3 years out - officially a millionaire and one step closer to saying goodbye to EM

[cyanide12345678]

Sharing this milestone with folks to possibly inspire others and maybe share with others some alternate investments. This july marks exactly 3 years from my residency graduation and we hit the 1M net worth milestone a few days ago.

Some of our success has been because of the usual things: spent less, invested a big chunk of our income, lived in a cheap-ish cost of living area, negotiated for higher incomes.

But a lot of our success has been because of a very non-traditional approach to investing. Here's a breakdown of our portfolio and the significant alternate investments that I would highly encourage others to educate themselves about.

Current portfolio:

4% cash, 36% Passive syndicate real estate investments, 30% options (premium harvesting through naked puts), 20% in retirement accounts (of which 90% stocks and 10% bonds), and lastly 10% net worth in our personal home equity.

I've talked plenty about options in the past, so not going to dive into that topic. But in the last 1 year, I've also jumped head first into the world of passive syndicate investing which I've never talked about here and wanted to give others a glimpse into these opportunities that most doctors qualify to invest in:

I currently have about ~370k in 14 different syndications. The following is the breakdown of these investments:

Syndications I've invested in:

1) 85k in office space (30k in Atlanta Financial Center and 30k in 200 W jackson Chicago which is the building next to Sears tower - both these are with nightingale properties as sponsor, 25k in an office space opposite the great mall of America in Minneapolis (sponsor = Hemel companies)).

2) 215k in multifamily ( 25k in an Apt complex in Miami (sponsor = Lynd capital), 25k in an apartment building in orlando, 30k Ashcroft capital which is a multifamily fund consisting of 6 apt complexes, 40k with BAM capital - another fund with 6 properties, 15k in an Apt in Des Moine, 25k with Foulger Pratt in a DC new construction and another 25K with them in a Apt complex in Fort worth Tx, 30k in 3 apt complexes in Norman OK with trident real estate).

3) 40k in Self storage of which 20k is with a fund with Van west group, and 20k with Ziffcre, will increase to 50k over this year as more properties are acquired in the fund.

4) 30k in medical office buildings through NEMI fund 4.

All except a couple of the above investments have been through either crowdstreet, equitymultiple, and realcrowd. Crowdstreet has some of the best deal flow and some really great deals have come on it.

Pros of syndications:
1) Diversity - multifamily, office, industrial, storage, retail, geographic diversity, sponsor diversity with a few clicks while sitting at home.
2) Truly passive and headache free once you've done your due diligence.
3) Tax benefits of paper losses due to depreciation
4) 15 - 20% returns depending on the deal. Roughly you're looking at doubling your money in 5 years on average in real estate.
5) Rental checks
6) Leverage sponsor experience and expertise. I mean someone with 1B of assets under management is probably better equipped at maximizing a property than I am.
7) no correlation with the stock market, true diversity.

Cons of syndications:
1) A LOT of state income tax forms -_- Basically state income tax forms for every state I'm a K1 partner in a property.
2) No control - Sponsor decides everything

How to start:
1) Read "the hands off investor".
2) Join crowdstreet and get a taste of reviewing deals

Last thoughts:
1) debt is a tool if used wisely. Too many doctors are rushing to pay off "good debt" like mortgages. I paid off my student loans too aggressively, I wish I hadn't, I'd be worth a lot more today if I hadn't.
2) EM was financially good to me but I wish I had done something else. In hindsight I would pick Radiology, ortho, FM, anesthesia, or PM&R over EM. But I can't complain honestly. 3 years ago I was worth around negative 100k when I graduated residency, so EM has helped me do a 1.1M swing in net worth in 3 years.
3) I think I'll consider myself financially independent in another 2-3 years when we hit 2M in networth given that I don't rely on the SP500 for returns (mostly not at least for a majority of my portfolio).

I hope this was helpful to others, if anyone has any questions about details about the deals that I'm in or my thoughts about the sponsors, then PM me and I'd be more than happy to discuss these things.

Edit: This is not investment advice, do your own due diligence, I'm not selling anything. But just throwing out investment ideas for doctors who are accredited investors who have a higher risk appetite than a stock:bond portfolio.

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[GonnaBeADoc2222]

Did you have student debt? How much does your spouse generate?

 

[BoardingDoc]

Reminder to everyone reading this thread: real estate investing is obviously a viable investment strategy. It is very important to remember though, that @cyanide12345678 was very lucky to graduate and subsequently start investing in RE at a fantastic time to enter that market. This conversation had he started in 2005 would look rather different.

Similarly, someone who dumped a ton of money into the stock market in early '08 would probably not have a great time seeing the bailouts and subsequent market collapse.

My point is not to speak against real estate investing or any kind of investing in general. I can see this thread turning into a get rich quick kind of thing and I simply want to remind people looking at cyanide's success (congratulations BTW) to make educated decisions. As many brokerages are fond of reminding clients: "past performance does not guarantee future results."

 

[cyanide12345678]

Did you have student debt? How much does your spouse generate?

Paid 195k in student debt of which 50k was paid as a resident with moonlighting, the remaining 145k was basically paid with the first 7 paychecks of being an attending. My wife had no debt. She did medical school in pakistan and had an annual tuition of $150

2 out of the last 3 years, my wife was a resident and made 55k ish. She has had attending income of 230k since November 2021.

My income was 450k for the first 2 years as 1099 and 400k ish w2 after some benefits accounted for since November. I cut down on patient volume and took a pay cut to go rural ER in november 2021 when we moved cities.

 

[cyanide12345678]

Reminder to everyone reading this thread: real estate investing is obviously a viable investment strategy. It is very important to remember though, that @cyanide12345678 was very lucky to graduate and subsequently start investing in RE at a fantastic time to enter that market. This conversation had he started in 2005 would look rather different.

Similarly, someone who dumped a ton of money into the stock market in early '08 would probably not have a great time seeing the bailouts and subsequent market collapse.

My point is not to speak against real estate investing or any kind of investing in general. I can see this thread turning into a get rich quick kind of thing and I simply want to remind people looking at cyanide's success (congratulations BTW) to make educated decisions. As many brokerages are fond of reminding clients: "past performance does not guarantee future results."

Yes yes education is a must. Do your own due diligence. Though technically i haven’t even accounted for any real estate appreciation yet since none of my deals have gone full cycle, the first one is about to in a couple of months and is getting offers right now. So i don’t now what the future exit value of this portfolio Is yet, right now the benefit is rental income. And it was nice not seeing a 20 percent drop in account value this year because i was invested in a noncorrelated illiquid asset.

 

[PianoMedic]

Congrats cyanide! Awesome to hear. Boardingdoc makes some good points, and real estate syndications are something I struggle with deciding on investing in. I was a finance major in undergrad so not a stranger to investing, but real estate wasn’t something I was taught. WCI is a big promoter of it, as are many of the FIRE crowd. I try to rely on academic research, which typically is less biased in the financial space but isn’t unbiased, when I’m making portfolio decisions. And that’s where I get hung up. I can look through and try to find the sources later if people want, but all of the following can be found readily online.

According to the research, private real estate does not beat public REITs over long time periods. Especially when you adjust for the true volatility of private real estate. One aspect people tout for private real estate is an earned illiquidity premium. What AQR has found, is that people actually PAY a premium for illiquidity and the apparent smoothing of returns, especially institutional investors like endowments. This gives them the appearance of uncorrelation with stocks and bonds, but if they were marked to market as the rest of financial assets are, you’d actually see much more correlation and significantly higher volatility in their return. Since most of these types of deals are valued 4 times per year instead of ~180 days per year (and often thousands to even millions of valuations each trading day for stocks), you just can’t see the volatility.

When the researchers looked at the returns of public REITs compared with stocks, there is some lack of correlation that can be seen, but that has mostly gone away recently. In addition, you can look at the factor research (the Fama-French 5 factor model and the related fixed income factors) to see what amount of the return of REITs is explained by the factor models and what could be extra return. The result? You can explain public REITs returns by making a portfolio of about 2/3 small cap value stocks and 1/3 high yield corporate bonds. That portfolio explains nearly all of the REIT returns. So overweighting REITs compared to the market weight doesn’t offer any extra return.

So, if private REITs and real estate don’t beat public REITs, and public REITs are no better than small cap value and high yield corporate bonds (I tilt small value aggressively in my portfolio), then I struggle to determine whether it would be worthwhile to even learn about syndications and private real estate investing. There is a lot of idiosyncratic real estate risk there, plus a lot of firm specific risk with each deal that you have to fully trust the sponsor.

All of that said, my wife wanted us to hold some “bonds” so I’m using Groundfloor to invest in fix and flip loans which are high risk bonds and doing decently on those, about 10.5-11% annualized over the last year or so.

I’ve seen my portfolio drop this year as it is nearly all stocks. I’m fine with that since everything is now on sale. I’d prefer a much bigger drop so it is at fire sale prices, but I’m not going to be one to look a gift horse in the mouth and have been plowing money back into the market while it has been dropping.

What main advantage do you ([mention]cyanide12345678 [/mention] )see to private real estate investing in light of the above? Is it the consistent cash flow that makes it so that you could retire earlier since now you don’t have to come up with that cash? There is also research on the irrelevance of dividends to total stock returns, but I’m not sure it can be extended to real estate in the same way. I feel the FOMO very strongly (put 2% into crypto on the way down here), but I also am trying to follow WCIs mantra of “no called strikes in investing”. I think I am starting to land in the territory of “keep it simple stupid”. Just trust in the stock market with some slight diversification (5% like I am) into the fix and flip loans since it serves another purpose but don’t try to do too much more than that.

My wife’s prior income is not enough to cover child care costs so we are one income right now but managed to increase net worth 220k during my first year as an attending while raising one kiddo. And that’s with a 20% drop in the value of our stock portfolio. I could probably do a put option strategy but I don’t find it diversified enough for my liking, and I also have too inconsistent of a schedule to do it how I’d want, which is trading every 48 hours or so. I’m also significantly leveraged in other aspects of my life (carrying my 1.85% fixed rate student loans of 200k for 7 years for example) so I don’t want to take on much more leverage.

I hope to make it to 1 mil net worth about 7 years out or so, and 2 mil by about 12 years out. If I get good stock returns I should be able to retire around 15 years out, but planning on a 20 year career. Concern as always echoed around here is not making it to 20 years. Thanks for sharing your story, and be interested in your feedback on my reasoning.

 

[BoardingDoc]

Congrats cyanide! Awesome to hear. Boardingdoc makes some good points, and real estate syndications are something I struggle with deciding on investing in. I was a finance major in undergrad so not a stranger to investing, but real estate wasn’t something I was taught. WCI is a big promoter of it, as are many of the FIRE crowd. I try to rely on academic research, which typically is less biased in the financial space but isn’t unbiased, when I’m making portfolio decisions. And that’s where I get hung up. I can look through and try to find the sources later if people want, but all of the following can be found readily online.

According to the research, private real estate does not beat public REITs over long time periods. Especially when you adjust for the true volatility of private real estate. One aspect people tout for private real estate is an earned illiquidity premium. What AQR has found, is that people actually PAY a premium for illiquidity and the apparent smoothing of returns, especially institutional investors like endowments. This gives them the appearance of uncorrelation with stocks and bonds, but if they were marked to market as the rest of financial assets are, you’d actually see much more correlation and significantly higher volatility in their return. Since most of these types of deals are valued 4 times per year instead of ~180 days per year (and often thousands to even millions of valuations each trading day for stocks), you just can’t see the volatility.

When the researchers looked at the returns of public REITs compared with stocks, there is some lack of correlation that can be seen, but that has mostly gone away recently. In addition, you can look at the factor research (the Fama-French 5 factor model and the related fixed income factors) to see what amount of the return of REITs is explained by the factor models and what could be extra return. The result? You can explain public REITs returns by making a portfolio of about 2/3 small cap value stocks and 1/3 high yield corporate bonds. That portfolio explains nearly all of the REIT returns. So overweighting REITs compared to the market weight doesn’t offer any extra return.

