← White Coat Investor Podcast
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- [00:00]
A
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.
- [00:16]
B
This is White Coat Investor podcast number 469. Today's episode is brought to us by SoFi, the folks who help you get your money right. Paying off student debt quickly and getting your finances back on track isn't easy, but that's where SoFi can help. They have exclusive low rates designed to help medical residents refinance student loans. And that could end up saving you thousands of dollars, helping you get out of student debt sooner. SoFi also offers the ability to lower your payments to just $100 a month while you're still in residency. And if you're already out of residency, SoFi's got you covered there too. For more information, go to sofi.com whitecoatinvestor SoFi student loans are originated by SoFi Bank, NA member FDIC. Additional terms and conditions apply. NMLS 696891 all right, welcome back to the podcast. This is going to be a fun episode. By the way, your feedback matters. Not just about things I get wrong on the podcast, but about everything we're doing here at wci. And our annual survey helps us to understand how we can serve you better. So if you can take just a few minutes to tell us about yourself and share your feedback, telling us how can we serve you better, how can we improve WCI for you? What would make it better for you? We want that, okay? We want it so badly we'll bribe you to give it to us. We're going to give away 20 T shirts to random entrants. We're going to give away five online WCI courses, right? Those can have pretty significant value to people who complete this survey. So you can go to whitecoatinvestor.com WCISurvey and just entering it will enter you to win prizes just by filling out the survey. That's all there is to it. And we really appreciate the feedback. I know a lot of you have spent some time in the past over the years giving us that feedback and it has made a difference in what we do with everything with our conference and our blog and our emails and how we monetize and what sponsors we partner with and all that sort of stuff. It absolutely does affect what we do. So thank you so much for those of you who have filled it out and those who will fill it out this year. I promise not to bug you about it for another year. Let's get into some of your questions here. This one's coming off the speakpipe.
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C
Hi Dr. Donnelly, I wanted to get your perspective on whether or not you consider investing in individual publicly traded REITs as a reasonable way to participate in real estate investing. On the passive extreme of your real estate investing continuum, you have publicly traded REITs, but whenever you mention REITs, you were universally pretty much referring to cap weighted funds like bnq. BNQ is a lot different than the private real estate market. For example, single family homes make up less than 4% of the fund. I also don't love that the biggest market cap subsector in publicly traded REITs is healthcare, which doubles down on my exposure as a doctor. Do you feel that buying a few publicly traded REITs is a reasonable alternative to buying a few syndications or rental properties? Or would it feel more like unnecessary stock picking to you? Is someone who buys individual REITs just doubly confused by missing out on both the diversification of a fund while also missing out on the tax and leverage benefits of the private market? Have you met anyone who was serious and successful in real estate through individual REITs? Does your course focus much on this topic? Thank you.
- [03:20]
B
All right, a lot of questions in there and a fair bit of nuance here. Here's the way I look at it when it comes to the real estate continuum. Those of you who aren't aware of what he's mentioning, this is something I've used in a lot of presentations I've given in blog posts I've done and is heavily used in the White Coat Investor no Hype real estate investing course. If you want to learn more about real estate investing, I think it's a great resource. Like all of our online courses, it comes with a one week money back guarantee. If you don't like it, just ask for your money back. We'll give it back. Okay, so check that out if you really want to get into the weeds on real estate and you're considering investing in it. But at the far passive end of the real estate spectrum is investing in publicly traded REITs. And typically when people ask about that, I'm talking about investing in something like the Vanguard Real Estate Index fund, right? There's a traditional mutual fund version and there is the ETF version version or vnq. And it basically buys all the publicly traded real estate investment trusts out there. Just buys them all. So it works basically like an index fund that buys all the stocks, except it only buys the real estate Stocks. And I think it's a great way to get what is sometimes derided by hardcore real estate investors as real estate flavored stock. But you get them all. It's very diversified, it's very liquid, you can turn to cash any given day. But I wouldn't expect all the tax benefits and all the control benefits you would have. On the other end of