Physician & Real Estate investor seeks advice

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WanderingDoc
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Physician & Real Estate investor seeks advice

Post by WanderingDoc » Sat Aug 05, 2017 8:40 pm

Hope everyone is enjoying their weekend! Glad to be here.

I am a HCP, military, early 30s, filing single, no state income tax, and have been someone confused and bewildered if I should be/how investing in equities and retirement accounts. I hope to get some feedback and suggestions.

Pertinent stats:
Taxable income: ~$120k (not including tax free income or rental income)
Assets: >90% of my 'net worth' is in real estate equity.
401k: ~$15K in traditional TSP (I stopped contributing in 2015)
IRA: ~$5K
Roth IRA: ~$5K
Taxable mutual funds: ~$50K
(no contribution that I can remember to the above three for the last >5 years)

I have heard of the 5% employee match they will be offering in 2018. This makes things interesting. I have never believed in 401ks/IRAs, as I have always liked to have control over my investments. I have 90% sure I will leave the military in roughly 6 years. Although, people tell me I am dumb to give up a $90K pension and free healthcare.

My options at that point are as follows (I haven't decided which):
1) Retire and travel, and go fishing
2) Work part time (telemedicine), 7 or 10 shifts per month, etc.
3) Build a multi-million dollar company unrelated to medicine

So the main question is, should I be investing in equities at all? Should I stop contributing to the taxable accounts, and just focus on IRAs and the 401k (with the 5% employee match)? Thank you and I value your feedback.
Last edited by WanderingDoc on Sun Aug 06, 2017 10:07 am, edited 1 time in total.

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Re: HCP & Real Estate investor seeks advice

Post by LadyGeek » Sat Aug 05, 2017 8:57 pm

Welcome! Could you please explain what "HCP" stands for?
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

WanderingDoc
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Re: HCP & Real Estate investor seeks advice

Post by WanderingDoc » Sat Aug 05, 2017 11:42 pm

LadyGeek wrote:Welcome! Could you please explain what "HCP" stands for?
Thanks:) Whoops. HCP = Health Care Provider

Lafder
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Re: HCP & Real Estate investor seeks advice

Post by Lafder » Sun Aug 06, 2017 12:09 am

Welcome here!

I would max your 401k and any other pretax options.

That way you put away the larger pretax amount away to grow over the years and hopefully will be in a lower tax bracket in retirement than now.

If you change jobs you can take your 401k with you and put it somewhere you have full control. You also usually will have a number of options of where you can put it while with the current employer.

Once you max the pretax space, you can invest any extra in taxable :)

Perhaps list your current options and we can talk about them for all of your accounts.

lafder

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Re: HCP & Real Estate investor seeks advice

Post by WanderingDoc » Sun Aug 06, 2017 12:48 am

Lafder wrote:Welcome here!

I would max your 401k and any other pretax options.

That way you put away the larger pretax amount away to grow over the years and hopefully will be in a lower tax bracket in retirement than now.

If you change jobs you can take your 401k with you and put it somewhere you have full control. You also usually will have a number of options of where you can put it while with the current employer.

Once you max the pretax space, you can invest any extra in taxable :)

Perhaps list your current options and we can talk about them for all of your accounts.

lafder
Thank you for the welcome!
Sure.. here they are:

Traditional 401k - $15K - random mix of funds, but I recently changed allocation to 87% C fund, 13% S fund
Roth 401k - $0
Roth IRA - $5K - USIFX/USGRX/UVALX/USAIX range 0.51 - 1.13 ER
Traditional IRA - $6K - UFSGX 1.83 BR, 1.44 AR ER

Individual account - $50K - forgot the fund symbol, but it had a 1.18 ER, now in VTSAX as of this week

Cash - ~$175K

Have not contributed to 401k since 2015, have not touched others for much longer. Except, I took out about $50K from the Roth IRA, now invested in real estate via a self-directed IRA. Hope that paints a more detailed picture.

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Re: HCP & Real Estate investor seeks advice

Post by LadyGeek » Sun Aug 06, 2017 8:59 am

WanderingDoc wrote:
LadyGeek wrote:Welcome! Could you please explain what "HCP" stands for?
Thanks:) Whoops. HCP = Health Care Provider
I fixed the thread title. In this forum, most would read that as a stock ticker symbol. :)

If you want to change it further, just edit the Subject: line in Post #1.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: HCP & Real Estate investor seeks advice [Health Care Provider]

Post by Lafder » Sun Aug 06, 2017 9:27 am

Traditional 401k - $15K - random mix of funds, but I recently changed allocation to 87% C fund, 13% S fund
((That seems fine :)))

Roth 401k - $0
((I max pretax 401k before thinking of a post tax Roth 401k))

Roth IRA - $5K - USIFX/USGRX/UVALX/USAIX range 0.51 - 1.13 ER
((You can do much better than 0.51 ER. Anything above an ER of 1 I prefer not to have unless that is all an employer offers))

Traditional IRA - $6K - UFSGX 1.83 BR, 1.44 AR ER
((High ER. Are you still contributing here or is your income too high. Since it is "only" 6k, does TSP allow you to roll in outside retirement accounts? If no, consider converting to a Roth and paying the income tax on it so you can start doing back door Roths. You need a zero balance in IRAs by 12/31))

Individual account - $50K - forgot the fund symbol, but it had a 1.18 ER, now in VTSAX as of this week
((Nice))

Cash - ~$175K
((Are you wanting to invest some of this? Max your retirement accounts including back door Roth. Do you have a spouse? If you need to dip into taxable savings to max retirement accounts, I would consider it worth it))

((As far as retirement options, perhaps you can find a way to do all three ! You will have more time to think about it when you get there.))

lafder

WanderingDoc
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Re: HCP & Real Estate investor seeks advice [Health Care Provider]

Post by WanderingDoc » Sun Aug 06, 2017 10:06 am

Lafder wrote:Traditional 401k - $15K - random mix of funds, but I recently changed allocation to 87% C fund, 13% S fund
((That seems fine :)))

Roth 401k - $0
((I max pretax 401k before thinking of a post tax Roth 401k))

Roth IRA - $5K - USIFX/USGRX/UVALX/USAIX range 0.51 - 1.13 ER
((You can do much better than 0.51 ER. Anything above an ER of 1 I prefer not to have unless that is all an employer offers))

Traditional IRA - $6K - UFSGX 1.83 BR, 1.44 AR ER
((High ER. Are you still contributing here or is your income too high. Since it is "only" 6k, does TSP allow you to roll in outside retirement accounts? If no, consider converting to a Roth and paying the income tax on it so you can start doing back door Roths. You need a zero balance in IRAs by 12/31))

Individual account - $50K - forgot the fund symbol, but it had a 1.18 ER, now in VTSAX as of this week
((Nice))

Cash - ~$175K
((Are you wanting to invest some of this? Max your retirement accounts including back door Roth. Do you have a spouse? If you need to dip into taxable savings to max retirement accounts, I would consider it worth it))

((As far as retirement options, perhaps you can find a way to do all three ! You will have more time to think about it when you get there.))

lafder
Thanks for the feedback lafder.

Taxable AGI income still below the $190K. Will probably be for a few more years. It sounds like you advise the trad. IRA over the Roth for me? I wouldn't be able to deduct it from taxes (above income limit).

I was planning to deploy the cash into syndicated apartment deals. Unless, there is a better investment that comes along.

May be a silly question. Why would one even THINK to contribute to retirement accounts if they want to retire in their 30s? That seems like, giving away money you can't spend or invest now, plus you won't even see that money until you're in your 60s (assuming you are alive at that point).

Finance-MD
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Re: Physician & Real Estate investor seeks advice

Post by Finance-MD » Sun Aug 06, 2017 10:23 am

Is your real estate portfolio in rental properties?

How much passive income do you get off of that?

Are you financially independent based on just rentals?

I would max a 401k pretax. When you leave, you can put into a self directed IRA. You can use that to invest in direct real estate if you want. For example, you could buy a share of a multifamily property with your IRA funds. Or you could buy a property outright inside your IRA.

If you are financially independent off of real estate that is taxable, why wouldn't you want to protect more of your earnings from taxation?

There are ways to get money out of taxable accounts if retiring early while still allowing the tax deferral to be a benefit. MadFientist has the best post about this on his blog.

But once you stop working, your taxable income will go down, and you can always just pay the 10% penalty, you could do substantially equal periodic payments (SEPP) without penalty before 59.5.

WanderingDoc
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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Sun Aug 06, 2017 10:50 am

Finance-MD wrote:Is your real estate portfolio in rental properties?

How much passive income do you get off of that?

Are you financially independent based on just rentals?

I would max a 401k pretax. When you leave, you can put into a self directed IRA. You can use that to invest in direct real estate if you want. For example, you could buy a share of a multifamily property with your IRA funds. Or you could buy a property outright inside your IRA.

If you are financially independent off of real estate that is taxable, why wouldn't you want to protect more of your earnings from taxation?

There are ways to get money out of taxable accounts if retiring early while still allowing the tax deferral to be a benefit. MadFientist has the best post about this on his blog.

But once you stop working, your taxable income will go down, and you can always just pay the 10% penalty, you could do substantially equal periodic payments (SEPP) without penalty before 59.5.
Yes, real estate portfolio is in rentals and K-1s that generate income.

Passive monthly income is roughly $2500/mo. conservatively. Recent large run up in property values as well.. so return on equity is not great (some care about this metric).

I could easily live off of this (single, no children), but I would like a better cushion.

You have convinced me to invest in my 401k. The first person to do so :) As much as it pains me to.. They are offering the 5% match in 2018 as well.

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Re: Physician & Real Estate investor seeks advice

Post by Helo80 » Sun Aug 06, 2017 11:42 am

WanderingDoc wrote: You have convinced me to invest in my 401k. The first person to do so :) As much as it pains me to.. They are offering the 5% match in 2018 as well.

I think you have to opt for the BRS to be eligible for the 5% match though. If the markets do super well over your career, I think BRS earnings could be superior to the current system.

Most people who are not eligible for TSP (401k-ish) here would love to have a mechanism (besides military/federal service) to become eligible. I'd second the other comments and encourage you to explore TSP.
Last edited by Helo80 on Sun Aug 06, 2017 11:49 am, edited 1 time in total.

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Re: Physician & Real Estate investor seeks advice

Post by Finance-MD » Sun Aug 06, 2017 11:47 am

:sharebeer

WanderingDoc
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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Sun Aug 06, 2017 11:53 am

Helo80 wrote:
WanderingDoc wrote: You have convinced me to invest in my 401k. The first person to do so :) As much as it pains me to.. They are offering the 5% match in 2018 as well.

