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White Coat Investor Podcast
MtoM #254: Hospitalist Becomes a Full-Time Entrepreneur and Finance 101: Tax Loss Harvesting
00:27:09
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- [00:00]
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This is the White Coat Investor Podcast, Milestones to Millionaire. Celebrating stories of success along the journey to financial freedom.
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This is Milestones to Millionaire podcast number 254. Hospitalist becomes a full time entrepreneur. Still not sure what to do with your student loans? Overwhelmed with how to tackle that giant debt and an ever changing political climate, the experts@studentloanadvice.com are here to help guide you through the best options to manage your loans. Our experienced staff have consulted on over $250 million in student loan debt, and the average studentloadvice.com client has saved over $190,000. You'll receive a customized student loan plan using the principles of the White Coat Investor. Get answers to all of your student loan questions, gain clarity about your financial future, and start down the right path toward financial freedom. Book a consult today at www.studentloanadvice.com. you can do this. White Coat Investor can help. Also be aware we have a recommended list. Whatever you might need, whatever help you need from the financial services industry, we'll try to connect you with the good guys. That might be insurance, it might be financial advice, it might be tax help, it might be contract review, it might be student loan advice, it might be real estate investments. We're going to try to connect you with the good guys. We can find out there. Just go to whitecoatinvestor.com recommended and check out our sponsors, our partners, these folks that we're trying to connect you with. All right. We got a pretty interesting interview today. It's a physician that's been extraordinarily successful as an entrepreneur. Stick around afterward. We're going to talk for a few minutes about tax loss harvesting. Our guest today on the Milestones podcast is Jay. Jay, welcome to the podcast.
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A
Hi. Thank you. Thanks for having me.
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B
Give us a sense of who you are. Tell us what you do for a living, how far you're at a school and what part of the country you're in.
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A
Sure. So I finished medical school and residency in 2017, so about eight years out. I'm in San Diego, I'm 39 years old and I'm a hospitalist.
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B
Okay. Now with that background information, you're clearly crushing it in your financial life. So tell us what milestone you're celebrating today.
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So I have decided to give up my partnership at my practice before the 10 year mark, before I get vested and I'm switching to different business ventures.
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B
Okay. Based on success you've had in the past or based on a desire to get out of medicine or just finding it interesting. What's led to this change?
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Probably a combination of both. There was a little bit of burnout. I was working a lot, and then I just realized, like, there's something liberating about being your own boss. You're kind of like your own CEO. And it just gave me a lot of freedom, a lot of freedom to do kind of what I wanted on my own time and then practice when I wanted to.
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B
Okay, now you've acquired a substantial amount of net worth in this time. You've been practicing a relatively short period of time. Approximately what's your net worth now and what's it made up of?
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A
It's close. It's probably eight and a half million dollars. I would. It's about 14 or I would say four million of that is in business and real estate that I've been doing. In the last two years, I've acquired six car washes with a partner, and we're about to acquire three more by the year end. And so that's part of like another reason why I'm kind of scaling back on medicine to focus more on the car washes. I've got about 2.8 million in retirement with me and my wife. And I have 1.5 million in a Bitcoin position. I have over 100,000 in savings. That's my three month emergency fund. And I've got some physical gold and jewelry.
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B
Okay, but you're an entrepreneur. You've got this entrepreneurial mindset.
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Yes.
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B
Where did that come from? When did that show up in your life, in your career, et cetera?
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A
You know, I think it came more growing up. I. My dad was in business. I always kind of had like a little bit of a business knack. Like I started my own tutoring company when I was like in high school and college. Just something on the side. It was like a little bit of a side hustle. And then I think money became like really important and I started to understand it more. It wasn't really talked about in my family. It was more of like a taboo sort of situation. We like lived through booms and busts. And just in my life, like, you know, there's the one point where I lived on like food stamps at one point, like we had nice cars and the next minute, like, you know, next part of my life, like growing up, cars were getting repoed and it, it kind of made me want to understand money and in business and go into that. So I knew I wanted to be a physician and help people, but I knew that was not going to probably be, like, the only thing I was going to ever do.