the spectrum where you see direct real estate investing, including ground up construction or short term rentals, or fix and flip or even building a long term rental portfolio. And so you can't expect all of those benefits. It is very tricky, I think, to do better in publicly traded real estate than an index fund. With publicly traded real estate you have the same issue you do with publicly traded stocks. Right? You have all kinds of analysts looking at them, all kinds of people trading them all day long with very fast computers. And because of that it becomes very hard to beat the market. Right, because that's what you're talking about doing. You're talking about, well, I'm just going to buy the good REITs. I'm just going to buy the ones that invest in single family homes, not the ones that invest in healthcare. Yeah, you can do that. And it's probably more diversified than buying one rental property. So you get that benefit. But I think the likelihood of you outperforming an index fund in that way is pretty low. And frankly, if you can do it, you ought to be running your own mutual fund or your own hedge fund. Right? It's hard to do. That's the reason why most people don't try and most people shouldn't try. But can you try it? Sure. I guess if you think you've got some edge that nobody else has, I guess you could try picking your own publicly traded REITs. But I think if you want to put a bunch of time into your portfolio to try to add value to it, the best place to do that is to get out of the publicly traded markets. They're not perfectly efficient, but they're efficient enough that the right thing to do is to act as though they're perfectly efficient. That is not the case when you're buying the properties down the street. There's not that many people looking at those properties. It's not that efficient of a market and there's a lot of opportunities to add value. You put up a wall in the basement and all of a sudden now it's a four bedroom house instead of a three bedroom house. Or you got a chance to house hack. Right? You've bought a duplex you're living in one side of it and that helps you with all kinds of economies of scale. And maybe you get the very best renter in the world because they're living right next to the landlord. There's all these things you can do to add value when you're talking about private real estate that you're just not going to get in the publicly traded real estate market. And so I think if you want to be investing in publicly traded REITs, the best way to do it is via an index fund. And if you want to try to get, you know, adding value to your portfolio and get a little bit more control and have your portfolio focused on single family homes or something like that, I think you need to get into the private markets, maybe even the direct real estate investments. Obviously that's going to be more work than just buying a syndication or more likely if you're doing single family homes, buying some sort of a fund that invests in single family homes. But that's up to you how much work you want to put into it in hopes of having this fantastic long term investment that's passing you all kinds of depreciation and all the other tax benefits you can get from real estate investing. Hope that answers your question. But yeah, I think Picking publicly traded REITs has given you the worst of both worlds. To answer your question. All right, this one's about somebody whose parents are interested in private real estate.
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D
Hey Jim, I'm a longtime white coat investor listener. I have a question about something that my parents are doing and I'm not sure if it's a scam and something that I should be counseling them against or if it would be a legitimate investment option. Their wealth advisor essentially has helped them invest in what seems to be a private equity real estate investment where they purchased apartment complex, some land, doing the typical renovations, going to raise the rent, getting the payout in about five years. They're about two years into it. My dad said that because he used Roth IRA money to invest in it, all of the earnings will be tax free. It's the type of deal that sounds way too good to be true. He invested about 250,000 and said he's expecting about a million dollar payout. And to me it sounds like a, some sort of a tax fraud scam of some sort. And I'm just worried that he's gotten himself into something dicey. So if there's anything that you've heard about this, this type of a deal or something that maybe could be finicky and you know, legal in some weird ways, but he's trying to get me to invest in it, and I just get some red flags. So I'd appreciate if you know anything about this or something similar. Thanks so much.
- [09:13]
B
Okay, great question. A lot of questions there. I guess that's what happens when you give you a minute and a half on the speak pipe. You can ask lots of questions all at once. It's hard to give it secondhand advice. Right. I'm giving you advice to pass on to your parents without being able to ask your parents any questions or getting any, you know, any idea of their, you know, expertise on the topic, what they're concerned about, what their financial position is.
- [09:40]
C
Right.
