Ep 020 - Using Real Estate in Financial Planning

Summary:

• Let’s Talk About Real Estate [0:05:01]
• Diversification: Alternate Investments [0:07:48]
• Pros And Cons Of REITs [0:10:33]
• If You Want To Get Into Real Estate, Start With REITs [0:13:50]
• Jon’s Personal Real Estate History [0:16:51]
• Trevor’s Preference Regarding Real Estate [0:22:44]
• Why Do People Don’t Like Bitcoin [0:26:29]
• Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]
• They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]
• Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]

 

 

Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here’s your hosts, Jon and Trevor.

 

Jon: Welcome everyone to the 20th episode of the Financial MD Show. Today, Trevor and I will get into a topic that we get a lot of questions about and we’ve done a couple of Didactic Minute videos on and those are only 2 or 3 minutes and so we decided to dedicate a podcast episode to it because a lot of our doctors ask us this question specifically about real estate – When is the right time to invest in it? How to invest in it? What’s the right way? – and there are several different ways to do it out there and they all have their pros and cons so we’re going to go into that today from literally buying real estate or rental properties or flip properties all the way to just buying some mutual funds that have real estate in it. So, listen up, take some notes, shoot us any questions if you have them, please leave a review, and here’s the show:

 

Jon: Welcome again to the Financial MD Show. We’re so excited to be continuing and jumping into 2022. How’s it going Trevor??

 

Trevor: It’s going great. Yeah, I’m among the COVID-positive so that’s good. I’m on the other side of it and get to look forward to not worrying about getting other people COVID.

 

Jon: That’s right.

 

Trevor: It’s kind of nice.

 

Jon: Yeah.

 

Trevor: The not knowing is half the terror or the frustration or the whatever. I mean, my whole family has pretty much had it now so it’s like we can just go anywhere and do anything we want now. You know, it’s kind of nice.

 

Jon: That’s a beautiful thing.

 

Trevor: Yeah. The New Year brings gifts and new forms.

 

Jon: Yeah, good. Your holidays were good?

 

Trevor: The holidays were great. I got to do a little Florida trip. That’s not where I got the COVID, contrary to what people would probably guessed. A local brew, but yeah, so I had a good holiday; got to get a little bit of warmth pre-holidays. I got to do a trip to Jamaica, do some surgery done there. It was really good December, and January is kicking off, pretty busy already. How about you?

 

Jon: Yeah. We had a crazy time. On the 21st of December, we flew down to Florida with me and wife and four kids and spent a week in Fort Myers. During that week. we flew up to Orland, just my wife and I, to see some friends for dinner overnight, stayed there, came back in the morning and then we flew from Fort Myers to Austin, Texas and did five days there with some friends and their kids and then flew back to Michigan. In all, I counted it; my wife and I were on six planes over the course of two weeks.

 

Trevor: Wow, that’s a lot of planes.

 

Jon: It was just like had the process down.

 

Trevor: It’s lucky, I guess.

 

Jon: Yeah. So got a lot of miles but used a lot of credits and I did a TikTok video in the airport about using airline miles and doing all that kind of thing. Grand Rapids Airport, by the way, has massage chairs while you wait. They’re like five bucks for 10 or 20 minutes. It was nice; so a little plug for Grand Rapids Airport. I love it.

 

Trevor: I have to check that out. I go through there all the time. I’ve never noticed the massage chairs.

 

Jon: Oh yeah. So when you get to – let’s see. You go through security and you can basically go left to right. So if you go to the left, those gates, you’ll go up the hallway, take a right then you start to get into the gates. Right before you get into the gates section on your left, there’s about four of these massage chairs.

 

Trevor: Yup, all right now.

 

Jon: Well worth it. Check it out.

 

Trevor: Nice.

 

Let’s Talk About Real Estate [0:05:01]

 

