WCI #323: When is the Right Time to Invest in Real Estate?

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 323 when to invest in Real Estate no more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums trying to gain a financial education the way the hobbyists do for a fraction of the price of hiring a professional financial planner. The Fire your financial advisor online course will take you from feeling anxious and having no plan to having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school or residency, but never was. Fire your Financial advisor also has a version eligible for CME credit. Get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Coat Investor can help. All right. Henry David Thoreau said wealth is the ability to fully experience life and I think there's a lot of wisdom in that quote. I've been trying to fully experience life this summer as I do most summers with lots of fun trips and adventuring. Recently came back from the middle fork of the Salmon River. We launched there out of not far from Stanley, Idaho at a place called Boundary Creek and floated 100 miles down to the junction with the main fork of the Salmon River. Took the boats out and drove home. It was wonderful experience. Unseasonably cold though for June. The second morning we pushed off with it snowing. It was snow high on the hills above us and it was snowing literally on us as we pushed off rafting down the river. The next morning there was frost on our boats. Luckily by the end of the trip it was nice and sunny, but I still spent the whole trip wearing a dry suit in the raft or in the kayak, whichever one I was in, and it was a lot of fun. I took my son Jonas with us and had a great time. We only swam once in the river. We attempted to paddle an inflatable canoe or inflatable kayak rather through pistol rapid which didn't work out so well. We got through the top 2/3 of the rapid before coming out and getting to experience the fun of being in a 50 degree river while it is 40 degrees in the air and luckily got back in the kayak pretty quickly and still made it back to the shore before we floated past our camp for that night. Great adventure. It's one of the premier trips multi day rafting trips in America. Very difficult to pull a permit for it. It was not my permit. Somebody else's permit. I was just lucky enough to be invited along on a great adventure. Good times and thank you, Krell, who's actually a dentist, who invited me on the trip when somebody in his family had the permit. All right, speaking of cool things going on around here, scholarship time. Okay, send in your applications. Go to whitecoatinvestor.comscholarship for information. We also need judges. Okay, who can win? You've got to be a professional student. Most of the applicants are physician and dentist students, so medical students and dental students. And you can't already be on a full ride. All right, if you already got a gazillion dollars in scholarships, we're not going to let you win this one. But that's it. Those are the only requirements. You've got to be a student in good standing in medical school, dental school, or similar professional school. And you can't be on a full ride already. So apply for that whitecoatinvestor.com scholarship we'd like. If you don't qualify for that, you know, if you're already attending, you're a retiree, whatever, you're in your career, we'd like you to be a volunteer judge. Help us judge who's going to win this money. You know, I don't know how much it is. I haven't looked. But last year it was like something close to $7,000 a piece for the 10 winners. And so it's literally cash they can use for whatever they want that directly reduces their indebtedness. So if you'd be willing to read like ten essays. They're all less than a thousand words. Ten essays, then you can be a judge. That's all it takes. Okay, tell us which ones you like. So sign up for that by emailing scholarshiphicoatinvestor.com and just put volunteer judge in the title. We usually have 40 or 50 or 70 judges, and we need that money because we have a lot of applicants for the scholarship. All right, we got to do a correction. Everybody's favorite part of the podcast, when you get to hear how wrong I was. Well, on the podcast that ran June 22, I said the kiddie tax is essentially a rule that says you can't put a bunch of money into a UGMA or UTMA account just to get out of paying taxes, once that account has enough money in it that there's more income there than about $2,400 a year gets taxed at the custodian's tax rate. So the kiddie tax is essentially a rule that says you can't put a bunch of money into the UGMA or UTMA just to get out of paying taxes. And I said that once you have more income than that certain amount, that works out to be about $2,400 a year, then it gets taxed at the custodian's tax rate. That's not entirely true. What's true, as I was informed by somebody that wrote in and subsequent research seems to indicate he is right and I am wrong, is that it's about the parental tax rate, and that tax goes to the parent, even if the custodian is not the parent. Now, that's a pretty rare situation. You know, most custodial accounts, these uniform gift to minor accounts or uniform transfer to minor accounts, the custodian is the parent. So it's all the same for most people, but it's not the custodian. It's about the parent. So I guess it's theoretically possible for grandpa to set up a UGMA account for grandson and for that tax bill to go to mom if you put too much money in there. So be a little bit careful. Typically, I tell people don't use a UGMA for more than about $100,000. There's no real point to it beyond that. You're just losing control over money and not getting any tax benefits for it. So I hope that's helpful. Note, of course, that that changes if neither of the child's parents are alive. And in fact, in those cases, it could make sense to have, you know, more in a UGMA or UTMA account. That's a pretty rare situation where neither parent is alive for somebody, you know, before they're 18 or 21. So. And if you get adopted, that that counts as your parent as well. So. Okay, let's talk about some stuff. Let's. Let's talk about real estate. Let's listen to the first question on the Speak Bite, and then I think we're going to need to spend quite a bit of time answering this.