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B
For example, if you told me that they have a $500,000 portfolio and 250,000 of it is in some sort of a private real estate deal, I think that is a terrible idea. You know, pretty universally that's a bad idea. It's not diversified enough. They're not wealthy enough to be playing this private real estate game. On the other hand, if you told me they're DECA millionaires and, you know, they invested in a hundred different real estate syndications over the course of their careers, and this just happens to be one of them, that's $250,000 into some sort of deal that they vetted. Great. Wonderful, right? I mean, to invest in these private investments, you need to be an accredited investor. Right. The legal definition is an income of $200,000 a year each of the last two years, or a million dollars in investable assets. I think that's a terrible definition. It hasn't been updated in decades. Right. You should probably double those numbers and be required to have both of them, not just one of them, in my opinion. If you're going to be investing in these things with $100,000, $250,000 minimums, you ought to have a lot of money to be able to diversify a portfolio when those are the minimum investments on the deals. But more importantly than having money, you need to be a real accredited investor. That means you can evaluate the investment without the assistance of an advisor, accountant, or attorney, much less calling up your daughter.
- [11:03]
C
Right.
- [11:04]
B
And number two, that you can afford to lose your entire investment without it affecting your financial life in any sort of significant way. Right. So if you're a doctor with $8 million and you got a $25,000 investment that requires you to be a credit investor and you're wiped out. Right. It goes to zero. It's no big deal. It's 25 grand. You got 8 million, right? It just doesn't matter. And that's kind of the position you want to be in when you're investing in these private investments. A lot of them are pretty risky, right? They might not be experienced operators, it might be a lot of leverage. It might be adjustable rate leverage, it might be kind of a risky business plan. It might be ground up construction, or it might be a heavy value add. There's a lot of risk there. And you can choose how much risk you take. You don't have to invest with the person that's borrowed 80% of what's going into this project. You can invest with the person that only borrowed 50% of what's going into the project. You don't have to invest in ground up construction. You can invest in something that's already built, doesn't need any more value add. You know, it's a core, core plus investment instead of a value add investment. It's less risky. You can invest on the debt side, you don't have to invest on the equity side at all. And you're obviously in a better position in the capital stack when things go bad when you have that sort of an investment. So there's a lot more to it than just, oh, this is private. It seems risky to me, right? Well, it is private. It's, you know, you're gonna have to do a little more due diligence than you are just buying an index fund that owns all the stocks in the world, right? You have to do more due diligence. Every single one of these investments is unique. Some of them do great, some of them do poorly, some of them you lose all your money on. And if you haven't lost all of your money on any sort of a private investment, you are either extremely good at choosing them, you haven't been doing it very long, or you just got lucky. Cause most people, if they do this enough, they're gonna lose some capital, they're gonna lose some principle on one of these investments because they do tend to be risky. And when the risk shows up in years like 20, 22, a lot of these can go bad, right? So, I mean, I've got a number of these private real estate investments. Most of them are in funds, but I've had some that were not funds. For example, one of these funds had a property, it was an office property, and it just fell and fell and fell in value to the point where it was worth less than what the fund had bor. So what'd the fund do? It Mailed in the keys, the fund still did okay. It still gave me about a 10% per year return despite one of the properties going to zero. But we lost principal in that. I've got another fund that's struggling right now because a couple of its two or two of its seven or eight properties are in significant trouble and may lose principal on those two properties. So I might have a negative return on that fund. I've had a different fund that was invested in single family homes that basically had not managed the debt very, very well. And so when interest rates went up, too much of the debt was adjustable, the cash flow wasn't there. So they had to start fire Sailing Properties. And by the time they sold enough properties to pay off the debt that had been called, there wasn't any equity left for any of us. I've also been involved in a scam where an operator borrowed money against the properties that was against the operating agreement. Well, the operator went to jail, but that didn't help me get any money back. Right. So there are scams out there and there are far