WCI #412: Toxic Work Environments, Avoiding Burnout, and Real Estate Questions

Summary

White Coat Investor Podcast #412: Toxic Work Environments, Avoiding Burnout, and Real Estate Questions

Host: Dr. Jim Dahle
Release Date: March 27, 2025
Podcast Title: White Coat Investor Podcast
Description: Dedicated to educating medical professionals and high-income earners on personal finance and wealth-building strategies.

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Overview

In episode #412, Dr. Jim Dahle tackles pressing issues faced by medical professionals, including navigating toxic work environments, strategies to avoid burnout, and intricate real estate investment questions. The episode features listener interactions, expert advice, and insightful discussions aimed at empowering listeners to make informed financial and career decisions.

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1. Corrections and Clarifications

Timestamp: [03:13] - [05:15]

Dr. Dahle begins by addressing feedback from previous episodes, emphasizing the challenges of correcting podcast content compared to blog posts. A specific correction involves tax gain harvesting in UGMA accounts:

Dr. Dahle ([04:35]): "You have to make sure the combination of tax gains and dividends and interest stays below $2,700 in 2025. Otherwise, it defeats the whole thing."

This clarification highlights the importance of understanding the Kiddie Tax implications when managing unearned income in UGMA accounts to avoid unexpected tax liabilities.

---

2. Listener Question: 457B Plans and Employer Risk

Timestamp: [05:40] - [09:38]

A listener from Massachusetts raises concerns about the risks associated with 457B deferred compensation plans, especially in the wake of Steward Healthcare's bankruptcy. Dr. Dahle responds by acknowledging the potential risks:

Dr. Dahle ([07:19]): "One of the downsides of a 457B is that it's technically not your money yet, it's your employer's money."

He recounts his personal experience with Steward Healthcare, illustrating the real-world impact of employer instability on deferred compensation:

Dr. Dahle ([09:06]): "I remember one day the CT scanner broke and I said, well, we'll call the repair guy. And the answer I got from the X-ray techs was they won't come. They haven't been paid in six months."

Dr. Dahle advises listeners to stay informed about their employer's financial health and to consider the risks when investing in employer-provided plans.

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3. Main Listener Question: Navigating Toxic Work Environments

Timestamp: [09:40] - [15:23]

A physician shares a distressing experience with a deteriorating job situation, where increased responsibilities and reduced pay led to significant job dissatisfaction and concerns about burnout. Key points include:

• Toxic Work Environment: Unilateral changes in job responsibilities without contractual amendments.
• Burnout Risk: Dr. Dahle emphasizes that burnout is the biggest financial risk in a medical career.

Dr. Dahle ([12:00]): "The biggest financial risk in your career is burnout. So you need to make all of your career decisions with the number one priority being career longevity."

• Career Longevity: Prioritizing long-term career satisfaction over short-term fixes.

• Job Transition Strategy: Dr. Dahle advises against quitting impulsively. Instead, he recommends:

  Dr. Dahle ([13:17]): "I would keep this job for now, maybe switch to days if that's a little bit less toxic. But start looking for a better job, right? Don't quit and then look for a better job. Look for the better job, get the better job, then quit."

• Alternative Employment Options:

  • Locum Tenens: Temporary positions to provide income while seeking better opportunities.
  • Consulting and Side Gigs: While beneficial, these should complement rather than replace primary income sources during transitional periods.

Dr. Dahle underscores the importance of maintaining financial stability while seeking environments that respect and value medical professionals, thereby mitigating the risk of burnout.

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4. Listener Question: Investing in a Surgery Center via Roth IRA

Timestamp: [16:14] - [31:01]

Warren from the Southeast inquires about investing in a soon-to-be-constructed surgery center through his Roth IRA, aiming to benefit from tax-free dividends and appreciation. Dr. Dahle provides a comprehensive analysis:

• Investment Viability:

  Dr. Dahle ([16:52]): "Most of the doctors I talk to that buy medically related businesses... often work out very, very well."

• Tax Implications:

  • Unrelated Business Income Tax (UBIT): Placing equity real estate in a Roth IRA can trigger UBIT if leveraged.
  • Depreciation Benefits: These are not fully realized within retirement accounts, reducing the tax efficiency of such investments.

Dr. Dahle ([18:14]): "I don't love putting equity real estate in retirement accounts."

• Alternative Strategies:

  • Publicly Traded REITs: Recommended for inclusion in Roth IRAs due to better tax efficiency.
  • Self-Directed Retirement Accounts: May be necessary for specific investment types but come with complexities.

• Compliance Considerations:

  Dr. Dahle ([18:33]): "You need to understand that there are rules and there are laws about self-referral."

Dr. Dahle concludes that while investing in surgical centers can be lucrative and empowering in terms of control, the specific strategy of using a Roth IRA may not be the most tax-efficient approach due to potential UBIT and limited depreciation benefits. He advises consulting with financial professionals to navigate these complexities.

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5. Quote of the Day

Timestamp: [31:20] - [32:02]

Morgan Housel: "Use money to gain control over your time. Because not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want, pays the highest dividend that exists in finance."

Dr. Dahle emphasizes the profound impact of financial independence on personal well-being, advocating for financial strategies that prioritize time freedom.

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6. Listener Question: 1031 Exchange into Real Estate Syndication

Timestamp: [32:19] - [31:01]

Andrew from the Midwest asks about executing a 1031 exchange from direct real estate sales into a syndication. Dr. Dahle explores the feasibility and considerations:

• 1031 Exchange Basics:

  Dr. Dahle ([26:17]): "A 1031 exchange is swapping from one real estate investment to another real estate investment."

• Syndication Specifics:

  • Tenant in Common (TIC) Structure: Essential for facilitating 1031 exchanges into syndications.
  • Syndicator Cooperation: Critical to arrange TIC ownership for the exchange to comply with IRS regulations.