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B
So, I mean, at some point in your 20s, you decided, I'm going to medical school. I'm going to residency. And here you are now, not even a decade out of residency, and are you moving on completely from medicine? You're going to be totally out of medicine?
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No, I'm going to practice kind of on my own terms now. Like, I'm a hospitalist. The great thing about is, like, it's shift work. So instead of being scheduled and assigned shifts months out and having to work a week on week off or certain nights, like, I get to just, you know, wake up. Like, hey, there's any shifts available? I'm available these days, and I get to work. And so most of it, too, is, like, I'm focusing more on the car wash side because I get to build a legacy there that I get to actually pass down to my kids and my family going forward.
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B
Okay, so give us a sense of med school and residency. Was there any entrepreneurship stuff going on there? Were you borrowing to pay for your education, what life looked like when you came out of training?
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I like, so during, like, med school and residency, I didn't work. I just borrowed money. I ended up with $370,000 in debt, I think. And, like, during that time, like, I remember, like, the great financial crisis happened, and, like, people eventually were buying homes and, you know, this whole fire movement, and I was, like, so interested, but my head, like, was, like, in the books, you know, I was like, in residency, I was like, I don't have money. I don't have time, but that's what I'm going to do when I kind of finished. And when I finished residency, before I actually took my first job as a hospitalist, I leveraged my contract to go buy a home on a doctor's loan. And I put myself, like, literally before my first paycheck, like, $1.1 million total in debt before I had even my first paycheck.
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B
This is your first paycheck as an attending hospitalist?
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Yeah, before, as an attending hospitalist.
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What'd the contract say you were going to make as an attending hospitalist?
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About 300,000 a year.
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And so you ended up with the 1.1 million in real estate debt at that point.
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Okay, so take 1.1 plus the Med school debt.
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Right. Okay. So right from the beginning, you're like, I'm going for it, man. I'm going to. If I got to borrow some money, that's okay. I'm Going to take some risk, I'm going to bust my butt, I'm going to be scrappy and this is going to work for me right from the beginning.
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Yeah.
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Okay, so tell us, tell us the journey from there.
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So I dabbled in real estate, did a ton of real estate, and I worked a lot. You know, I was always like 130%, 140%. I was known to work a lot and I was just saving money. Eventually did my biggest real estate deal, which was like ground up development and then realized that was very lucrative. But it was time intensive and capital intensive. And then this was like during COVID interest rates are rising and I realized this is going to get harder to do, especially in my market in San Diego, and I need to find different things. And at that point I was kind of into gold. I was into bitcoin. I took half that sale and I, I bought my home by the water, which I always wanted to drink, my beach home. So I went and did that and I took the other half and I put it into bitcoin. After substantial amount of studying and then eventually I realized my biggest tax liability was or my biggest liability was my taxes. I was paying six figures in taxes every year and I was like, how do I get an instant 30% return on my money year after year if I could just get rid of my tax bill. So it led me down the route of business and I, you know, everyone's talking about the silver tsunami. People are retiring. You know, baby boomers are giving up their businesses. These are great opportunities. So I went into that and then I discovered bonus depreciation through car washes that eventually were able to literally wipe out a six figure tax bill every year. And so I've been doing that and compounding that with a partner. I've. We scaled to six car washes and three more by the end of this year too.
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B
Yeah, very cool. So just along the way, every time you had an opportunity, you tried to make the most of it.
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Exactly, yeah. And it's not that I've lived frugally. I've, you know, I still have my med school debt. I haven't paid it off, but it's because I'm comfortable with that debt. I know I can pay it off. It's just that I've found these other opportunities that where I'm, my returns are high double digits. And it's like that, that opportunity is much more lucrative to me than to pay off that debt.
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B
How many other debts do you have? How much do you totally owe?
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And Everything if you include the car washes. The car washes alone are probably 7 million in debt, but they're probably worth 14 million. My home is about 1.4 million and I've got my med school debt and I have a HELOC on that that I use to leverage to buy more car washes. So I would say my debt portion is probably about 4 to 5 million. And my net worth is like after the debt is probably around 8 million.
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B
It's because the car washes you have a partner on, right?
