returns, net and distributed to the investors and that's all actual earned income, not on Paper, Right. It's actual earned and distributed to investors last month.

So. Awesome. And how about on the equity side? You know, here in Salt Lake, I mean, property values, whether they are multifamily, whether they are single family homes, they're frothy. Right. This has been one of the fastest growing areas in the country and people are starting to wonder where does this end? Are you seeing any decrease in opportunities that you find attractive in the markets as you look on the equity side?

You know, as we, as we sit here and talk here today, we're in a very, very interesting time in that regard, in that we're starting to see, it's really only been the last few weeks that we've really started to see brokers who are out selling these properties missing their target prices, their strike prices. We're seeing sellers taking offers that then the buyer ends up trying to retrade. And the reasoning is, you know, their proceeds on their loan or the interest rates higher. So now they need to get a lower price. So we're seeing some of that starting to happen. Usually we're still seeing right now that if one group gets nervous or gets lower leverage and they pull out, there's still a line of other buyers who, who are, who are willing to get comfortable. There's still so much liquidity. So we haven't yet seen it translate into any lower prices. But I think at minimum it's going to start lowering the broker expectations that they set with sellers. And I don't think we're going to keep seeing the kind of growth in values that we've been seeing since COVID I think things are going to at least level out a bit. I think we might see cap rate starting to soften, meaning go up. But, but I don't really think we're going to see a huge drop in values. And the reason for that, or maybe any drop in values, and the reason for that is because the fundamentals of what drives real estate values is income. And, and the fundamental thing that drives income in, in our world is rent and the average rent in most markets, such as Salt Lake City, but just about anywhere else. And that's attractive for people to live where there's an ingredient, a growing population, there's a supply that is significantly less than demand, and we're seeing historic levels of rent growth and that hasn't slowed down at all. And frankly, with the inflation and the fact that for a lot of really good reason, wages are going up, we don't see any lack of demand for housing or any slowdown in the growth in rents. So we may not see cap rates grow as quickly or decrease as quickly. But because the income keeps growing, even if cap rates soften due to interest rates, values are going to still say very, very solid. So it's an interesting time. It's one that you have to be on top of and be paying attention to and looking for what kind of opportunities create in this rising interest rate environment and the fear that that creates. And you know, we're in an environment that's kind of never never existed and quite the way it does does today. And so we're finding it exciting and fun. We're certainly not struggling to find opportunities. We've closed over $1 billion in transactions year to date and have a full pipeline. But most of what we try to buy and what we look at doesn't work. It doesn't hit our return profiles. But we're, we're finding opportunities regularly. And then the other thing that we're focused on doing because of the incredible demand for housing, the incredible under supply of, of housing in most markets and where rents have gone and values have gone, we think one of the most interesting opportunities today is in development, the development of new housing. And I held a big event for real estate developer, a big event. I brought in about 120 successful real estate developers and builders around the country last week in St. Simon's Island, Georgia. And I started off kind of the event with a presentation where I said, you know, construction costs have never ever been higher. Right. Supply chain has never been slower. Right. It's never been harder to get projects approved. Right. What a great time to be in development. Right. But the reality is it's never been a greater time to be a developer. And if you know what you're doing and you are able to manage the cost efficiently and build, build efficiently. Essentially the margin between what you can build something for today and what it's worth worth when it's complete. That, that spread, that value creation has maybe never ever been greater. It's pretty, pretty amazing how much. Even though costs are so much higher, the values have grown so much that there's an enormous value creation available. And you're, you know, frankly it feels great as well from a market standpoint to build affordable housing in these markets. And we say affordable, I'm talking building housing for the local workforce. Right. These are 1200amonth, 1500amonth, 1600amonth apartments, which is in so many markets such like such a Salt Lake City, desperately need.

Right.

So that's been a big area of focus for us over these past couple years.

Awesome. And of course you have a new fund out in the last year doing just that. Ground up opportunities. We've been talking with Don Wenner, who's the CEO and founder of DLP Capital. If you're interested in learning more, we recommend you go to whitecodeinvestor.com DLP. They have opportunities to invest on the debt side or on the equity side and as well as in ground up building opportunities. So be sure to check that out. Thanks for being on the podcast, Don.

Thank you, Jim. It's been a pleasure.

All right, let's take another question off the Speak pipe. This one's about options trading. Let's take a listen.

Hey Jim, this is Robert calling from South Carolina. My question is you had a guy on the podcast a while back, Big Earn, who talked about doing options trading with the S and P and I've talked to several white coat investor fellow listeners who are very curious as to how that is working out. Now that the S and P is tanking, I would really appreciate a follow up on that either with Big Earn or just some stats and sort of how that would look at this point because I think I thought it sounded risky at the time and now it sounds down downright crazy. But would love to hear that.