Hi, Dr. Dali. My question is about when a reasonable time is to consider adding private real estate investments to your portfolio. My spouse and I are new attendings in our first few years of practice. As you have mentioned before, we have plenty of good uses right now for our new incomes including student loans, maxing out our retirement accounts, saving a down payment for a house, and starting 529s for our kids. Right now we are aggressively investing into our 401ks, backdoor Roths, HSA, and a small taxable account with an asset allocation that is mostly equity, some bonds, and a small amount of the Vanguard REIT index fund. Eventually, I think we would be interested in adding private real estate into our portfolio for additional diversification, likely in the form of a fund such as the ones you advertise on your site. The cost of entry to many of these funds is relatively high and right now does not seem like the time to do this since it would take us longer to save that amount of money instead of making our monthly investments into the other accounts I mentioned. So my question is, at what point in a high income professional's financial life does it make sense to start adding in these types of investments? Is it at a certain level of net worth or portfolio size? Or how should I think about planning for this for the future? Thanks so much for any insight you have.

Okay, that's a great question. Well, let's start at the very beginning here. Real estate is not mandatory. Yep, I said it. You don't have to invest in real estate in order to reach all of your financial goals. You certainly don't have to invest in private real estate to reach all of your financial goals. And you certainly don't have to be a direct real estate investor. Landlording is not mandatory for financial success, for becoming a millionaire, for being financially independent, for retiring successfully. It is not required. I had zero private real estate investments when I became a millionaire. I guess we had still our accidental landlording property out in Virginia that we couldn't sell in 2010. I guess we owned that, but it certainly wasn't making much money and really didn't contribute to that first million dollars we had. So this is all optional. Let's keep that in mind so there should be no rush to add something that's optional in the first place. You want to invest from a position of strength, and for most high income professionals, most doctors, you have more and more financial strength each year of your career. You come out of residency, you got a negative net worth, you owe two or three or $400,000 in student loans. You hardly have anything to name. You're not in a particularly strong position, but if you're doing things right, a month later you're in a slightly better position, and the month after that a little better, a little better, a little better. And that is the way the last 20 years of my career have been since I came out of medical school in 2003, every month I have been wealthier than I was the month before. Now, maybe that's not entirely true. And there's a big nasty downturn and I lose a bunch of money in stocks or something, you know, my net worth actually goes down. Or maybe when you put down a big down payment on a house or you buy a new truck or a boat or something, your net worth actually goes down that month. But as a general rule, year after year after year, you become wealthier and wealthier and wealthier and wealthier if you're doing this right, and your money starts to do more and more and more of the heavy lifting as you go along, until eventually, at some point, the money being generated by your money dwarfs the amount of money that you can make by going to work and earning. And so that's just the general backdrop of a physician's financial life. Okay, so now if we talk about real estate. You know, the easiest way to add real estate to your portfolio, assuming you want more than what's in just the basic total stock market index fund, is to tilt your portfolio toward real estate publicly traded REITs, which are real estate investment trusts, by using something like my favorite ETF in this space, the Vanguard REIT index fund ticker symbol vnq. I can't remember right now what the fund version ticker is, but I use that. I've been using it for a long time. I first added it to my portfolio in 2007. That was a mistake, by the way. Lost 78% of what I put in there in 2007, in the subsequent bear market in 2008. But such is life. It wasn't that much money, and we continue to add to it over the years. We'd have a very good return over the years from that fund, even though it started out with a pretty nasty return that first year. That's the way investing goes when you're investing for the long run. Okay, so it sounds like you, meaning the person asking this question, wants to do more than that. And that's fine, right? I have a portion of my portfolio that's dedicated to private real estate. Now, I've invested in some syndications in the past, but primarily my investments now are private real estate funds. I think the solid returns there, as well as the lower correlation with the overall market, is worth the hassle and expenses of dealing with that asset class. And so our portfolio is 60% stocks, 20% bonds, and 20% real estate. Of that 20%, 5% is still in B and Q, which is publicly traded REITs. 10% is in equity real estate, almost all in funds, a little bit of syndication still there, and 5% is in debt real estate, all in funds. That's money that's loaned out to developers who are essentially developing and flipping properties. And so that's what we invest in. Now, these investments, as you've noticed, if you're subscribed to our real estate investing opportunities list, which is free by the way, you can just go to whitecoatinvestor.com newsletter and sign up for that. You can unsign up for it if you feel like you're getting too many emails from us. No problem. We won't be offended. Don't nuclear unsubscribe from everything or you won't get the blog posts or a monthly newsletter. But you can unsubscribe anytime you want from that real estate opportunities list. But as you've noticed, they have fairly high minimums, and that's not an all bad thing. High minimums mean that they're managing fewer investors. And so that cost savings in some ways can be passed along to you. If they're trying to manage a whole bunch of investors with $80 in the