Dr. Dahle ([28:26]): "I think the answer most of the time is no. I think most people don't want to hassle with that, but there are some that do."

• Alternative Options:
  • 721 Exchange: Converting real estate into REIT shares.
  • Opportunity Zones: Offering tax deferral benefits but less advantageous than 1031 exchanges.
  • Direct Sale and Tax Payment: Accepting capital gains taxes in exchange for liquidity and flexibility.

Dr. Dahle advises consulting with syndicators and tax professionals to evaluate the best approach based on individual investment goals and tax circumstances.

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Conclusion

Episode #412 of the White Coat Investor Podcast offers invaluable insights into managing career-related stressors and making strategic real estate investments. Dr. Jim Dahle's expert advice equips medical professionals with the knowledge to navigate complex financial landscapes, prioritize long-term career satisfaction, and optimize investment strategies for sustained financial health.

For those seeking further assistance, Dr. Dahle encourages engagement with the White Coat Investor community through various online platforms and emphasizes the importance of continuous education in personal finance.

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Notable Quotes:

• Dr. Jim Dahle ([12:54]): "The biggest financial risk in your career is burnout."
• Morgan Housel ([31:20]): "Use money to gain control over your time...it pays the highest dividend that exists in finance."

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Resources Mentioned:

• Books on Investing:
  • Common Sense on Mutual Funds by Jack Bogle
  • A Random Walk Down Wall Street by Burton Malkiel
  • The Coffeehouse Investor by Bill Schultheis
  • The Simple Path to Wealth by J.L. Collins
  • The Psychology of Money by Morgan Housel

For more information and resources, visit the White Coat Investor website.

Transcript

[Jim Dahle]

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

This is White Coat Investor podcast number 412. Today's episode is brought to us by SoFi, the folks who help you get your money right.

[Catherine]

Paying off student debt quickly and getting.

[Jim Dahle]

Your finances back on track isn't easy.

[Catherine]

That's where SoFi can help. They have exclusive low rates designed to.

[Jim Dahle]

Help medical residents refinance student loans that could end up saving you thousands of dollars, helping you get out of student debt sooner.

[Catherine]

SoFi also offers the ability to lower your payments to just $100 a month while you're still in residency.

[Jim Dahle]

If you're already out of residency, SoFi's got you covered there too.

[Catherine]

For more information, go to sofi.com whitecoatinvestor.

[Jim Dahle]

SoFi student loans are originated by SoFi Bank, NA member FDIC. Additional terms and conditions apply. NMLS 696891 all right, for those of you out there in White Coat Investor land, I hope you're aware of our online communities. There are four of these communities. We have a subreddit.

[Catherine]

You can find this by going to Reddit and looking for the White Coat.

[Jim Dahle]

Investor subreddit r WhiteCodaInvestor. We have a forum. You can go to this by going to forum.whitecoatinvestor.com we have a Facebook group. If you go to the Facebook group called White Coat Investors, you have to apply and sign up and you'll be let in there. And we also have the financially empowered women.

[Catherine]

This is a much smaller group, but it's all women. If you prefer to learn an environment.

[Jim Dahle]

Where there's all women, you can do that.

[Catherine]

Not only is that an online community.

[Jim Dahle]

But they also have events not only at wcicon in person, but also during the year via, you know, webinars and online meetings. So check those out.

[Catherine]

The benefit of being in a community.

[Jim Dahle]

Is you don't feel so alone when you're doing all this stuff.

[Catherine]

A lot of times you just have questions.

[Jim Dahle]

And the truth is just like going through medical school and residency, there's somebody.

[Catherine]

A year ahead of you in this.

[Jim Dahle]

Process and they can answer all of your questions.

[Catherine]

You don't have to know dramatically more.

[Jim Dahle]

Than somebody else to be able to help them. Knowing just a little more than them oftentimes can help them with their questions and their support. You do not have to do this alone. Now I discovered early on that the.

[Catherine]

Way I learned is by reading books and by participating in online forums, communities.

[Jim Dahle]

And if that's the way you learn.

[Catherine]

As well, check those resources out. Each one of them is a little bit different.

[Jim Dahle]

Facebook is. Facebook people tend to have a little bit shorter, sometimes a little more superficial interactions, but there's a ton of people there. If you want to just reach a whole bunch of people, that's a good place to be.

[Catherine]

The subreddit tends to skew a little bit younger. Lots of students, lots of residents, lots of young attendings.

[Jim Dahle]

And so the subjects discussed there tend.

[Catherine]

To be younger kinds of subjects. The forum tends to skew the other way. Mid career, late career, retirees, et cetera.

[Jim Dahle]

And so if you prefer interacting with more people like that, you might find the forum meets your needs. And of course the Few is a self explanatory group. So check all that out and realize that you are not alone. You do not have to do this alone.

[Catherine]

Not only are there tens of thousands.

[Jim Dahle]

Of people listening to this podcast, but.

[Catherine]

There are a whole bunch of other.

[Jim Dahle]

People out there that are high income professionals just like you, navigating the same financial setbacks, looking for the same guidance, and really just wanting to become more knowledgeable, more financially literate, maybe a little more financially disciplined. Ask your questions in those communities and pay them forward. Okay, let's do some corrections, clarifications, additional information, whatever you want to call these. Oftentimes we get feedback on the podcast and it's not as easy to correct podcasts as it is a blog, right? Errors last very short time period on.

[Catherine]

The blog because somebody posts a comment.

[Jim Dahle]

At 7 in the morning, I see.

[Catherine]

It at 8 in the morning, I've fixed it already.

[Jim Dahle]

And most people that read it, unless they read it in their email, never realize that it was wrong to start with.