Jon: Other than that, nothing too new or noteworthy. Life is good. Today, I thought we’d focus on how we talk about real estate in terms of financial planning and what kind of an allocation or a piece of your financial picture does it take and when is the right time to do that, what kind of ways there are to do that, and we could spend several episodes on this so we’ll just kind of do some quick overview. It may lead to a part two or three, etcetera. In general, I get this question especially when our attendings are getting to that point where they’re doing well. In fact, I just had this conversation with a couple. They’re both anesthesiologists, they’re in Nevada, and they’re killing it in terms of saving. I love this couple because they are making a high six-figure income. One of them is in the military, so a lot of things are cheap. They’re daycare their housing like all that kind of stuff. They’ve got two kids and they’ve kept their life pretty reasonable and have an enormous surplus that they’re saving and we’ve figured all sorts of tax free ways. I mean I think they’re saving a couple of hundred thousand a year pre-tax due to some self-employed business owner type of loopholes and things which is another conversation for another time. All that to say, they are well funding their retirement to when we have these every six-month reviews like we did yesterday, and I said, okay. They’re like, how are we doing towards retirement savings, and I’m like, you guys probably no surprise to you that you’re well over a hundred percent on track for your goal so you can basically retire a lot earlier than you planned on or you can plan on a lot more money in retirement than we had originally planned on but either way, you’re doing kind of all the normal stuff. You’re putting into mutual funds and stocks and IRAs and 401(k)s and defined benefit plans and they’re saving in a regular brokerage account and they’re doing all the stuff. I said this is about the time when we start having the conversation about diversifying more when we’re as diversified as we can be in an investment account. They’re very stable and have checked all the boxes, otherwise, how much should we put into something outside of the normal?

 

Diversification: Alternate Investments [0:07:48]

 

You might call them alternative investments and everybody’s got a different concept of what that means but for our conversation today, I said, have you thought about investing in real estate. And they said, yeah, you know, we’ve kind of thought about that but we didn’t know how and it sounds really complicated of buying property. Again, I think I did a video on this a few weeks ago – maybe a couple of months ago – about the different ways to get involved in real estate. And there’s the ways that everybody expects or knows how as far as you buy a house, you rent it out, you manage it, they call you when the toilet clogs – all that kind of stuff – and that’s “investing in real estate.” Then there’s the other end of the spectrum where you basically just buying real estate funds in your investment accounts, and we do a little bit of that anyway. Then there’s kind of this middle ground where if you’re an accredited investor, which means, basically last I checked, you’re making a couple of hundred thousand a year consistently or you have a net worth of at least a million dollars, then you can invest in these real estate – what would you call them, Trevor, syndications – is one way of thinking about it. It’s a fund but it’s not like a mutual fund. It’s a private fund. It’s a hedge fund. It’s a real estate fund. So you’re actually giving your money and a lot of these minimums are at least 50,000 to 100,000 dollars and this company like Cadre, you may have heard of; Fundrise, CrowdStreet. There’s a bunch of them like this now. We’ll post a list of – I think there’s 15 to 20. I found an article that was listing all of them but you get actual…it’s called a limited partnership essentially and so you get some shares and you can actually pick the actual property or project that you’re investing in. It might be apartment building or commercial and then you get a benefit from the investment growing so the value of it grows which helps you when you go to sell that investment one day. The other benefit is you get monthly rent, so you participate in the monthly rent from the project. And there’s different types of that. Some that are more focused on rent, some more focused on what they call capital appreciation, but those are kind of offhand a few of the ways. Anything to add to that, Trevor?

 

Pros And Cons Of REITs [0:10:33]

 

Trevor: Yeah, no. I mean, real estate is definitely not been something I’ve looked into too much. The only thing that I’ve read a little bit about was REITs, the real estate investment trust, and I’ve read a handful of articles just enough to know that I was not really at the point where I wanted to do that yet but there’s owning and then there’s sort of like somebody else owns it and manages it and it’s almost like just a stock version of real estate.

 

Jon: Right.

 

Trevor: That’s like a REIT, and so there’s more tax benefits on the direct ownership side.

 

Jon: Correct.

 

Trevor: There’s more responsibility. There’s more headache. And then the other end of the REIT is just like the least amount of headache, the least amount of tax benefits, least amount of work but still a decent amount of returns. I don’t know if they’ve been la lot higher but I feel like the returns I tend to hear about for REITs is like 10 to 13 percent, kind of what aggressive stock portfolios used to return and then maybe up into – if you’re getting lucky and you’re picking a really hot one – maybe gets up until like the upper 10s or low 20s. Individual stuff – that’s more like they own tons of stuff so you also get the benefit of the diverse portfolio of real estate versus if you buy the house down the street and you’re the landlord. If your local area tanks, you might get a minus 10 percent. You might get like a loss but if your local area goes crazy then you get like 30 or 40 percent return. You can pay a lot of taxes on it if you want to flip it because you can hold it for a year or whatever. Those are the pros and cons that I like, and those are on the extremes and then there’s like all these different real estate vehicles kind of in between those two.

 

Jon: Yeah.