I think you have to opt for the BRS to be eligible for the 5% match though. If the markets do super well over your career, I think BRS earnings could be superior to the current system.

Most people who are not eligible for TSP (401k-ish) here would love to have a mechanism (besides military/federal service) to become eligible.
Surely. I believe Jan, 1st 2018 is the first opportunity to opt-in. I guess it's a no brainer to opt-in if I'm 90% sure I won't stay 20 yrs. for the pension.

What do you mean by mechanism... Do you mean ability to invest in the TSP, or to have a BRS? To me, seems like no different than a good ol' employee match.

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Re: Physician & Real Estate investor seeks advice

Post by tibbitts » Sun Aug 06, 2017 12:26 pm

I would say at least get any match you're eligible for, and after that not much matters in a predictable way.

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Re: Physician & Real Estate investor seeks advice

Post by Helo80 » Sun Aug 06, 2017 12:47 pm

WanderingDoc wrote:Surely. I believe Jan, 1st 2018 is the first opportunity to opt-in. I guess it's a no brainer to opt-in if I'm 90% sure I won't stay 20 yrs. for the pension.

If you're pegging it at 90%, then BRS is the way to go for sure. That being said, even if you were doing 20+ years, it could be argued that BRS is still a better way to go, but we don't know what future market returns will be. The benefit of the old retirement system is that you don't pay into it. So, if you're paycheck to paycheck, the old retirement system would provide a higher, predictable stream of income.

WanderingDoc wrote: What do you mean by mechanism... Do you mean ability to invest in the TSP, or to have a BRS? To me, seems like no different than a good ol' employee match.
Most posters here are not in military service nor do they have federal careers --- hence they have no pathway or mechanism to become TSP eligible. There are more than a handful of jealous posters here who wish they had access to TSP because the expenses are very low (Vanguard level) and there's the G-Fund. On the open market, there really is no fund that is "like" the G-Fund. It's a very unique and investment safe fun.

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Sun Aug 06, 2017 12:52 pm

Helo80 wrote:
WanderingDoc wrote:Surely. I believe Jan, 1st 2018 is the first opportunity to opt-in. I guess it's a no brainer to opt-in if I'm 90% sure I won't stay 20 yrs. for the pension.

If you're pegging it at 90%, then BRS is the way to go for sure. That being said, even if you were doing 20+ years, it could be argued that BRS is still a better way to go, but we don't know what future market returns will be. The benefit of the old retirement system is that you don't pay into it. So, if you're paycheck to paycheck, the old retirement system would provide a higher, predictable stream of income.

WanderingDoc wrote: What do you mean by mechanism... Do you mean ability to invest in the TSP, or to have a BRS? To me, seems like no different than a good ol' employee match.
Most posters here are not in military service nor do they have federal careers --- hence they have no pathway or mechanism to become TSP eligible. There are more than a handful of jealous posters here who wish they had access to TSP because the expenses are very low (Vanguard level) and there's the G-Fund. On the open market, there really is no fund that is "like" the G-Fund. It's a very unique and investment safe fun.
Interesting stuff. What is special about the G-fund. It's like a 0.9% return? I bet something similar can be achieved with a Vanguard or other MMF.

Given the peaky and likely overvalued market, reasonable to stay put and not contribute to the TSP for 2017, then contribute up to the match for 2018? Appreciate your thoughts.

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Re: Physician & Real Estate investor seeks advice

Post by Helo80 » Sun Aug 06, 2017 12:59 pm

WanderingDoc wrote: Interesting stuff. What is special about the G-fund. It's like a 0.9% return? I bet something similar can be achieved with a Vanguard or other MMF.
http://noroboinvestor.com/why-the-g-fund-is-special/
http://gubmints.com/2015/01/12/4-reason ... investing/

That is a far better technical analysis than I can provide. Pretty much google the "G-fund is unique/special" and you'll get many hits.

WanderingDoc wrote: Given the peaky and likely overvalued market, reasonable to stay put and not contribute to the TSP for 2017, then contribute up to the match for 2018? Appreciate your thoughts.
The funny thing is that we do not know that at all. Basically, you're alluding to market timing, and we have had several great and recent discussions on the topic.

viewtopic.php?f=1&t=225034 -- Here's a great thread on somebody trying to time the market on the Vanguard Retirement 2055 fund.

Regardless of whether you're civilian or active duty, it's best to invest as early as possible in the markets and maintain a consistent investment pattern. Most people achieve this through 401k's (or TSP), regular investment intervals into their taxable account, and yearly contributions into their tIRA or Roth IRA.

Edit and BTW --- Read up on Jack Bogle, founder of Vanguard. He started the company in the 70's and was on the receiving end of a lot of jokes and criticism by his peers. Vanguard now is the number 2 in terms of asset management with $4 trillion under its belt. Anyways, I say this as Jack Bogle really kicked off the index fund and passive investing, and got a lot of flack and was mocked for it. At the end of the day, Mr. Bogle does not believe that you can time the market.

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Sun Aug 06, 2017 8:11 pm

Helo80 wrote:
WanderingDoc wrote: Interesting stuff. What is special about the G-fund. It's like a 0.9% return? I bet something similar can be achieved with a Vanguard or other MMF.
http://noroboinvestor.com/why-the-g-fund-is-special/
http://gubmints.com/2015/01/12/4-reason ... investing/

That is a far better technical analysis than I can provide. Pretty much google the "G-fund is unique/special" and you'll get many hits.

WanderingDoc wrote: Given the peaky and likely overvalued market, reasonable to stay put and not contribute to the TSP for 2017, then contribute up to the match for 2018? Appreciate your thoughts.
The funny thing is that we do not know that at all. Basically, you're alluding to market timing, and we have had several great and recent discussions on the topic.

viewtopic.php?f=1&t=225034 -- Here's a great thread on somebody trying to time the market on the Vanguard Retirement 2055 fund.

Regardless of whether you're civilian or active duty, it's best to invest as early as possible in the markets and maintain a consistent investment pattern. Most people achieve this through 401k's (or TSP), regular investment intervals into their taxable account, and yearly contributions into their tIRA or Roth IRA.

Edit and BTW --- Read up on Jack Bogle, founder of Vanguard. He started the company in the 70's and was on the receiving end of a lot of jokes and criticism by his peers. Vanguard now is the number 2 in terms of asset management with $4 trillion under its belt. Anyways, I say this as Jack Bogle really kicked off the index fund and passive investing, and got a lot of flack and was mocked for it. At the end of the day, Mr. Bogle does not believe that you can time the market.
Hey, thanks for the first 2 links. It was an interesting read. One thing I don't necessarily agree with is, they are saying you get liquidity this, liquidity that. So, even if its in a retirement account (TSP), you can treat the G-fund portion the same way as a checking or savings account?

I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

Let me give you guys an example. Lets say a person makes $100K per year, after paying taxes and their expenses, they contribute $10K to a 401k/IRA. This is more than most Americans save, but probably less than the selection bias of posters on a forum such as this or MMM. They have effectively decided that they will work at their current job for a minimum of 20 or 30 years before having anything reasonable to live off of.

I am not seeing where is freedom or wealth in that? I hope I can be proven wrong, but I don't think I am miscalculating here.

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Re: Physician & Real Estate investor seeks advice

Post by Pajamas » Mon Aug 07, 2017 10:14 am

WanderingDoc wrote: I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

Let me give you guys an example. Lets say a person makes $100K per year, after paying taxes and their expenses, they contribute $10K to a 401k/IRA. This is more than most Americans save, but probably less than the selection bias of posters on a forum such as this or MMM. They have effectively decided that they will work at their current job for a minimum of 20 or 30 years before having anything reasonable to live off of.

I am not seeing where is freedom or wealth in that? I hope I can be proven wrong, but I don't think I am miscalculating here.
That brings increasing freedom and wealth through your life. Some people inherit wealth or win the lottery or start and sell their startup or otherwise become wealthy earlier in life. Not everyone can or is willing to do that. It also seems to me that the most effective wealth creators don't quit even after they have achieved it because it is the process that they enjoy or else they always want more.

Those in abject poverty can have as much freedom as the rich in some ways, even more in some aspects. The freedom that comes with wealth is in some ways a false freedom.

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Re: Physician & Real Estate investor seeks advice

Post by ncbill » Mon Aug 07, 2017 1:41 pm

WanderingDoc wrote:
Helo80 wrote:
WanderingDoc wrote: Interesting stuff. What is special about the G-fund. It's like a 0.9% return? I bet something similar can be achieved with a Vanguard or other MMF.
http://noroboinvestor.com/why-the-g-fund-is-special/
http://gubmints.com/2015/01/12/4-reason ... investing/

That is a far better technical analysis than I can provide. Pretty much google the "G-fund is unique/special" and you'll get many hits.

WanderingDoc wrote: Given the peaky and likely overvalued market, reasonable to stay put and not contribute to the TSP for 2017, then contribute up to the match for 2018? Appreciate your thoughts.
The funny thing is that we do not know that at all. Basically, you're alluding to market timing, and we have had several great and recent discussions on the topic.

viewtopic.php?f=1&t=225034 -- Here's a great thread on somebody trying to time the market on the Vanguard Retirement 2055 fund.

Regardless of whether you're civilian or active duty, it's best to invest as early as possible in the markets and maintain a consistent investment pattern. Most people achieve this through 401k's (or TSP), regular investment intervals into their taxable account, and yearly contributions into their tIRA or Roth IRA.

Edit and BTW --- Read up on Jack Bogle, founder of Vanguard. He started the company in the 70's and was on the receiving end of a lot of jokes and criticism by his peers. Vanguard now is the number 2 in terms of asset management with $4 trillion under its belt. Anyways, I say this as Jack Bogle really kicked off the index fund and passive investing, and got a lot of flack and was mocked for it. At the end of the day, Mr. Bogle does not believe that you can time the market.
Hey, thanks for the first 2 links. It was an interesting read. One thing I don't necessarily agree with is, they are saying you get liquidity this, liquidity that. So, even if its in a retirement account (TSP), you can treat the G-fund portion the same way as a checking or savings account?

I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

Let me give you guys an example. Lets say a person makes $100K per year, after paying taxes and their expenses, they contribute $10K to a 401k/IRA. This is more than most Americans save, but probably less than the selection bias of posters on a forum such as this or MMM. They have effectively decided that they will work at their current job for a minimum of 20 or 30 years before having anything reasonable to live off of.