investment, that's very expensive and lots of hassle and very time consuming. And some of the regulations actually make it difficult to have small investors in those investments. And so the investments tend to be high. I mean, you can find some that are 15 and 20 and 25,000, but most of them honestly are 50, 100. I think the highest one I've invested in had a $250,000 minimum. And so that just doesn't work at the beginning of your career. Right. If you're making $150,000 a year and you're saving 20% of a year, that's $30,000. Right. If you're trying to hit $100,000 minimum investment, that's over three years worth of investment savings just to do that, that's not going to work for you. Now, you've got to have a higher income than that. If you want to play in this space and actually have a diversified portfolio, or you have to have a bigger portfolio, which after many years you can. These investments all require you to be an accredited investor. And what the federal requirement for that is is you have to have had an income of at least $200,000 a year for each of the last two years, $300,000 together with your spouse or you have to have investable assets of at least a million dollars. That's their minimum requirement. That's what they call an accredited investor if you're a trust or whatever. There's some other definitions of that, but that's what it is for most individuals. And that hasn't changed in many years, to be honest with you. And minimum investments have gone up over those years. So that tells you a few things. One, it's kind of an outdated, you know, definition. And two, it was never a good definition to start with. What is an accredited investor? An accredited investor in my mind is two things. One, you can afford to lose the entire investment without it affecting your financial life. And if that's true, that means you've got a fair amount of money and a fair amount of income if you're losing a 50 or $100,000 investment without it really affecting your financial life. So you got to be wealthy, at least, high income, better yet, wealthy. And two, to be an accredited investor, I think you need to be able to evaluate the merits of the investment yourself without the assistance of anybody else, meaning attorneys, financial advisors, accountants, et cetera. If you need a whole team to evaluate this investment, that's probably going to decrease the returns on the investment enough that it's not worth it for you. I think you also ought to take those government mandated numbers and double them. Not only double them, but instead of having them be either or have them be an Meaning you're making at least $400,000 a year in your household and you've got at least $2 million in investable net worth, investable assets. And I think that's about the mark where this stuff can start making sense to add to your portfolio because the minimums are so high and you still need to be diversified. Right? You are outside of the public markets here. This is a place where scammers abound, where incompetence can abound among operators. It's not that hard to start up a syndication, it turns out. And so you need to be kind of heads up when you're investing in this space. And it helps if you are already wealthy. So that's kind of my take on it. Do you have to wait that long? No. If you meet the requirements of an accredited investor, you can invest. If you're okay not being diversified and adding one of these at a time over several years, you can invest. That's your call if you want to do that. But my recommendation is be able to have a diversified portfolio from the beginning. And maybe that means you got to lean toward the ones that have lower minimum investments. You know, 10,000, 15,000, 20,000. We've got a number of sponsors that are kind of crowdfunding platforms, for lack of a better word, that can get you into investments with those lower minimums. And that's absolutely where I started with them. The nice thing about those lower amounts is you get to kind of dip your toe in the water and try them out a little bit and still be somewhat diversified. The downside is you get the same exact number of K1s, whether you have $10,000 in there or $1,000,000 in there. And you have the same cost and hassle of dealing with filing that K1, which may include filing multiple state tax returns, which is an expense and a hassle. You know, if you're filing them yourself, it's a hassle. If you're not filing them yourself, it's an expense, but same thing, really. So keep that in mind. That's when I think it's appropriate to be looking at these things. If you are a gynecologist making $350,000 yourself, you're married to a neurologist who's making another $325,000 yourself, you're eight years out of residency, you've paid off your student loans, you got a seven figure portfolio. Yeah. This stuff's worth taking a look at and seeing if you want to include that as part of your portfolio. If you came out of residency last year, you are a PM&R doc making $210,000. You owe $350,000 still in student loans, you got a five figure portfolio. This is not for you yet. All right? And you know, it doesn't ever have to be for you. That's okay. You don't have to invest in this stuff. Don't forget. Right. White Coat investors is multiple things. A white coat investor is an educational platform. We want to teach you about money. We want to help docs stop doing dumb things with their money. We want to help you get a fair shake on Wall Street. White Coat Investor is also a business. 15 people work here. They all like paychecks. I assure you, they're all still cashing them. All right? And they want their health insurance. Right. So this thing has to make money, and so we have to have profit. And so we have advertisers, just like we had an advertiser at the beginning of this podcast, Laurel Road, we have advertisers in real estate. And you're so you're going to hear about this stuff, you know, in the form of ads on the podcast and you see them on the blog and that sort of stuff. But keep in mind that there is content and there is ads, and if you're having trouble telling them apart, let me know and I'll make it real clear for you. Okay? Because it's very clear in my mind what is content and what is ads. And if that's not clear for you, we probably need to make some changes to make sure it's clear for everybody. Okay, let's take a question now from Luke. It's also a passive real estate related question.