So, if private REITs and real estate don’t beat public REITs, and public REITs are no better than small cap value and high yield corporate bonds (I tilt small value aggressively in my portfolio), then I struggle to determine whether it would be worthwhile to even learn about syndications and private real estate investing. There is a lot of idiosyncratic real estate risk there, plus a lot of firm specific risk with each deal that you have to fully trust the sponsor.

All of that said, my wife wanted us to hold some “bonds” so I’m using Groundfloor to invest in fix and flip loans which are high risk bonds and doing decently on those, about 10.5-11% annualized over the last year or so.

I’ve seen my portfolio drop this year as it is nearly all stocks. I’m fine with that since everything is now on sale. I’d prefer a much bigger drop so it is at fire sale prices, but I’m not going to be one to look a gift horse in the mouth and have been plowing money back into the market while it has been dropping.

What main advantage do you ([mention]cyanide12345678 [/mention] )see to private real estate investing in light of the above? Is it the consistent cash flow that makes it so that you could retire earlier since now you don’t have to come up with that cash? There is also research on the irrelevance of dividends to total stock returns, but I’m not sure it can be extended to real estate in the same way. I feel the FOMO very strongly (put 2% into crypto on the way down here), but I also am trying to follow WCIs mantra of “no called strikes in investing”. I think I am starting to land in the territory of “keep it simple stupid”. Just trust in the stock market with some slight diversification (5% like I am) into the fix and flip loans since it serves another purpose but don’t try to do too much more than that.

My wife’s prior income is not enough to cover child care costs so we are one income right now but managed to increase net worth 220k during my first year as an attending while raising one kiddo. And that’s with a 20% drop in the value of our stock portfolio. I could probably do a put option strategy but I don’t find it diversified enough for my liking, and I also have too inconsistent of a schedule to do it how I’d want, which is trading every 48 hours or so. I’m also significantly leveraged in other aspects of my life (carrying my 1.85% fixed rate student loans of 200k for 7 years for example) so I don’t want to take on much more leverage.

I hope to make it to 1 mil net worth about 7 years out or so, and 2 mil by about 12 years out. If I get good stock returns I should be able to retire around 15 years out, but planning on a 20 year career. Concern as always echoed around here is not making it to 20 years. Thanks for sharing your story, and be interested in your feedback on my reasoning.

Side comment re: your wife's interest in bonds. Buy I bonds if you haven't already. The rates are absurd. I have 10k collecting 7.12% and switching up to the current rate of 9.62% in a few months. I am actually purchasing more (via the wife) shortly as I have a line of credit with a 2.5% rate and figure I can just take the arbitrage win with an ibond purchase from the loan and simply sell if the rate ever approaches 2.5%.

 

[AD04]

Sharing this milestone with folks to possibly inspire others and maybe share with others some alternate investments. This july marks exactly 3 years from my residency graduation and we hit the 1M net worth milestone a few days ago.

Some of our success has been because of the usual things: spent less, invested a big chunk of our income, lived in a cheap-ish cost of living area, negotiated for higher incomes.

But a lot of our success has been because of a very non-traditional approach to investing. Here's a breakdown of our portfolio and the significant alternate investments that I would highly encourage others to educate themselves about.

Current portfolio:

4% cash, 36% Passive syndicate real estate investments, 30% options (premium harvesting through naked puts), 20% in retirement accounts (of which 90% stocks and 10% bonds), and lastly 10% net worth in our personal home equity.

I've talked plenty about options in the past, so not going to dive into that topic. But in the last 1 year, I've also jumped head first into the world of passive syndicate investing which I've never talked about here and wanted to give others a glimpse into these opportunities that most doctors qualify to invest in:

I currently have about ~370k in 14 different syndications. The following is the breakdown of these investments:

Syndications I've invested in:

1) 85k in office space (30k in Atlanta Financial Center and 30k in 200 W jackson Chicago which is the building next to Sears tower - both these are with nightingale properties as sponsor, 25k in an office space opposite the great mall of America in Minneapolis (sponsor = Hemel companies)).

2) 215k in multifamily ( 25k in an Apt complex in Miami (sponsor = Lynd capital), 25k in an apartment building in orlando, 30k Ashcroft capital which is a multifamily fund consisting of 6 apt complexes, 40k with BAM capital - another fund with 6 properties, 15k in an Apt in Des Moine, 25k with Foulger Pratt in a DC new construction and another 25K with them in a Apt complex in Fort worth Tx, 30k in 3 apt complexes in Norman OK with trident real estate).

3) 40k in Self storage of which 20k is with a fund with Van west group, and 20k with Ziffcre, will increase to 50k over this year as more properties are acquired in the fund.

4) 30k in medical office buildings through NEMI fund 4.

All except a couple of the above investments have been through either crowdstreet, equitymultiple, and realcrowd. Crowdstreet has some of the best deal flow and some really great deals have come on it.

Pros of syndications:
1) Diversity - multifamily, office, industrial, storage, retail, geographic diversity, sponsor diversity with a few clicks while sitting at home.
2) Truly passive and headache free once you've done your due diligence.
3) Tax benefits of paper losses due to depreciation
4) 15 - 20% returns depending on the deal. Roughly you're looking at doubling your money in 5 years on average in real estate.
5) Rental checks
6) Leverage sponsor experience and expertise. I mean someone with 1B of assets under management is probably better equipped at maximizing a property than I am.
7) no correlation with the stock market, true diversity.

Cons of syndications:
1) A LOT of state income tax forms -_- Basically state income tax forms for every state I'm a K1 partner in a property.
2) No control - Sponsor decides everything

How to start:
1) Read "the hands off investor".
2) Join crowdstreet and get a taste of reviewing deals

Last thoughts:
1) debt is a tool if used wisely. Too many doctors are rushing to pay off "good debt" like mortgages. I paid off my student loans too aggressively, I wish I hadn't, I'd be worth a lot more today if I hadn't.
2) EM was financially good to me but I wish I had done something else. In hindsight I would pick Radiology, ortho, FM, anesthesia, or PM&R over EM. But I can't complain honestly. 3 years ago I was worth around negative 100k when I graduated residency, so EM has helped me do a 1.1M swing in net worth in 3 years.
3) I think I'll consider myself financially independent in another 2-3 years when we hit 2M in networth given that I don't rely on the SP500 for returns (mostly not at least for a majority of my portfolio).

I hope this was helpful to others, if anyone has any questions about details about the deals that I'm in or my thoughts about the sponsors, then PM me and I'd be more than happy to discuss these things.

Edit: This is not investment advice, do your own due diligence, I'm not selling anything. But just throwing out investment ideas for doctors who are accredited investors who have a higher risk appetite than a stock:bond portfolio.

Thanks for sharing about your good fortune and different investment advice. I'll read the book you recommended. I have two (or three) questions:

1. Assuming constant rate of return for real estate above the cost of the loan, will long-return of the syndications go down as the loan is closer and closer to being paid off?

2. Where can I read about your experience doing premium harvesting through naked puts? Are you trying to acquire the underlying equity at a small discount?

Congrats cyanide! Awesome to hear. Boardingdoc makes some good points, and real estate syndications are something I struggle with deciding on investing in. I was a finance major in undergrad so not a stranger to investing, but real estate wasn’t something I was taught. WCI is a big promoter of it, as are many of the FIRE crowd. I try to rely on academic research, which typically is less biased in the financial space but isn’t unbiased, when I’m making portfolio decisions. And that’s where I get hung up. I can look through and try to find the sources later if people want, but all of the following can be found readily online.

According to the research, private real estate does not beat public REITs over long time periods. Especially when you adjust for the true volatility of private real estate. One aspect people tout for private real estate is an earned illiquidity premium. What AQR has found, is that people actually PAY a premium for illiquidity and the apparent smoothing of returns, especially institutional investors like endowments. This gives them the appearance of uncorrelation with stocks and bonds, but if they were marked to market as the rest of financial assets are, you’d actually see much more correlation and significantly higher volatility in their return. Since most of these types of deals are valued 4 times per year instead of ~180 days per year (and often thousands to even millions of valuations each trading day for stocks), you just can’t see the volatility.

When the researchers looked at the returns of public REITs compared with stocks, there is some lack of correlation that can be seen, but that has mostly gone away recently. In addition, you can look at the factor research (the Fama-French 5 factor model and the related fixed income factors) to see what amount of the return of REITs is explained by the factor models and what could be extra return. The result? You can explain public REITs returns by making a portfolio of about 2/3 small cap value stocks and 1/3 high yield corporate bonds. That portfolio explains nearly all of the REIT returns. So overweighting REITs compared to the market weight doesn’t offer any extra return.

So, if private REITs and real estate don’t beat public REITs, and public REITs are no better than small cap value and high yield corporate bonds (I tilt small value aggressively in my portfolio), then I struggle to determine whether it would be worthwhile to even learn about syndications and private real estate investing. There is a lot of idiosyncratic real estate risk there, plus a lot of firm specific risk with each deal that you have to fully trust the sponsor.

All of that said, my wife wanted us to hold some “bonds” so I’m using Groundfloor to invest in fix and flip loans which are high risk bonds and doing decently on those, about 10.5-11% annualized over the last year or so.

I’ve seen my portfolio drop this year as it is nearly all stocks. I’m fine with that since everything is now on sale. I’d prefer a much bigger drop so it is at fire sale prices, but I’m not going to be one to look a gift horse in the mouth and have been plowing money back into the market while it has been dropping.

What main advantage do you ([mention]cyanide12345678 [/mention] )see to private real estate investing in light of the above? Is it the consistent cash flow that makes it so that you could retire earlier since now you don’t have to come up with that cash? There is also research on the irrelevance of dividends to total stock returns, but I’m not sure it can be extended to real estate in the same way. I feel the FOMO very strongly (put 2% into crypto on the way down here), but I also am trying to follow WCIs mantra of “no called strikes in investing”. I think I am starting to land in the territory of “keep it simple stupid”. Just trust in the stock market with some slight diversification (5% like I am) into the fix and flip loans since it serves another purpose but don’t try to do too much more than that.

My wife’s prior income is not enough to cover child care costs so we are one income right now but managed to increase net worth 220k during my first year as an attending while raising one kiddo. And that’s with a 20% drop in the value of our stock portfolio. I could probably do a put option strategy but I don’t find it diversified enough for my liking, and I also have too inconsistent of a schedule to do it how I’d want, which is trading every 48 hours or so. I’m also significantly leveraged in other aspects of my life (carrying my 1.85% fixed rate student loans of 200k for 7 years for example) so I don’t want to take on much more leverage.

I hope to make it to 1 mil net worth about 7 years out or so, and 2 mil by about 12 years out. If I get good stock returns I should be able to retire around 15 years out, but planning on a 20 year career. Concern as always echoed around here is not making it to 20 years. Thanks for sharing your story, and be interested in your feedback on my reasoning.

I too majored in finance.

Can you post the articles regarding 1) private real estate vs 2) public REITs vs 3) 2/3 small cap value stocks and 1/3 high yield corporate bonds?

 

[Tiger26]

Congrats! I followed a similar strategy with stocks and short term rentals. I hit $1 million in net worth about 5 years out of residency and just shy of $3 million at 8 years out (although that has decreased somewhat over the past 6 months or so).

As we expand, my hope is that I can fully replace my physician income at some point with real estate.

Along with this, I've been in the military for 20 years (National Guard), which helped me pay off $215k in student loans.