I am not seeing where is freedom or wealth in that? I hope I can be proven wrong, but I don't think I am miscalculating here.
Start another business (while you're already a full-time HCP) to "build wealth" instead?

Sure you've got the time, and can find one related to your core competencies?

I've personally seen businessmen, very successful in their particular niche, unfortunately fall into a habit of spending nearly what their main business earned on what they thought would be even more lucrative side project(s)

In areas where they had NO experience, but were offered "such a great opportunity," usually by a friend of a friend.

And please don't forget:

https://xkcd.com/1827/

I wish I had found this website when I was your age.

My oldest is in a military academy, currently visiting med schools while home on leave.

So I'm helping them max out their annual Roth contribution, currently in a target date fund.

I expect "forcing" them to start as early as they have will be the biggest factor in their ability to retire early, whether from the military or a civilian career.

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Re: Physician & Real Estate investor seeks advice

Post by Helo80 » Mon Aug 07, 2017 3:56 pm

WanderingDoc wrote: I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

I'm not sure what you're getting at with your comments. If you define "real wealth" as having hundreds of millions of dollars in the bank, you probably chose the wrong industry segment. Joining the military was probably an even worse decision as you're a part of a mission that does not reward or necessarily value individualism. (I'm a fed civilian and work with all branches of the military on a daily basis)

For other avenues to grow your money through investments:
- Real Estate -- some people do well [OT comment removed by admin LadyGeek] It would be difficult to do as active duty since you may move around a bit and are always eligible for deployment.

- Individual stock picking - If you invested all your money in the late-90's in a company like Apple, you could afford to have a personal financial adviser on call 24x7. However, if you invested all your money in Nortel (100K plus worldwide employees and worth hundreds of billions), you'd be a broke joke now. Studies have shown that the best and brightest financial analysts don't necessarily pick better stocks than 10 monkeys.

- Starting a business - lots of physicians have group practices and what not, but that's always subject to change with politics and cultural/voting shifts undergoing right now.

- Starting a business elsewhere - McDonalds has made more millionaires than any other business, but it's probably at a saturation point now and you generally need at least $1 million (ideally $2m) to kick off a franchise... all the literature is available from McDonald's on that one.

- Inherit the money - obvious answer

- Win the lottery -- obvious answer

- Invest in hedge funds - May or may not do better than a Vanguard index fund; longterm studies suggest it's safer and has a larger return to stick with a broad market index fund

- something else I'm missing.


If Real Estate is your thing, give it a shot and you may turn out fantastically wealthy from it. To me, "real estate investing" is something in popular culture like "bitcoin mining" is. But, if you don't know what you're doing, or worse, you mismanage real estate, you'll lose money long term.

Index funds are far more liquid and far less of a headache than Real Estate would be in my book. If you went to any major medical school in the US and were in a teaching hospital, I'm sure you met some interesting patients along the way.... would you necessarily rent to every single patient you encountered?

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Re: Physician & Real Estate investor seeks advice

Post by LadyGeek » Mon Aug 07, 2017 6:56 pm

As a reminder, political comments are off-topic. See: Politics and Religion
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
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jalbert
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Re: Physician & Real Estate investor seeks advice

Post by jalbert » Mon Aug 07, 2017 7:00 pm

I have never believed in 401ks/IRAs, as I have always liked to have control over my investments.
This is a significant error. Deferring taxes on distributions is equivalent to getting a higher return on investments that are otherwise identical except that you have to pay taxes on the distributions.

You should at the very least being doing Roth IRA contributions as there is no benefit to directing that to a taxable account instead. Agree with above poster re: maximizing 401K.
Risk is not a guarantor of return.

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Mon Aug 07, 2017 9:00 pm

Helo80 wrote:
WanderingDoc wrote: I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

I'm not sure what you're getting at with your comments. If you define "real wealth" as having hundreds of millions of dollars in the bank, you probably chose the wrong industry segment. Joining the military was probably an even worse decision as you're a part of a mission that does not reward or necessarily value individualism. (I'm a fed civilian and work with all branches of the military on a daily basis)

For other avenues to grow your money through investments:
- Real Estate -- some people do well [OT comment removed by admin LadyGeek] It would be difficult to do as active duty since you may move around a bit and are always eligible for deployment.

- Individual stock picking - If you invested all your money in the late-90's in a company like Apple, you could afford to have a personal financial adviser on call 24x7. However, if you invested all your money in Nortel (100K plus worldwide employees and worth hundreds of billions), you'd be a broke joke now. Studies have shown that the best and brightest financial analysts don't necessarily pick better stocks than 10 monkeys.

- Starting a business - lots of physicians have group practices and what not, but that's always subject to change with politics and cultural/voting shifts undergoing right now.

- Starting a business elsewhere - McDonalds has made more millionaires than any other business, but it's probably at a saturation point now and you generally need at least $1 million (ideally $2m) to kick off a franchise... all the literature is available from McDonald's on that one.

- Inherit the money - obvious answer

- Win the lottery -- obvious answer

- Invest in hedge funds - May or may not do better than a Vanguard index fund; longterm studies suggest it's safer and has a larger return to stick with a broad market index fund

- something else I'm missing.


If Real Estate is your thing, give it a shot and you may turn out fantastically wealthy from it. To me, "real estate investing" is something in popular culture like "bitcoin mining" is. But, if you don't know what you're doing, or worse, you mismanage real estate, you'll lose money long term.

Index funds are far more liquid and far less of a headache than Real Estate would be in my book. If you went to any major medical school in the US and were in a teaching hospital, I'm sure you met some interesting patients along the way.... would you necessarily rent to every single patient you encountered?
Really funny that you mention that.

I agree with you 100% that the military does not value individualism. That is precisely the reason I am 90% sure I will leave after my commitment is up, without staying until retirement.

The thing is, I already HAVE earned close to 7 figures in real estate, most of it during the last 3 years of residency. I am already "financially free", from real estate alone. People are afraid of the time commitment, but I can tell you it is not that big of a deal, once you have systems in place. All I did was spend 2 years learning the game and reading, and my side gig just took off from there. So no, it was not difficult to achieve while on active duty, at all.

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Mon Aug 07, 2017 9:08 pm

ncbill wrote:
WanderingDoc wrote:
Helo80 wrote:
WanderingDoc wrote: Interesting stuff. What is special about the G-fund. It's like a 0.9% return? I bet something similar can be achieved with a Vanguard or other MMF.
http://noroboinvestor.com/why-the-g-fund-is-special/
http://gubmints.com/2015/01/12/4-reason ... investing/

That is a far better technical analysis than I can provide. Pretty much google the "G-fund is unique/special" and you'll get many hits.

WanderingDoc wrote: Given the peaky and likely overvalued market, reasonable to stay put and not contribute to the TSP for 2017, then contribute up to the match for 2018? Appreciate your thoughts.
The funny thing is that we do not know that at all. Basically, you're alluding to market timing, and we have had several great and recent discussions on the topic.

viewtopic.php?f=1&t=225034 -- Here's a great thread on somebody trying to time the market on the Vanguard Retirement 2055 fund.

Regardless of whether you're civilian or active duty, it's best to invest as early as possible in the markets and maintain a consistent investment pattern. Most people achieve this through 401k's (or TSP), regular investment intervals into their taxable account, and yearly contributions into their tIRA or Roth IRA.

Edit and BTW --- Read up on Jack Bogle, founder of Vanguard. He started the company in the 70's and was on the receiving end of a lot of jokes and criticism by his peers. Vanguard now is the number 2 in terms of asset management with $4 trillion under its belt. Anyways, I say this as Jack Bogle really kicked off the index fund and passive investing, and got a lot of flack and was mocked for it. At the end of the day, Mr. Bogle does not believe that you can time the market.
Hey, thanks for the first 2 links. It was an interesting read. One thing I don't necessarily agree with is, they are saying you get liquidity this, liquidity that. So, even if its in a retirement account (TSP), you can treat the G-fund portion the same way as a checking or savings account?

I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

Let me give you guys an example. Lets say a person makes $100K per year, after paying taxes and their expenses, they contribute $10K to a 401k/IRA. This is more than most Americans save, but probably less than the selection bias of posters on a forum such as this or MMM. They have effectively decided that they will work at their current job for a minimum of 20 or 30 years before having anything reasonable to live off of.

I am not seeing where is freedom or wealth in that? I hope I can be proven wrong, but I don't think I am miscalculating here.
Start another business (while you're already a full-time HCP) to "build wealth" instead?

Sure you've got the time, and can find one related to your core competencies?

I've personally seen businessmen, very successful in their particular niche, unfortunately fall into a habit of spending nearly what their main business earned on what they thought would be even more lucrative side project(s)

In areas where they had NO experience, but were offered "such a great opportunity," usually by a friend of a friend.

And please don't forget:

https://xkcd.com/1827/

I wish I had found this website when I was your age.

My oldest is in a military academy, currently visiting med schools while home on leave.

So I'm helping them max out their annual Roth contribution, currently in a target date fund.

I expect "forcing" them to start as early as they have will be the biggest factor in their ability to retire early, whether from the military or a civilian career.
If I were to start that business, I would be either not working in medicine, or working very part time. I am not in love with or attached to earning $400K per year. No qualms taking a pay cut to even $50K/yr, if it gives me mobility. That is just me - majority of physicians are not like that. I spend 13 years training for what I am doing, but I have no problem to try something different, even if it fails. My real estate business pulls in a few K$ per month, and I spend less than 4 hours per month on it, AND I don't typically use a property manager.

Part of what I am trying to elucidate by making this post is, should I be contributing to tax-deferred or retirement accounts, at all? I figured, less than 10% of net worth in equities is PROBABLY too low, but is it really? I mean, as soon as I stopped contributing to any equities or 401k, the real estate endeavors have earned a >60% anuualized IRR.

Your oldest is at West Point? Some sharp docs I know came out of the school. Best of luck for them :) Having the USA pay for medical school was the pivotal moment in my life, and I am truly grateful the chips fell that way.

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Re: Physician & Real Estate investor seeks advice

Post by Helo80 » Mon Aug 07, 2017 9:13 pm

WanderingDoc wrote:
The thing is, I already HAVE earned close to 7 figures in real estate, most of it during the last 3 years of residency. I am already "financially free", from real estate alone. People are afraid of the time commitment, but I can tell you it is not that big of a deal, once you have systems in place. All I did was spend 2 years learning the game and reading, and my side gig just took off from there. So no, it was not difficult to achieve while on active duty, at all.