Hi Jim, this is Luke, a physician spouse from Northern California at the 2023 WCI Conference and in the Real Estate Masterclass, you note that it may be unwise to utilize accredited investor REITs and syndication investments when you barely meet the accredited investor qualifications for families shortly out of residency with pre $1 million net worths. What is a reasonable allocation range to passive real estate? How would you fill this allocation? Anything to consider in addition to vnq, the Vanguard Real Estate etf. Thank you for all you do.

Okay, I talked about a lot of this stuff already, but here's somebody less than a million dollars, right, not very far out of residency and wants to have some sort of an allocation to real estate. Well, let's talk about asset allocation to start with. What is a reasonable allocation to real estate? Well, anything from 0% that I mentioned earlier to 80% I think is the top. If you have all your money in real estate, I think that's too much. I really think you ought to put some money into at least stocks, if not some money into stocks and bonds or stocks and cash or stocks and something else you get beyond 80%. I think that's too much. No matter how much you love real estate, no matter how much you wanted to build a real estate empire and have 100 doors under your management, I think more than 80% is too much. I think everybody ought to have some money in stocks. These are shares of the world's most profitable companies. In the millennias of world history, these are the most profitable companies that have ever existed. And owning small pieces of them I think is a good idea for pretty much everybody's portfolio. So I'd say 0% to 80% is a reasonable allocation. Now you're talking about not having a million dollar portfolio. Let's say you have a $500,000 portfolio. Let's say you really like real estate. You decide you're going to put half your portfolio into real estate. You got $500,000. That leaves you $250,000 to put into real estate. Now, how do you want to break that in? Well, maybe you qualify for private real estate by virtue of being an accredited investor based on your income. You don't based on your assets, but based on your income, maybe you do. So how do you divide that up? Well, $250,000 does allow you to get into some of these more higher minimum investment investments while still being diversified, because you have such a high percentage of your portfolio in real estate. You know, if you're looking at $50,000 minimums, you could have, you know, three or four different funds there, and you could have, you know, another $50,000 dedicated to public REITs or something like that, you know, and so that would work. On the other hand, let's say you have a $300,000 portfolio and you've decided you only want to put 10% into real estate. Well, that's only 30 grand, right? There's not a lot you can do with 30 grand in private real estate. So pretty much that entire allocation is most likely going to be in something like BNQ. Maybe you got $20,000 of it in BNQ and you put $10,000 into a syndication or something with plans to add another syndication in six months and another one six months after that. And that's fine as well. You know, different strokes for different folks. But those are the factors to be considering when you're looking into your asset allocation there. Okay, let's talk about LLCs for investment properties. So now we're moving toward the direct or active real estate investing side.

Hi, I'd like to ask a question about LLCs. I'm interested in forming an LLC for a real estate investment property. I kind of want to go the cheaper way, just going on to legal Zoom or something similar like that. Alternatively, I could hire a lawyer. What would you recommend? Is it okay to cut corners and kind of make this a do it yourself project, or is it something that I truly do need the expertise of a lawyer?

Okay, good question. An LLC is a limited liability company, and as a general rule, it's a good idea to have your investment properties inside LLCs. The reason why is that in many states, most states, the LLC provides some liability protection for you. It provides both internal liability protection, meaning some protection against liability that emerges from the property itself itself. Right. Somebody slips and falls on your property and sues you. Right. They can't sue you personally because you don't own the llc. They can only sue the llc. So at most you will lose the contents of the LLC that is the property. So that's a nice protection to have. It can also provide some protection from external liability, meaning liability from something that has nothing to do with what's in the llc, your personal liability. Let's say you get sued for malpractice, and it's extremely rare, of course, but let's say they get a judgment that's not reduced on appeal and you're forced to declare bankruptcy. Now, that LLC may protect that asset. This is all state law dependent, of course, but assuming there's other investors in that llc, other owners in that llc, there's no reason that the state should hurt them just because you have a judgment against you. And so it will provide that creditor nothing more than a charging order, meaning when the LLC distributes income to you, that creditor can get that income, but they can't force the LLC to sell the property, nor can they force the LLC to distribute income. So that's the benefit of having an llc. And this is all varies by state. So the first thing to do when considering an LLC is to look at your state LLC laws. I mean, is this even giving you significant protection in your state? If not, maybe skip the hassle altogether. The other thing to keep in mind is LLCs have different prices in different states. For example, I'm in Utah here it costs $70 to start an LLC and I think it's $15 a year you gotta pay to keep it active. So no big deal. You go to California, it's like $800 a year. And if this is not a very, you know, expensive property, $800 a year is a significant amount of the income from that property that it's, you know, eating up just from the LLC fees. But as far as whether you need a lawyer or not, forming an LLC is ridiculously easy, at least in my state. I mean, it's like a two page form you fill out. You just go to the state website and fill it out. It's no big deal. I wouldn't even think about getting a lawyer for it. I did not get a lawyer when I originally set up an LLC for the white coat investor. Of course we have a general counsel now for WCI and they look over everything we do. But just forming an LLC that owns one investment property, that's not very hard thing. And I would feel very comfortable with that as a do it yourself project. If you need a lawyer, you can always go hire one. But you know, I don't know that you get much from going to legal zoom or something online, you can literally just go to the state website where you form LLCs and fill out their forms. That's all there is to it. It's no big deal. Okay, let's take Another question on LLCs here.