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Yeah, well, the car washes, we bought these for total 10 million and through grit hard work, understanding business and then coming in and making them more efficient, we have increased gross sales and now there's a multiple on these businesses and they're worth a lot more now, you know, buying it for 10 million and my entire portfolio is probably worth 14 and a half to 15 million, which I split again with a partner, but then I'm buying three more that will hopefully I can generate that premium or that equity in them as well.
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Yeah. Any plans to decrease the amount of leverage you're using now?
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Yeah, I don't think I'm going to be doing more personal debt borrowing. If I'm going to borrow, it will probably be more through SBA loans. We kind of take these car washes and these businesses that we're looking at and we battle test them, we run them through models and I stress test the numbers. At the end of the day, if I know I can weather a bear market or say 50% down year back to back and they still cash flow and they make sense, I'm still going to buy those with debt because it's just an intelligent way to leverage, to use that money to buy something bigger. But otherwise I don't have any other plans to really do anything extravagant at this point. I'm comfortable at where I'm at in life that I get to kind of choose to work when I want to, especially in the hospital, and then I get to work on my own businesses on the side and I work mostly from home, home too, which is like a really great thing.
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So what, what are your future financial plans?
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I think yeah, I'm probably going to continue the car wash route. I've explored storage units, possibly doing that as well. I've thinking about building a car wash ground up and I think long term I'm going to maybe start like an investor fund, an accredited investor fund probably with car washes like where Maybe go raise 5 to 10 million dollars to go out and purchase and rebrand and build a car wash portfolio that I can return to investors.
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Have you ever come up with a number that's enough for you, that this is my goal, I want to get to this? Or is that just kind of a vague, let's see what I can do out there?
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I think it's more of a vague, see what I can do. I have enough now that, like, in cash flow and income, that I could probably sit back and just focus on what I and be very comfortable. But I think I would get bored at home. I think eventually my wife would tell me, like, you got to get out of the house and do something. And I've always had that kind of that spirit of just like, you know, what's the next thing I can just kind of do and go after. But I do know, like, my kids are younger and I do want to spend more time with them. So I kind of weigh a lot of the decisions I go forward based on, like, how much time does this take now? Because if it's going to take away and detract from my family and spending time with friends and kind of enjoying life rather than stressing out over business or making money, I'd rather just not do it at that point.
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B
Any thoughts on whether you took the right pathway to start with? Right. Do you regret going to medical school and going down that pathway to start with? Should you have gone to business school and become an entrepreneur right from day one, or do you think this was the right way for you to go?
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I've thought about that. I think if I had to do it again, I probably would have done it the same way. I do like helping people. I do like, I enjoy the medicine. It's always a challenge. I just don't want to be identified as just a doctor. I think a lot of physicians identify only as that when you're probably capable of a lot more and going through medicine, I think, and going through training and you pick up a very wide range of, like, skill sets that makes you very formidable in any arena that you step into. I think a lot of doctors don't realize that, like, you have, like, really great communication skills. You probably negotiate all the time, especially with, like, patients or insurance companies or whatever you're doing. Like, that you have these skills that are innate. You just got to bring them out and just apply them to, like, different areas of your life that you feel passionate about. And I think if I didn't have that core training of residency and just like, as practice as a hospitalist, I don't Think I would have probably gotten to this point today.
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Now, most physicians are not as interested in entrepreneurship as you are. Do you think they should be? Do you think they're making a mistake?
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No, I don't think they're making a mistake. But I think in this day and age, you know, we live in a different time like you, where like you're not only just like your one core profession, but you're also like a financial manager. Like you have financial planner. Like you have to manage your own money and your own investments, otherwise you will be working for someone else. And I think that's where the burnout happens. When you don't have your own time, your own freedom and you're stressing over a paycheck, you start to kind of feel that burnout. So I don't think they have to be entrepreneurial and like have to say shoot for like a $10 million company or you know, start something. But I think you need to have a little bit of know how of how to manage your money and put your money to work efficiently and smart so that you can, you know, break free from like the change. Like I gave up Golden Handcuffs from my partnership to pursue something different and now I feel liberated. Like I literally can go and you know, spend, spend three months in Mexico a year and travel more and just pick up shifts when it's heavy or when it's light or I'm never going to miss a wedding again. I'm never going to miss a birthday party that I want to go to. So I think that freedom comes and I don't think that you necessarily again have to be entrepreneurial, but you should know how to manage your money.