I'd also recommend that people not overlook jobs that still have a pension. They're rare and probably limited to the big health systems but ours in amazing. I'm projected to have $11k a month in addition to a $4k Army pension. They also offer a lump sum. One of our guys picked the lumped sum option and got $1.3 million. Another left with $700k when he switched jobs last year.

 

[cyanide12345678]

What main advantage do you ([mention]cyanide12345678 [/mention] )see to private real estate investing in light of the above? Is it the consistent cash flow that makes it so that you could retire earlier since now you don’t have to come up with that cash? There is also research on the irrelevance of dividends to total stock returns, but I’m not sure it can be extended to real estate in the same way. I feel the FOMO very strongly (put 2% into crypto on the way down here), but I also am trying to follow WCIs mantra of “no called strikes in investing”. I think I am starting to land in the territory of “keep it simple stupid”. Just trust in the stock market with some slight diversification (5% like I am) into the fix and flip loans since it serves another purpose but don’t try to do too much more than that.

I'm not sure where you are getting the information that private real estate returns are similar to REITs. Depending on what you're doing, it's different strategies and risk profiles. Are they comparing buy and hold real estate investing vs REITs? Most REITs are essentially buy and hold. Almost all of my investments are value add deals vs a couple of new developments - which are higher risk and reward. Also, VNQ right now has a dividend yield of 3%. I honestly would never even imagine taking a deal with anything less than 5% annualized cash flow. 3% is just not good enough for me anymore. For example, the office opposite of the Mall of america, major tenant is IRS, cash flow is 12% annualized.

The biggest advantage of private real estate is actually the value add component of most deals. For example, an asset that you acquire and exit at a 5 cap exit, every dollar you increase the income by, or every dollar that you cut expenses by, increase the exit value of the property by 20 times (5 cap exit rate). And that's where the money is made. Increasing the NOI of the property and thereby value of the property while having low fixed rate debt. Each deal is actually a business that you're investing in. So it's really not the same as a REIT. Most deals you're going in putting in 10-20k into each unit, upgrading floors, upgrading counter tops, appliances to stainless steel, throwing on a coat of paint and then charging an extra 200-300 per month for the upgraded units. As a simple example, lets say you have a 100 unit Apt complex, going in price of 100k per unit so 10M with all fees to make math easy. Lets say entry cap on this property is 5, so NOI at entry is $500,000. You renovate 50% of the units and put 10k in each. Renovation cost 500000 lets say. Not even accounting for rents naturally appreciating at 3% annually (historical average), and just looking at forced appreciation of $125/unit as an example. So in 3 years, you've increased your NOI from 500000 to 575000. Now with an exit cap of 5, your property with a NOI of 575k is now worth 11.5M. Lets say you purchased the property at 75 LTV, so you put in 2.5M out of the 10M and loaned the remaining 7.5M. And when you pay off your 7.5M debt, you essentially have 4M left over (minus fees or whatever - this is rough back of the napkin math so making it easy). So in 3 years your 2.5M becomes 4M plus whatever rental income received over time after expenses and debt coverage. So fundamentally this is the concept of almost every private real estate deal - it is to create value. And to also leave some meat on the bone for the next investor (only 50% units were renovated in my example). Most REITS are just holding for very long peroids of time (core deals rather than value add deals that are higher risk and return). So I don't know what research you've looked at, but it's not an apples to apples comparison by any means. Every investment of mine is a business with a business plan of improvements, raising rents, and exiting within a 3-5 year peroid.

Plus yes, the cash flow is nice. All my cash flowing deals are giving between 5-12% cash flow. I have a few deals that were either closed very recently so will cash flow next quarter or are development deals where construction is taking place so cash flow isn't happening. But by the end of the year I will probably be receiving 12 quarterly rental checks (two are development deals which will cash flow next year once construction is complete). Though, if you invest in something today, it takes a quarter or two for the first rental check to show up, it's not immediately next month. Not to mention that all of this cash flow income I will not be paying taxes on due to the massive paper losses shown on taxes due to depreciation, especially accelerated depreciation (that will start going away soon).

Also, once you start doing this and reading a bunch of deals, you actually get pretty good at seeing what are great opportunity vs junk deals. For example: there was a deal on crowdstreet on an apartment complex in virginia, next to HQ2 for Amazon. It was being acquired at a cap rate of 3% - Talk about a junk deal that I wouldn't touch with a 10 foot pole, barely any cash flow, they had some pretty ballsy assumptions. On the other hand, my last investment was the Atlanta financial center almost 1M sqft office space in buckeye Atlanta. A truely irreplaceable asset. Acquisition at a 10 cap rate!!!! This is a trophy high quality class A asset that was acquired at a 10 cap! Literally the acquisition price was actually 50-60M less than what the building sold for in 2016. It was such an incredible deal (raised 50M on crowdstreet, largest raise to date on crowdstreet). The biggest reason the property was selling for a discount is that the original deal was at a 7 cap rate, with the assumption that the largest tenant Truist bank was vacating, so occupancy was expected to drop by 20 or so percent. So without Truist as a tenant, it was a 7 cap deal. But the sponsor signed the contract, then convinced Truist to stay lol. So NOI stayed the same, didn't drop, and essentially a trophy asset was acquired at a 10 cap which is ridiculous and unheard of. Similarly the Oklahoma portfolio was acquired at a 65k per door average - Ridiculously cheap. The sponsor couldn't stop chuckling during the webinar how great their going in price was, it really was. They cash flow like crazy. And they put in 25% of the equity themselves, which showed a very high degree of conviction and confidence. Another example, the ziffcre self storage fund, it's a 50M dollar fund aimed at acquiring 20 or so properties over time. The priciples of the business put in 25M out of the 50M equity themselves. They are the single largest investor themselves, if someone is putting 25M of their own money in a project, then yeah I feel pretty good about my rather small percentage share.

So yeah...there are some great opportunities, or atleast have been over the last few years when interest rates were minimal. Rising rates are changing things, in the last 2 months, I've only seen 1 or 2 deals that I felt were worth putting money in. They were solid deals, I just didn't have liquidity because I'm throwing a lot of money in options right now. So personally I haven't invested in any real estate in the last 2 or so months, every deal I've put money in was basically prior to march except for the atlanta financial center which was probably in May.

 

[cyanide12345678]

Thanks for sharing about your good fortune and different investment advice. I'll read the book you recommended. I have two (or three) questions:

1. Assuming constant rate of return for real estate above the cost of the loan, will long-return of the syndications go down as the loan is closer and closer to being paid off?

2. Where can I read about your experience doing premium harvesting through naked puts? Are you trying to acquire the underlying equity at a small discount?

1) The biggest return is actually at sale of the property. No syndicate deal plans on holding for decades. Most deals are 3-5 years, the plan is almost never to hold for decades. And it isn't unusual to have interest only loan terms for atleast 2-3 years. So, the focus of most of these deals isn't debt pay down, it is to go in, make improvements, cut costs, increase rents, increase property NOI and then sell.

2) You'll probably have to do a search, but it's somewhere in the EM forums. I never have the intention to buy an asset anymore. If something comes close to the strike price, I will usually hold the strike or drop the strike by extending the time and using the new premium to pay for the rollover essentially. I used to do a lot of RUT, SPX, EWZ, Jets, QQQ so essentially ETFs. My comfort with reading balance sheets and income statements has increased and i've started doing individual stock options now especially since I think I'm at a point where I don't think I will hesitate putting 6 figures in an individual position. If you really look at stocks, almost everything just follows the market, some things just have higher volatility. Dow for example with 30 holdings has a similar return to the Sp500. So my current portfolio is actually just 3 positions as shown in the attachment. Expecting a 10% return of 30k in 55 days assuming PINS doesn't drop 32% and Meta doesn't drop 26% in 55 days. If pins drops below 14, I will drop the strike to $10 and extend the trade by a few months, and then perpetually hold the $10 strike. If FB drops to 125, I simply plan on holding the strike perpetually and to continue rolling and premium harvesting until it breaks the $125 strike. Neither company is going bankrupt, Pins has no debt, clean balance sheet, 3B in cash, just became net cash positive last year and just beginning to start milking their users and improve ARPUs with a massive shift towards ecommerce starting. Both if acquired at those prices will be incredible discounts. So yeah...30k for 2 months isn't too bad. Made 40k on my 950 contracts on Pins this month so far, bought back all positions when market went up 6 days straight and then sat on side line with cash for 3-4 days waiting for a massive drop. It happened yesterday when pins dropped 14% and FB dropped 7%, opened 520 contracts for Pins and 20 contracts for meta yesterday. It was a great day to sell puts yesterday 🙂 and yes yes, while the position is net negative so far, but give it time, I'm harvesting the value of time.

 

[PianoMedic]

Thanks for sharing about your good fortune and different investment advice. I'll read the book you recommended. I have two (or three) questions:

1. Assuming constant rate of return for real estate above the cost of the loan, will long-return of the syndications go down as the loan is closer and closer to being paid off?

2. Where can I read about your experience doing premium harvesting through naked puts? Are you trying to acquire the underlying equity at a small discount?



I too majored in finance.

Can you post the articles regarding 1) private real estate vs 2) public REITs vs 3) 2/3 small cap value stocks and 1/3 high yield corporate bonds?

Caveat to all of this is paywalls are very common with research and I don’t have access to view the original articles most of the time. Finance research also does not have anywhere close to medicine’s rigor for research.

REIT outperformance over private real estate: Private Equity Real Estate Fund Performance: A Comparison to REITs and Open-End Core Funds and https://www.schroders.com/en/mt/pr...eits--which-performs-best-over-the-long-term/. First paper has the abstract there but paper is behind a paywall. This article (can sign up for free account and access 4 articles a month there) explains it well: REITs Vs. Private Equity Real Estate: What's The Best Way To Invest?

Larry Swedroe (director of research for buckingham strategic wealth, large RIA based out of Saint Louis) explains the REITs as small value/corporate bonds issue well in this article: https://www.etf.com/sections/index-investor-corner/swedroe-real-estate-isnt-special?nopaging=1

Ben Felix also goes over the research in some of these areas well in his podcast “Rational Reminder” and on his Common Sense Investing YouTube channel. He cites all of his research on his website with the podcast episodes, but these are also often behind a paywall.

On REITs in general:

For his podcast, Episode 105 goes into private equity and how we overpay for smoother returns due to illiquidity (which applies to private real estate and how it is valued infrequently). Episode 205 goes into private equity again, this time in a lot of depth. The big takeaway for me here was making sure to run my own XIRR calculations on any private investments (real estate or otherwise) due to how IRRs can be “gamed” by the companies running these deals. Specifically, the initial returns from the first few years will significantly outweigh later returns so large early returns can cloud later poor returns. Episode 58 discusses REITs in depth and their idiosyncratic risks.

 

[bravotwozero]

Cyanide, do you know of any real estate syndications/investments, that are non leveraged, ie financed with equity and not debt?

I ask because I personally can’t get involved in debt/interest based leveraged deals. I know that’s not common at all, but if you are aware of any, please share.

 

[PianoMedic]

I'm not sure where you are getting the information that private real estate returns are similar to REITs. Depending on what you're doing, it's different strategies and risk profiles. Are they comparing buy and hold real estate investing vs REITs? Most REITs are essentially buy and hold. Almost all of my investments are value add deals vs a couple of new developments - which are higher risk and reward. Also, VNQ right now has a dividend yield of 3%. I honestly would never even imagine taking a deal with anything less than 5% annualized cash flow. 3% is just not good enough for me anymore. For example, the office opposite of the Mall of america, major tenant is IRS, cash flow is 12% annualized.