more scams in privately traded companies than publicly traded companies. You know, publicly traded doesn't mean there's no scams. I mean, look at Enron, right? There's a huge scam being run. So it can happen. It's just a little bit harder when there's so many regulatory bodies looking at the books, et cetera, et cetera. So what should you tell your parents? Well, it probably doesn't matter what you tell your parents. They're in year two of five. This is almost surely a totally illiquid investment. They almost surely can't get any money back until it goes round trip. And nothing they do or say at this point will make any difference on how this investment turns out for them. So hopefully it does as well as they're hoping. But I'm guessing if they've owned it the last couple of years, when real estate hasn't done that great, that they might not be that happy with the returns they get from it. On the other hand, maybe now's the time when the next few years, real estate's going to do really well. And so they may end up especially getting in after 2022, this might work out just fine for them. It's hard to say. But keep in mind, you're talking about turning $250,000 into $1 million in five years, right? That's a fantastic rate of return. If I put that into my spreadsheet here to get a rate, five years, no payment, let's put in $250,000. Let's take out $1 million. That's a rate of return of 32%, 31.95%. In order to turn $250,000 into $1 million in five years, I would not expect that out of any real estate investment. Okay. If that is truly your expectation, I do worry that the operator, the fund manager, whatever it is, has been a little too rosy and maybe suckered you in by suggesting that could be your return. I'm sure the paperwork doesn't promise you that return guaranteed. And I would expect that you wouldn't get that. A much more typical return for a private real estate investment that's appropriately managed, that has a reasonable amount of leverage on it would be something like 15%. That's about what I would expect out of that. I would not expect 32%. Now, can you invest in these in a Roth IRA? Absolutely. You can. You can invest in them in a 401. It usually has to be a self directed 401. But the white coat investor, 401 would allow me to invest in something like this. So that's not necessarily a scam just because it's in a Roth ira. I do worry that your parents own this investment in a Roth IRA because that's all the money they had. I worry that could have happened. You should also be aware when you're investing in leveraged equity real estate in a retirement account that an extra tax often applies. Unrelated business income tax. Right. If there's no leverage involved, you probably won't own that. But typically there is in most real estate investments. And so there can be some tax that you pay as it goes along and when the investment goes round trip as a result of that. So don't be surprised by that. But in general, most of the tax inside a Roth ira, you're not going to owe tax. That's the way Roth IRAs work. That part's not a scam. That's just how a Roth account works. So I'm not sure what to tell you to tell your parents. I would say, you know, give us more information and look at it carefully and make sure you're in the right place to be investing in any sort of private investments. Recognize that private investments are not required for success. Right. There is a very simple, you know, as I said in the first white coat investor book, Road to Dublin, right? You finish medical school, you finish residency, you get a typical physician job for your specialty, you save 20% of your income, you put it into A boring old portfolio of index mutual funds. You fund that for, you know, 10, 20, 25, maybe 30 years, and guess what? You're going to retire a financially independent multimillionaire. You don't have to do anything special in order to reach all of your reasonable financial goals. Given the income you've worked so hard to get, you just have to manage that income well. So none of this is mandatory, none of this is required. You don't have to do it. But if you're interested in it, if investing's fun for you and you like the possibility of getting some of these benefits you can get in private investments, then check it out, right? We've got a bunch of sponsors, a white coat investor that offer private real estate investments both on the equity side and on the debt side. We have somebody that'll help with individual syndications. Most of them are fund managers, right? They'll get you into a fund that gives you a little bit more diversification. Some of the funds are evergreen, some are closed end where you can't get your money back for three to 10 years. That's just the way the investment works. One of our sponsors will even help you. If you're interested in turnkey direct real estate investing, right, where you can buy a house in Florida with a tenant already in it. The whole house just got built. They finished building it last month, put a tenant in it, now they sell it to you. They'll manage it for you. When you're ready to sell it, they'll sell it for you. You never even have to go to Florida. And you can be a direct real estate investor. You get to decide when you sell it. You