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Now there are people out there, they're in med school or they're in residency or they're already in attending or whatever. They want to do what you've done, what advice do you have for them?
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I think the biggest thing I learned, you know, I'm self taught in managing money. Like again, I didn't have any guidance or anything. I did stumble across White Coat Investor. I've read a ton of financial blogs, YouTube videos. You're going to spend like 20,000 to 40,000 hours of your life just working for money. And you owe it to yourself to sit down and study money and study investing and study all sorts of aspects, real estate, Bitcoin, AI, all these things that are coming. You owe it to yourself to sit down and study probably at least a good hundred hours because then you can make the right moves for you in the future and I think that's the biggest step. The other thing is that there's no reason you can't learn to do something else. You know, if you're passionate, you've got something else you want to do, like a project or you want to do real estate investing. You've got all the tips and tools in front of you. Like, you should be able to go to YouTube, Google, you know, Ask, Chat, GPT, and kind of learn everything. And therefore, you can, like, seek out experts, talk to them, have intelligent conversations, and they can guide you towards what you want to do in the future.
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Well, congratulations on your success. It's pretty awesome to see the freedom you created for yourself, and you should be proud of what you've accomplished. I mean, it's pretty awesome. You're building an empire. You're going to own every car wash in the state soon at the rate you're going. So it's going to be a heck of a business.
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Yeah, it's funny, it started out as like, this is going to be a side hustle, and it's now my main hustle. And I really just enjoy. And again, I've learned so much doing it. And I never had any business experience, you know, before, true business experience before doing this. And it's. It's kind of a new journey. And I, you know, I don't forget the roots that I came from, and I hope to, you know, kind of help and inspire other people to take it a different path.
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B
Well, thank you for being willing to come on the podcast and sharing your story.
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A
No problem. Thank you.
- [18:49]
B
Okay. That was a great interview. That is not the usual pathway to wealth that we have on this podcast, which is fine. I've talked before about three pathways to wealth. Right. I talk about what's not a guaranteed pathway, but it's pretty darn close, right? This is, go get a job as a physician, carve out 20% ish of your income to invest, put it into boring old index funds, inside retirement accounts and in taxable accounts. Give us some time to compound, and in 20 or 30 years, you're going to be a penta millionaire. It works very well, works very reliably, but it does take a career to do. I mean, if you save 40 or 50% of your income, you can do it very quickly, but it generally takes most of your career to really build the kind of wealth where most people are comfortable not working. At least most physicians that are spending like physicians. The second pathway is what I've described as the real estate pathway. And I think the Fastest way out of medicine that's reliable is actually a real estate pathway. It's building a portfolio of short term rentals. You get five or ten short term rental doors in your portfolio and that's likely six figures of income, enough that you can go live on that and don't have to do medicine anymore. It's going to be faster to get there than it is to do. The boring pathway, the boring guaranteed pathway of just doing your physician work, carving out 20%, investing it in some reasonable way and giving it some time. It's going to require you to learn some stuff, it's going to require you to do some additional work, it's going to require you to take on some additional risk, but it's reasonably reproducible. The third pathway is not reproducible at all. It's the entrepreneurial pathway. But a few of you find that very exciting, very interesting. And obviously this is a pathway that I've taken and it's worked out just fine for us, just like it has for Jay. And you basically try to do things that either aren't being done very well and you can do them better, or you try to come up with some new idea or whatever and you go down this pathway as an entrepreneur and sometimes you can do it with not that much risk. Right. As far as finances go, I just risked lots of time in doing the white coat investor. I didn't really have to borrow a whole bunch of money to do it. Jay, on the other hand, has taken a substantial amount of risk in his life. Right. We're talking about seven figures of debt to acquire a business portfolio. Some of his investments are not the least risky investments out there. He's taken lots and lots and lots of risk so far. At least for him, that's really paid off. And what I typically find are people willing to take those risks are so hustling so hard at everything else in their life to give them a little bit better chance of those risks paying off. Right. For example, yeah, putting a whole bunch of money into real estate can