The biggest advantage of private real estate is actually the value add component of most deals. For example, an asset that you acquire and exit at a 5 cap exit, every dollar you increase the income by, or every dollar that you cut expenses by, increase the exit value of the property by 20 times (5 cap exit rate). And that's where the money is made. Increasing the NOI of the property and thereby value of the property while having low fixed rate debt. Each deal is actually a business that you're investing in. So it's really not the same as a REIT. Most deals you're going in putting in 10-20k into each unit, upgrading floors, upgrading counter tops, appliances to stainless steel, throwing on a coat of paint and then charging an extra 200-300 per month for the upgraded units. As a simple example, lets say you have a 100 unit Apt complex, going in price of 100k per unit so 10M with all fees to make math easy. Lets say entry cap on this property is 5, so NOI at entry is $500,000. You renovate 50% of the units and put 10k in each. Renovation cost 500000 lets say. Not even accounting for rents naturally appreciating at 3% annually (historical average), and just looking at forced appreciation of $125/unit as an example. So in 3 years, you've increased your NOI from 500000 to 575000. Now with an exit cap of 5, your property with a NOI of 575k is now worth 11.5M. Lets say you purchased the property at 75 LTV, so you put in 2.5M out of the 10M and loaned the remaining 7.5M. And when you pay off your 7.5M debt, you essentially have 4M left over (minus fees or whatever - this is rough back of the napkin math so making it easy). So in 3 years your 2.5M becomes 4M plus whatever rental income received over time after expenses and debt coverage. So fundamentally this is the concept of almost every private real estate deal - it is to create value. And to also leave some meat on the bone for the next investor (only 50% units were renovated in my example). Most REITS are just holding for very long peroids of time (core deals rather than value add deals that are higher risk and return). So I don't know what research you've looked at, but it's not an apples to apples comparison by any means. Every investment of mine is a business with a business plan of improvements, raising rents, and exiting within a 3-5 year peroid.

Plus yes, the cash flow is nice. All my cash flowing deals are giving between 5-12% cash flow. I have a few deals that were either closed very recently so will cash flow next quarter or are development deals where construction is taking place so cash flow isn't happening. But by the end of the year I will probably be receiving 12 quarterly rental checks (two are development deals which will cash flow next year once construction is complete). Though, if you invest in something today, it takes a quarter or two for the first rental check to show up, it's not immediately next month. Not to mention that all of this cash flow income I will not be paying taxes on due to the massive paper losses shown on taxes due to depreciation, especially accelerated depreciation (that will start going away soon).

Also, once you start doing this and reading a bunch of deals, you actually get pretty good at seeing what are great opportunity vs junk deals. For example: there was a deal on crowdstreet on an apartment complex in virginia, next to HQ2 for Amazon. It was being acquired at a cap rate of 3% - Talk about a junk deal that I wouldn't touch with a 10 foot pole, barely any cash flow, they had some pretty ballsy assumptions. On the other hand, my last investment was the Atlanta financial center almost 1M sqft office space in buckeye Atlanta. A truely irreplaceable asset. Acquisition at a 10 cap rate!!!! This is a trophy high quality class A asset that was acquired at a 10 cap! Literally the acquisition price was actually 50-60M less than what the building sold for in 2016. It was such an incredible deal (raised 50M on crowdstreet, largest raise to date on crowdstreet). The biggest reason the property was selling for a discount is that the original deal was at a 7 cap rate, with the assumption that the largest tenant Truist bank was vacating, so occupancy was expected to drop by 20 or so percent. So without Truist as a tenant, it was a 7 cap deal. But the sponsor signed the contract, then convinced Truist to stay lol. So NOI stayed the same, didn't drop, and essentially a trophy asset was acquired at a 10 cap which is ridiculous and unheard of. Similarly the Oklahoma portfolio was acquired at a 65k per door average - Ridiculously cheap. The sponsor couldn't stop chuckling during the webinar how great their going in price was, it really was. They cash flow like crazy. And they put in 25% of the equity themselves, which showed a very high degree of conviction and confidence. Another example, the ziffcre self storage fund, it's a 50M dollar fund aimed at acquiring 20 or so properties over time. The priciples of the business put in 25M out of the 50M equity themselves. They are the single largest investor themselves, if someone is putting 25M of their own money in a project, then yeah I feel pretty good about my rather small percentage share.

So yeah...there are some great opportunities, or atleast have been over the last few years when interest rates were minimal. Rising rates are changing things, in the last 2 months, I've only seen 1 or 2 deals that I felt were worth putting money in. They were solid deals, I just didn't have liquidity because I'm throwing a lot of money in options right now. So personally I haven't invested in any real estate in the last 2 or so months, every deal I've put money in was basically prior to march except for the atlanta financial center which was probably in May.

The research wasn’t looking at buy and hold investing, but looking at various compilations of available data on private real estate performance with public REIT performance. One key aspect is that fees are quite high in private deals, which eats into returns. Also their timeframes are very long for this research, 10-20 years. So they’re following these developers for several deal cycles. I replied to someone else above with some of the articles and podcasts that was the information I was referring to. Share price appreciation of the underlying holdings in REITs over time is another aspect of return that is difficult to quantify. It is easy to see the downside risk of marked to market investments like we currently are seeing. It is much more difficult in private real estate with the infrequent valuations that may be from biased sources and are often unaudited. There is inherently more risk in these types of deals, as you mentioned.

I have not read the book you mentioned earlier but it is on my list. I have a very basic and limited understanding of real estate deals, such as cap rates and those things. I understand the core plus, value add, opportunistic spectrum, so I generally followed what you wrote. Cap rates are getting compressed right now from what I’ve been hearing , as is cash flow due to much higher debt servicing costs. If we also see a drop in the prices of real estate, a lot of deals may not be able to meet their target IRRs and equity multiples due to exit strategy not working out. We’ve had a rising real estate market since the Great Recession so most deals have been able to exit profitably. Any decline in valuations hurts the riskier equity real estate plays much more than the core plus or fixed income type of deals right now. I don’t have a working crystal ball so no clue what the market will do, but with the significant lack of housing in the US, valuations seem like they should stay stable generally.

I definitely agree with you regarding skin in the game. I’d feel much better if the sponsor was putting up more than 10% of the deal’s cash. I also understand the value add style of investing in these kinds of deals. You’re forcing equity into the deal by putting in some amount of funds to then allow you to increase rents, thereby increasing value to demonstrate to the next buyer so you can have a sound exit strategy. The US has a lot of buildings that may be conducive to just that type of value add if the work from home or hybrid work trend continues, where office buildings start getting converted into apartments. I guess my question is why can’t a publicly traded REIT also do a value add strategy? They own a lot of these big office buildings, so I can’t imagine they’d let them sit empty as companies stop renewing leases. Their main differences are they’re publicly traded and they’re required by law to pay out 90% of their profits each year. So if they instead utilize their earnings for costs to develop a property, that would reduce their profits but could increase value for shareholders in the long run.

One side aspect of risk that troubles me with the crowdfunding boom is lack of experience for some of these firms. Many of them have been around for a good while. But most or nearly all were started after the Great Recession. So they haven’t gone through a full real estate cycle. They’ve only been investing in a bill market. A lot of my reading on crowdfunding has been through here: The Real Estate Crowdfunding Review. He is quite biased conservatively as he mentions quite a bit. But I think he gives a really good balance to a lot of the “Ra-Ra real estate is amazing” that I see out there (not lumping you in there, it’s just everywhere right now). He thinks we are late cycle and so he is in core plus and fixed income almost exclusively (has been for several years so his crystal ball must be cloudy too).

Sounds like you’ve gotten quite a few good deals. I don’t have much luck, so I doubt I’d have as good of luck with my investments turning out well as you’ve had. I’m trying to make the decision I can stick with for the long run the best, which is why I engaged with you on this and brought up the other research. Trying to challenge my own preconceived notions and see how it stands up. It is definitely something for me to chew on and consider, appreciate you sharing all of that information. I’ll be interested in seeing what you calculate your returns to be as the investments start going round trip.

 

[PianoMedic]

Side comment re: your wife's interest in bonds. Buy I bonds if you haven't already. The rates are absurd. I have 10k collecting 7.12% and switching up to the current rate of 9.62% in a few months. I am actually purchasing more (via the wife) shortly as I have a line of credit with a 2.5% rate and figure I can just take the arbitrage win with an ibond purchase from the loan and simply sell if the rate ever approaches 2.5%.

Appreciate the thoughts there. To be honest, the 0% baseline return isn’t great to me. The inflation adjustment on top of it is amazing so you never lose purchasing power. Nominal bonds are generally priced so that you earn more than the rate of inflation over the life of the bond. With inflation volatility increasing, this isn’t guaranteed right now, but the bond market seems to think inflation isn’t going to be this high for the next decade based on 10 year treasury yield. I may purchase some I bonds for emergency fund type money, but I only hold about three months in cash and that is currently split into an account getting 6% fixed rate (for the foreseeable future backed by real estate) and money market funds which go up and down with the fed funds rate. That money market cash would be the prime target for this, but I’m not looking at a total of 20k or so there. Since it is locked up for 1 year, I don’t want to put it all in there and then end up needing it within one year. Might do some staggered buying over the next few years. Also might do them more for college expenses for the kiddos in their names once they hit middle school since it is tax free when used for education expenses. Tricky to build a ladder out of these for retirement income though unless I want to hold a crapload of them over my entire investing lifetime. Lots to ponder from this thread.

 

[cyanide12345678]

Cyanide, do you know of any real estate syndications/investments, that are non leveraged, ie financed with equity and not debt?

I ask because I personally can’t get involved in debt/interest based leveraged deals. I know that’s not common at all, but if you are aware of any, please share.

Do it yourself then. Buy a duplex. No such thing as a syndication without leverage.

Edit: on second thoughts, i would probably never do real estate without leverage, too little return for my personal liking.

 

[kumatie]

Sharing this milestone with folks to possibly inspire others and maybe share with others some alternate investments. This july marks exactly 3 years from my residency graduation and we hit the 1M net worth milestone a few days ago.

Some of our success has been because of the usual things: spent less, invested a big chunk of our income, lived in a cheap-ish cost of living area, negotiated for higher incomes.

But a lot of our success has been because of a very non-traditional approach to investing. Here's a breakdown of our portfolio and the significant alternate investments that I would highly encourage others to educate themselves about.

Current portfolio:

4% cash, 36% Passive syndicate real estate investments, 30% options (premium harvesting through naked puts), 20% in retirement accounts (of which 90% stocks and 10% bonds), and lastly 10% net worth in our personal home equity.

I've talked plenty about options in the past, so not going to dive into that topic. But in the last 1 year, I've also jumped head first into the world of passive syndicate investing which I've never talked about here and wanted to give others a glimpse into these opportunities that most doctors qualify to invest in:

I currently have about ~370k in 14 different syndications. The following is the breakdown of these investments:

Syndications I've invested in:

1) 85k in office space (30k in Atlanta Financial Center and 30k in 200 W jackson Chicago which is the building next to Sears tower - both these are with nightingale properties as sponsor, 25k in an office space opposite the great mall of America in Minneapolis (sponsor = Hemel companies)).

2) 215k in multifamily ( 25k in an Apt complex in Miami (sponsor = Lynd capital), 25k in an apartment building in orlando, 30k Ashcroft capital which is a multifamily fund consisting of 6 apt complexes, 40k with BAM capital - another fund with 6 properties, 15k in an Apt in Des Moine, 25k with Foulger Pratt in a DC new construction and another 25K with them in a Apt complex in Fort worth Tx, 30k in 3 apt complexes in Norman OK with trident real estate).

3) 40k in Self storage of which 20k is with a fund with Van west group, and 20k with Ziffcre, will increase to 50k over this year as more properties are acquired in the fund.

4) 30k in medical office buildings through NEMI fund 4.

All except a couple of the above investments have been through either crowdstreet, equitymultiple, and realcrowd. Crowdstreet has some of the best deal flow and some really great deals have come on it.