[Catherine]

Well, that's not the same with podcasts, right?

[Jim Dahle]

There's a delay in making a podcast.

[Catherine]

It's a lot harder to correct.

[Jim Dahle]

So we don't generally go back and.

[Catherine]

Correct little things and add information to the old podcast. We do a correction in an upcoming one.

[Jim Dahle]

So it might be, you know, four weeks before we really correct something. So this is one of those. Somebody writes in and says, I was listening to yesterday's podcast. It was recorded a month ago. A listener asked you about tax gain harvesting in UGMA accounts. The writer says, I agree with you.

[Catherine]

This is extreme optimization.

[Jim Dahle]

Although I admit I've done it too. But there is an additional problem.

[Catherine]

You didn't mention unearned income above a.

[Jim Dahle]

Certain level gets taxed at the parents marginalized tax rate, the kiddie tax. So you have to make sure the combination of tax gains and dividends and interest stays below $2,700 in 2025. Otherwise it defeats the whole thing. It might help your listener to know this before she sells all of her kids winning stock to raise their basis.

[Catherine]

This is a good point.

[Jim Dahle]

I should have mentioned this, right? I don't know that I said it wrong, but this is a consideration. And you've got to realize that tech scan harvesting your kid's massive UGMA would not normally cause them to have to pay capital gains taxes unless the kiddie.

[Catherine]

Tax applies to them.

[Jim Dahle]

So this is a good thing to do. Maybe when they're in their early 20s and they don't have much income, they're in college, whatever. You might be able to tax gain harvest then, but maybe not the time to do it when they're six, or at least not in an amount that's going to be more than gains of $2,700 a year. Hope that's helpful. Okay, Another one is about escrow accounts. This one's just kind of some additional.

[Catherine]

Information, but you might find it useful. They write in saying on your most recent podcast, number 409, you mentioned that.

[Jim Dahle]

Mortgages require an escrow account for insurance as well as property taxes. I suspect that there's some regional or risk profile analysis to determine who needs an escrow account.

[Catherine]

On both my residency and attending house purchase, they did not require an escrow account on my loans, both of which.

[Jim Dahle]

Were physician loans, although 20% was put down. I found it interesting that let a resident not have an escrow account. Also, they never mentioned the options for.

[Catherine]

Or against an escrow account.

[Jim Dahle]

This was simply decided without me being.

[Catherine]

Aware of it until I looked at the payments amortization tables.

[Jim Dahle]

I suspect this may catch some people a little bit less financially savvy off.

[Catherine]

Guard, but it's my natural propensity to.

[Jim Dahle]

Have this in my own account and put away on a monthly basis. Anyway, I just wanted to mention it. Okay, so that's interesting. I thought. I don't know that I've run into that. I think most of the time when.

[Catherine]

You have a mortgage, that mortgage, that lender requires an escrow account.

[Jim Dahle]

But apparently not all of the time. So make sure you know when you take out a mortgage when you buy.

[Catherine]

A house, whether you have an escrow.

[Jim Dahle]

Account or not, an escrow account is just the lender forcing you to put money away month by month to pay.

[Catherine]

Your property taxes and your insurance and.

[Jim Dahle]

Then they take care of the payment as well. That's all an escrow account is. It's a little bit maybe convenient for.

[Catherine]

Some people, maybe a pain for other people.

[Jim Dahle]

It's just a different way of doing it.

[Catherine]

I think most commonly it is required.

[Jim Dahle]

As long as you have a mortgage loan, but apparently that is not the case all the time. So thought I'd mention that on the podcast as well. We also have a speak pipe where somebody called in and mentioned something that I've said before.

[Catherine]

I've talked about 457Bs, right? And one of the downsides of a.

[Jim Dahle]

457B is that it's technically not your money yet, it's your employer's money. So if your employer's financially on the rocks, you might not want to put.

[Catherine]

Money in there because it's accessible to your employer's creditors. Now if the employer went under, you.

[Jim Dahle]

Would be one of those creditors.

[Catherine]

And truthfully, over the years, I've never actually heard of cases of somebody actually.

[Jim Dahle]

Losing money from their 457 because something happened to the employer. Now somebody wrote in to mention that.

[Catherine]

This might be happening.

[Jim Dahle]

Hasn't actually happened yet, but it might be happening. So let's listen to that speak right now.

[Edward]

Hi Jim, I'm a physician in Massachusetts. I've heard you warn people about the dangers of 457 plans, but I've also heard you say that you've never heard of anyone losing their money in one. I just want to let you and your listeners know about a case where people could end up losing their money. Stuart Healthcare was a large multi state health care system that employed thousands of physicians before they went bankrupt last year. I was not a student employee, but I was talking to one who was telling me how they were seeking legal advice about how to get their money out of the deferred compensation plan. I read online that there is some $60 million in the deferred compensation plan that is currently being litigated over by the creditors of Steward and physicians that contributed to them. Thanks for all you do.

[Jim Dahle]

Okay, so this one isn't done yet. Again, I suspect all the docs are going to get their money. But keep me updated. Those of you out there working for.

[Catherine]

Steward or who were working for Steward.

[Jim Dahle]

Let me know if you end up losing 457money. I would like to hear about it. There's not much I can do to help you if that's the case. Realize those of you with 457 that this is A risk of them. Right? It's deferred compensation. It's not yet your money. The fact that it's Steward makes it.

[Catherine]

More near and dear to my heart. For those who aren't aware, Steward owned.

[Jim Dahle]

My hospital for a couple of years, two or three years, while they gradually went bankrupt. And so we got to see firsthand the downsides of a terribly run hospital as all of a sudden capital started drying up. And I remember one day the CT scanner broke and I said, well, we'll call the C repair guy. And the answer I got from the X ray techs was they won't come. They haven't been paid in six months. And imagine running an emergency department without a CT scanner.