Hi, I'm interested in learning about once we set up the llcs, which is an article I was reading, had a couple of questions, so I just wanted to share those suggestions in terms of topics.

One is, you know, there's sort of.

A parent structure with the LLC and then the individual structure where you have each property in one llc. The bookkeeping of that gets very expensive and cumbersome. So, you know, is it better just to have a umbrella like one LLC with many properties and then just a umbrella insurance property? And then the question related to that is what is the bank account structure that we should use? Right. So do you have one bank account or many? If you have all these LLCs, what's your recommendation for that topic?

Thanks. Okay, great question. And you know, I kept the question even with the background noise because I thought it was such a good question. But when you're recording your speak pipes, do me a favor, do it in a quiet room so nobody has to listen to the guy chatting on the phone in the background. Here's the deal. Bookkeeping and bank accounts can be a hassle. If you own 20 different companies, there's no doubt about it. You got to keep separate books for each company, right? These are separate entities and you better not be mingling the money between your company and your personal accounts because if that happens, what they're going to do is they're going to basically just breach that corporate veil is what it's usually caused, or LLC veil in the event that there is a claim on those assets. So the LLC won't do you any good if you're not keeping good separate books and treating it like a separate entity. Now what should you do about the bank account? Well, I guess the very cleanest, best thing to do is for every company to have a separate bank account and every company to have a separate set of books. Now in practice, what I think a lot of people do that have a lot of doors under management, right? Let's say you got somebody that's got an eight door apartment building and has got two duplexes and three single family homes, let's say that's their portfolio. Well, maybe they have three companies instead of one for each property. Now maybe they have one with the duplexes in it, maybe one for the apartment building. And one for the single family homes. And so they only got to keep track of three bank accounts and three sets of books. You know, you could put it all into one llc. But the risk there, of course, is that if you get sued for something that happens at that apartment complex, you can lose the single family homes as well. So you've got to weigh that additional asset protection with the convenience and cost of having LLCs. In some states you can have a serial LLC that kind of holds all the other LLCs. So look into that. I think California allows for that, but in general you're trying to find a balance between complexity and extra asset protection. And how many properties put in each llc? I'll have to let you decide that on your own, but I've seen recommendations going from anywhere from one to 10 properties in each LLC and I'll let you decide how to do that. But as far as bank accounts, yeah, if it's a separate company, it needs its own bank account, probably needs its own credit card, probably needs its own set of books. And bookkeeping doesn't necessarily have to be too complex. I mean, this might be just an Excel sheet or Google Sheets. That might be your books for a very simple company. That's all we did for WCI for a number of years. As things get more complex, you can move to something like QuickBooks. Maybe if you get really big, you need something more advanced than that. That still works for WCI though, so I'll bet it'll work for your real estate empire. Okay, let me tell you about a book. I got this book in the mail from Wealthy Doc. You may not know Wealthy Doc, but I know Wealthy Doc. Wealthy Doc is Brian S. Foley and Brian's an interesting guy. You may not be aware of this, but the White Coat Investor was not the first physician finance blog out there. It turned out it was the second one. And when I started it, I had never seen the first one. One thing Brian did not do very well with Wealthy Doc was market it. And so I didn't even know about it until several years after I started the White Coat Investor. But anyway, he started that website in 2007, 2008. Mostly just appoint his trainees to. You see, Brian is a fellow who grew up with very little. One bedroom shack, a family didn't even own a car. No one in his family had ever been to college. He dropped out of high school, eventually goes and becomes a Doc and eventually gets an MBA in finance. And so he's got 30 years of real world investing experience. He's now financially independent and still practices medicine. And he wrote this book. I kind of encouraged him to write it. I said, you got to write a book. It'll be fun, you'll enjoy it. People will think you're more of an expert than you are, even though you're no different than you were before you wrote the book. But he wrote this book. He calls it Wealthy Doc's guide to achieving financial freedom. Transform your physician's salary into wealth. He did a nice job on it. One of the things I really like about it is that he points out what for most doctors is their primary wealth building tool, which is their income. So you got to take your income, you got to turn it into wealth. And he shows you how to do that. And you know you're not going to find anything in here that's not good. Solid advice consistent with everything we teach here at the White Coat Investor. But some people love reading finance books and if you love those, here is one just written for you by a doc who has been there and done that. You ought to check it out. Wealthy Doc's Guide to achieving financial freedom, available at Amazon. Self published, I believe. Yes, and we'll put a link to it in the show notes. If you buy it through our link, we'll get like 37 cents. So we do appreciate you doing that. Maybe we'll make $7 off that promotion. All right, let's take a question about mortgages.