 

Trevor: I read about them and I was like it sounds fine but I’m good so that’s something of a thing.

 

Jon: Yeah.

 

Trevor: It will be, at some point, my thing. It’s just I really like to know everything about the entire breadth of the spectrum of something so if I understand the pros and cons on the ends and I would probably go more towards a REIT personally because I’m mobile and I’m single and I don’t want to have to stay in an area or give up a substantial percentage of profits to hire somebody else. I’m like a hands-on. I’m that kind of person I like to have the control. I like to be unlimited, so location-wise, real estate has not been something of interest for me but incredibly powerful and I’ve definitely missed out on growing my net worth because of that, but I knew that when I kind of got of it. I’m also missing out on any sort of substantial drawdowns. We haven’t had any. So right now, it just looks like I’m missing out on all the wins and all the profits.

 

Jon: I know.

 

Trevor: I have buddies that have two houses from residency; almost like that military thing where people move around, they buy one and then they rent it out and they kind of build the thing. So when the market’s going vertical, everyone’s a genius, right?

 

Jon: Right.

 

Trevor: Yeah, that’s my two cents on it. That’s what I know – a surface-y level of pros and cons.

 

If You Want To Get Into Real Estate, Start With REITs [0:13:50]

 

Jon: Yeah, and I’d say that’s about right and I think most people if they want to get into real estate should probably start with these REITs and especially these publicly-traded REITs that are exchange traded funds essentially. So real estate investment trust is that you’re buying a share of a real estate company or project and you do often get some monthly income from it but the tax benefits aren’t as much as if you bought directly or directly invested in the project, but that’s good because you don’t want the liability and sometimes the minimum investments to get into the other things. So, the REITs are good. You get to experience that. You can get some monthly income, experience the growth, and just having that diversification in your account so that if you got all stocks and mutual funds here that are pretty much all equities, maybe some bonds and stuff but no real estate, having a little bit, let’s say, 5 to 10 percent real estate, gives you that diversification, and a lot of stuff that I’ve seen, now granted this is from real estate guys, that say real estate has beaten the market over time, maybe, but it’s worth looking into especially when you factor in rent and capital appreciation or the growth and the value of the actual investment. When you add those together, you could definitely make an argument that it could beat the stock market over time. Either way, it’s what you call a non-correlated asset, so something that if the market goes up and down, often you’ll see bonds go the opposite way. Market goes down, bonds go up and vice versa. With real estate, it’s not so correlated, and when you’re doing investment analysis which none of you probably are but when a money manager is doing investment analysis, you’re looking at things like beta which are the number that is or you guys probably know some of this from stats in undergrad – correlation coefficient. You’re looking at R squared to C. If it’s 1, then these two things are perfectly correlated. One goes up, the other goes up by the same amount. If they’re -1, they’re perfectly correlated but in opposite directions. One goes up, the other one goes down in the exact same amount. If they’re zero, then there’s completely no relation. One could go up, the other one could do nothing or could go up or down; it’s just there’s no relation. So the stock market and real estate probably had not exactly zero but closer than bonds or international stocks or other things like that. That’s something to keep in mind, too. That’s just whatever you do, real estate will help you diversify your investments, and again, there’s lots of ways to do that.

 

Jon’s Personal Real Estate History [0:16:51]

 

I have one example I can talk about personally and I’ll give you my real estate history. I first really learned about it when I was in high school, and during my summers, I lived in East Lansing or near East Lansing and my best friend in high school, his dad owned probably 8 to 10 houses in East Lansing in kind of the student ghetto where every house was rented by students. There were families here and there but it was pretty much that was what it was and they were getting great rent from these houses. Now, he took care of them really well – me and my best friend and our other friend would work there during the summers. We’d do kind of the turnovers, and when we weren’t doing the turnovers, we were painting, cleaning, refinishing floors, just doing all that. We saw some really gross stuff. We saw some really cool things that we weren’t allowed to see normally and we saw just how that whole system worked, and I was like, that’s interesting. I didn’t think too much about it at that point. But then he got into college, and then in grad school, I experienced property management again but working for a big company that did a lot in East Lansing with student housing. So I’d worked on the leasing side a little bit, some property management, some marketing but got a good scope of that and then a friend of mine a couple of years later, we did a house flip so this was when in 2010 it was easy to find foreclosures and we found one for 40,000 or 50,000 dollars, maybe; decent little house. We kind of rehabbed it, flipped it, and made a little bit of money. So I experienced it on that side and that was really my last exposure to real estate. I’ve always read about it and wanted to get a little bit involved but I’ve also heard horror stories of just landlords even around Lansing here where they just get in and they want to get out of it, and one case, I mean, you and I both know Reuben had bought a bunch probably back in ’08 or ’09, maybe 2010 and they just never performed the way he wanted them to and he has had a hard time getting rid of them. So I hear those stories too which I vowed never to…you know, I kind of know the area well enough to know which places I don’t want to be investing in.