be risky, but if you put even more equity down, it reduces that risk. And all of a sudden now they're cash flow positive and you can own an awful lot of car washes or an awful lot of long term or short term rentals when they're all cash flow positive and so paying some attention to it and working hard on it and taking a reasonable amount of risk and it can pay off really. Three pathways to wealth. Obviously the last one has the potential for the most wealth, has the potential to help you reach your goals the fastest. But it's not that reliable. It's not guaranteed in any way, shape or form. That doesn't mean it doesn't attract a certain percentage of us. Now, at the top of the podcast I mentioned, we're going to talk a little bit about tax loss harvesting. All right, tax loss harvesting, what is it? It is acquiring tax losses to reduce your tax bill without changing your portfolio. The IRS has some rules. They say if you sell something and buy something else that is substantially identical, you can't count your loss. But as long as it's not substantially identical, you can count your loss. Otherwise you gotta wait 30 days before you buy back the same thing. Well, the problem with waiting 30 days is sometimes the market goes back up in those 30 days. Now, you bought it, it lost value, you sold it, you're waiting 30 days. But in the meantime, the price creeps up, and all of a sudden now you're buying it back at the same price. You bought it at 4. You just locked in your losses. That's not tax loss harvested. Tax loss harvesting is not changing your portfolio, but still getting the loss. So we're talking about swapping from like a total stock market index fund to a 500 index fund, right? You just swapped, you did that in 30 seconds online, and you booked your loss, and now you've basically got the same portfolio because the correlation between those two funds is like 0.99. Right? It's just not that different. It's not substantially identical, in the words of the irs, although they are very careful never to actually define what that term means to them. But you can make a very good argument that those are not substantially identical investments. But you book that loss, and what can you use the loss for? Well, you can use $3,000 a year of it against your ordinary income, and you can use an unlimited amount of that loss against capital gains. So any capital gains distributed by your mutual funds, you can use it against any capital gains from selling a business or a real estate property, including your home. If you've got more than the amount, you're allowed to exclude from your taxable income. If you sell a business down the line, or even just selling shares in retirement to spend the money, you can use some of those tax laws, because anything you don't use gets carried forward. And you can carry it forward for years and years and years and years and years. You just do it on schedule D. And every year it says, this is how much you're carrying forward, and you add that to your schedule D the next year and that's how you carry it forward. A couple of things to be careful about when tax loss harvesting one is not screwing up the trades, right? You go in there, you do the sale and then you do the buy right? And if you screw those up somehow, well, you may end up losing more money than you're actually gaining tax benefits. So don't screw up the trades. Another thing to be aware of is the wash sale rule. If you buy something back within 30 days of selling it or vice versa, it's a wash sale and you don't get to use the loss. So that's a bad thing. So in general, not trying to do this too frenetically is the way you avoid having wash sales. I never tax loss harvest more often than every two or three months and so I never run into those wash sale rules cause it's a 30 day rule. The other thing to keep in mind is you can turn qualified dividends into unqualified dividends. If you don't own the security paying the dividend, whether that's an ETF or a stock or whatever. If you don't own it for at least 60 days total around the ex dividend date, you'll turn that qualified dividend to an unqualified dividend. Again. Another reason to not do this frenetically. If you watch the dividends real carefully, you can avoid that issue. But if you just only do this every two or three or four months, you never have an issue with either the 30 day rule or the 60 day rule. Hope that's helpful. Our sponsor for this episode was studentloanadvice.com and if you're not sure what to do with your student loans or you're overwhelmed with how to tackle them, you should consult with an expert@studentloanadvice.com they're here to help guide you through the best options to manage your loans. They've consulted over a quarter billion dollars in student loan debt and the average studentloadvice.com client has saved over $190,000. You'll receive a customized student loan plan using the principles of the White Coat Investor. Get answers to all of your student loan questions, gain clarity about your financial future, and start down the right path toward financial freedom. Book a consult today@studentloanadvice.com you can do this White Coat Investor can help. If you'd like to come on the podcast, we're always looking for great milestones to celebrate with you. Go to whitecoatinvestor.com Milestones keep your head up, shoulders back. We'll see you next time on the podcast.
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A
The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.