[Catherine]

It doesn't work very well.

[Jim Dahle]

So I'm not thrilled right now with Steward as a company, and it'd be interesting to see how that all ends up. But hopefully at least everybody with money in the 457B ends up getting it. Okay. Speaking of, you know, maybe not so awesome employers, I got a question by email. It said this.

[Catherine]

My question pertains to mitigating employer risk.

[Jim Dahle]

And finding alternative streams of income. I work as a hospitalist.

[Catherine]

Same hospital I did my residency training in. When I interviewed and signed my contract.

[Jim Dahle]

The job and terms were great, but.

[Catherine]

Before starting my job, there was a change in management.

[Jim Dahle]

The administration tried to argue that our contract had implied coverage of the ICU.

[Catherine]

And procedures and cross coverage that wasn't.

[Jim Dahle]

Written in the contract. After some pushback in negotiations, they agreed.

[Catherine]

To give us a small pay increase and limit the coverage to only a.

[Jim Dahle]

Few shifts each month. The contract wasn't amended, but over the next year or two, they've mandated us to cover more shifts than initially agreed upon. They change our schedule and location a few hours before the start of the shift. Despite us voicing our concerns and working with the new management team, we only get empty promises. It seems they're trying to phase out.

[Catherine]

Our position entirely and expand daytime hospitalist.

[Jim Dahle]

Hours with swing shifts and APC overnight coverage. We're working less hours and seeing fewer patients, making about half of our usual RVU based salary. The job and pay is now terrible. And I wonder how doctors can protect themselves against bad employers and the loss of their job. Now here's where it hits this doc. Personally, I work in a small rural area. There's not a lot of hospitals nearby.

[Catherine]

The nearest ones, you know, an hour drive away.

[Jim Dahle]

And moving would probably mean selling our home and being further away from family. So I explored the possibilities of locum.

[Catherine]

Tenens outpatient clinic, urgent care, going to.

[Jim Dahle]

Fellowship, but none was particularly appealing. We considered trying to learn real estate.

[Catherine]

Self publishing, expert witness work, or corporate.

[Jim Dahle]

Consulting, but we would need to invest.

[Catherine]

A lot of time learning the field. The work also seems inconsistent, risky and less profitable.

[Jim Dahle]

Better as a side gig than a full time job. Switching to a daytime position in the same hospital is possible, but I worry that the administration will continue to push more responsibilities and limit payments. We're looking into hiring a contract attorney to see if we can negotiate a.

[Catherine]

Better deal or be released from the.

[Jim Dahle]

Contract without paying back our sign on bonus. I know there are many doctors who find themselves in a similar situation would like your opinion on how to best approach this. Should we fight to keep a good job at a place that doesn't seem to value their employees?

[Catherine]

Should we leave our life and home.

[Jim Dahle]

Behind in search of a better job somewhere else? Should we try to find a new.

[Catherine]

Job, medical or non medical, in the same city?

[Jim Dahle]

We have a good emergency fund, no debt, and are still living like residents but are too young to retire. What would you do in our situation? Okay, I think this sort of thing happens to lots of docs and it's unfortunate, right? Sometimes jobs get bad. When you treat docs like labor, they start to act like labor. You know, you treat your employees crappy.

[Catherine]

Where do they go?

[Jim Dahle]

They go somewhere else and work for somebody else and you won't have employers.

[Catherine]

Or you'll have crummy employees that can't.

[Jim Dahle]

Get a job at other places if you're hoping on keeping them there just.

[Catherine]

Because they have family nearby or they.

[Jim Dahle]

Want to live in that small town, that doesn't seem like a great long term strategy. So what should this doc do? Well, you got a toxic job, so the job either needs to change or you need to go to a new.

[Catherine]

Job or you're going to burn out, right?

[Jim Dahle]

The biggest financial risk in your career is burnout. So you need to make all of.

[Catherine]

Your career decisions with the number one.

[Jim Dahle]

Priority being career longevity. It's pretty wild.

[Catherine]

I mean this is a doc that's still in the live like a resident years, right? And is considering leaving medicine, considering doing real estate, self publishing, expert witness work, corporate consulting, right?

[Jim Dahle]

Because of a bad job. Well, this doc probably needs to keep working in medicine, right? I'd keep this job for now, maybe switch to days if that's a little bit less toxic. But start looking for a better job, right? Don't quit and then look for a better job. Look for the better job, get the better job, then quit. Does that Mean, you're gonna have to move your family probably. It probably does.

[Catherine]

And I'm sorry.

[Jim Dahle]

And I hope this house you're in isn't a big fancy doctor one you just bought a year ago. I hope it's the one you were living in as a resident or something. But it is a problem, right? You go to a job, you think the job likes you, you like the job, so you buy a house, then the job changes. Well, what are you going to do, right? You got to adapt. You got to roll with the punches. But at this point in your career.

[Catherine]

Retiring is not an option. Switching to a side gig you haven't.

[Jim Dahle]

Even started yet, that's not a good option right now. I mean, sure, work on side gigs, build up side gigs. Obviously, the side gig worked out really well for me. Now there's 18 people working at my side gig. You know, sometimes that happens, but most of the time a side gig stays a side gig.

[Catherine]

And the best way for most doctors.

[Jim Dahle]

To make money is doctoring. This doctor needs another doctor job. And if you can't force this job to get better, you probably need to go somewhere else. Now, that might be Locums mentioned. You looked into that. And then you can still live in.

[Catherine]

The place you have.

[Jim Dahle]

You can be near your family, and you're just gone for a week or.

[Catherine]

Two a month doing Locums somewhere else.