 

Trevor: It’s kind of like that’s the pro and the con of a hard asset.

 

Jon: Yeah.

 

Trevor: Right now, real estate – just to go back to the correlation thing –pretty much all assets are correlated right now, right. All going up about the amount of money that was added, you know, the amount that was printed roughly. You can compare different assets or even currencies and you can kind of overlap them – what’s a good example – like Bitcoin and U.S. dollar and like U.S. dollar and Euro and you can kind of skip them, right, just like a chemistry equation. You can go from what if A then B, B then C, and you can just do A and C. So you can kind of compare a lot of these different assets and they end up being like if you compare them to the amount of money that was printed, everything’s up just slightly above just like the printing of the money. I think that’s part of the reason; we’ll have to see if that continues or what they’re doing. The Fed is threatening, tapering and increasing rate slowly and they kind of said specific amounts that they kind of changed after a week, didn’t they. They might actually enforce them and the market might not crash if they don’t. There’s a lot of interesting things going on there. With hard assets, you’re stuck with them and they cost you something if they’re not making you money or if you sell them for more than you bought them for. It’s worse than having a liquid asset that you can just sell. Like Tesla stock tanks and you lose 30 percent of your money, you can execute on that and get out before it goes down 20 percent more and then you have lost half. But the benefit is there’s only so many hard assets in the physical world or some sort of digital signature world, which is the whole crypto, Bitcoin.

 

Jon: Blockchain.

 

Trevor: Yeah. so real estate has that pro but I do think people forget how much that’s a con. You can’t sell that house. It’s your house and it’s worth nothing, right. like people don’t want to pay money for it. You still own it and guess what? You get to pay taxes on it.

 

Jon: Yeah. At least if you have a stock that you can’t sell, it doesn’t cost you anything to hold it typically.

 

Trevor: Yeah, it is like if things really, really go south, people are going to remember how much it hurts to have hard assets that people don’t want.

 

Jon: Yup.

 

Trevor: It’s like having a business. Let’s say you sell clothing and you buy just a ton of cloth, whatever, you know, you make it from and you’ve got all these different colors and then two seasons later, you bought purple and nobody wants purple. You can’t beg, so you have to pay somebody to take it to the dump, you know what I mean?

 

Jon: Oh, yeah.

 

Trevor’s Preference Regarding Real Estate [0:22:44]

 

Trevor: That’s the downside of physical good commodity or real estate and that’s like one level larger like just the big picture. It’s why I haven’t gotten involved in real estate. It’s not because I don’t think you can make money and I think I should probably have some real estate but for me, the only kind of real estate I want to have is the kind of specifically useful to me. I want to have me as the owner-occupier of the real estate. So when I diversify my net worth into real estate, it’s going to be me owning a home and that’s in line with my goals, so you got to have your written financial plan. White Coat Investor always says – I totally agree with that – you have your written financial plan and you stick to it, and for me, my written financial plan is going to be my first real estate acquisition is going to be to try to grow my net worth. Like I said, I have lost out by not doing that but I want to be me owning a house in the town that I want to live in for a long time.

 

Jon: Okay.

 

Trevor: That doesn’t mean lifelong, but five years, 10; something where you could have a 1930-level, 1929-level event depression and I’d be 1945 equivalent like I want to live in this house and I don’t mind paying taxes on it because I bought it to live in it.

 

Jon: You’re right and you don’t really care what you paid for it necessarily because it’s a long-term investment.

 

Trevor: Yeah, you essentially don’t – I don’t know. It’s sort of – I don’t know if that’s a millennial take on real estate but it’s a noncommittal take on real estate.

 

Jon: Yeah? That’s okay.

 

Trevor: Yeah, those are – I don’t know. That’s what I’ve been thinking about because I think a house would be cool. Property is nice. I like hard assets that’s why I like Bitcoin, but it’s not mobile. It’s not transferrable. It’s not liquid.