Thank you. Great question. And it's important to remember anytime I bring a guest on the podcast does not mean I endorse what they're doing, right? I'm not a fan of option investments. In fact, my first investment was actually an option. Somebody at my dad's work had talked him into buying options and I had some money from Alaska Permanent Fund Dividend and somehow he talked me into investing in the option as well. It was like 500 bucks. It's a lot of money to whatever I was a 12 year old kid at the time or something. I lost the whole $500, a complete loss on my first investment. So I'm not a big fan of investing in options, to be honest with you. And just because I bring somebody on the podcast and we talk for two minutes out of a 45 minute podcast about options, don't think that this is something I think you ought to be doing. I don't think you should be messing around with options, period. But let's talk about what Big Earn was doing. What Big Earn's strategy was was selling puts on the S&P 500 index, meaning he is selling insurance to other people that want insurance in case The S&P 500 falls in value. So as long as the value is going up or sideways or only going down slightly, he makes money, he makes income doing that. If it goes down well, now he's got to provide the insurance that he's been selling. And so obviously in 2022, the S&P 500 is down. And so this insurance he's been selling, he's basically now paying out. So that strategy is not doing well in 2022, with the S&P 500 down as much as 18% so far at the time that I'm recording this, it's probably not very nice of me to call him up and ask, how's it going there with your options? But I'm sure the strategy is not working well this year and it's a significant chunk of his portfolio. It was 30% of his portfolio, he said in the podcast. So I would assume that he's lost some significant money on that portion of the portfolio and that he would tell you that in the long run he'll make up for it or has made up for it. But in the short run, he is not doing well. So hope that answers your question. No matter what you're doing as you listen to this podcast, whether you're on your way into work, on your way home to work, or you're out jogging or whatever, nobody's told you, thanks for what you do today. Let me be the first. Your job is hard and, you know, the stupid pandemic just keeps going on and on. I was noticing in my last few shifts that we had a bunch of COVID patients back in the air, and I'm like, what is going on? And I went back and looked at the case counts and we're up from like 100 cases a day in the state to 800 cases a day in the state. Which explained my recent canyoneering trip, where seven of us were off canyoneering. Three of us had, including me, had had Covid in the previous month or so. One had family members with COVID and the other three came home from the trip with COVID So it's still out there and it can be transmitted even outside, as we discovered on our canyon trip. Thankfully, everybody recovered completely uneventfully and was only minimally sick for a few days. But as you know, that doesn't happen to everybody and it can sure make for some busy times at the hospital. As I record this on the Friday before Memorial Day, I'm looking at going in Saturday, Sunday, Monday. I'll be working the whole holiday weekend, and I know a lot of you will be Working that as well. And it's hard. You know, medicine, dentistry, law, these are hard professions and I appreciate you doing them. All right, let's take another question off the speak pipe. This one's about investing in art.

Hey, Dr. Dowling, first of all, thank you for WCI and and all your company does for us. I'm a psychiatry resident from Indiana and I have a question. I spend a lot of time on the Internet. I've seen ads for Masterworks, which is a fractional ownership investment platform for what they call, quote unquote, blue chip art. I wonder how good the investment is if I'm seeing so many ads for it as that has been in my past experience, a bad sign. Then again, art is a very difficult sector to diversify into, which might make fractional ownership attractive. What do you think of Masterworks or of art as a diversification strategy in general? Correct me if I'm wrong, but to paraphrase you, in the past you've said that if someone is 95% or 98% invested wisely, that the last 2 to 5% wouldn't make much difference. Would you consider art speculation to be best in that 2 to 5%? And if so, how would you go about it? Thank you.

All right, Justin, good question. Here's the deal. Art is a speculative investment. I don't invest in speculative investments, okay? I don't invest in bitcoin, I don't invest in gold. I don't invest in platinum. I don't invest in commodities. I don't invest in empty land. I don't invest in art. I like to see my investments producing something, whether it is earnings like you'd see with stocks, whether it's interest like you'd see with bonds, whether it's rents like you see with income producing real estate. That's what I like to see from my investments. At least some component of it. Is it producing something rather than all of it just being speculative? Art, of course, is completely speculative. Now, you are right that if you have a Play Money account, you should limit it to 5%, maybe of your portfolio. And if you want to put 5% into Bitcoin, or you want to put 5% into art, or you want to put 5 percent into Mongolian oil futures, knock yourself out, right? Because if your strategy isn't good enough that 95% of what you're expecting out of it isn't going to be more than enough, then you probably have bigger issues with your investing strategy. So if you want to do this, go ahead and do it. I Can tell you this. Masterworks applied to advertise at the White Coat Investor. We did not take their money. Okay. You know, we don't have a full throated endorsement for everybody that's ever advertised at the White Coat Investor, but we do feel some obligation to our listeners to put our money where our mouth is. And so we pass up a lot of advertising dollars from companies that we don't necessarily believe in their mission. And I suppose that applies to Masterworks. I don't know that it's necessarily bad what they're doing. Obviously there's lots of things to invest in, and I don't know that they're any worse than anybody else investing in art, but we just didn't feel like it was a service that we felt comfortable plugging to our listeners. So that's why you're not hearing about it here, because we don't think it's a great idea. But if you want to do it, 5% of your portfolio, knock yourself out. We really don't care. It's your money anyway, so you can do whatever you want with it. And you don't need our permission to invest in something. Just because I don't invest in it doesn't mean you can't invest in it. But it does dictate how we advertise. Now, if you wanted to invest in art, and we're talking theoretically here, we're talking hypothetically, how should you do it? Well, my understanding of art is that the high end pieces have very good returns and the low end pieces do not have good returns. So if fractionally investing it allows you to buy more high end pieces than low end pieces, maybe that's a good way to do it. Assuming you don't have whatever it is, $200,000 or something to buy a high end piece. But you know, the truth is in investing, you don't have to invest in everything.