[Jim Dahle]

You know, maybe it's commuting an hour away for a while until you line up, you know, another job. But most likely it's probably moving. And lots of people don't live in.

[Catherine]

The same town as their family because.

[Jim Dahle]

Their job doesn't let them live in the same town as their family. And while that's unfortunate, it sure beats being in a job that's going to burn you out in two years or a job where you're making half of what you can make somewhere else.

[Catherine]

I mean, you can buy a lot.

[Jim Dahle]

Of plane tickets home, you can get a NetJet subscription and come home for.

[Catherine]

Half a doctor's salary.

[Jim Dahle]

So it's just not okay to be in a place where you're making half of what you're really worth. So it sounds to me like a change is coming.

[Catherine]

I'm sorry to hear it, but there.

[Jim Dahle]

Certainly are toxic changes, jobs out there. Doesn't mean you shouldn't be a doctor, though. Now, if you want to learn how to do real estate and you want to do some, you know, consulting work, or you want to do some medical legal work, great. Start getting into that stuff. But you can't walk out of your doctor job today and support your family and pay off your student loans and save for retirement with a medical legal job tomorrow. It just doesn't work that fast. It takes time to build that business up. All right, let's take a question off the speak pipe.

[Warren]

Hi Jim, this is Edward from the Southeast. Thank you for all that you do. I have the opportunity to buy into a soon to be constructed surgery center. There will be two separate buy ins, one for real estate and one for operations. Each buy in is relatively low as it's the new center and both expect to pay out on K1 dividends. I'm considering buying into at least the real estate portion using my Roth ira. One of the servicers on your recommended page believes they'd be able to handle this kind of transaction. Assuming the real estate return is comparable to the total SART market return, does it make sense to put this kind of asset into a Roth IRA and avoid paying taxes on the dividends? Would the appreciation on my investment also be tax free when I sell in retirement? I can't see that there'd be any hiccups with stark laws or anti kickback laws. Is there anything else I'm missing here? Thanks for your help.

[Jim Dahle]

Okay, lots of questions there. Let's see if we can answer them all. First of all, should you do this? Is it a good idea to buy into a surgical center? Most of the time the answer is yes. Most of the doctors I talk to that buy medically related businesses, whether it's.

[Catherine]

Emergency docs buying an urgent care or.

[Jim Dahle]

Nephrologist buying a dialysis center, or pathologists.

[Catherine]

Buying a lab or radiologist buying an outpatient imaging center, or surgeons and anesthesiologists.

[Jim Dahle]

Getting some sort of an ambulatory surgical center or GI docs opening up their own suite or whatever, right? This is often the best investment doctors ever make. These often work out very, very well. Now, every one of these is individual and needs to be evaluated on its own merits, right? Owning your own practice and your own real estate is generally a good thing. I'm a huge fan of ownership.

[Catherine]

Not only does it often pay off really well with a great return on.

[Jim Dahle]

Investment, but it gives you control. And that control matters when it comes to stopping burnout. So if this were me, I'd be.

[Catherine]

Trying to buy into both the real.

[Jim Dahle]

Estate and the operations. I suspect both of them will probably end up being good investment, especially if you're able to be involved in them.

[Catherine]

For the long run.

[Jim Dahle]

And you're talking about it being a.

[Catherine]

Relatively small Amount of money to buy in.

[Jim Dahle]

Great. Yeah, you'll have to deal with the.

[Catherine]

K1s, but this thing's in your state already.

[Jim Dahle]

You don't have to file any other state tax returns. Maybe you got to pay somebody to prepare your taxes, but you're probably doing that anyway. So that'll cost you a couple hundred dollars more because you got some more K1s, but that's not a big deal. So I would probably try to do this. Okay, the next question is, do you.

[Catherine]

Have to worry about stark laws and stuff?

[Jim Dahle]

Well, you need to understand that there are rules and there are laws about self referral. But for the most part, there's a whole bunch of ambulatory surgical centers out there. So doctors are clearly not clearly allowed to own these facilities without being in violation of the stark laws.

[Catherine]

So you just got to follow the.

[Jim Dahle]

Rules like everybody else does. I wouldn't let that keep you from making this investment.

[Catherine]

Now, should you put it in a Roth ira?

[Jim Dahle]

Now this gives me a lot of pause for a couple of reasons. Number one, putting equity real estate in.

[Catherine]

IRAs, not 401ks but IRAs introduces unrelated.

[Jim Dahle]

Business income tax if they're leveraged, basically you have to pay tax on them despite them being in an ira, which is not awesome. But that does get you out of capital gains taxes and having to pay.

[Catherine]

Taxes on the income as it comes in.

[Jim Dahle]

You just have to deal with the unrelated business income tax, which is a little bit complicated. So because of that, in general, I don't love putting equity real estate in retirement accounts. You also don't get the benefit of depreciation, shielding that income from taxation like you would in a regular old taxable account, non qualified account, or outside of your retirement account. So when I think about putting real.

[Catherine]

Estate in retirement accounts, I'm usually thinking.

[Jim Dahle]

Of publicly traded real estate. We're talking REITs, something like the Vanguard REIT index fund. VNQ is the ETF for that fund. Or like a debt real estate fund, we've got a couple of debt real estate funds inside retirement accounts. Debt real estate is terribly tax inefficient. It's a great thing to have inside a retirement account if you're allowed to. And obviously it has to be some sort of self directed retirement account, but that's been a great thing for us. But the equity side, I usually try to keep the equity side in the taxable area. Now if all your money is in retirement accounts, and you may have to decide between not investing in the real.

[Catherine]

Estate or doing it inside a retirement account.

[Jim Dahle]

But I don't know that that's your situation. You didn't mention that. So hopefully that gives you my thoughts on your opportunities with the surgical center. We talk a lot here at the White Coat Investor about private investments.