In that case, it sounds like you know what you're doing. When your AD commitment is over, there's nothing legally requiring you to stay in medicine since you would probably enjoy real estate more since you're doing well in it. You wouldn't be the first nor the last physician to leave the game to pursue more lucrative ventures.

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Mon Aug 07, 2017 9:21 pm

Helo80 wrote:
WanderingDoc wrote:
The thing is, I already HAVE earned close to 7 figures in real estate, most of it during the last 3 years of residency. I am already "financially free", from real estate alone. People are afraid of the time commitment, but I can tell you it is not that big of a deal, once you have systems in place. All I did was spend 2 years learning the game and reading, and my side gig just took off from there. So no, it was not difficult to achieve while on active duty, at all.

In that case, it sounds like you know what you're doing. When your AD commitment is over, there's nothing legally requiring you to stay in medicine since you would probably enjoy real estate more since you're doing well in it. You wouldn't be the first nor the last physician to leave the game to pursue more lucrative ventures.
Thank for you your timely and detailed replied, as always :) As Finance-MD said and other folks alluded to, probably would be silly of me to not contribute up to the 5% that they match 100% TSP from here on out. As much as I feel that is throwing away money that I could have otherwise invested in real estate. But I am pretty naive and green when it comes to this sort of stuff.

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Re: HCP & Real Estate investor seeks advice [Health Care Provider]

Post by WanderingDoc » Wed Aug 09, 2017 7:20 pm

Lafder wrote:Traditional 401k - $15K - random mix of funds, but I recently changed allocation to 87% C fund, 13% S fund
((That seems fine :)))

Roth 401k - $0
((I max pretax 401k before thinking of a post tax Roth 401k))

Roth IRA - $5K - USIFX/USGRX/UVALX/USAIX range 0.51 - 1.13 ER
((You can do much better than 0.51 ER. Anything above an ER of 1 I prefer not to have unless that is all an employer offers))

Traditional IRA - $6K - UFSGX 1.83 BR, 1.44 AR ER
((High ER. Are you still contributing here or is your income too high. Since it is "only" 6k, does TSP allow you to roll in outside retirement accounts? If no, consider converting to a Roth and paying the income tax on it so you can start doing back door Roths. You need a zero balance in IRAs by 12/31))

Individual account - $50K - forgot the fund symbol, but it had a 1.18 ER, now in VTSAX as of this week
((Nice))

Cash - ~$175K
((Are you wanting to invest some of this? Max your retirement accounts including back door Roth. Do you have a spouse? If you need to dip into taxable savings to max retirement accounts, I would consider it worth it))

((As far as retirement options, perhaps you can find a way to do all three ! You will have more time to think about it when you get there.))

lafder
I thought there is no income limit to contribute to a traditional IRA. There is a limit where you can no longer get the tax deduction, I believe around $95K.

What would be the benefit of converting traditional IRA to Roth and pay income tax on it?

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Re: HCP & Real Estate investor seeks advice

Post by abuss368 » Wed Aug 09, 2017 7:57 pm

LadyGeek wrote:Welcome! Could you please explain what "HCP" stands for?
I too wondered but then guessed Health Care Provider. For a moment, I also thought perhaps he invested in HCP a very large and excellent Health Care REIT!
Last edited by abuss368 on Thu Aug 10, 2017 7:47 pm, edited 1 time in total.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: HCP & Real Estate investor seeks advice

Post by WanderingDoc » Thu Aug 10, 2017 1:55 pm

abuss368 wrote:
LadyGeek wrote:Welcome! Could you please explain what "HCP" stands for?
I too wondered but then guessed Health Care Provider. For a moment, I also thought perhaps he invested in HCP and very large and excellent Health Care REIT!
That's funny! I would have never thought to say that, but I copied that term from a physician on another post on BH.org. 8-)

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Re: Physician & Real Estate investor seeks advice

Post by Meg77 » Thu Aug 10, 2017 2:35 pm

Here's the thing no one has really highlighted: you don't have to wait until you're 59.5 to access retirement accounts. This is a very common topic among early retirees both on Bogleheads and dozens of early retiree blogs - all of which still recommend maxing out retirement accounts while you are working. There are lots of articles and posts about this (see below for a link to one). Second of all though, whether you retire early or not you'll still need income in your 60s, 70, and 80s+. So why not fund that part of your retirement with tax free or tax advantaged funds? Thirdly, you can use a self-directed IRA to buy real estate if that is your jam. So why not max out a 401k as long as you can and then roll those funds to an IRA once you leave your job and use them to invest in more RE - if you really want to - within a tax sheltered account?

Early Access to Retirement Accounts:
When it comes to Roth IRAs, there's no complexity: contributions are accessible tax and penalty free any time for any reason. This is why there is absolutely NO reason to avoid using them and letting as much money grow tax free as possible. If you can, it makes sense to let those investments ride as long as possible because of the tax free compounding growth (i.e. live off taxable and Traditional retirement assets first). But you CAN get to your contributions literally any time. You just can't pull out the earnings on those contributions until you're 59.5 without paying a penalty (unless you use them for any one of a number of qualified reasons or take them in substantially equal periodic payments).

For Traditional IRAs and 401ks, there are several ways to tap those assets early: the 72t rule (electing substantially equal periodic payments from the year you retire until you turn 59.5), establishing a Roth conversion ladder, and just paying the 10% penalty (which actually still makes more sense than investing in taxable especially if your tax rate is high while you're contributing). Funds that are converted from Traditional to Roth (the basis of a Roth Conversion ladder) can be accessed tax and penalty free before the age of 59.5 - as long as you wait five years. Here is an article by a guy (who retired in his 30s BTW) on that topic that sums it up better than I can:
http://www.madfientist.com/how-to-acces ... nds-early/

I'm not saying abandon real estate and max out all retirement accounts if you don't want to. I'm a RE investor as well so I get the appeal. But I want a 3 legged stool of retirement income sources for diversification and safety in various economic cycles. So I max out a traditional 401k, backdoor Roth IRA and HSA. And I buy rentals and invest in RE partnerships with what's leftover. (And I'm still working on a third leg for that stool.)
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Thu Aug 10, 2017 11:11 pm

Meg77 wrote:Here's the thing no one has really highlighted: you don't have to wait until you're 59.5 to access retirement accounts. This is a very common topic among early retirees both on Bogleheads and dozens of early retiree blogs - all of which still recommend maxing out retirement accounts while you are working. There are lots of articles and posts about this (see below for a link to one). Second of all though, whether you retire early or not you'll still need income in your 60s, 70, and 80s+. So why not fund that part of your retirement with tax free or tax advantaged funds? Thirdly, you can use a self-directed IRA to buy real estate if that is your jam. So why not max out a 401k as long as you can and then roll those funds to an IRA once you leave your job and use them to invest in more RE - if you really want to - within a tax sheltered account?

Early Access to Retirement Accounts:
When it comes to Roth IRAs, there's no complexity: contributions are accessible tax and penalty free any time for any reason. This is why there is absolutely NO reason to avoid using them and letting as much money grow tax free as possible. If you can, it makes sense to let those investments ride as long as possible because of the tax free compounding growth (i.e. live off taxable and Traditional retirement assets first). But you CAN get to your contributions literally any time. You just can't pull out the earnings on those contributions until you're 59.5 without paying a penalty (unless you use them for any one of a number of qualified reasons or take them in substantially equal periodic payments).

For Traditional IRAs and 401ks, there are several ways to tap those assets early: the 72t rule (electing substantially equal periodic payments from the year you retire until you turn 59.5), establishing a Roth conversion ladder, and just paying the 10% penalty (which actually still makes more sense than investing in taxable especially if your tax rate is high while you're contributing). Funds that are converted from Traditional to Roth (the basis of a Roth Conversion ladder) can be accessed tax and penalty free before the age of 59.5 - as long as you wait five years. Here is an article by a guy (who retired in his 30s BTW) on that topic that sums it up better than I can:
http://www.madfientist.com/how-to-acces ... nds-early/

I'm not saying abandon real estate and max out all retirement accounts if you don't want to. I'm a RE investor as well so I get the appeal. But I want a 3 legged stool of retirement income sources for diversification and safety in various economic cycles. So I max out a traditional 401k, backdoor Roth IRA and HSA. And I buy rentals and invest in RE partnerships with what's leftover. (And I'm still working on a third leg for that stool.)
I will check you that article. Cheers! Good to see a fellow investor bullish on and in love with real estate as much as I am, tough to find on these kind of forums!

If there wasn't an employee match, would you still max out a 401k? Reason I ask is, there isn't an employee match in 2017, I have contributed $0, but can still max it for this year. What if your real estate investments returned a 30%+ IRR, would you still contribute to a 401k or IRA?

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Re: Physician & Real Estate investor seeks advice

Post by Finance-MD » Thu Aug 10, 2017 11:51 pm

Meg77 wrote:Here's the thing no one has really highlighted: you don't have to wait until you're 59.5 to access retirement accounts. This is a very common topic among early retirees both on Bogleheads and dozens of early retiree blogs - all of which still recommend maxing out retirement accounts while you are working. There are lots of articles and posts about this (see below for a link to one). Second of all though, whether you retire early or not you'll still need income in your 60s, 70, and 80s+. So why not fund that part of your retirement with tax free or tax advantaged funds? Thirdly, you can use a self-directed IRA to buy real estate if that is your jam. So why not max out a 401k as long as you can and then roll those funds to an IRA once you leave your job and use them to invest in more RE - if you really want to - within a tax sheltered account?

Early Access to Retirement Accounts:
When it comes to Roth IRAs, there's no complexity: contributions are accessible tax and penalty free any time for any reason. This is why there is absolutely NO reason to avoid using them and letting as much money grow tax free as possible. If you can, it makes sense to let those investments ride as long as possible because of the tax free compounding growth (i.e. live off taxable and Traditional retirement assets first). But you CAN get to your contributions literally any time. You just can't pull out the earnings on those contributions until you're 59.5 without paying a penalty (unless you use them for any one of a number of qualified reasons or take them in substantially equal periodic payments).