Right.

I think you mentioned you were a resident. You know, it's okay to not invest in everything. There are no called strikes in investing, Right? Look at my portfolio, it's pretty boring portfolio. 85% of it is in index funds. It's index funds. That's all I'm investing in, right? Yes. There's 15% in some private real estate and I've done pretty well in private real estate, but both on the debt side and the equity side. But 85% of it is in boring old index funds. I'm not in a bunch of cryptocurrency and art, et cetera. And where am I sitting in life. Well, I'm in my mid-40s, I'm financially independent. I can do whatever I want with my life. I've won the money game. You don't have to get into all this minutia in order to be successful as an investor. I mean, you can do it with a very boring portfolio, funded adequately, using your high income. And that's the whole point of what we're doing here at the White Coat Investor. We want you to be able to focus your life on your patients, on your family, on your practice, on what matters most to you, and a minimum part of your life on your investments. The goal isn't to just play with your money all day long. The goal is to do something meaningful with your life and have your financial ducks in a row on the side. So I hope that's helpful to you. Let us know how it goes if you do choose to invest and send us a speak pipe in a year or two and let us know how it's going to if you're looking to boost returns, lower taxes, and build wealth, join the WCI Monthly Real Estate Opportunities List for tips and strategies to maximize your real estate returns. And for introductions to exclusive investment opportunities, expect educational emails that introduce you to syndicators, fund companies, online courses, and online real estate platforms. Go to whitecoatinvestor.com reopportunities to sign up today. You can do this and the White Coat Investor can help. Hey, if you want to come to the conference, the White coat Investor Conference WCICON 23 in March 1st through 4th of 2023 in sunny Phoenix, you can do so. You get to sign up in October. But if you want to come for free and you actually want to be paid to come, you have to give a talk there. And guess what? It's time to apply to speak. June is when you apply to speak at WCICON. Okay, so to go to www.wcievents.com and you can apply to speak, let me tell you how to get accepted as a speaker. This is actually a competitive process. The way you do it is you apply with a whole bunch of different subjects and that way we might pick you to give more than one talk, which is attractive to us, right? Because if you give two talks or three talks, we only have to fly you out once. So it saves us a little bit of money and that's attractive to us. But most importantly, what often happens is somebody only applies for one talk and 12 people applied to give that talk. You know, whatever it might be on real estate investing or disability insurance or whatever. We're not going to give 12 of those talks at WC Icon and so 11 of those people are going to be hosed. They're not going to be able to come speak. But if you apply to speak on multiple different subjects that you are expert on, you're much more likely to be selected at all to give a talk. So that's my suggestion to you. Apply early, apply often. And we try to have both favorites, people who've gotten great reviews at previous conferences, and we try to have some new voices. So whether you're talking on a wellness topic or a basic investing topic or a more advanced investing topic or some sort of niche topic, you know, apply www.wcievents.com what I would recommend against you doing, however, is applying with a topic like what you would give to your residency program. Right? These are the talks I give all the time when I travel around the country, but it's a very broad talk, tries to encompass all of personal finance into one 45 minute or one hour talk. And we're looking for a little bit more specialization at the conference. Right. People are there for the three days, they're going to listen to a whole bunch of different talks. And so we're looking for a little bit more fine tuning on those talks. But we'd love to have you come speak. It's a really great group of faculty that we have every year. It's the who's who of the physician finance space and we'd love to welcome you into that club. Thanks. For those who are leaving us a five star review or telling your friends about the podcast, our most recent review came in from Alpheus 06 and said I am generally not a podcast person but have never missed an episode of this podcast. Between Dr. Daly's blog, podcast and books, I've gone from financially illiterate to comfortably managing my own finances without a financial advisor. Content is listener driven and covers topics of varying complexity so people at all levels of financial literacy are able to learn something from each podcast. I find myself just as interested in his content now as I was six years ago when I first found his blog. If you haven't listened yet, get started now. Five stars. Thanks so much for that generous review. Keep your head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast.

The hosts of the White Coat Investor Podcast are not licensed accountants, attorneys or financial advisors. This podcast is free entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.