[Catherine]

This question was about a private investment.

[Jim Dahle]

One that you'll be involved in, presumably. The next question is also about real estate, which is typically a private investment, at least outside of something like vnq. But there's a lot of merit to private investments. There's a lot of cool things about them, a lot of opportunities out there. In fact, the actual number of stocks in the US Stock market is going down because investments are not going public at the same rate they used to. They're being taken private at a much higher rate than they used to. And so there's a big market out there for private investments. But if you are investing in the US Stock market, there's a pretty darn clear way to do that. And I'm surprised that I keep running into people who are not aware of the best way to invest in publicly traded stocks. The best way to do this is to invest in index funds. Okay. And I know a lot of you.

[Catherine]

Have been listening to this podcast for a long time. This shouldn't be news to you, but this is news to lots of people. The day I'm recording this, which is.

[Jim Dahle]

March 18th, I published a blog post that I actually wrote like a year before then. But basically, the point is, when it comes to publicly traded stocks, the data is very clear. Managers don't beat markets. Let me explain what I mean. I quoted in that post a fellow by the name of Mark Hebner who wrote a book. His book was called index funds a 12 step recovery program for Active Investors. And he pointed out the behaviors that.

[Catherine]

Define an active investor.

[Jim Dahle]

And these include owning actively managed mutual.

[Catherine]

Funds, assuming prices are too high or.

[Jim Dahle]

Too low, picking individual stocks, picking times.

[Catherine]

To be in or out of the.

[Jim Dahle]

Market, picking a fund manager based on.

[Catherine]

Recent performance, picking the next hot investment.

[Jim Dahle]

Style or sector, disregarding high taxes, fees and commissions.

[Catherine]

Investing without considering risk. Investing without a clear understanding of the.

[Jim Dahle]

Value of long term historical data.

[Catherine]

Right.

[Jim Dahle]

We're talking about market timing. We're talking about actively managed mutual funds. We're talking about picking stocks. Okay? None of those are a great idea. The data is very clear.

[Catherine]

And if you haven't seen the data.

[Jim Dahle]

I would spend some time looking at it. Okay, you can look at it using something like the S&P's SPIVA return.

[Catherine]

They publish this every six months.

[Jim Dahle]

That shows how many US stock funds.

[Catherine]

Are underperforming their benchmark, the index, essentially.

[Jim Dahle]

And if you look at any long term time period, the answer is 90 to 95% of them. So 1 out of 20 beats the market in the long run. And typically not by very much and.

[Catherine]

Maybe not after taxes and certainly not.

[Jim Dahle]

After taxes and the value of your time. It's just a terrible way to bet. You are much better off getting the market return, beating 95% of other investors and sleeping well at night. Now, there's lots of books out there.

[Catherine]

If you've never read one that convinced you that index funds were the way.

[Jim Dahle]

To invest in US Stocks, I would recommend you do so. These books could be something like those by Jack Bogle, like Common Sense on mutual funds, those by Burton Malkiel. A Random Walk Down Wall street is his most famous one. Just About Anything by Rick Ferry, all about index Funds is maybe the best known one. William Bernstein. If you want a doctor's writing, check out the Investor's Manifesto. Alan Roth's How a Second Grader Beats Wall Street. Bill Schultheis wrote the Coffeehouse Investor, Investing Made simple by Mike Piper, the Simple Path to Wealth by J.L. collins, unconventional success by David Swensen, you name it. Any of these books are going to.

[Catherine]

Show you the data and demonstrate and convince you that this is the way.

[Jim Dahle]

To invest in the US Stock market. That doesn't necessarily mean you shouldn't invest.

[Catherine]

In real estate on the side or.

[Jim Dahle]

You shouldn't buy into your ambulatory surgical center.

[Catherine]

But for the money that you are investing in stocks, publicly traded stocks both.

[Jim Dahle]

In the US and internationally, the best.

[Catherine]

Way to do that is to buy.

[Jim Dahle]

And hold and rebalance the static asset allocation of low cost, broadly diversified index funds.

[Catherine]

Each of those terms I just said.

[Jim Dahle]

Has a specific meaning. If you don't know what they are, you need to look them up and understand that statement. But the bottom line is if you're.

[Catherine]

Buying stocks, you ought to be buying.

[Jim Dahle]

Them via index funds. The data is very clear, don't be ignorant of it.

[Catherine]

And if you think it doesn't apply.

[Jim Dahle]

To you, make sure you're not just being overconfident. Because the truth is, if you can beat the market or pick managers that can beat the market, you shouldn't just be managing your own money, you should be managing billions. And you should become a gazillionaire and solve some serious problem in the world, like curing malaria a la Bill Gates. Okay? If you really do have that skill.

[Catherine]

Of beating the market, your skills are.

[Jim Dahle]

So Rare that you should not be using them just for your own portfolio. Okay, let's take that real estate question out the speed pipe now.

[Andrew]

Hi Jim, this is Warren from the Southeast. I'm a longtime listener and just want to thank you for everything you do for us. My question involves real estate. I have been a part time real estate direct investor, own a few small single family rental properties and I'd like to know if it's possible to do a 1031 exchange from a direct real estate sale into a syndication. I try to read up some about this online and it appears that it may be possible as long as the syndication will accept your ownership as a tenants in common. I'm not sure if that is true. I'm not sure if any of your preferred providers allow that sort of thing and if that's even possible. I really appreciate input on this. Thank you very much again. Bye.

[Jim Dahle]

Okay, great question, Warren. 1031 exchange.

[Catherine]

Okay, what's the point of a 1031 exchange?

[Jim Dahle]

You're swapping from one real estate investment to another real estate investment, relatively similar. And that's a very broad definition of relatively similar, by the way. It'd be awesome if you could do.