 

Jon: Yup. Liquid, and that’s the word, I wanted to emphasize too was illiquid versus liquid. Stocks are designed to be liquid because there is somebody on a particular stock exchange that no matter what – they’re called market makers – and they’re creating a market to make sure there’s always demand or someone to buy a particular stock. So if something is publicly traded, there’s always going to be somebody to buy it for the most part. But if you hold shares of a privately-owned company, there’s no market for that typically. There’s some real estate too. The market’s got to be there and the market, no one has control over the real estate market.

 

Trevor: Yeah, like Bitcoin can go to zero because it’s liquid, right, you know, can meaning it’s technically possible because there’s demand, just like any stock can go to zero.

 

Jon: Right.

 

Trevor: That’s a benefit, I think, and I’d rather be in a liquid asset than illiquid asset in general or at least a large percentage of my net worth I’d rather be in liquid. But that’s a philosophical decision, you know. When I’m 55, do I want to have most of my net worth being illiquid assets? Not really.

 

Jon: Yeah.

 

Trevor: It’s 65, I guess, I would say. Fifty-five still kind of maybe – it depends on what the world looks like.

 

Jon: Well, and it depends if those assets are providing income for you too like what are they doing for you at the end of the day is the question.

 

Why Do People Don’t Like Bitcoin [0:26:29]

 

Trevor: That’s right. That’s why people don’t like Bitcoin. That’s why traditional investors like Warren Buffet don’t like it.

 

Jon: Because they don’t pay dividends?

 

Trevor: They don’t pay dividends. It doesn’t pay you anything and it “isn’t a business that produces something.”

 

Jon: Yeah.

 

Trevor: Yeah, which is I totally understand that argument.

 

Jon: That’s sticking to a philosophy, right?

 

Trevor: Yeah, it is, and that’s you should do. He’s been very successful and he has been not beaten. I think I kind of like pooh-poohed this at some point in one of our talks but he’s been losing against the S&P for 10 years or longer, I think, but he’s doing it with billions of dollars. It’s really hard to do. The flip side is like easy to critique but if you have tens or hundreds of billions of dollars and you’re still able to grow it at over 10 percent, it’s like kind of insane. That’s really, really, really hard to do.

 

Jon: Yeah, totally. I love those conversations of people like, well, my advisor’s doing pretty well, I mean I got about 15 percent, 20 percent last year, and it’s just I kind of rolled my eyes like well, you’d have to be an idiot to not get 20 percent last year where you just got to stick in some index funds and good to go, and obviously, that has no bearing in the future. So that’s kind of the pros and cons of real estate. My latest experience with real estate is…

 

Trevor: This is the part you got to talk about.

 

Jon: Yeah. All right, I’ll tell them everything. I learned a lot in a short period of time so far.

 

Trevor: Give them the full story.

 

Jon’s Recent Real Estate Saga (All The Juicy Details Here!) [0:28:15]

 

Jon: So, I listen to Grant Cardone sometimes who does a real estate podcast. I’ve just always thought, you know, I could get into real estate. I’ve learned enough from other people’s mistakes in it that I think I could do okay.

 

Trevor: Yeah, classic.

 

Jon: Classic, and so it wasn’t something I was actively looking for but something came along. By came along, I mean a push notification from Zillow popped up on my phone and it was like, hey, there’s this five-unit building for cheap, like 225,000 dollars. So I was like, and the other thing was again, I would say, if you’re buying real estate as a rental or flipper, whatever, the number one important priority is you got to know the market and so I knew if I was going to get something, I was going to buy it local where I knew the market. This one was about 5 minutes away from my house so I was like, yeah, I know that market. So I went and checked it out like as soon as it hit the market. My realtor and I went and saw it. So the other realtor – the listing agent was there – and the owner of the building was there which was kind of odd but I guess, well, I guess it made sense. They had to have a property manager there to let us in, I guess. It was my first time looking at “apartment building” and so it was five units. It was this house built in 1920 that had four units in the one house and then a small one-bedroom unit by itself bungalow-style. So I checked it out and walked through really just two of the units and bathrooms were nice, updated. Kitchens were good. like things were taken care of pretty well. My realtor was like, yeah, you’re probably going to need a roof on that single building there. I was like, okay, and we went in the basement and it was an old, unfinished basement that had some water in it which was fine. Nobody was really doing anything down there but he’s like, yeah, you may want to look into waterproofing that. All right, so I said, and it had five units that were all rented, averaging about 500 a month each, some one bedroom, some two bedrooms and so at 225,000 with 2500 a month coming in, that’s pretty good, okay.