For Traditional IRAs and 401ks, there are several ways to tap those assets early: the 72t rule (electing substantially equal periodic payments from the year you retire until you turn 59.5), establishing a Roth conversion ladder, and just paying the 10% penalty (which actually still makes more sense than investing in taxable especially if your tax rate is high while you're contributing). Funds that are converted from Traditional to Roth (the basis of a Roth Conversion ladder) can be accessed tax and penalty free before the age of 59.5 - as long as you wait five years. Here is an article by a guy (who retired in his 30s BTW) on that topic that sums it up better than I can:
http://www.madfientist.com/how-to-acces ... nds-early/

I'm not saying abandon real estate and max out all retirement accounts if you don't want to. I'm a RE investor as well so I get the appeal. But I want a 3 legged stool of retirement income sources for diversification and safety in various economic cycles. So I max out a traditional 401k, backdoor Roth IRA and HSA. And I buy rentals and invest in RE partnerships with what's leftover. (And I'm still working on a third leg for that stool.)
Meg - we have the same approach.
We max out backdoor Roth / work accounts... mostly RE for taxable.
I did note the approaches to accessing these accounts prior to 59.5 and indicated the madfientist article (without direct link) in my post very early on in this thread... you expounded on this quite well.

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Re: Physician & Real Estate investor seeks advice

Post by Finance-MD » Thu Aug 10, 2017 11:58 pm

WanderingDoc wrote:
Meg77 wrote:Here's the thing no one has really highlighted: you don't have to wait until you're 59.5 to access retirement accounts. This is a very common topic among early retirees both on Bogleheads and dozens of early retiree blogs - all of which still recommend maxing out retirement accounts while you are working. There are lots of articles and posts about this (see below for a link to one). Second of all though, whether you retire early or not you'll still need income in your 60s, 70, and 80s+. So why not fund that part of your retirement with tax free or tax advantaged funds? Thirdly, you can use a self-directed IRA to buy real estate if that is your jam. So why not max out a 401k as long as you can and then roll those funds to an IRA once you leave your job and use them to invest in more RE - if you really want to - within a tax sheltered account?

Early Access to Retirement Accounts:
When it comes to Roth IRAs, there's no complexity: contributions are accessible tax and penalty free any time for any reason. This is why there is absolutely NO reason to avoid using them and letting as much money grow tax free as possible. If you can, it makes sense to let those investments ride as long as possible because of the tax free compounding growth (i.e. live off taxable and Traditional retirement assets first). But you CAN get to your contributions literally any time. You just can't pull out the earnings on those contributions until you're 59.5 without paying a penalty (unless you use them for any one of a number of qualified reasons or take them in substantially equal periodic payments).

For Traditional IRAs and 401ks, there are several ways to tap those assets early: the 72t rule (electing substantially equal periodic payments from the year you retire until you turn 59.5), establishing a Roth conversion ladder, and just paying the 10% penalty (which actually still makes more sense than investing in taxable especially if your tax rate is high while you're contributing). Funds that are converted from Traditional to Roth (the basis of a Roth Conversion ladder) can be accessed tax and penalty free before the age of 59.5 - as long as you wait five years. Here is an article by a guy (who retired in his 30s BTW) on that topic that sums it up better than I can:
http://www.madfientist.com/how-to-acces ... nds-early/

I'm not saying abandon real estate and max out all retirement accounts if you don't want to. I'm a RE investor as well so I get the appeal. But I want a 3 legged stool of retirement income sources for diversification and safety in various economic cycles. So I max out a traditional 401k, backdoor Roth IRA and HSA. And I buy rentals and invest in RE partnerships with what's leftover. (And I'm still working on a third leg for that stool.)
I will check you that article. Cheers! Good to see a fellow investor bullish on and in love with real estate as much as I am, tough to find on these kind of forums!

If there wasn't an employee match, would you still max out a 401k? Reason I ask is, there isn't an employee match in 2017, I have contributed $0, but can still max it for this year. What if your real estate investments returned a 30%+ IRR, would you still contribute to a 401k or IRA?
WanderingDoc -
I'm totally with you on the 30% rate. We get that on our leveraged rentals...
I've thought about 100% RE investments as well.
At 42% marginal rate I'm enjoying the big tax deduction and diversification of investments...
Once I get out of my job, I will transfer a portion to my self directed IRA each time I want to acquire another property inside the IRA.
Overall, we are trying to be about 50% equities and 50% everything else (RE and some cash) for now.
Granted we are in our peak earning time and earning money faster than we can acquire high yielding RE assets...

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Fri Aug 11, 2017 1:03 am

Finance-MD wrote:
WanderingDoc wrote:
Meg77 wrote:Here's the thing no one has really highlighted: you don't have to wait until you're 59.5 to access retirement accounts. This is a very common topic among early retirees both on Bogleheads and dozens of early retiree blogs - all of which still recommend maxing out retirement accounts while you are working. There are lots of articles and posts about this (see below for a link to one). Second of all though, whether you retire early or not you'll still need income in your 60s, 70, and 80s+. So why not fund that part of your retirement with tax free or tax advantaged funds? Thirdly, you can use a self-directed IRA to buy real estate if that is your jam. So why not max out a 401k as long as you can and then roll those funds to an IRA once you leave your job and use them to invest in more RE - if you really want to - within a tax sheltered account?

Early Access to Retirement Accounts:
When it comes to Roth IRAs, there's no complexity: contributions are accessible tax and penalty free any time for any reason. This is why there is absolutely NO reason to avoid using them and letting as much money grow tax free as possible. If you can, it makes sense to let those investments ride as long as possible because of the tax free compounding growth (i.e. live off taxable and Traditional retirement assets first). But you CAN get to your contributions literally any time. You just can't pull out the earnings on those contributions until you're 59.5 without paying a penalty (unless you use them for any one of a number of qualified reasons or take them in substantially equal periodic payments).

For Traditional IRAs and 401ks, there are several ways to tap those assets early: the 72t rule (electing substantially equal periodic payments from the year you retire until you turn 59.5), establishing a Roth conversion ladder, and just paying the 10% penalty (which actually still makes more sense than investing in taxable especially if your tax rate is high while you're contributing). Funds that are converted from Traditional to Roth (the basis of a Roth Conversion ladder) can be accessed tax and penalty free before the age of 59.5 - as long as you wait five years. Here is an article by a guy (who retired in his 30s BTW) on that topic that sums it up better than I can:
http://www.madfientist.com/how-to-acces ... nds-early/

I'm not saying abandon real estate and max out all retirement accounts if you don't want to. I'm a RE investor as well so I get the appeal. But I want a 3 legged stool of retirement income sources for diversification and safety in various economic cycles. So I max out a traditional 401k, backdoor Roth IRA and HSA. And I buy rentals and invest in RE partnerships with what's leftover. (And I'm still working on a third leg for that stool.)
I will check you that article. Cheers! Good to see a fellow investor bullish on and in love with real estate as much as I am, tough to find on these kind of forums!

If there wasn't an employee match, would you still max out a 401k? Reason I ask is, there isn't an employee match in 2017, I have contributed $0, but can still max it for this year. What if your real estate investments returned a 30%+ IRR, would you still contribute to a 401k or IRA?
WanderingDoc -
I'm totally with you on the 30% rate. We get that on our leveraged rentals...
I've thought about 100% RE investments as well.
At 42% marginal rate I'm enjoying the big tax deduction and diversification of investments...
Once I get out of my job, I will transfer a portion to my self directed IRA each time I want to acquire another property inside the IRA.
Overall, we are trying to be about 50% equities and 50% everything else (RE and some cash) for now.
Granted we are in our peak earning time and earning money faster than we can acquire high yielding RE assets...
I have read that madfientist article before, but glazed over and didn't retain much. Made a lot more sense now :)

Since I am filing "Single", according to this page I would not be able to take a traditional IRA deduction.
https://www.irs.gov/retirement-plans/20 ... an-at-work

If I plan on keeping my W-2 AGI around $120K (and closer to $100K with a full traditional TSP contribution), would you still consider throwing some cash in a Roth IRA, given what we discussed with real estate? I estimate I can save about 50-60% of my ~$200K annual income (only trying this frugal thing as of this year :D)

Sorry, for being such a newbie, I guess I am not understanding when both of you say you "max out backdoor Roths". Does that mean you contribute to a traditional IRA (and not get the tax deduction), then convert to a Roth later on because you cannot contribute to a Roth due to too high an income?

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Re: Physician & Real Estate investor seeks advice

Post by Meg77 » Fri Aug 11, 2017 1:30 pm

WanderingDoc wrote:
Finance-MD wrote:
WanderingDoc wrote:
Meg77 wrote:Here's the thing no one has really highlighted: you don't have to wait until you're 59.5 to access retirement accounts. This is a very common topic among early retirees both on Bogleheads and dozens of early retiree blogs - all of which still recommend maxing out retirement accounts while you are working. There are lots of articles and posts about this (see below for a link to one). Second of all though, whether you retire early or not you'll still need income in your 60s, 70, and 80s+. So why not fund that part of your retirement with tax free or tax advantaged funds? Thirdly, you can use a self-directed IRA to buy real estate if that is your jam. So why not max out a 401k as long as you can and then roll those funds to an IRA once you leave your job and use them to invest in more RE - if you really want to - within a tax sheltered account?

Early Access to Retirement Accounts:
When it comes to Roth IRAs, there's no complexity: contributions are accessible tax and penalty free any time for any reason. This is why there is absolutely NO reason to avoid using them and letting as much money grow tax free as possible. If you can, it makes sense to let those investments ride as long as possible because of the tax free compounding growth (i.e. live off taxable and Traditional retirement assets first). But you CAN get to your contributions literally any time. You just can't pull out the earnings on those contributions until you're 59.5 without paying a penalty (unless you use them for any one of a number of qualified reasons or take them in substantially equal periodic payments).

For Traditional IRAs and 401ks, there are several ways to tap those assets early: the 72t rule (electing substantially equal periodic payments from the year you retire until you turn 59.5), establishing a Roth conversion ladder, and just paying the 10% penalty (which actually still makes more sense than investing in taxable especially if your tax rate is high while you're contributing). Funds that are converted from Traditional to Roth (the basis of a Roth Conversion ladder) can be accessed tax and penalty free before the age of 59.5 - as long as you wait five years. Here is an article by a guy (who retired in his 30s BTW) on that topic that sums it up better than I can:
http://www.madfientist.com/how-to-acces ... nds-early/

I'm not saying abandon real estate and max out all retirement accounts if you don't want to. I'm a RE investor as well so I get the appeal. But I want a 3 legged stool of retirement income sources for diversification and safety in various economic cycles. So I max out a traditional 401k, backdoor Roth IRA and HSA. And I buy rentals and invest in RE partnerships with what's leftover. (And I'm still working on a third leg for that stool.)
I will check you that article. Cheers! Good to see a fellow investor bullish on and in love with real estate as much as I am, tough to find on these kind of forums!