[Catherine]

This with stocks or mutual funds. You can't.

[Jim Dahle]

When you sell one mutual fund or one stock to buy another one, you gotta pay capital gains taxes on it. But you can exchange real estate as one of the things in the tax code that really benefits real estate investors. You can buy a house and own.

[Catherine]

It for a few years and exchange it for a duplex and own that for a few years and exchange that.

[Jim Dahle]

For a quadruplex, and I own that.

[Catherine]

For a few years and exchange it.

[Jim Dahle]

For a small apartment building and then.

[Catherine]

Exchange that into a larger apartment building.

[Jim Dahle]

You can do all this and not.

[Catherine]

Only do you never pay capital gains.

[Jim Dahle]

Taxes, especially if you die still owning that large apartment building and your heirs get a step up in basis of death, but you don't pay the recapture of the depreciation either.

[Catherine]

So you're depreciating and exchanging and depreciating and exchanging and depreciating and you die.

[Jim Dahle]

And nobody pays capital gains taxes, not your heirs, not you, nobody pays recapture of that depreciation. And yet your heirs get the basis, which is the value on the day when you die. And so it's a pretty awesome, very tax efficient way to invest in real estate.

[Catherine]

It's generally a good thing to do.

[Jim Dahle]

It's a pain though, right?

[Catherine]

You have a time limit after which.

[Jim Dahle]

You gotta identify the new investment and you Gotta complete the purchase of the.

[Catherine]

New investment within like six months of.

[Jim Dahle]

The time you sell the old one. You know, it's gotta be an exchange.

[Catherine]

It can't be.

[Jim Dahle]

You sell one now and you buy another one in 10 years and you call it an exchange. That's not going to fly with the irs. So the question is, you got some.

[Catherine]

Appreciated properties that you've depreciated a whole bunch. You don't want to pay the depreciation recapture. You don't want to pay capital gains taxes.

[Jim Dahle]

What are your options? Well, you got a few of them. One, you can die, right? If you die, still own it. Your heirs get a step up in basis of death. Nobody pays capital gains, nobody pays depreciation.

[Catherine]

Another option is you can exchange it.

[Jim Dahle]

Into another property, okay? And then nobody pays capital gains, nobody pays depreciation recapture. But can you exchange it into a syndication?

[Catherine]

Right? Well, what's a syndication?

[Jim Dahle]

A syndication is like 100 investors going and buying a big 200 door apartment complex that's a syndication.

[Catherine]

Maybe your share of it's 50 grand.

[Jim Dahle]

Or 100 grand or something like that. But it allows you to have these economies of scale, this big huge apartment complex, even though you're only putting in 50 or $100,000. So can you do that? Yes. But guess who has to work with you to do it? The Syndicator has to work with you to do it. So you need to ask that question to the Syndicator.

[Catherine]

Now, most of the advertisers we have.

[Jim Dahle]

Here at White Coat Investor, you know, most of the people on our real estate list, they are fund managers. Because I think most people investing in private real estate benefit from using funds. Most White Coat investors are probably not going to be better off picking individual syndications.

[Catherine]

We do have a couple of companies.

[Jim Dahle]

On there that do individual syndications. It would not take much for you to pick up the phone, call them both and ask them, hey, can I.

[Catherine]

1031 exchange into this syndication that you're selling right now? Right?

[Jim Dahle]

Because when they're doing a syndication, it's.

[Catherine]

Only available to invest in for like.

[Jim Dahle]

Three months and then they're on to the next one, right?

[Catherine]

That's the way it works.

[Jim Dahle]

So I just pick up the phone, I would give them a call.

[Catherine]

I have not called them and asked.

[Jim Dahle]

Each of them this particular question of whether you can take, you know, your.

[Catherine]

Three duplexes you have in some small.

[Jim Dahle]

Town in Iowa and exchange them into the syndication. And they will work with you on that. I think the answer most of the time is no. I think most people don't want to hassle with that, but there are some that do. There is also what's called the 721 exchange. Basically you are exchanging your property that you own into REIT shares essentially. And so that's kind of cool. That can be done with some REITs will allow you to do that. So look into the possibility of that as well. Another thing that's kind of beginning to sunset a little bit is the concept of an Opportunity Zone. And an Opportunity Zone fund is basically.

[Catherine]

Where you're investing money.

[Jim Dahle]

Someplace where money supposedly needs to be invested. And so there's some additional tax breaks associated with and that can help you to put off some of your capital gains taxes for a while. It's not nearly as good as a 1031 exchange, but it might help you with your problem, which is you don't want to pay taxes on the sale of this property you no longer want to own. And then of course, the last option is to just sell it and pay your stupid capital gains taxes, right?

[Catherine]

No big deal.

[Jim Dahle]

Now you have your money. Maximum flexibility. You can do whatever you want with it.

[Catherine]

You can spend it, you can invest it in something else.

[Jim Dahle]

You can invest it in stocks, you can invest it in more real estate if you want. You can always just sell and pay your taxes.

[Catherine]

That's not the end of the world either. Congratulations on making money.

[Jim Dahle]

Now you get to pay taxes. Welcome to how the rest of the world works. Hope that's helpful, Warren. I would ask them individually if that's something you want to do, and maybe it would be worth the hassle for you and them to arrange that tenancy and common structure so that you can do this. All right, our quote of the day.

[Catherine]

Today comes from Morgan Housel who said.

[Jim Dahle]

Use money to gain control over your time. Because not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want.

[Catherine]

When you want, with who you want.