Pros of syndications:
1) Diversity - multifamily, office, industrial, storage, retail, geographic diversity, sponsor diversity with a few clicks while sitting at home.
2) Truly passive and headache free once you've done your due diligence.
3) Tax benefits of paper losses due to depreciation
4) 15 - 20% returns depending on the deal. Roughly you're looking at doubling your money in 5 years on average in real estate.
5) Rental checks
6) Leverage sponsor experience and expertise. I mean someone with 1B of assets under management is probably better equipped at maximizing a property than I am.
7) no correlation with the stock market, true diversity.

Cons of syndications:
1) A LOT of state income tax forms -_- Basically state income tax forms for every state I'm a K1 partner in a property.
2) No control - Sponsor decides everything

How to start:
1) Read "the hands off investor".
2) Join crowdstreet and get a taste of reviewing deals

Last thoughts:
1) debt is a tool if used wisely. Too many doctors are rushing to pay off "good debt" like mortgages. I paid off my student loans too aggressively, I wish I hadn't, I'd be worth a lot more today if I hadn't.
2) EM was financially good to me but I wish I had done something else. In hindsight I would pick Radiology, ortho, FM, anesthesia, or PM&R over EM. But I can't complain honestly. 3 years ago I was worth around negative 100k when I graduated residency, so EM has helped me do a 1.1M swing in net worth in 3 years.
3) I think I'll consider myself financially independent in another 2-3 years when we hit 2M in networth given that I don't rely on the SP500 for returns (mostly not at least for a majority of my portfolio).

I hope this was helpful to others, if anyone has any questions about details about the deals that I'm in or my thoughts about the sponsors, then PM me and I'd be more than happy to discuss these things.

Edit: This is not investment advice, do your own due diligence, I'm not selling anything. But just throwing out investment ideas for doctors who are accredited investors who have a higher risk appetite than a stock:bond portfolio.

What’s your opinion on FundRise? Same as crowdsource? Is there much difference in these platforms in your opinion?

 

[doctalaughs]

Sounds like a lot of work and time learning all that stuff.

I just maxed out my tax sheltered retirement accounts and put everything into 90% index funds 10% tax advantaged bonds.

No work or research or learning anything really.

Also had about 1 M 3 yrs out, 2 M 5 yrs out, 5 M 13 yrs out. Cutting back significantly when I hit 10 M which I estimate will be a year or so after 20 yrs, given the recent market setbacks.

Don’t plan to change my “lazy” approach because I don’t see a huge upside unless you enjoy that stuff for fun?

 

[Brigade4Radiant]

Wow I’m 5 years out no debt and I have a net worth of 400k 🙁

I don’t even have a house I really need to get my fiancial goals in order

 

[qwerty89]

"Each deal is actually a business that you're investing in. So it's really not the same as a REIT. Most deals you're going in putting in 10-20k into each unit, upgrading floors, upgrading counter tops, appliances to stainless steel, throwing on a coat of paint and then charging an extra 200-300 per month for the upgraded units. As a simple example, lets say you have a 100 unit Apt complex, going in price of 100k per unit so 10M with all fees to make math easy. Lets say entry cap on this property is 5, so NOI at entry is $500,000. You renovate 50% of the units and put 10k in each. Renovation cost 500000 lets say. Not even accounting for rents naturally appreciating at 3% annually (historical average), and just looking at forced appreciation of $125/unit as an example.

Every investment of mine is a business with a business plan of improvements, raising rents, and exiting within a 3-5 year peroid."

I love the irony here. A man who seeks to get out of EM to escape the vultures of PE in EM in turn becomes the very thing he despises. I mean hey congrats I guess. I know I know. Don't hate the playa hate the game and all that...but the cognitive dissonance here is kinda funny.

Just be kind to the recently evicted and newly homeless man that shows up looking for a warm bed and a free turkey sammich in your ER...

 

[Rekt]

Sounds like a lot of work and time learning all that stuff.

I just maxed out my tax sheltered retirement accounts and put everything into 90% index funds 10% tax advantaged bonds.

No work or research or learning anything really.

Also had about 1 M 3 yrs out, 2 M 5 yrs out, 5 M 13 yrs out. Cutting back significantly when I hit 10 M which I estimate will be a year or so after 20 yrs, given the recent market setbacks.

Don’t plan to change my “lazy” approach because I don’t see a huge upside unless you enjoy that stuff for fun?

Agree seems like a lot of work for.. not much. I'll make about 450k W2. Doing 14 8-9hr shifts. Can just add two PRN shifts a month and add >60-70k a year.

 

[GonnaBeADoc2222]

Wow I’m 5 years out no debt and I have a net worth of 400k 🙁

I don’t even have a house I really need to get my fiancial goals in order

I think people are conveniently leaving out details such as military or parents paying student loans, other familial assistance, working spouse.

I am 5 years out, net worth 600k-ish.

I paid off about 230k medical school debt.

I am also a single parent who has gone through a divorce.

I think I'm doing pretty well!

 

[doctalaughs]

A lot of it is luck and circumstances for sure. I had a good housing market (accumulated at least 1.5 M in equity on primary house worth 250% of what it was 12-13 years ago plus paying off the mortgage). Having low-ish med school debt (state schools etc) and not getting divorced helps a ton.

Bottom line though is put away 100-175k one way or another per year in boring equities and max your tax shelters will add up over a few decades….

 

[AD04]

Caveat to all of this is paywalls are very common with research and I don’t have access to view the original articles most of the time. Finance research also does not have anywhere close to medicine’s rigor for research.

REIT outperformance over private real estate: Private Equity Real Estate Fund Performance: A Comparison to REITs and Open-End Core Funds and https://www.schroders.com/en/mt/pr...eits--which-performs-best-over-the-long-term/. First paper has the abstract there but paper is behind a paywall. This article (can sign up for free account and access 4 articles a month there) explains it well: REITs Vs. Private Equity Real Estate: What's The Best Way To Invest?

Larry Swedroe (director of research for buckingham strategic wealth, large RIA based out of Saint Louis) explains the REITs as small value/corporate bonds issue well in this article: https://www.etf.com/sections/index-investor-corner/swedroe-real-estate-isnt-special?nopaging=1

Ben Felix also goes over the research in some of these areas well in his podcast “Rational Reminder” and on his Common Sense Investing YouTube channel. He cites all of his research on his website with the podcast episodes, but these are also often behind a paywall.

On REITs in general:

For his podcast, Episode 105 goes into private equity and how we overpay for smoother returns due to illiquidity (which applies to private real estate and how it is valued infrequently). Episode 205 goes into private equity again, this time in a lot of depth. The big takeaway for me here was making sure to run my own XIRR calculations on any private investments (real estate or otherwise) due to how IRRs can be “gamed” by the companies running these deals. Specifically, the initial returns from the first few years will significantly outweigh later returns so large early returns can cloud later poor returns. Episode 58 discusses REITs in depth and their idiosyncratic risks.

Thank you for this. I'm not big on real estate (I don't even own a primary residence) but I learned a lot. The link to Schroders is broken so here is the correct link:

Schroders global

As an active investment manager, we help savers and investors meet their long-term financial goals.

www.schroders.com

The article by Larry Swedroe was excellent.

Once we get more data on Bitcoin, maybe after 10 or 20 years, I would be interested to see if the Fama-French model would verify Bitcoin as a separate asset class. I suspect it would.

The research wasn’t looking at buy and hold investing, but looking at various compilations of available data on private real estate performance with public REIT performance. One key aspect is that fees are quite high in private deals, which eats into returns. Also their timeframes are very long for this research, 10-20 years. So they’re following these developers for several deal cycles. I replied to someone else above with some of the articles and podcasts that was the information I was referring to. Share price appreciation of the underlying holdings in REITs over time is another aspect of return that is difficult to quantify. It is easy to see the downside risk of marked to market investments like we currently are seeing. It is much more difficult in private real estate with the infrequent valuations that may be from biased sources and are often unaudited. There is inherently more risk in these types of deals, as you mentioned.

I have not read the book you mentioned earlier but it is on my list. I have a very basic and limited understanding of real estate deals, such as cap rates and those things. I understand the core plus, value add, opportunistic spectrum, so I generally followed what you wrote. Cap rates are getting compressed right now from what I’ve been hearing , as is cash flow due to much higher debt servicing costs. If we also see a drop in the prices of real estate, a lot of deals may not be able to meet their target IRRs and equity multiples due to exit strategy not working out. We’ve had a rising real estate market since the Great Recession so most deals have been able to exit profitably. Any decline in valuations hurts the riskier equity real estate plays much more than the core plus or fixed income type of deals right now. I don’t have a working crystal ball so no clue what the market will do, but with the significant lack of housing in the US, valuations seem like they should stay stable generally.

I definitely agree with you regarding skin in the game. I’d feel much better if the sponsor was putting up more than 10% of the deal’s cash. I also understand the value add style of investing in these kinds of deals. You’re forcing equity into the deal by putting in some amount of funds to then allow you to increase rents, thereby increasing value to demonstrate to the next buyer so you can have a sound exit strategy. The US has a lot of buildings that may be conducive to just that type of value add if the work from home or hybrid work trend continues, where office buildings start getting converted into apartments. I guess my question is why can’t a publicly traded REIT also do a value add strategy? They own a lot of these big office buildings, so I can’t imagine they’d let them sit empty as companies stop renewing leases. Their main differences are they’re publicly traded and they’re required by law to pay out 90% of their profits each year. So if they instead utilize their earnings for costs to develop a property, that would reduce their profits but could increase value for shareholders in the long run.

One side aspect of risk that troubles me with the crowdfunding boom is lack of experience for some of these firms. Many of them have been around for a good while. But most or nearly all were started after the Great Recession. So they haven’t gone through a full real estate cycle. They’ve only been investing in a bill market. A lot of my reading on crowdfunding has been through here: The Real Estate Crowdfunding Review. He is quite biased conservatively as he mentions quite a bit. But I think he gives a really good balance to a lot of the “Ra-Ra real estate is amazing” that I see out there (not lumping you in there, it’s just everywhere right now). He thinks we are late cycle and so he is in core plus and fixed income almost exclusively (has been for several years so his crystal ball must be cloudy too).

Sounds like you’ve gotten quite a few good deals. I don’t have much luck, so I doubt I’d have as good of luck with my investments turning out well as you’ve had. I’m trying to make the decision I can stick with for the long run the best, which is why I engaged with you on this and brought up the other research. Trying to challenge my own preconceived notions and see how it stands up. It is definitely something for me to chew on and consider, appreciate you sharing all of that information. I’ll be interested in seeing what you calculate your returns to be as the investments start going round trip.

I agree with your point about going though a full real estate cycle. Last year crypto seemed unstoppable and recently there seems to be a domino effect of failed projects. A rich man's advice was, "Don't run out of money." Staying in the game without risk of ruin is crucial for generational wealth.

 

[cyanide12345678]

What’s your opinion on FundRise? Same as crowdsource? Is there much difference in these platforms in your opinion?

I strongly considered fundrise in the beginning of my real estate journey. It is a great way to start and has a lot of pros - instant diversification, ability to cash out, decent cash flow, reasonable advertised fee, small investment minimum, and just a very very easy platform - they’ve basically made it as simple as a brokerage account.

The cons i didn’t like were that all returns are 1099-div, you don’t have the k1 benefits of depreciation and tax deferral, if you turn on dividend reinvestment you could be looking at dozens of 1099s over time as they have fund limits and new money is placed in newer funds. Most importantly, while they advertise a 1 percent fee, that’s just the asset management fee, there are plenty of other deal level fees usually, there’s pretty much no real disclosure of these things on a deal level basis. Granted they wanted to simplify things for the average person. But in my mind,what are the terms of the debt? What’s the fee paid to the lenders, what’s the debt acquisition fee? Are they not charging for any construction management? I don’t know…their 12-14 percent returns while utilizing decent leverage make it sound like there are a lot of holes through which profits are leaking through.