If there wasn't an employee match, would you still max out a 401k? Reason I ask is, there isn't an employee match in 2017, I have contributed $0, but can still max it for this year. What if your real estate investments returned a 30%+ IRR, would you still contribute to a 401k or IRA?
WanderingDoc -
I'm totally with you on the 30% rate. We get that on our leveraged rentals...
I've thought about 100% RE investments as well.
At 42% marginal rate I'm enjoying the big tax deduction and diversification of investments...
Once I get out of my job, I will transfer a portion to my self directed IRA each time I want to acquire another property inside the IRA.
Overall, we are trying to be about 50% equities and 50% everything else (RE and some cash) for now.
Granted we are in our peak earning time and earning money faster than we can acquire high yielding RE assets...
I have read that madfientist article before, but glazed over and didn't retain much. Made a lot more sense now :)

Since I am filing "Single", according to this page I would not be able to take a traditional IRA deduction.
https://www.irs.gov/retirement-plans/20 ... an-at-work

If I plan on keeping my W-2 AGI around $120K (and closer to $100K with a full traditional TSP contribution), would you still consider throwing some cash in a Roth IRA, given what we discussed with real estate? I estimate I can save about 50-60% of my ~$200K annual income (only trying this frugal thing as of this year :D)

Sorry, for being such a newbie, I guess I am not understanding when both of you say you "max out backdoor Roths". Does that mean you contribute to a traditional IRA (and not get the tax deduction), then convert to a Roth later on because you cannot contribute to a Roth due to too high an income?
Yes that's exactly what a backdoor Roth IRA is! And yes I'd do that every year no matter what. I also max out my 401k each year, but we are in the 33% tax bracket so it's well worth the tax savings. As I said before those funds can always be used later within a self-directed IRA rollover to buy more RE. (Or they can be converted to Roth and distributed to be used to buy RE directly 5 years later, once you rollover the 401k). So it's not so much about investment choice as getting the up front tax break.

But I DO want to keep about 30% of my assets at least in stocks. I think diversification is worth it, and I don't think you can count on returns in RE any more than in any other asset class.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Fri Aug 11, 2017 1:46 pm

Meg77 wrote:
Yes that's exactly what a backdoor Roth IRA is! And yes I'd do that every year no matter what. I also max out my 401k each year, but we are in the 33% tax bracket so it's well worth the tax savings. As I said before those funds can always be used later within a self-directed IRA rollover to buy more RE. (Or they can be converted to Roth and distributed to be used to buy RE directly 5 years later, once you rollover the 401k). So it's not so much about investment choice as getting the up front tax break.

But I DO want to keep about 30% of my assets at least in stocks. I think diversification is worth it, and I don't think you can count on returns in RE any more than in any other asset class.
Hmm.. so lets break this down. You contribute Post-Tax income to a traditional IRA (we just established that you or I wouldn't get this tax deduction), then pay tax again on the money while transferring to to a Roth IRA. This would be funds that were taxed twice. I am just not seeing the appeal?

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Re: Physician & Real Estate investor seeks advice

Post by BL » Fri Aug 11, 2017 3:04 pm

As to above topic, if you do a backdoor Roth, you are converting non-deductible IRA to Roth IRA, and there are no taxes due (assuming you have no gains and no non-Roth IRAs laying around.) You will fill out a form 8606 with your 1040, which calculates and shows you and the IRS that no, or almost no, taxes are due. A tax program will do the 8606 which then does the correct numbers on your tax form.

I would agree that one should always do the Roth IRA (direct or backdoor) if at all possible. A Roth has the best of all worlds: need never pay tax on any gains, assuming you follow time and age rules. Also, contributions can be removed tax-free. A Roth IRA could be self-directed, but I would suggest being diversified with both stock market investments as well as Real Estate. Hopefully, if one crashes, the other might survive.

Also suggest you aim at maximizing the TSP. Whether to do Roth or traditional or some combination is a bigger decision. If you were expecting a pension, I would suggest Roth. Since you are not, it is not quite as simple. However, if you are looking at having money available, a Roth TSP can be converted to a Roth IRA, and at least after 5 years, all contributions could be withdrawn. Better yet, keep them invested and use in retirement paying no tax on gains.

https://www.bogleheads.org/wiki/Thrift_Savings_Plan

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Re: Physician & Real Estate investor seeks advice

Post by Meg77 » Fri Aug 11, 2017 4:21 pm

WanderingDoc wrote:
Meg77 wrote:
Yes that's exactly what a backdoor Roth IRA is! And yes I'd do that every year no matter what. I also max out my 401k each year, but we are in the 33% tax bracket so it's well worth the tax savings. As I said before those funds can always be used later within a self-directed IRA rollover to buy more RE. (Or they can be converted to Roth and distributed to be used to buy RE directly 5 years later, once you rollover the 401k). So it's not so much about investment choice as getting the up front tax break.

But I DO want to keep about 30% of my assets at least in stocks. I think diversification is worth it, and I don't think you can count on returns in RE any more than in any other asset class.
Hmm.. so lets break this down. You contribute Post-Tax income to a traditional IRA (we just established that you or I wouldn't get this tax deduction), then pay tax again on the money while transferring to to a Roth IRA. This would be funds that were taxed twice. I am just not seeing the appeal?
You're right, that would definitely not make sense. But the beauty of the backdoor Roth is that you don't pay taxes on the conversion from the T-IRA since you didn't get to take a deduction when you put it in. So you simply fund a T-IRA with $5500 and turn around and convert/transfer the funds to a Roth IRA (depending on the lingo at your brokerage). It's a loophole that congress didn't mean to allow, but it was formed when they changed the law to say that people of all income levels could convert T-IRAs to Roth IRAs. Previously the same income limits applied to conversions as to contributions, but they needed money after/during the recession and so lifted the limit. Or that's my understanding. Then high earners figured out the backdoor Roth loophole but congress hasn't gotten around to closing it yet; I'm sure they will eventually. Until then, we can all get $5500 a year into a Roth tax free.

You don't pay taxes as long as you don't have any other traditional IRA assets. Since you have $5K in a T-IRA already, you may want to either roll that money into your 401k plan (which can be done tax free) or go ahead and convert it and just pay the tax on that $5K so you can do backdoor Roths tax free every year. The IRS considers all IRA assets together in one lump amount even if you have various IRA accounts, so on your tax return you'll have to report your total T-IRA balances as of 12/31. If the answer is $0 then you pay no tax on the conversion since you won't get a deduction that year. But if you answer $5000 then you'll be taxed based on some ratio of the conversion and the amount not converted (this is the part of the rule I can't recall because it's never applied to me, and I am too lazy to look it up currently).
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Fri Aug 11, 2017 5:36 pm

BL wrote:As to above topic, if you do a backdoor Roth, you are converting non-deductible IRA to Roth IRA, and there are no taxes due (assuming you have no gains and no non-Roth IRAs laying around.) You will fill out a form 8606 with your 1040, which calculates and shows you and the IRS that no, or almost no, taxes are due. A tax program will do the 8606 which then does the correct numbers on your tax form.

I would agree that one should always do the Roth IRA (direct or backdoor) if at all possible. A Roth has the best of all worlds: need never pay tax on any gains, assuming you follow time and age rules. Also, contributions can be removed tax-free. A Roth IRA could be self-directed, but I would suggest being diversified with both stock market investments as well as Real Estate. Hopefully, if one crashes, the other might survive.

Also suggest you aim at maximizing the TSP. Whether to do Roth or traditional or some combination is a bigger decision. If you were expecting a pension, I would suggest Roth. Since you are not, it is not quite as simple. However, if you are looking at having money available, a Roth TSP can be converted to a Roth IRA, and at least after 5 years, all contributions could be withdrawn. Better yet, keep them invested and use in retirement paying no tax on gains.

https://www.bogleheads.org/wiki/Thrift_Savings_Plan
Thanks for your comment. Regarding your last paragraph, I would like to have money available (for real estate syndication, spending money, or maybe funding a new business venture), so it looks like Roth 401k is the way to go! I think if I do a 5% contribution to Roth 401k, then will match that 5% into a traditional 401k, and all should be good.

I am still struggling to understand what the 5% match is based on. Is it 5% of base pay, bonuses, or non-taxable housing allowance? Combination of them? This is confusing, as we have the option to fund a certain percentage from several categories of income. So, the amount of $$ that will be 5% matched by them is still unclear to me, and could potentially vary by a great amount. If its only base pay, then I wouldn't be able to max it at $18K with just that, if its others then potentially a 5% match is a whole lot of free dollars.

EDIT: Looks like the 5% match is only calculated off of basic pay contributions (not incentive, special, or bonus pay) Section Q2.9
http://militarypay.defense.gov/Portals/ ... 095830-163
Last edited by WanderingDoc on Fri Aug 11, 2017 5:50 pm, edited 1 time in total.

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Fri Aug 11, 2017 5:38 pm

Meg77 wrote:
WanderingDoc wrote:
Meg77 wrote:
Yes that's exactly what a backdoor Roth IRA is! And yes I'd do that every year no matter what. I also max out my 401k each year, but we are in the 33% tax bracket so it's well worth the tax savings. As I said before those funds can always be used later within a self-directed IRA rollover to buy more RE. (Or they can be converted to Roth and distributed to be used to buy RE directly 5 years later, once you rollover the 401k). So it's not so much about investment choice as getting the up front tax break.

But I DO want to keep about 30% of my assets at least in stocks. I think diversification is worth it, and I don't think you can count on returns in RE any more than in any other asset class.
Hmm.. so lets break this down. You contribute Post-Tax income to a traditional IRA (we just established that you or I wouldn't get this tax deduction), then pay tax again on the money while transferring to to a Roth IRA. This would be funds that were taxed twice. I am just not seeing the appeal?
You're right, that would definitely not make sense. But the beauty of the backdoor Roth is that you don't pay taxes on the conversion from the T-IRA since you didn't get to take a deduction when you put it in. So you simply fund a T-IRA with $5500 and turn around and convert/transfer the funds to a Roth IRA (depending on the lingo at your brokerage). It's a loophole that congress didn't mean to allow, but it was formed when they changed the law to say that people of all income levels could convert T-IRAs to Roth IRAs. Previously the same income limits applied to conversions as to contributions, but they needed money after/during the recession and so lifted the limit. Or that's my understanding. Then high earners figured out the backdoor Roth loophole but congress hasn't gotten around to closing it yet; I'm sure they will eventually. Until then, we can all get $5500 a year into a Roth tax free.