 

Trevor: Yeah.

 

Jon: So I made an offer. I borrowed some money from a family member to make a cash offer just to get it. So did that, offer was accepted so we’re moving forward. A week later, we scheduled the inspection and I started learning things. I learned that five units and above is considered commercial so commercial loan, commercial insurance, commercial inspection. I had to add a sewer inspection because of that which was another 500 bucks. The inspection itself – the normal inspection – was 400 dollars. So we did all that and then I had a guy that does property management come with me and take a look at it too. So we had all these people doing this inspection, and during this inspection – the owner’s never there at a house when you do this – but in this case he was and he was this old Greek guy in his 70s and I found that he’d owned the place for 50 years – not exaggerating – and he looks at me and he goes, what are all these people doing here, and I was like, this guy’s a sewer inspector, this guy’s the housing inspector, this guy’s a property manager. He’s like, what do you need all these people? He’s like, you don’t need any inspection. He’s like every building I bought I didn’t have an inspection. I just trusted my own gut and he’s like, are you Greek, and I was like, oh, I’m Italian. He’s like, okay, close enough. He’s like, you’ll do fine. You don’t need to have all these inspectors. I’m like, well, okay, this is what we’re doing though and he just like he wanted us to spend 30 seconds in each unit. He was just concerned about pissing off his tenants. So inspection went fine. There were a couple outside exterior spots and we patched up, getting a new roof like we thought. Then the sewer inspection came back and was like, yeah, you’re going to need to run a new sewer line through the house and then about 10 feet out from the house. So I was like, all right. Then a few days later, a four-unit, maybe two or three blocks away, again pops up on my phone and I was like, hey let’s go look at this. I’ve learned a lot so far about this process. I also learned that a commercial loan to get this five-unit place was going to be 25 percent down and 15-, maybe, 20-year term is the most that you would see and higher interest. So all this stuff just started adding up to where a lot of things are going to cost me more than I thought. So I go to see this four-unit one which was appealing to me because I learned in the process a four-unit is completely different than a five-unit. Four-unit is much cheaper insurance. You can get a normal mortgage. You can get like all the stuff. So we go to see this four-unit one. a bunch of people had already saw it. It just hit the market. It was listed at 250,000. So higher a little bit than the other one, but it was nice. There was no basement. It was built on a slab. It was a lot newer, built in the 80s instead of the 20s, and there were four 2-bedroom units, cookie-cutter, like mirror images of each other; had a wash and dryer in them, like just nice. Good shape. Three of the four rented. Good long-term tenants. So even just with three rented, it was fairly profitable. So my realtor was like we got to make an offer by 7 p.m. today and it was like 5 o’clock. So we go through, think about it and I was like, yeah, let’s do it. We offered a little bit over asking. I knew there was some other offers on the table and I think offered 260,000 and they called us the next day and they said, could you do 263,000 and I was like, yeah, fine. So we got it, and then I cancelled my offer on the other one basically saying, okay, inspection not up to par, we’re going to withdraw our offer.

 

Trevor: Yeah, for sure.

 

Jon: I actually found out a couple of days ago, that one is still in the market.

 

Trevor: Do you have a referral code for that?

 

They Got The Property; However, Problems Arose (But All Ends Well) [0:35:00]

 

Jon: Yeah. No, I would not do that to anybody. So we go to the closing process, inspection goes fine. We go to close and we closed quickly because we used cash and I was going to then refinance and pay back this family member once the house is purchased. I just like to make a cash offer because you can usually either beat out other offers at the same dollar amount or pay less or whatever. So we get to closing, everything goes fine pretty much. That was the Tuesday before Thanksgiving. Wednesday comes and we get the keys on Wednesday and I go into see the empty unit and this one, they all did their own electricity but we paid for water as the landlords. So we’re going to this thinking, my wife and I are like we don’t need a property manager, it’s only four units, close enough, they seem pretty easy, we can take care of this ourselves. So we wrote this nice letter, introduced ourselves to the tenants. We bought them some pie. We dropped off a pie to each of them and then I go this empty unit and it’s freezing. The electricity was already shut off. So I had to call Consumers Energy. I call them on this Wednesday 5 o’clock – they’re closed. I called first thing in the morning but it’s Thanksgiving. They’re still closed. They’re not going to open for another two days. I’m like, oh my gosh, and it’s here in Michigan and the nights are starting to get below freezing and for those of you not in the Midwest or up in the north, when stuff gets freezing, your water pipes can freeze especially if there’s no water moving through the pipes. When standing water freezes, it expands. Pipes burst – you guys know this. So I’m freaking out thinking, I don’t know what to do. I’ve got Thanksgiving and the Black Friday with no electricity in this unit but water’s on. So I go over there, turned on all the faucets and all the bathtubs just to get water running through the pipes and I go back two or three times a day and I was losing sleep and then halfway through that day, I realized, I forgot to get insurance. So I had no insurance and I can’t believe I’m admitting this as a financial planner but I forgot to get insurance. Because it’s like every other house I bought I had a mortgage and they make you get insurance. It’s just part of the process, right.