Hey, Dr. Dali, thanks for all you do. I have an amortization question and a math equation for you that I was hoping you could help me with. We have a recent mortgage which is approximately three times our gross income, more than you normally suggest. We have $400,000 from our prior home and equity which we could use down to get it under double our gross salary, which we're motivated to do. Our mortgage is at a 10 year ARM adjustable, 4.75%. We're motivated to pay it down. However, we have a guaranteed 8% return loan that we can loan out to a family business that's real estate backed and guaranteed money for us. We're in the 32% tax bracket. My question is, if you were to pay down the loan with the $400,000 today. There's no recast fees associated with my loan. Am I better off or am I better off to take the 8% loan, putting the interest from that 8% loan into the mortgage each year and put the 400,000 into it when this opportunity expires in one to two to three years, or based on an Amortization table. Am I coming out ahead by paying out a significant chunk of the mortgage early on in the loan to lower the interest paid each month and increase the equity paid each month? Thank you. Look forward to hearing from you. And again, thanks for all you do.

Okay, this sounds all complicated, but at the bottom of this, this is just the age old investor pay down debt question that we all deal with unless we're debt free. Every doc out there is dealing with this dilemma. Do you pay down to your debt or do you invest? Obviously the math of borrowing at 2% and earning at 8% would suggest you invest, invest always and borrow more money. Invest it. But that ignores risk, you know, and there is risk in our lives and it ignores cash flow. And we all need cash flow in our lives. And sometimes having better cash flow can cause us to take risks and take advantage of other opportunities that improve our lives or allow us to earn more money or whatever, or be happ. And so it's not always a no brainer to borrow at a low rate and invest at a high rate. The other thing I want to point out is that you keep throwing out this word guaranteed. And it reminds me of that line from the Princess Bride. You keep saying that word. I'm not sure that word means what you think it means or whatever it was in the movie. No guarantee is worth anything more than the guarantor can provide. So you say guaranteed and I say guaranteed by what or by whom, right? I mean even a Treasury bond or a savings bond is guaranteed by the full faith and credit of the United States of America. Now that's pretty good, but it's not perfect when you talk about the guarantees and whole life insurance that's guaranteed by the insurance company, right? And what it sounds like is this loan you're talking about, this 8% loan is guaranteed by whoever's borrowing it, number one and number two, in the event that they fail to pay you, backed by a property. So your option is to foreclose on the property, try to manage it or sell it as best you can and get your money out of it. And so that's the only guarantee you have. So 8% sounds great. Only you can decide how risky that 8% really is. And if truly it's very low risk and you know, then borrowing at 4.75 and earning at 8. Yeah, you're going to come out ahead. You know, if you need to do that in order to meet your financial goals, then that might be a very reasonable risk for you to take. As far as Paying off a mortgage though, here's the deal. You got a few options, right? You can refinance this loan, but you're probably going to end up with a higher interest rate. And so that's not a good thing. Sometimes they will let you recast a loan. You put a whole bunch of money down and they recast the loan. And essentially what they're doing, you know, let's say you've paid down the loan for 10 of your 30 years. They're going to recast it after you put all that money in, and you're still going to pay for 20 more years, but you're going to be paying a lower amount each month because your principal is lower. So that's recasting. Another option is just send the money in as principal and your payments will still be the same after that, but you'll pay off the loan sooner because more of your payment each month will now go toward principal. And so by putting a whole bunch of money down, maybe you pay it off in 8 more years instead of 20 more years. I don't know what your time is exactly, but those are all reasonable options to do. If you have a cash flow problem, you might want to recast it. If you have a high interest rate and can get a lower interest rate, this good option is to refinance the whole thing. Even if you go back out to a 30 year loan, just realize you'll be paying longer. You could refinance into a 15 year loan. Lots of people do that. They have a 30 year for three or four years and they refinance into a 15 year. And yes, payments go up, an interest rate goes down and they're done in a total of 19 or 20 years instead of 30. And then what a lot of people do, what we did is you just throw extra principal at your mortgage until it's gone. You know, whether you do that all at once or whether you do it each month bit by bit, it's the same effect. Essentially, that money is earning at the after tax rate of your mortgage, your mortgage interest rate. That's what you're earning on that investment. Now that's guaranteed because that's an investment or that's a loan that you have to pay on. And so you're guaranteed to earn that. You got a 4.75% mortgage, you put money down on it. You just made 4.75% guaranteed. That's a pretty good return, you know, although you can get in the money market fund over 5% right now. So good luck with your Debate with yourself wrestling between investing and paying down debt. Both are good things. Both build your wealth. Both will increase your net worth. If you're not sure what to do, split the difference. Do both. Okay, let's talk about. This is an interesting one. This is a syndication, but it's not real estate. There's lots of other things you can invest in out there in the world, and here's one of them.