I personally chose to start with direct fund investment - Ashcroft capital was my first fund and Bam capital was my second fund. They were honestly projecting juicier numbers instead of what fundrise was getting.

 

[cyanide12345678]

Sounds like a lot of work and time learning all that stuff.

I just maxed out my tax sheltered retirement accounts and put everything into 90% index funds 10% tax advantaged bonds.

No work or research or learning anything really.

Also had about 1 M 3 yrs out, 2 M 5 yrs out, 5 M 13 yrs out. Cutting back significantly when I hit 10 M which I estimate will be a year or so after 20 yrs, given the recent market setbacks.

Don’t plan to change my “lazy” approach because I don’t see a huge upside unless you enjoy that stuff for fun?

Maybe if i had 10M in assets then yes i probably would have been a little more lazy. Im choosing to be a little more aggressive early on in my career.

To each their own, congratulations on the sizable nest egg. Hopefully i will get there someday but congratulations.

 

[cyanide12345678]

Agree seems like a lot of work for.. not much. I'll make about 450k W2. Doing 14 8-9hr shifts. Can just add two PRN shifts a month and add >60-70k a year.

I can too. But i really don’t like work that much lol.

Also, now it takes me about 15 minutes to really decide if it’s worth putting money in or not. If it is, I’ll listen to the hour long webinar and usually end up investing. After that, i don’t have to lift a finger again.

The only things i care about in a deal are: going in cap rate, market rental comps, sale comps, projected exit cap rate and feasibility of it, demographics and population growth rate within the area, skin in the game of the sponsor, AUm for sponsor (>1B usually desired), track record of sponsor, debt terms and debt coverage service ratio. Can acquire this data pretty quickly in a deal page on these websites. Also crowdstreet now has managed funds where they do the investment for you and have been on track for a 16% IRR roughly over the past, then you don’t do any work either.

But to each their own, some people really want tax benefits and passive income outside of work.

The future of EM is grim, i don’t even know if there will be extra shifts available to be picked up 5 years from now with the projected surplus.

 

[cyanide12345678]

I think people are conveniently leaving out details such as military or parents paying student loans, other familial assistance, working spouse.

I am 5 years out, net worth 600k-ish.

I paid off about 230k medical school debt.

I am also a single parent who has gone through a divorce.

I think I'm doing pretty well!

Yes, circumstances vary. I went to a cheap state Texas medical school so debt wasn’t crazy and my wife did medical school in pakistan so had no debt. No parental help or anything otherwise - pretty much came from Pakistan 13 years ago with 2 suitcases to start college and lived on ramen noodles and peanut butter sandwiches during that time. Having a dual income household makes a big difference. Plus my options account and real estate investments didn’t drop 20 percent like the rest of the market has, until a couple months ago i was fairly positive with my options. Became negative recently but breaking even again soon and fully expect to end the year net positive. If all my net worth was in a 90:10 stocks and bond portfolio and i didn’t have a spouse who made attending income this year, i probably would have been worth 600-700k maybe.

 

[cyanide12345678]

One side aspect of risk that troubles me with the crowdfunding boom is lack of experience for some of these firms. Many of them have been around for a good while. But most or nearly all were started after the Great Recession. So they haven’t gone through a full real estate cycle. They’ve only been investing in a bill market. A lot of my reading on crowdfunding has been through here: The Real Estate Crowdfunding Review. He is quite biased conservatively as he mentions quite a bit. But I think he gives a really good balance to a lot of the “Ra-Ra real estate is amazing” that I see out there (not lumping you in there, it’s just everywhere right now). He thinks we are late cycle and so he is in core plus and fixed income almost exclusively (has been for several years so his crystal ball must be cloudy too).

You well often see stellar sponsors show up in crowdstreet. For example: the nightingale group has some 10B of assets under management and i think it’s a 20 year old company or something like that. Foulger pratt is a third generation family run business that has been around for 40 years, has a couple billion of AUM and has never lost investor money in 40 years in business. Lynd has a couple billion of AUM as well and has been around for 30-40 years, again a multi generational family run business.

Ashcroft has been there during 2008 and Bam started around that time too. Neither has ever lost investor money. Hempel has been there for 20 years and has maybe almost 1B in AUM. Those are some of the sponsors I’m invested with.

So you actually will see some really good sponsors on crowdstreet.

And yes ive visited that review website multiple times myself. I’m beginning to get more conservative since rates have started going up which will lead to cap rate expansion and decreasing valuations over time, so I’m only doing cash flow positive deals with fixed long term debt and healthy DCSR of at least 1.3 these days. Going bigger in options today because the market is at a discount rather than real estate that’s as fairly high valuations.

 

[forchinet121]

Let’s keep in mind that real estate and the stock market have been insanely bullish over the past decade so you see these people commenting about having 5 M 13 years out that is just not realistic for the average person moving forward, also keep in mind their returns will significantly decline moving forward as well. Furthermore in real estate you can lose your money and it’s high risk there are people who literally do this for a living a lose money

 

[GonnaBeADoc2222]

A lot of it is luck and circumstances for sure. I had a good housing market (accumulated at least 1.5 M in equity on primary house worth 250% of what it was 12-13 years ago plus paying off the mortgage). Having low-ish med school debt (state schools etc) and not getting divorced helps a ton.

Bottom line though is put away 100-175k one way or another per year in boring equities and max your tax shelters will add up over a few decades….

Ah yes, the 150k off my money tree is ripening any day now

 

[cyanide12345678]

Let’s keep in mind that real estate and the stock market have been insanely bullish over the past decade so you see these people commenting about having 5 M 13 years out that is just not realistic for the average person moving forward, also keep in mind their returns will significantly decline moving forward as well. Furthermore in real estate you can lose your money and it’s high risk there are people who literally do this for a living a lose money

And despite a 20 percent drop the sp500 shiller ratio is still around 29-30, significantly above the historical average of 16 ish. Moreover the buffer indicator is still 1 standard deviation above its historical average.

There may still be significant sp500 declines or potentially years of flat returns for all we know.

I wish i had made money 10-15 years ago, unfortunately i just started making money 3 years ago lol.

This is why i play options so that i still make money even if the market remains flat.

 

[emergentmd]

Stock market avg return about 10%.

Historical Real estate about 3%.

This does not tell all the story and I really do not think this is the forum to go into alot of detail. I will say that you need to enjoy real estate and HAVE to take advantage of low interest rates, which I do. I think 2 scenarios may make things make more sense.

1. Joe puts 100K into an IRA (better than a taxable account). Doubles ever 8 yrs. So in 32 years, the 100K is worth 1.6M. With withdrawals, most high income retirees would have a big tax bill on the 1.5M profit unless its all in a roth.

2. Jane puts 100K into a 400K property, and the property in 32 years is now worth 1M. To keep this simple, I will assume Jane's rent paid for carrying costs including principle payment. I think this is reasonable. After 32 yrs, loan paid off and she has a 1M property.

If you just look at the end result, you are missing all of the other advantages that Jane could have taken. Jane could have done a cash out refinance in any of the 32 yrs and put in new property. Jane could have done a 1031 into multiple properties or bigger property. Both are nontaxable events. Jane could pass it on to her Heirs without any withdrawal demands. Jane could move into the house for 2 yrs and sell with a smaller tax bill. A 1M rental asset should produce 100K/yr and she could live off this forever. Done correctly, Jane should have more than 1.6M in properties.

There is great leverage and tax benefits that an IRA just doesn't get.

My example since I started RE investing since 2015. Started with 300K.

S&P 500 has done well and returns close to 11% or 117% return. So I would have 651K in my IRA or 651K in a taxable account.

In 2015 I put 300K into 6 duplexes worth 1M @ 4% note. So 50K leveraged into a 167K property, 117K Loan. My rental income has essentially paid for my carrying costs including principle payments and I used a property manager so quite passive. Most time just emailing property manager, maybe visited the duplexes 2 times in 6 yrs. In 7 yrs, I have reduced the principle by about 50K. .

Duplex 1, did a 1031 in year 3 sold for 250K and 150K via 1031 into a 500K STR property . I put 300K into a renovation. Home could easily sell for 2M and yearly Operating profit of 75K+. Home worth 2M, 1.75M equity, 250K note, 50K NOI, on a 350K investment. So 350K is now 1.75M equity with 75K cashflow.

Duplex 2, did a 1031 in year 5, sold for 300K, took 200K via 1031 into a 380K STR Property. 50K into renovation. Home valued at 800K, 180K note, 620k equity, 20K NOI, on a 100K investment. So 100K is now 620K equity with 20K cashflow.

Duplex 3, Just sold 1 month ago for 380K, took 300K via a 1031 into a 775k STR property. I suspect a 225K renovation. Home should be valued at 1.5M, 475K note, Equity 1M, project 30K NOI, on a 275K investment. So 275K is now 1M equity with 30K cashflow.

Duplex 4. LTR renting 3K both sides and decided to do a full renovation/fully furnished MTR costing 50K. Rent now is 6K/mo, 5K after utilities, rental occupancy projecting as well as LTR. Less maintenance, duplex better kept. This was my trial run and this year will have NOI of 40K. So 40K NOI on a 100K investment, current value 500K, note of 70K. So 100K is now worth 500K with 40K yearly NOI(cashflow)

Duplex 5. Starting similar LTR to MTR renovation next month. Projected income similar to #4. So currently without MTR conversion 50K investment, value 450K, note 70K, little cash flow. So 50K investment, 380K equity, zero cash flow.

Duplex 6. Likely LTR to MTR renovation later this year if #5 projects like #4. If interest rates goes down, likely will 1031 into 2 more duplex as I have about 350K equity. Financials similar to #5 as LTR.

So in 7 years, I have turned 300K initial investment + 625K cash renovations into properties with equity of 4.6M and cash flow of 165K. When interest rates goes down, I could continue leveraging with cash out refinance or continued 1031 more duplexes into STR properties. I have prop managers for my STRs so quite passive. 165K cash flow on a 925K investment implies a 17% Cap rate I am currently at which will just continue to go higher with increased rental rates.

To recap IRA investment would be worth 651K PLUS 625K cash if invested during the past 7 years would be worth 1M, so rough estimate is 1.65M in the retirement/cash accounts with zero cash flow.

I realize I may be an outlier and someone could point to investing in apple being an outlier, but I can't tell you how imp it is to leverage with RE and all the tax deferred advantages it has.

 

[emergentmd]

I am an investor in apt syndication with Ashcroft and another highly respected syndication.

Put in 350K 4 yrs ago over a 12 month period into 6 syndications.

In yr 4 (this yr), all 6 syndications have exited at 1.7 equity multiple. My 350K is now worth 600K via 1031 into 4 other properties. The 6 syndications has paid out 8% yearly dividend so 112K into mix of cash accounts and IRAs. New syndicated properties have lower but still respectable 7% distribution. So yearly distribution will be 42K/yr or 238K investment (350k-112K) implying a Cap rate of 18%.

Although the past does not predict future returns but I think given rental increases, another 4 yr exit at 1.7 equity multiple is reasonable would put my syndicated holdings at 1M, yearly distribution of 70K on a 70K cash investment (238K investment - 168K distributions) implying a cap rate of 100%.

 

[emergentmd]

According to the research, private real estate does not beat public REITs over long time periods.

REITS tend to have distributions of 4-8% then some appreciation typically less than the market. Overall I could find the returns for large REITS such as VNQ is about 10% accounting for distributions which is essentially S&P investing.

I guess if you just look at overall RE appreciation and not accounting for using leverage, tax benefits this is true but no RE investor should buy a property without leverage.