 

Trevor: Yeah, exactly, because of the cash offer.

 

Jon: Yeah, because of the cash offer. Nobody said get insurance. So I feel naked, exposed, liable; anything could happen in this property and I could be financially screwed for the rest of my life. I was like this is the day that somebody’s going to slip and fall and die and I’m going to get sued for 2 million dollars. So I’m over there taking salt and salting the sidewalks and just making sure everything’s fine and it just happened to be freezing rain that day too. So I called my insurance agent. He’s like sorry, I can’t help you until Monday. So I’m googling everywhere in the internet. There’s got to be some insurance company that does business on even Friday like every store in the world is open on Black Friday but no insurance agencies. It was finally Saturday morning 9 a.m. I get a hold of Consumers Energy. They turned the electricity on. Some insurance company calls me back. I’m able to buy coverage that day and I could rest a lot easier and then picked up the phone and called the property management company and said, yeah, I’d like to hire a property manager. I decided not to do this myself. Everything ended up fine but I overestimated a lot of things and didn’t take it super seriously in terms of like, my realtor said, make sure you call the utilities and get those switched today, and I was like, okay, but tomorrow’s probably fine too and it was not; just the wrong day. It’s the worst because it was a four-day weekend with Thanksgiving. It’s the worst time to do that. But now we’ve got them and the tenants are paying rent on time and we pay a property manager 10 percent to manage everything and they do the leasing and record keeping and books and accounting and service and all that stuff. There you go.

 

Trevor: Nice. That’s what I would do if it was me but everybody’s different.

 

Jon: Yup.

 

Trevor: I think you said too when you were telling me about it initially like right after Thanksgiving, you said there’s different – I mean, I know that there are too. There’s different rates that people charge. Didn’t somebody try to charge you a deal where they got a percentage of the sale or something?

 

Jon: Yes, they wanted 3 percent of the sale price if I ever sold it.

 

Trevor: Crazy.

 

Jon: And they’re like, well, it’s because, you know, we have to do a lot to get ready to sell and we help you sell it and show it.

 

Trevor: Three percent? That’s what a real estate agent makes after all their training and work and showing people.

 

Jon: Yeah, if I sold it for 300,000, that’s 9,000 dollars.

 

Trevor: That is the clause that keeps them in business if I was to guess.

 

Jon: Well, they didn’t get my business so I went to a different property manager.

 

Trevor: Amazing. Read the fine print with everything. It’s very annoying but very true.

 

Jon: Yeah. There you go, kids, so hope that helps.

 

Government Regulate and Control Things; But It’s Usually For The Benefit Of the Consumers [0:40:41]

 

Trevor: The cash offer that really got you, it’s interesting how, you know, it’s just funny because I would have never thought of that, and we do get handheld a lot like in the U.S. especially. We’re really fortunate to be here because things are so regulated and controlled. It’s kind of annoying in some businesses and we don’t like to be controlled by the government but there are a ton of things in place to protect the consumer.

 

Jon: Sure. As an advisor like I have to get errors and omissions insurance and I have to get a surety bond. That’s all stuff I have to get and it’s to my benefit but it’s also the consumers benefit, so it’s fine.

 

Trevor: It is, and I’m somebody I don’t like that kind of stuff but it’s often there for a reason.

 

Jon: Yeah, like you as a doctor, employers won’t hire you a lot of times unless you have tail coverage if you had a claims-based or policy and all that kind of stuff. That kind of thing.

 

Trevor: That reminds me, I need to get a paper copy of the tail that was paid because I put that in my last contract; made sure I negotiated that the tail would be paid by the practice that had me there.

 

Jon: There you go.

 

Trevor: It’s not too expensive. That’s one of those things that gets expensive if you’ve been working for 5 to 10 years.