You don't pay taxes as long as you don't have any other traditional IRA assets. Since you have $5K in a T-IRA already, you may want to either roll that money into your 401k plan (which can be done tax free) or go ahead and convert it and just pay the tax on that $5K so you can do backdoor Roths tax free every year. The IRS considers all IRA assets together in one lump amount even if you have various IRA accounts, so on your tax return you'll have to report your total T-IRA balances as of 12/31. If the answer is $0 then you pay no tax on the conversion since you won't get a deduction that year. But if you answer $5000 then you'll be taxed based on some ratio of the conversion and the amount not converted (this is the part of the rule I can't recall because it's never applied to me, and I am too lazy to look it up currently).
Thanks much for clearing that up.

"The TSP allows current and former employees of the federal government to rollover their 401(k)s and IRAs into the TSP. For example, a federal employee might switch to an employer where she has a 401(k) plan. If she then leaves there, to a third employer, she would normally rollover her 401(k) to an IRA, such as one with Vanguard. Since the TSP offers the lowest cost funds available anywhere, it provides a slightly better value than Vanguard. (The TSP is almost certainly a better value than the second employer's 401(k) plans, which on average have expenses 30 to 40 times worse than the TSP; see fees.) The employee can rollover the assets from her second employer's plan to the TSP. Thus, as long as federal employees never close their TSP accounts by withdrawing their full balance, the TSP remains a valuable benefit to federal service, even after switching jobs."

Above is from the wiki page, so it seems as if I can roll over that small amount I have in a traditional IRA into the TSP? Since as you were saying, I cannot have ANY balance in a T-IRA if I am to utilize the Backdoor Roth IRA.

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Re: Physician & Real Estate investor seeks advice

Post by Finance-MD » Fri Aug 11, 2017 10:36 pm

Helo80 wrote:
WanderingDoc wrote: I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

I'm not sure what you're getting at with your comments. If you define "real wealth" as having hundreds of millions of dollars in the bank, you probably chose the wrong industry segment. Joining the military was probably an even worse decision as you're a part of a mission that does not reward or necessarily value individualism. (I'm a fed civilian and work with all branches of the military on a daily basis)

For other avenues to grow your money through investments:
- Real Estate -- some people do well [OT comment removed by admin LadyGeek] It would be difficult to do as active duty since you may move around a bit and are always eligible for deployment.

- Individual stock picking - If you invested all your money in the late-90's in a company like Apple, you could afford to have a personal financial adviser on call 24x7. However, if you invested all your money in Nortel (100K plus worldwide employees and worth hundreds of billions), you'd be a broke joke now. Studies have shown that the best and brightest financial analysts don't necessarily pick better stocks than 10 monkeys.

- Starting a business - lots of physicians have group practices and what not, but that's always subject to change with politics and cultural/voting shifts undergoing right now.

- Starting a business elsewhere - McDonalds has made more millionaires than any other business, but it's probably at a saturation point now and you generally need at least $1 million (ideally $2m) to kick off a franchise... all the literature is available from McDonald's on that one.

- Inherit the money - obvious answer

- Win the lottery -- obvious answer

- Invest in hedge funds - May or may not do better than a Vanguard index fund; longterm studies suggest it's safer and has a larger return to stick with a broad market index fund

- something else I'm missing.


If Real Estate is your thing, give it a shot and you may turn out fantastically wealthy from it. To me, "real estate investing" is something in popular culture like "bitcoin mining" is. But, if you don't know what you're doing, or worse, you mismanage real estate, you'll lose money long term.

Index funds are far more liquid and far less of a headache than Real Estate would be in my book. If you went to any major medical school in the US and were in a teaching hospital, I'm sure you met some interesting patients along the way.... would you necessarily rent to every single patient you encountered?
Owning rentals is a business.
Finding tenants is like hiring employees.
You don't just rent to anyone as you don't just hire anyone who applied for a job.
No RE isn't as passive ad indexing.
It's a business.
And it's not an efficient marketplace.
People who know what they are doing can yield very high risk adjusted returns leveraging their knowledge and their team.

DW and I earn incredibly high earnings as physicians. Per hour invested, we earn much much more in RE... and more importantly, RE is scalable as it's not dependent on our time once your systems are set up.

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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Fri Aug 11, 2017 11:26 pm

Finance-MD wrote:
Helo80 wrote:
WanderingDoc wrote: I am starting to see the light of Mr. Jack Bogle and index investing. One thing that I cannot really wrap my head around is, if you decided to save a portion of your paycheck and invest it into index funds, you've essentially "given up" to create any real wealth in the most formative and energetic years of one's life (lets call it ages 25-55 where most people earn their highest incomes).

I'm not sure what you're getting at with your comments. If you define "real wealth" as having hundreds of millions of dollars in the bank, you probably chose the wrong industry segment. Joining the military was probably an even worse decision as you're a part of a mission that does not reward or necessarily value individualism. (I'm a fed civilian and work with all branches of the military on a daily basis)

For other avenues to grow your money through investments:
- Real Estate -- some people do well [OT comment removed by admin LadyGeek] It would be difficult to do as active duty since you may move around a bit and are always eligible for deployment.

- Individual stock picking - If you invested all your money in the late-90's in a company like Apple, you could afford to have a personal financial adviser on call 24x7. However, if you invested all your money in Nortel (100K plus worldwide employees and worth hundreds of billions), you'd be a broke joke now. Studies have shown that the best and brightest financial analysts don't necessarily pick better stocks than 10 monkeys.

- Starting a business - lots of physicians have group practices and what not, but that's always subject to change with politics and cultural/voting shifts undergoing right now.

- Starting a business elsewhere - McDonalds has made more millionaires than any other business, but it's probably at a saturation point now and you generally need at least $1 million (ideally $2m) to kick off a franchise... all the literature is available from McDonald's on that one.

- Inherit the money - obvious answer

- Win the lottery -- obvious answer

- Invest in hedge funds - May or may not do better than a Vanguard index fund; longterm studies suggest it's safer and has a larger return to stick with a broad market index fund

- something else I'm missing.


If Real Estate is your thing, give it a shot and you may turn out fantastically wealthy from it. To me, "real estate investing" is something in popular culture like "bitcoin mining" is. But, if you don't know what you're doing, or worse, you mismanage real estate, you'll lose money long term.

Index funds are far more liquid and far less of a headache than Real Estate would be in my book. If you went to any major medical school in the US and were in a teaching hospital, I'm sure you met some interesting patients along the way.... would you necessarily rent to every single patient you encountered?
Owning rentals is a business.
Finding tenants is like hiring employees.
You don't just rent to anyone as you don't just hire anyone who applied for a job.
No RE isn't as passive ad indexing.
It's a business.
And it's not an efficient marketplace.
People who know what they are doing can yield very high risk adjusted returns leveraging their knowledge and their team.

DW and I earn incredibly high earnings as physicians. Per hour invested, we earn much much more in RE... and more importantly, RE is scalable as it's not dependent on our time once your systems are set up.
Yes. That's been my experience as well. No matter how much I can earn in a W-2, I still have to trade my time for dollars in medicine.

Also, stocks don't send you a paycheck every month. The 1.5-2.5% that dividend-paying stocks throw off is a joke. Not to mention, you have to pay taxes on that income. With real estate, it's very easy to have your net income show "$0" or slightly negative.

A median wage earner (or median + 50%) wage earner, let's call it $75K per year, has virtually zero chance to build wealth by throwing all their savings in mutual funds, in any reasonable time shorter than 25-30 years. That's the elephant in the room that no one wants to discuss.

Take that same salary, I can make them independently wealthy with real estate, part-time in less than 5-7 years.

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Re: Physician & Real Estate investor seeks advice

Post by simas » Sun Aug 13, 2017 10:13 am

"Take that same salary, I can make them independently wealthy with real estate, part-time in less than 5-7 years."

you don't - be careful in saying this to yourself and being overly confident...

Look, I (and may be others) want nothing but success for you. We don't have "an agenda" :) to have you more invested in this or that or whatever. We have no desire to argue with 'what is best', blah-blah-blah. We don't care about "winning" argument or whatever..

Just few data points to potentially ask yourself

1) you are way too young at this game to have any idea on how cyclical this. Have you seen last drop in 2005 and housing markets? what about early 90s? what about 80s?

2) real estate returns are fairly predictable at large scale. if interested, look up REITs and huge companies that own and manage buildings you would not even dream about with access to resources beyond your wildest fantasies. This can give you real idea of costs, returns, at scale

3) your history with this is insufficient to be making any real projections going forward. have you ever evicted a tenant? or had one destroy the place? what about having to deal with police because tenants have issues (their own or with you)? do you know court rules and process for eviction and other issues? Have you ever had a place sit empty for the year or had it run at loss? do you understand real estate law in your area and have specialized education , training, connections, licensing to be practicing it? do you have political connections from local level up (aldermen ,etc) when shit will hit the fan and you will be demonized as slumlord who is racist, hates children, minorities, women, whatever just by trying to enforce the contract they entered with you willingly?

if your answer is no to all of the above, enjoy your luck so far but do not think this will not happen to you . Smart landlords do plan, think, model, and prepare for these things.

Does it mean real estate is bad? No , not at all - if you want non-passive activity, and it is something you enjoy. go for it. However, it is a business (same as any other business) and not passive investments.

WanderingDoc
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Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Sun Aug 13, 2017 12:42 pm

simas wrote:
Sun Aug 13, 2017 10:13 am
"Take that same salary, I can make them independently wealthy with real estate, part-time in less than 5-7 years."

you don't - be careful in saying this to yourself and being overly confident...

Look, I (and may be others) want nothing but success for you. We don't have "an agenda" :) to have you more invested in this or that or whatever. We have no desire to argue with 'what is best', blah-blah-blah. We don't care about "winning" argument or whatever..

Just few data points to potentially ask yourself

1) you are way too young at this game to have any idea on how cyclical this. Have you seen last drop in 2005 and housing markets? what about early 90s? what about 80s?