This is why I think Dave Ramsey is CRAZY. He is good for the low income, high debt people that SHOULD follow his baby steps. But for high income earners, not using leverage is a huge mistake. If I have 500K, I would rather buy 3 properties at 3% interest into a 1.5M portfolio rather than buying a 500K property outright. I understand the risk and potentially losing everything with leverage but you have to be smart and find good areas to invest in.

 

[RustedFox]

[Sigh]... THIS again?

 

[cyanide12345678]

REITS tend to have distributions of 4-8% then some appreciation typically less than the market. Overall I could find the returns for large REITS such as VNQ is about 10% accounting for distributions which is essentially S&P investing.

I guess if you just look at overall RE appreciation and not accounting for using leverage, tax benefits this is true but no RE investor should buy a property without leverage.

This is why I think Dave Ramsey is CRAZY. He is good for the low income, high debt people that SHOULD follow his baby steps. But for high income earners, not using leverage is a huge mistake. If I have 500K, I would rather buy 3 properties at 3% interest into a 1.5M portfolio rather than buying a 500K property outright. I understand the risk and potentially losing everything with leverage but you have to be smart and find good areas to invest in.

I was waiting for you to chime in since you’ve killed it at real estate.

You had some luck in being early in the Austin market, but overall what are benefits that you are seeing of directly owning a property vs syndication? Every time i run the numbers of buying a duplex, the numbers i get are the same as my passive investments with less hassle. I put an offer on an 8 plex 4-5 months ago just for the sake of education on direct real estate ownership, though the numbers were the same as most passive deals. Didn’t end up getting the 8 plex though.

 

[GonnaBeADoc2222]

And despite a 20 percent drop the sp500 shiller ratio is still around 29-30, significantly above the historical average of 16 ish. Moreover the buffer indicator is still 1 standard deviation above its historical average.

There may still be significant sp500 declines or potentially years of flat returns for all we know.

I wish i had made money 10-15 years ago, unfortunately i just started making money 3 years ago lol.

This is why i play options so that i still make money even if the market remains flat.

Y'all should read r/wallstreetbets to see similar stories of people "playing options" and losing 100k or significantly more

 

[cyanide12345678]

Y'all should read r/wallstreetbets to see similar stories of people "playing options" and losing 100k or significantly more

Depends on strategy. Most wallstreetbets crowd buy puts or calls. They usually lose money most of the time in hope for a big payday. Selling covered puts on the other hand is actually a risk mitigating strategy. Safer than owning the underlying shares themselves.

Selling puts has some research data showing it as a fairly effective way of generating returns with a lower volatility. You’re basically the insurance company when you sell puts, insurance companies usually make pretty decent profits 🙂

 

[GonnaBeADoc2222]

Depends on strategy. Most wallstreetbets crowd buy puts or calls. They usually lose money most of the time in hope for a big payday. Selling covered puts on the other hand is actually a risk mitigating strategy. Safer than owning the underlying shares themselves.

Selling puts has some research data showing it as a fairly effective way of generating returns with a lower volatility. You’re basically the insurance company when you sell puts, insurance companies usually make pretty decent profits 🙂

Interesting. I'll need to learn more. Do you have a good resource?

In any case, congrats on your success!

 

[cyanide12345678]

Interesting. I'll need to learn more. Do you have a good resource?

In any case, congrats on your success!

New Research Shows Options-Based Strategies Can Generate Higher Gross Premiums with Less Volatility Over Traditional Asset Classes

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Selling Puts: The Good, The Bad And The Ugly

What accounts for put-write strategies' under-performance. How to fix put-write underperformance.

seekingalpha.com

To learn the basics YouTube the beginner series from tastytrade network. All you need to know are cash covered puts, covered calls, and the wheel strategy to get started.

 

[emergentmd]

[Sigh]... THIS again?

I know many are not into RE and if so, should not read. I would never say just to invest in RE over the Stock market b/c diversity is the key. I wish someone mentored me early on in my career, b/c I would be way ahead starting in 2001 rather than 2015. I lost alot of money on start ups, high flying stocks, etc. I think financially, docs are quite ignorant and if this helps a few get ahead early in their career or just get them to do alittle education, its worth it. I have learned alot by making mistakes and wished someone told me which pitfalls to avoid. I have shared my views on RE with many people starting about 5 yrs ago, most were either too lazy/risk adverse to start. A few followed my advice and will tell you how happy they are collecting 10-20K/mo in income.

I will advise that RE investing is like weight loss. Initially its painful, slow, and you think its just a waste of time for the effort put in. Many will give up b/c the gains are not worth the time. Thus you really need to enjoy it otherwise, its like weight loss b/c you eventually give up. But once it snowballs, it goes fast. Its hard for many to get to the snowball phase.

 

[emergentmd]

I was waiting for you to chime in since you’ve killed it at real estate.

You had some luck in being early in the Austin market, but overall what are benefits that you are seeing of directly owning a property vs syndication? Every time i run the numbers of buying a duplex, the numbers i get are the same as my passive investments with less hassle. I put an offer on an 8 plex 4-5 months ago just for the sake of education on direct real estate ownership, though the numbers were the same as most passive deals. Didn’t end up getting the 8 plex though.

I can speak to both and its all about diversification/control. Apt syndications have historically done well and given our increased population who rather rent vs own, will continue to do well. Its a solid Value Add model using leverage to magnify gain in a low interest environment.

You are correct that syndications are completely passive other than increased tax forms. Reasons I also do direct ownership

1. Control over operations. This is more active but I have property managers to deal with 95% of the work. Mostly emails and keeping track of bills but they are mostly on autopay.
2. I get to use my vacation rentals in an 1 hr drive of my home where my boat and Jet skis are docked. I will have 3 on the lake soon, all with different experiences. I save 40% vs booking a similar place on Airbnb plus all of our stuff is there so its a quick vacation, home with minimal packing. Its as much of a lifestyle as an investment decision. Plus the memories are priceless.
3. Many more tax deductions. Every new property/renovation into the portfolio adds to loss thus most of the income continues to be tax free.
4. More flexibility when I want to do a cash out refi, 1031. You have more opportunities/freedom to leverage. So another STR came up and I needed 250K to put down. I can't take it out of a syndication. So I sold one of my duplex in 2 wks and did a 1031. If I was stuck and needed money to pay taxes, I could do a cash out refi on my large equity or just sell a duplex. Cash is much more assessible vs syndication which is locked in. When I started with the 6 duplexes, I assumed I would just cashflow and keep forever for appreciation. Life changes, things come up unexpectedly, and it is nice having an accessible
5. Legacy when I pass it down to my kids.

 

[doctalaughs]

I know many are not into RE and if so, should not read. I would never say just to invest in RE over the Stock market b/c diversity is the key. I wish someone mentored me early on in my career, b/c I would be way ahead starting in 2001 rather than 2015. I lost alot of money on start ups, high flying stocks, etc. I think financially, docs are quite ignorant and if this helps a few get ahead early in their career or just get them to do alittle education, its worth it. I have learned alot by making mistakes and wished someone told me which pitfalls to avoid. I have shared my views on RE with many people starting about 5 yrs ago, most were either too lazy/risk adverse to start. A few followed my advice and will tell you how happy they are collecting 10-20K/mo in income.

I will advise that RE investing is like weight loss. Initially its painful, slow, and you think its just a waste of time for the effort put in. Many will give up b/c the gains are not worth the time. Thus you really need to enjoy it otherwise, its like weight loss b/c you eventually give up. But once it snowballs, it goes fast. Its hard for many to get to the snowball phase.

I think the “snowball” you describe is harder to attain when interest rates are 7% and rising rather than 2%.

Real estate just went through an almost unprecedented rise. If you got in with low interest rates and used the leverage then you probably made a killing even better than the stock market in the last 10 years.

That said - direct real estate is riskier than index investing especially if something goes wrong early in your “snowball” (housing market crash ala 2008, tenants not paying on your first couple rentals or worse even trashing them). It’s riskier because you are more leveraged. I also agree you need to like it and it takes a lot more time and learning than fully passive stuff.

I congratulate those that made a killing in real estate in the last 10 years. I think given you got in at low rates and now have a sizable “portfolio”, you’ll continue to do great (just like all capital, the more you have the easier it is to make more). I don’t expect the 5M I accumulated in stocks/bonds since 2008 to get 20% a year since that was also unprecedented. I fully acknowledge that I was “lucky” to have started piling money a lot into the market at a good time. That being said — for the new attendings— no one knows if now is a “good time” and the market is at the bottom or not. You could easily look back in 10 years and say 2022 was a bottom and 2022-2032 was an amazing time to pile up money (compounding in the market passively is also a snowball for sure; first 1M is the hardest million you make).

 

[emergentmd]

I think the “snowball” you describe is harder to attain when interest rates are 7% and rising rather than 2%.

Real estate just went through an almost unprecedented rise. If you got in with low interest rates and used the leverage then you probably made a killing even better than the stock market in the last 10 years.

That said - direct real estate is riskier than index investing especially if something goes wrong early in your “snowball” (housing market crash ala 2008, tenants not paying on your first couple rentals or worse even trashing them). It’s riskier because you are more leveraged. I also agree you need to like it and it takes a lot more time and learning than fully passive stuff.

I congratulate those that made a killing in real estate in the last 10 years. I think given you got in at low rates and now have a sizable “portfolio”, you’ll continue to do great (just like all capital, the more you have the easier it is to make more). I don’t expect the 5M I accumulated in stocks/bonds since 2008 to get 20% a year since that was also unprecedented. I fully acknowledge that I was “lucky” to have started piling money a lot into the market at a good time. That being said — for the new attendings— no one knows if now is a “good time” and the market is at the bottom or not. You could easily look back in 10 years and say 2022 was a bottom and 2022-2032 was an amazing time to pile up money (compounding in the market passively is also a snowball for sure; first 1M is the hardest million you make).

I completely agree. A lot is timing, a lot is luck. As I noted in my previous reply, you have to take advantage of leverage which aligns with a 3% interest rate which is essentially free money when you account for deductions. If someone gave me a 3% loan to invest and allowed leverage, I would be all in the market.

I also will tell anyone to only invest in RE when you are financially sound, have a good/stable income where you can weather unexpected repairs, lost of renter, or drop in value. This is why it is good for doctors, we have a stable job and disposable income.

There is a reason I push diversification, and RE is just another tool. I have money in the market, in syndication, in RE, in my business. I am always looking for more opportunities b/c I have cash which is most important.

With this being said, I feel RE is just a more stable investment that gives you cash flow which is not true unless you invest in dividend stocks. The worse time in the RE market was 2008, and saw a 30% home value drop from peek. Look back at the Stock market, and you will see many many times when the market dropped 30% (like now). Even in 2008, the S&P dropped close to 50% from peek. in the tech crisis, NASDAQ dropped close to 80% and Banking crisis dropped 55% from peek. Atleast with the RE market, you are getting rental income plus you don't see the exact paper loss that you see with the markets.

If you are not someone interested in RE, I recommend putting all your disposable income early and cost average into the S&P, and you will be close to retirement in 15 yrs. Not a bad path either.

 

[Frazier]

Congrats

 

[GonnaBeADoc2222]

I completely agree. A lot is timing, a lot is luck. As I noted in my previous reply, you have to take advantage of leverage which aligns with a 3% interest rate which is essentially free money when you account for deductions. If someone gave me a 3% loan to invest and allowed leverage, I would be all in the market.

I also will tell anyone to only invest in RE when you are financially sound, have a good/stable income where you can weather unexpected repairs, lost of renter, or drop in value. This is why it is good for doctors, we have a stable job and disposable income.

There is a reason I push diversification, and RE is just another tool. I have money in the market, in syndication, in RE, in my business. I am always looking for more opportunities b/c I have cash which is most important.