 

Jon: Yeah, for sure.

 

Trevor: For shorter periods of time like I basically I did a locum’s position with an optionality to change to permanent and then I elected not to do that, being pretty short period of time for locums and that goes into account, but it was a good reminder because I need to get that in paper and put up my files.

 

Jon: Yup, there you go. I’m glad – see these little things a good reminder.

 

Trevor: Yeah, insurance. There’s always more things to insure. It seems like there’s more things to be thorough on no matter what.

 

Jon: Absolutely but I’m a big believer in that. I mean, we have the errors and omissions. We have cybersecurity insurance.

 

Trevor: Identity theft.

 

Jon: You’re right.

 

Trevor: You can get the tax thing you pay for that, make sure you get it all back and they help you with it.

 

Jon: Yup. I’m good with that. Well, all right, I think we gave them a lot of stuff, Trevor.

 

Trevor: Yeah, it was great. Good catching up with you as always.

 

Jon: Yeah, you too.

 

Trevor: Talk to you soon.

 

Jon: Thanks to our listeners. Hope you enjoyed it. Be sure to check out the Financial MD community on Facebook if you like what you hear here. There’s a lot of discussion happening there and if you want more videos, get us on TikTok and Instagram and if you want portrait mode, shorter, or if you like the landscape view, go to YouTube and Facebook and no shortage of stuff there. So hit us up if you’ve got questions on anything we’ve talked about in any episode at financialmd.com. Take care, guys. We’ll see you soon.

 

Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their career gather to share tips and get ideas on achieving true financial success. We’ll see you next time.

 

The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.

 

 

Resources and Links:

• Understanding defined benefit plan – https://equitable.com/retirement/articles/understanding-defined-benefit-plans
• What is an alternative investment? –

https://corporatefinanceinstitute.com/resources/knowledge/finance/alternative-investment/

• What is syndication? – https://www.1031crowdfunding.com/education-center/blog/92-what-is-syndication
• Cadre | Real estate investing, reimagined – https://cadre.com/
• Fundrise website – https://fundrise.com/
• CrowdStreet: Online commercial real estate investing platform – https://www.crowdstreet.com/
• Best real estate crowdfunding sites of 2022 – https://www.investopedia.com/best-real-estate-crowdfunding-sites-5070790
• Real estate limited partnership – https://www.businessinsider.com/personal-finance/real-estate-limited-partnership-relp-definition
• Capital appreciation definition – https://cleartax.in/g/terms/capital-appreciation
• What are REITs? – https://www.investor.gov/introduction-investing/investing-basics/investment-products/real-estate-investment-trusts-reits
• What is an ETF? – https://www.schwab.com/etfs/understand-etfs
• What is a non-correlated asset? – https://insights.masterworks.io/finance/investing-strategies/what-is-a-non-correlated-asset/
• Hard asset definition – https://www.accountingtools.com/articles/hard-asset
• What is liquid asset – https://economictimes.indiatimes.com/definition/liquid-asset
• Making sense of Bitcoin, cryptocurrency and blockchain –

https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html

• Liquid vs illiquidity – https://www.connectinvest.com/resources/blogs/liquid-vs-illiquid-assets/
• Podcast Cardone Zone – https://grantcardone.com/podcast/
• Errors and omissions insurance – https://www.thehartford.com/professional-liability-insurance/errors-omissions-insurance
• What is a surety bond? – https://www.suretybonds.com/what-is-a-surety-bond.html
• Tail coverage: What it is and who needs it – https://www.magmutual.com/learning/article/tail-coverage-what-it-and-who-needs-it/
• Cybersecurity insurance: What it is, which businesses need it – https://www.nerdwallet.com/article/small-business/cybersecurity-insurance
• Financial MD Website – https://www.financialmd.co/
• Financial MD YouTube page – https://www.youtube.com/channel/UC6qEAQxK8L8JM7joy3wvdkA
• Financial MD Facebook community – https://www.facebook.com/FinancialMD/
• Financial MD TikTok – https://www.tiktok.com/@financialmd
• Financial MD Instagram – https://www.instagram.com/financial.md/
• Financial MD Twitter – https://twitter.com/financialmd2
• Financial MD LinkedIn – https://www.linkedin.com/company/financial-md/?viewAsMember=true
• Financial MD App – https://apps.apple.com/us/app/financialmd/id1507757039
• Financial MD Apple Podcast –

https://podcasts.apple.com/us/podcast/the-financialmd-show/id1548024586