[Jim Dahle]

For as long as you want to pays the highest dividend that exists in finance. Well said, Morgan. And you should check out Morgan's book, by the way, if you've never read it. It's called the. I believe it's called the Psychology of Money. Yeah, the Psychology of Money, One of the best books on personal finance I've ever read. It's one of those things. You read it and you're like, ah, I wish I'd written this right. He just did a really nice job on that. I like Morgan. He was a WT icon speaker in 2020 and unfortunately was one of the.

[Catherine]

25% of our speakers that weren't able to make it to that conference.

[Jim Dahle]

So he gave his talk virtually for the conference, but it was great to work with him. I don't know that we can afford having Morgan housel anymore at WCIcon, but he's a great person. I love the way he thinks. Okay, let's take another one off to speak Bite.

[G]

Hi Jim, this is Andrew from the Midwest, longtime listener, first time caller. First off, thanks for all you do for this community. I've been listening to you for 11 years and it's made a very positive impact on my financial life. For my question curious if you could speak to construction loans for new construction home builds, we are considering whether to have our builder carry the construction loan or for my wife and I to do so. Some potential advantages that I've read for carrying this are that the transaction price of the house is unknown, so nosy neighbors and friends can't look. The county assessor also doesn't know this information. So property taxes may be lower in the first few years and then you can deduct interest paid on the construction loan if you itemize deductions. On the contrary, it seems builders may not fully deduct the cost of interest paid from the home price and it may reduce incentives for builders to complete projects in a timely fashion. Any general guidance here or specifics that I've misstated or I'm overlooking. Thanks in advance.

[Jim Dahle]

I don't know anybody's ever asked me this question before. I don't even think I realized it was possible to get the builder to carry the loan on it.

[Catherine]

I assure you that they're not going.

[Jim Dahle]

To do that for free. It just doesn't make any business sense for them to do that for free. They are going to make sure that they come out ahead if they're doing that.

[Catherine]

Whereas if you take on that risk, you take on that hassle of having.

[Jim Dahle]

To build their loan yourself, the construction loan yourself, that's probably going to work out best for you financially. Most of the time I would guess. I didn't even know it was really much of an option though. A lot of times what people do is they buy the land with cash they have and then they borrow against the land to build the house. And then when it's all done, they wrap it all up in a brand new mortgage on the entire thing. I think that's what's done most commonly. But I would look at all your options. If the builder is willing to take.

[Catherine]

The loan and it seems to work.

[Jim Dahle]

Out better for you financially. Fine. Sounds like they're taking on all the risk.

[Catherine]

Maybe they have a little more incentive.

[Jim Dahle]

To get it done fast and get.

[Catherine]

The house into your hands so you.

[Jim Dahle]

Take over the payments on it. That sounds like might be a great option, so I would explore that. I would also look around and see.

[Catherine]

If you can get a particularly good.

[Jim Dahle]

Rate or particularly good terms on your construction loan. Then maybe you don't want to do that. So I would look into both options. I don't know that there is a.

[Catherine]

Definitive way that you should or shouldn't.

[Jim Dahle]

Do this, but in general, most people who are building a home should be in a pretty good financial position, right? This is generally not the house you're putting yourself in.

[Catherine]

Six months out of residency, when you.

[Jim Dahle]

Still owe $400,000 in student loans, you only have 20 grand to your name. This is not the time to do a new home build. This is usually a few years down the road.

[Catherine]

You can't find anything that you want.

[Jim Dahle]

And you're like, I guess we're going to have to build. So you've got to have your current mortgage and now you got another house that's going to take nine months or 12 months or whatever to build. You got to be able to afford to carry both of them for a year. Hopefully you have a big huge down payment. Maybe you can even buy the land with cash.

[Catherine]

Those are the sorts of situations where.

[Jim Dahle]

It makes sense to to build your brand new customized home. But you're a ways down the road most of the time when you're doing this and hopefully quite a bit wealthier than the typical first time home buyer. Hope that's helpful. Good luck with your new home. Hope it's awesome. As I mentioned at the beginning of.

[Catherine]

The podcast, SoFi could help medical residents.

[Jim Dahle]

Like you save thousands of dollars with.

[Catherine]

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[Jim Dahle]

Visit sofi.comwhitecoatinvestor to see all the promotions and offers they've got waiting for you. One more time, that's sofi.com whitecoatinvestor Sofi.

[Catherine]

Student loans are originated by Sofi Bank NA member FDIC. Additional terms and conditions apply.

[Jim Dahle]

NMLS 696891 don't forget about our social and online communities. We have a subreddit. We have the WCI forum. We have the White Coat Investors Facebook group. We have Instagram which is a bit.

[Catherine]

Of a community as well.

[Jim Dahle]

Lots of great comments and feedback there in this group. I don't know what it is 40, 50,000 people or something right now that are following us on Instagram. And of course the financially empowered women. Check out the Few group as well. Thanks for those of you leaving us five star reviews. Thank you.

[Catherine]

For those of you telling your friends.

[Jim Dahle]

About this podcast, it does help us to spread the word. A recent review came in from dlcwm6.

[Catherine]

Who said thank you.

[Jim Dahle]

I'm so grateful for all this podcast has taught me.

[Catherine]

I've been listening since I was in residency about five years ago and the.

[Jim Dahle]

Impact WCI has made on my personal and financial life has been profound.

[Catherine]

Thank you for all you have done.

[Jim Dahle]

For my family and I. 5 stars. Awesome.

[Catherine]

Thanks for that review.

[Jim Dahle]

Reviews do help other people to find the podcast, so thank you for doing that. We've come to the end. You can do this stuff. It's not that complicated.

[Catherine]

I promise. This is way easier than whatever you're.

[Jim Dahle]

Doing day to day that you spent a decade learning how to do. Keep your head up, your shoulders back.

[Catherine]

You've got this.

[Jim Dahle]

We're here to help. We'll see you next time on the White Coat Investor Podcast.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.