Hi, Dr. Dali. My name is Zach and I'm an internal medicine physician from Michigan. I was curious if you had any thoughts about ATM syndications. My first impression was that this was a very niche and kind of odd type of investment. When the topic came up on another investment podcast, of course the guest was giving a sales pitch, but it does sound like there were some unique tax advantages to generating cash flow with this type of investment. I searched the WCI blog but didn't see any mention of ATM syndications in particular. Granted, that is a hyper specific request. I wondered what your thoughts were about this serving as a small part of the real estate portion of my portfolio. Thanks in advance.

Okay, I have looked into this at some point in the past. I looked into it, I think, because probably the guest you heard applied to be on the WCI podcast. I guess we didn't put them on if you've never found it in a search. We haven't had anybody on with ATM syndications, have we, Megan? No. Okay, so we've never had them on our podcast. But here's the deal. This is a business, right? You can make money with ATMs, right? You know those fees they charge? I don't know what they are now. Two or three or four bucks every time someone withdraws money. I mean, no one takes just 20 out anymore, I hope, because that'd be a heck of a fee. But those make money. Yes, most of our banks reimburse them, but they're still making money, Right? That money's coming from your bank now instead of you and your bank account. But every time someone withdraws from that ATM, it makes money. Now, ATMs have expenses, right? The machinery is not free. It breaks down from time to time. Somebody's got to go out there and stack it up with Benjamins. Again, I guess. It's not Benjamins, it's Hamilton's, right? And ATMs, $20 bills and $50 bills these days. And so it's got expenses. So can you make money in ATMs? Absolutely, you can make money in ATMs, but like any business, it depends on how well the business is running. That depends on how much you pay for the business. Now, a syndication is just a whole bunch of people going in and pooling their money to buy a business. Whether that business is a rental property, whether that business is an ATM company, whether that business is a food truck. That's all a syndication is. Think of it like a mutual fund. A mutual fund might have thousands or millions of investors and a typical syndication is less than 100. But that's basically what it is. It's a bunch of people pooling their income or pooling their resources in order to benefit from some economies of scale, higher professional management, et cetera, so they don't have to do it themselves. They're trying to get passive income from this ATM business rather than actively running an ATM and running around and checking on all your machines. So any syndication, you got to look at the syndicator. That's probably the most important part. How good of a job are they going to do running your business and what kind of fees are you going to be paying to do it? Is everything this business makes going to go to the syndicator as a result of fees? You know, you've got to look into that. Every one of these investments is a unique company and requires its own due diligence. This is not the no brainer of going out and dumping a whole bunch of money into VTI, where you get thousands of businesses, the 4 or 5,000 most successful American businesses of all time. You're not getting that. You're getting one company. You know, you got a chunk of one company and it could fail. The syndicator could be a fraudster. All kinds of terrible things could happen. So you really have to do your due diligence. But I wouldn't say you shouldn't invest in ATMs. If you want to put some small portion of your portfolio into that investment, that's okay with me. I've invested in small businesses and done very, very well. They're some of my best investments. But I tend to only invest in businesses that I feel like I have an advantage over the rest of the world in. You know, my advantage for the most part is physician financial blogs. That's where I know more than other people. I don't know more than other people in ATMs. I kind of doubt you do too. But who knows, Maybe you're an ATM expert and you know what locations are going to do great and which syndicators are the best and all that. I don't know. But if that's an area you feel like you have an advantage. Sure. Put some of your money into that sort of a thing. Okay. You wanted to add it to your real estate allocation, though. I would not call an ATM real estate. You know, maybe a billboard company you could call real estate, but ATM is kind of a stretch. You want to call that area of your allocation real estate and small businesses, it's fine with me. Stick the ATM in there. But I wouldn't call it real estate. It's not a real estate investment. Now, renting space to ATMs might be a real estate investment. You might look into that. All right. The time has come once more for me to thank you for what you do. And yesterday as I sat in the ER complaining, well, I wasn't complaining, but I was thinking about if every day was like this day, I would not be practicing medicine. I thought about you and all the hard things you do each day. You see, our computer system went down yesterday. And for those of you who've worked in a busy emergency department on paper, when you're used to working on computers, bringing your labs back to you, bringing your radiology results back to you, putting in your orders and doing your documentation and those sorts of things, you know how terrible it is to all of a sudden, with no warning, be forced to go to paper to do all that. And so of course, our department went on diverge, which helped. So at least the ambulances started, stopped coming in. But, you know, still plenty of patients came in the front door and those who were there wanted to be taken care of for some weird reason, right? But this is totally terrible. It's a terrible day at work anytime that happens. And I know all of you out there deal with those sorts of things all the time. Of course, there's always change happening. I also found out Yesterday all the CEOs of our area hospitals, which were recently bought out by a different company, all the CEOs got canned yesterday. So that news was floating around as well. And you always worry about what that means for your practice and your hospital and your contract, and we don't know yet. But just being in medicine and having those stresses is hard. I know those of you who aren't in medicine, you have similar stresses in your jobs. And somebody obviously tell you, thanks for dealing with that. And sometimes a thank you beyond the monthly paycheck is worthwhile. And a special thank you to the IT folks who got that computer system back up and running before the end of my shift so I could finish my charts and still go home. All right, back to your questions. This one's kind of about your residence, more so than, I think, an investment property. But let's take a Listen.