With this being said, I feel RE is just a more stable investment that gives you cash flow which is not true unless you invest in dividend stocks. The worse time in the RE market was 2008, and saw a 30% home value drop from peek. Look back at the Stock market, and you will see many many times when the market dropped 30% (like now). Even in 2008, the S&P dropped close to 50% from peek. in the tech crisis, NASDAQ dropped close to 80% and Banking crisis dropped 55% from peek. Atleast with the RE market, you are getting rental income plus you don't see the exact paper loss that you see with the markets.

If you are not someone interested in RE, I recommend putting all your disposable income early and cost average into the S&P, and you will be close to retirement in 15 yrs. Not a bad path either.

Hey thanks for all this, seriously. As a young attending, I think my biggest fear regarding RE is not knowing how to start.

Despite reading RE blogs etc I still feel like I don't have a good grasp, of really, anything RE related.

Do you have any recommendations for comprehensive guides?

 

[PianoMedic]

I completely agree. A lot is timing, a lot is luck. As I noted in my previous reply, you have to take advantage of leverage which aligns with a 3% interest rate which is essentially free money when you account for deductions. If someone gave me a 3% loan to invest and allowed leverage, I would be all in the market.

I also will tell anyone to only invest in RE when you are financially sound, have a good/stable income where you can weather unexpected repairs, lost of renter, or drop in value. This is why it is good for doctors, we have a stable job and disposable income.

There is a reason I push diversification, and RE is just another tool. I have money in the market, in syndication, in RE, in my business. I am always looking for more opportunities b/c I have cash which is most important.

With this being said, I feel RE is just a more stable investment that gives you cash flow which is not true unless you invest in dividend stocks. The worse time in the RE market was 2008, and saw a 30% home value drop from peek. Look back at the Stock market, and you will see many many times when the market dropped 30% (like now). Even in 2008, the S&P dropped close to 50% from peek. in the tech crisis, NASDAQ dropped close to 80% and Banking crisis dropped 55% from peek. Atleast with the RE market, you are getting rental income plus you don't see the exact paper loss that you see with the markets.

If you are not someone interested in RE, I recommend putting all your disposable income early and cost average into the S&P, and you will be close to retirement in 15 yrs. Not a bad path either.

I wholeheartedly agree with need to diversify your asset holdings. Real estate investing directly as you have is an excellent way to obtain really good cash flow and then either fund lifestyle or retire earlier if desired. I find it interesting that your management company will do short term rentals, most won’t do that. Or did you have to switch to a different company/hire a specific turnover service for the STRs?

I have an unusual take on losses and drops in the market, I’ll try to explain it. Caveat that this isn’t investment advice, risky assets can cause entire loss of principal, etc. I view big losses in the market as a sale or discount. Any return you generate is what you sell an asset for minus the price you paid for it, or if not selling, then what the prevailing price for it is minus the price you paid. If you are still working and contributing to your accounts, and you are investing money you don’t need in the next ~5years or more, then a drop in the stock market could be viewed as an excellent buying opportunity. This is especially true for a globally diversified portfolio. The “deep risks” to this portfolio are what you should fear (things like confiscation by the government, hyperinflation, massive deflation, or complete devastation like a nuclear war), not market volatility which is what we see with the cyclical bear markets.

With that as a framework, I also investigated investing with leverage in the past. With variable rates on margin loans, it is difficult from a behavioral standpoint as well as a technical standpoint to keep the leverage for a long period of time. Some brokerages make it easier. There are leveraged ETFs that attempt to make this less complex, they use futures contracts which have their own idiosyncratic risks separate from the markets (plus you get something called volatility decay which eats into your returns) but there are no margin calls or requirements to keep track of. One etf that uses bond futures combined with holding the top 500 stocks by market cap (so not actually the S&P500 technically) has outperformed the S&P500 over its four year lifespan with slightly lower volatility. It is designed to match the S&P500 returns with lower volatility, not to actually outperform it. When modeling this investment in the past, it would perform better than the S&P500 for a retiree, ie someone who is withdrawing or doing a lump sum investment. If you are contributing money to the portfolio, it underperforms the S&P500 however. Why would that be? Why would it work better when withdrawing or doing a lump sum? It has to do with the volatility. If you’re consistently contributing, that higher volatility means that you are, on average, buying intermittently at a lower price which improves your returns. Since the market overall tends to go up over long periods of time, you end up netting more money with the straight S&P500 instead of the less volatile leveraged asset that is designed to return similarly.

I personally have a large allocation to a small cap value active index fund (quantitatively driven, not stock picking) due to the higher “expected” returns as well as the higher volatility. This acts like leverage in a way by increasing the volatility of the portfolio while I keep putting more and more money in which should in theory increase returns over the long term. I don’t pay margin costs or have to worry about margin calls, just a slightly higher expense ratio which I’m ok with. This is NOT for everyone as bailing on this type of a tilt when down will lock in bad returns. This is a tilt I plan to keep for my entire lifetime (might decrease the amount of tilt after retirement).

TL;DR: volatility is not risk with a longer time horizon, it is a benefit and advantage to the investor in accumulation. If you can keep contributing every month no matter what the market does (and if you can trick/convince yourself into contributing more when things are down or “on sale” then you will likely do even better). This way the investor doesn’t have to “get lucky” with when they start investing and can simply keep the same strategy during their accumulation phase of their career.

 

[cyanide12345678]

I know many are not into RE and if so, should not read. I would never say just to invest in RE over the Stock market b/c diversity is the key. I wish someone mentored me early on in my career, b/c I would be way ahead starting in 2001 rather than 2015. I lost alot of money on start ups, high flying stocks, etc. I think financially, docs are quite ignorant and if this helps a few get ahead early in their career or just get them to do alittle education, its worth it. I have learned alot by making mistakes and wished someone told me which pitfalls to avoid. I have shared my views on RE with many people starting about 5 yrs ago, most were either too lazy/risk adverse to start. A few followed my advice and will tell you how happy they are collecting 10-20K/mo in income.

I will advise that RE investing is like weight loss. Initially its painful, slow, and you think its just a waste of time for the effort put in. Many will give up b/c the gains are not worth the time. Thus you really need to enjoy it otherwise, its like weight loss b/c you eventually give up. But once it snowballs, it goes fast. Its hard for many to get to the snowball phase.

This is a part of the reason why i created this post as well. I’ve read at least 20 or so finance books, enjoy finance articles as a hobby, listened to bigger pockets podcasts for 1-2 years, and have really put in hundreds of hours on self education and now feel very comfortable doing these things. And i hope someone who has been wanting to do something like this reads this and feels encouraged. the first deal is the hardest, paralysis by analysis is so difficult to get over. I personally didn’t have any mentor and I’ve made a lot of financial mistakes, it would have been nice having someone educating me on the things that i know now.

So yes, i know not everyone is into this, it’s not worth your time, i get it, move on, do the things you enjoy instead. But I’ve had at least dozens of people in real life asking me about these things and details of what I’m doing with syndications. This post was for those people - i took 2-4 weeks to figure out my first sponsor to invest with, lots of research and here I’ve given a list of half a dozen operators already that is very valuable. For syndications the biggest thing that matters is how good a sponsor is.

 

[AD04]

New Research Shows Options-Based Strategies Can Generate Higher Gross Premiums with Less Volatility Over Traditional Asset Classes

www.cboe.com

Selling Puts: The Good, The Bad And The Ugly

What accounts for put-write strategies' under-performance. How to fix put-write underperformance.

seekingalpha.com

To learn the basics YouTube the beginner series from tastytrade network. All you need to know are cash covered puts, covered calls, and the wheel strategy to get started.

I found your naked put thread here:

Beating Index Investing with Options Trading

Since we were discussing stocks, I think we should have a discussion on options trading. I've recently gotten into options, while the rumor is that options are dangerous and extremely risky, but the more I've read on this topic, the more it seems that options are one of the best ways to...

forums.studentdoctor.net

So if I'm understanding your strategy correctly, you buy and hold S&P 500 and have a margin account and max out on naked puts? How often do you roll the puts? Does the strategy throw off a lot of short-term gains? As per the CBOE link you provided, the monthly put strategy underperformed S&P 500 in absolute and risk-adjusted terms. Why not just leverage up S&P 500 for better returns and better tax treatment without the hassle of rolling puts?

I wholeheartedly agree with need to diversify your asset holdings. Real estate investing directly as you have is an excellent way to obtain really good cash flow and then either fund lifestyle or retire earlier if desired. I find it interesting that your management company will do short term rentals, most won’t do that. Or did you have to switch to a different company/hire a specific turnover service for the STRs?

I have an unusual take on losses and drops in the market, I’ll try to explain it. Caveat that this isn’t investment advice, risky assets can cause entire loss of principal, etc. I view big losses in the market as a sale or discount. Any return you generate is what you sell an asset for minus the price you paid for it, or if not selling, then what the prevailing price for it is minus the price you paid. If you are still working and contributing to your accounts, and you are investing money you don’t need in the next ~5years or more, then a drop in the stock market could be viewed as an excellent buying opportunity. This is especially true for a globally diversified portfolio. The “deep risks” to this portfolio are what you should fear (things like confiscation by the government, hyperinflation, massive deflation, or complete devastation like a nuclear war), not market volatility which is what we see with the cyclical bear markets.

With that as a framework, I also investigated investing with leverage in the past. With variable rates on margin loans, it is difficult from a behavioral standpoint as well as a technical standpoint to keep the leverage for a long period of time. Some brokerages make it easier. There are leveraged ETFs that attempt to make this less complex, they use futures contracts which have their own idiosyncratic risks separate from the markets (plus you get something called volatility decay which eats into your returns) but there are no margin calls or requirements to keep track of. One etf that uses bond futures combined with holding the top 500 stocks by market cap (so not actually the S&P500 technically) has outperformed the S&P500 over its four year lifespan with slightly lower volatility. It is designed to match the S&P500 returns with lower volatility, not to actually outperform it. When modeling this investment in the past, it would perform better than the S&P500 for a retiree, ie someone who is withdrawing or doing a lump sum investment. If you are contributing money to the portfolio, it underperforms the S&P500 however. Why would that be? Why would it work better when withdrawing or doing a lump sum? It has to do with the volatility. If you’re consistently contributing, that higher volatility means that you are, on average, buying intermittently at a lower price which improves your returns. Since the market overall tends to go up over long periods of time, you end up netting more money with the straight S&P500 instead of the less volatile leveraged asset that is designed to return similarly.

I personally have a large allocation to a small cap value active index fund (quantitatively driven, not stock picking) due to the higher “expected” returns as well as the higher volatility. This acts like leverage in a way by increasing the volatility of the portfolio while I keep putting more and more money in which should in theory increase returns over the long term. I don’t pay margin costs or have to worry about margin calls, just a slightly higher expense ratio which I’m ok with. This is NOT for everyone as bailing on this type of a tilt when down will lock in bad returns. This is a tilt I plan to keep for my entire lifetime (might decrease the amount of tilt after retirement).

TL;DR: volatility is not risk with a longer time horizon, it is a benefit and advantage to the investor in accumulation. If you can keep contributing every month no matter what the market does (and if you can trick/convince yourself into contributing more when things are down or “on sale” then you will likely do even better). This way the investor doesn’t have to “get lucky” with when they start investing and can simply keep the same strategy during their accumulation phase of their career.

The question is if small cap value will outperform going forward. Macro factors today are different than 1 or 2 decades ago. For example, QE and government bailouts of large institutions. DCA into VBR (Vanguard small cap value ETF) from 2005 to today, the absolute return and sharpe ratio and sortino ratio underperformed S&P 500. The better solution over the past 17 years for increasing volatility may be through leveraging up S&P 500.

I agree the your viewpoint on volatility over the long-run.