2) real estate returns are fairly predictable at large scale. if interested, look up REITs and huge companies that own and manage buildings you would not even dream about with access to resources beyond your wildest fantasies. This can give you real idea of costs, returns, at scale

3) your history with this is insufficient to be making any real projections going forward. have you ever evicted a tenant? or had one destroy the place? what about having to deal with police because tenants have issues (their own or with you)? do you know court rules and process for eviction and other issues? Have you ever had a place sit empty for the year or had it run at loss? do you understand real estate law in your area and have specialized education , training, connections, licensing to be practicing it? do you have political connections from local level up (aldermen ,etc) when shit will hit the fan and you will be demonized as slumlord who is racist, hates children, minorities, women, whatever just by trying to enforce the contract they entered with you willingly?

if your answer is no to all of the above, enjoy your luck so far but do not think this will not happen to you . Smart landlords do plan, think, model, and prepare for these things.

Does it mean real estate is bad? No , not at all - if you want non-passive activity, and it is something you enjoy. go for it. However, it is a business (same as any other business) and not passive investments.
I stick by that statement you quoted, 100%.

1) Regarding a cyclical market, I have many things to say about it. It won't affect me either way.. Why? Real estate pays me every month. So if the markets go down, I don't care. Right now, I have more than 50% equity across my properties relative to their value. I can do a cash-out refi or HELOC at 80% LTV and preserve my net worth, even if markets take a nose dive. You cannot do this with stock.

2) This is the big logical error those uninformed with real estate make. Real estate is LOCAL. I don't care what returns large REITs are making. I have control over what market, submarket, and micromarket I purchase in. I can buy significantly below present value (happens millions of times per day). Can you do this with stocks, again no. The point here is, insider trade with real estate is legal, even encouraged. Last I checked, it was illegal with stocks.

3) Regarding evictions, those numbers are built into your expenses calculations, and are part of doing business, when you have built a large enough scale.

It is true, mutual funds are more passive, but that is precisely their problem. They are passive because you are buying them at their present value or perceived value. The advantages of RE (some of which I outlined in 1) and 2) above) just far outweigh those of the stocks market.

I appreciate your feedback, but you have not delved far enough into the subject with all due respect. You are not informed about a lot of the strategy and subtleties. Your comment about REITs gave away how indoctrinated you are to just put your money in a market and hope you become wealthy after 20-30 years. Where is the upside, the value-add, the creativity?

The returns that are passed on to the investors of a REIT in NO WAY represent the actual return of a few of those units if they were controlled by me or another single investor. How do I know? REITs pay dividend on average 5-7%. I won't even look at a RE deal if it doesn't pencil out a 12-15% return on cash.

Investing in REITs is paper investing - it is not investing real estate despite what people will likely convince themselves of. Its "exposure to the real estate market sector" at best. Like you, I am not trying to start a debate. I am merely pointing out that is take your average Joe or Jane, assume they have $20K left at the end of the year to invest (which is generous), there is no possible way they will be a millionaire in less than 8-10 years just putting it into index funds. The math just doesn't work out.

simas
Posts: 27
Joined: Wed Apr 04, 2007 5:50 pm

Re: Physician & Real Estate investor seeks advice

Post by simas » Sun Aug 13, 2017 2:36 pm

"Where is the upside, the value-add, the creativity?"
This has been rehashed thousands of times so it is nothing but boring at this point - you still keep confusing passive investment with business (like real estate). *sight* . keep dreaming your dream, keep "fighting" to defend something no one is attacking. keep preaching something no one cares to hear...

Also, if we talk business, why limit at something as slow, and extremely risky as real estate? go start a consulting company, get a list of clients to buy your services at $175 (remember Microsoft charges $265 per hour for Premier Support) , get yourself stables of IT consultants to pay $75 hourly, allocate 40% for overhead, collect $70 for each hour they bill. Each person billing 40 hour week is 2800 to you directly after all costs, EACH WEEK EACH PERSON. Times 50 weeks , times hundreds of consultants and you have eight digits numbers worth of profits, times thousands of consultants and it goes up from there.. So, is this a "proof" that mutual funds are "bad"? no, it is just completely different from passive investments.


"Regarding a cyclical market, I have many things to say about it. It won't affect me either way.. Why? Real estate pays me every month. "

that just tells me how new and inexperienced you are... Again , good luck with this. what do you think will happen when prices crash around you in terms of both
- housing availability?
- cash flow pressure on other landlords?


what do you think your tenants would do? what this would do to rental prices? best one will go buy a house (why "throw money out" to give to this Physician guy and instead not to "own" our place, mortgage now much cheaper than rent) , even the ones that cant buy will shop around. good luck getting your properties filled. good luck getting the same rate on them. good luck competing with other landlords undercutting you and desperate to get your tenants at any cost.

willfully denying the laws of economics never worked for anyone...

Either way, if you chose not to understand the difference between passive and active investment - there is nothing I or anyone else would say to convince you. take it for what its worth, and have fun in *your* life. if your fun is real estate, so be it.
Last edited by simas on Sun Aug 13, 2017 4:43 pm, edited 1 time in total.

WanderingDoc
Posts: 69
Joined: Sat Aug 05, 2017 8:21 pm

Re: Physician & Real Estate investor seeks advice

Post by WanderingDoc » Sun Aug 13, 2017 3:00 pm

simas wrote:
Sun Aug 13, 2017 2:36 pm
"Where is the upside, the value-add, the creativity?"
This has been rehashed thousands of times so it is nothing but boring at this point - you still keep confusing passive investment with business (like real estate). *sight* . keep dreaming your dream, keep "fighting" to defend something no one is attacking. keep preaching something no one cares to hear...

Also, if we talk business, why limit at something as slow, and extremely risky as real estate? go start a consulting company, get a list of clients to buy your services at $175 (remember Microsoft charges $265 per hour for Premier Support) , get yourself stables of IT consultants to pay $75 hours, allocate 40% for overhead, collect $70 for each hour they bill. Each person billing 40 hour week is 2800 to you directly after all costs, EACH WEEK EACH PERSON. Times 50 weeks , times hundreds of consultants and you have eight digits numbers worth of profits, times thousands of consultants and it goes up from there.. So, is this a "proof" that mutual funds are "bad"? no, it is just completely different from passive investments.


"Regarding a cyclical market, I have many things to say about it. It won't affect me either way.. Why? Real estate pays me every month. "

that just tells me how new and inexperienced you are... Again , good luck with this. what do you think will happen when prices crash around you in terms of both
- housing availability?
- cash flow pressure on other landlords?


what do you think your tenants would do? what this would do to rental prices? best one will go buy a house (why "throw money out" to give to this Physician guy and instead not to "own" our place, mortgage now much cheaper than rent) , even the ones that cant buy will shop around. good luck getting your properties filled. good luck getting the same rate on them. good luck competing with other landlords undercutting you and desperate to get your tenants at any cost.

willfully denying the laws of economics never worked for anyone...

Either way, if you chose not to understand the difference between passive and active investment - there is nothing I or anyone else would say to convince you. take it for what its worth, and have fun in *your* life. if your fun is real estate, so be it.
I am new to this forum, so from my perspective it has not been hashed out. I am having fun investing in real estate. Why do you seem so hateful and defensive when someone else is successful? I think there is a lesson for you to be learned in humility.

Like I said, you aren't experienced enough nor educated enough on this subject. In a bad housing market, when interest rates go up, property values go down, and lenders don't want to lend to anyone, what do you think happens? Vacancies in many areas actually GO DOWN. People need to live somewhere. Home ownership is at a 40 year low currently. Millennials and baby boomers want to be renters. You are misinformed and have not read on this subject, or studied market economics in a long time.

If you truly wish me good luck, then thanks! Good luck to someone who happens to be retiring in a bear market like 2008-2009.. Millions of Americans have more than 50-60% of their stock investments wiped, *poof* into thin air. I have heard of people in their 60s, 70s,, even 80s have to go back to work, after having worked their whole life putting their life savings into a retirement account.
Good luck on the "40 year plan" :sharebeer

bayview
Posts: 1232
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Location: WNC

Re: Physician & Real Estate investor seeks advice

Post by bayview » Sun Aug 13, 2017 4:40 pm

You mentioned upthread that G is only earning 0.9%. That is incorrect.

Last I checked, it was 2.25%. I know, hardly nosebleed territory. To find the current rate of G, click on its Loan tab.

What is special about G is that it is essentially a stable value fund that at least matches inflation, has 0 duration, is the highest credit quality, and your balance increases every day. Not by a lot, of course, but certainly not volatile.

If you want to go equity-heavy, having 10% or so in G gives you "dry powder" to buy cheap extra stocks when they crashed. It certainly worked for me in 2007-2009.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

simas
Posts: 27
Joined: Wed Apr 04, 2007 5:50 pm

Re: Physician & Real Estate investor seeks advice

Post by simas » Sun Aug 13, 2017 4:52 pm

"Good luck on the "40 year plan""

What is the 40 year plan? I don't expect investments to 'make me rich' - their purpose is to provide some real return (post inflation) and keep you rich by providing you with diversification benefits (across locales, countries, continents, business lines, industries, etc.). information technology , management, and difficult data problem solving for multibillion dollar companies is what got me to FI and ability not to work another day in my life if I don't want to . Investments are to keep me FI/retired if that ends up being something to pursue (which I am finding to be too boring to do nothing so I am back and finding not having to kiss ass, work at my pace, and my time preferences is actually respected and rewarded financially more than former full time 'industry jobs'). I love what I do (data management and data science), do it for fun , as I am an engineer who enjoys these things.. And since I am in my 30s as well, the road is something I look forward to...

So there are many roads to FI and real estate is one of them. you make your money elsewhere and boring things like asset allocation, investment discipline, cost management, tax planning is what keeps you FI.

need403bhelp
Posts: 309
Joined: Thu May 28, 2015 6:25 pm

Re: Physician & Real Estate investor seeks advice

Post by need403bhelp » Sun Aug 13, 2017 8:04 pm

This conversation seems to have gotten somewhat adversarial.

I am a physician also, and have no personal experience with real estate investments.

My simple understanding of the difference between investing directly in real estate and passive indexing:

- income in real estate investing depends on luck & skill
- passive indexing, if done in a way to match the market & in the long term (20-30 years), depends neither on luck nor on skill (if the domestic & international economies both fail within that time period, we will have bigger problems that investing/retirement)

The difficulty with real estate might be knowing whether most of your returns so far have come from (a) luck or (b) skill.

If (b) skill, then perhaps from a purely financial point of view, one would be best served by going into the real estate business full time.

If (a) luck, then it may be wise to diversify to other investments. On this forum, that "diversification" will be stock & bonds.

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