Hi, Dr. Dali. I'm the wife of a person wearing a white coat, but I still love reading your blog and listening to your podcast. You gave me the confidence to begin investing, so thank you for that. My question is about selling our house and the profits from that. After we sell our house, we'll have about $350,000 profit. We also have debts of student loans that are about $220,000 with a 2% interest rate and then a car loan for about 15,000 that's at a 1% interest rate. Another piece of information is we're buying into a practice in about six months, and we'll be spending about a million dollars on that. So I'm wondering what we should do with that profit. I was thinking maybe when we buy our next house, we should use a 0% down Dr. Loan and then we could use that extra money to invest in rental houses or something like that. Anyway, I'd love to hear your thoughts. Thank you.

Okay. This is the classic situation for a white coat investor family, right? Tons of expenses, tons of debt. You know, some you already have, some you're about to get, and not enough cash to go around. You got tons of great uses for your cash. You could use it to pay off student loans. You could use it to pay off the car loan. You could use it for a down payment on a house. You could use it for a down payment on that practice loan. You could invest it. You could max out retirement accounts with it. You could invest it in investment property. The choices are almost unlimited. Not enough money to go around. How awesome for you guys that you have $350,000. That is something lots of people don't have. So count your blessings that you're that much further ahead than everybody else. Now. What should you do with it? Well, this is again, kind of the classic invest versus pay down debt question. What would I do? Well, 1% car loan. I hate car loans. I really do. I think people ought to never have a car loan more than five or $10,000 because you can get a five or $10,000 car and have it be reliable. You know, the car I'm driving, I just looked it up the other day because I had to do some repairs on it. It's worth about five grand. You know, it gets me where I need to go. It got me across the river and into, you know, the float I wanted to do a couple of weeks ago. It's a perfectly functional car. So I don't like car loans. But that said, let's be honest, you have a better use for your money than paying down a 1% car loan. Especially these days when you can make 5% plus and a money market fund at Vanguard. Same thing with those 2% student loans. Let's be honest, you got better uses for your money than those 2% student loans right now. You know, with inflation at 4%, I think as I'm recording this, you know, essentially they're paying you to use their money. I don't like this million dollar practice loan coming up. That thing would be stressing me out. And so what I think I would use the money for is, is to reduce the cost, reduce the size of that practice loan. That's probably where I'd put the money. I think I'd do what you're doing, which is the 0% or very little percent Dr. Loan for your house and keep the house moderate, right, because you're not yet wealthy. And then use that money toward the practice, loan that practice. And it sounds like your spouse is a dentist or something, but that practice is probably going to double, maybe triple, who knows, maybe more of your income versus that of an associate. This is a good investment, investing in yourself, just like going to medical school or dental school is probably the way to go here. And I view putting some money toward that practice loan as a good step in that direction. So I think that's what I'd use the money for. But it's not like any of the other things are bad choices. The only bad choice out there is to take all this money and buy it and use it to buy a fancy RV or something, right? As long as you're not doing that, you're doing good things. If you decide to split the difference, pay off some student loans, pay off the car loan, you know, invest a little bit of it and save some for practice expenses. I think that's reasonable too. But I'd put it toward that practice loan. No more wading through dozens of books at the library, scrolling through hundreds of blog posts on dozens of blogs, or checking in daily with online forums, trying to gain a financial education the way the hobbyists do. For a fraction of the price of hiring a professional financial planner. The fire your financial advisor online course will take you from financial feeling anxious and having no plan to having a written financial plan. You can follow the rest of your investing career as a professional and a retiree. This course is the material that should have been taught to you in college, medical school or residency, but never was fire. Your financial advisor also has a version eligible for CME credit. Get your financial life in order today. Go to whitecoatinvestor.com courses to sign up. You can do this and the White Code Investor can help. Don't forget about the WCI Scholarship. You can submit your essays until August 31st. There's no benefit to submitting early. It's nice to know how many we got coming in, but you can send them all in on August 31st if you want. But we need judges too, so. Judges Scholarshiphitecodeinvestor.com is where you email to volunteer to be a judge. Applicants go to whitecoatinvestor.comscholarship for more information. Thanks for all who are leaving us five star reviews and telling their friends about the podcast. It really does help us to spread the word about this awesome message. Recent one came in from Heather who said awesome content, great mix of topics and engaging guests. The podcast presents actionable tips that can easily be implemented. 5 stars. Thanks for that great review, Heather. All right, that's it. End of the episode. Hope you're having a great summer. I know I am and I'm looking forward to seeing you again the next time we record. Keep your head up, shoulders back. You've got this. We can help.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your 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.