get to decide if you want to have a cost segregation study. You can use that depreciation in your life as best you can. You know, there's lots of different ways to invest in real estate, but it's not required. But I can't tell you if what your parents are involved in is a scam or not. I hope it's not. I suspect they're just going in with, you know, rose tinted glasses and probably aren't going to get that 32% return they're hoping for. Hopeful they still get a 10 or 15% return. But it is possible, especially how real estate has done the last few years since interest rates went up 4%, to lose your entire investment. That's also a possible outcome for this investment they've made. And I hope they're in a position where they can absorb that without it affecting their financial life. If not, it's probably too late at this point. Okay. Our quote of the day today comes from John Templeton who said, buy at the point of maximum pessimism, sell at the point of maximum optimism. Well, that's great if you can do it, but it's a little harder to identify than just that. But certainly there are times when the pendulum does swing and markets get a little bit carried away and you want to make sure you're the one with your head on straight when that happens. Don't be one of those people who sell low, especially late in your investing career, and can never recover from that just before the market recovers. On the other hand, remember the trees don't grow to the sky. Right after US stocks had gone up 25% in 2023 and 25% in 2024 and went up significantly in 2025. No surprise as I'm recording this that they're currently underwater for the year in 2026. Right. Don't expect 25% a year out of your index funds. You're not going to get it on average. Long term, it's been more like 10% a year. But most years are not 10%. They're either positive 25% or minus 10% or positive 8% or minus 40% or positive 12%. Right. You don even 8% or even 10%. That's not the way markets work. Okay, let's talk a little bit differently. More about buying a home I think you're going to live in rather than one to rent out.
- [21:25]
E
Hi, Dr. Daly. I'm looking for some insight regarding a home purchase strategy. Right now we're looking to buy a home in the next nine to 15 months with a household income of around 350,000, targeting a home price between 400 and 600,000. Our debt is minimal. We have a $1,500 monthly credit card bill that we pay in full and our student loans will be completely paid off in the next two months. Outside of that, we're deb debt free. Given our timeline, I don't believe we'll be able to hit the full 20% down payment for a conventional fixed loan. Additionally, maintaining like high liquidity and like cash flow over the next few years is a major priority for us. So the plan that we were looking at doing to keep like long term interest low and monthly payments manageable, we looked at doing a physician 10, six arm to secure like, you know, a lower rate of avoiding PMI. And then once we hit 20% equity, we plan to refinance to a conventional like 15 year fixed rate mortgage. Ideally, we want to do this before
- [22:17]
B
the 10 year mark to lock in
- [22:18]
E
a more favorable rate. Question I have is I haven't found much documentation on the specific bridge approach. And so I'm just looking at if I'm overthinking this or is there a big blind spot that I'm not seeing. Would appreciate your input.
- [22:31]
B
Okay, yes, you're overthinking this. It doesn't have to be quite that complicated. The good news is you thought about this, right? You might have overthought it, but at least you thought about it. I mean, look at all the things you're doing, right? Right. You got an income of $350,000. You're buying a house that will cost less than two times that gross income, right? You're talking about 400,000 to 600,000. Twice your gross income would be 700,000. Okay, so this is an affordable house is the bottom line for you. This is not going to be something that's going to make you house poor. In fact, you could probably even push it a little bit more. I wouldn't have felt bad if you said you were going to buy a home that was 7 or $800,000 if that gets you something that you're likely to stay in longer and not have to deal with the transaction costs of doing down the road. You know, people in high cost of living areas, they're often trying to stretch this guideline, this 2x gross income guideline. And when they do that, I tell them stretching is 3 to 4x, not 10x. Right? Because, because people do that, they'll try to buy a $3 million house on a $300,000 income. And that is not a good idea. That is a good way to be house poor. And you're never able to build any wealth besides your house. And if the house doesn't work out great, or if you're not willing to sell the house later, you end up just not being able to reach your other financial goals. The other things you're doing great, right? You've got your student loans just about done. They'll be done before you buy the house. Right? You don't have a bunch of consumer debt. You're thinking about this, you know, nine to 12 months in advance. So you can be kind of strategic buying, you can be kind of a, you know, this doesn't have a good connotation, but a predatory buyer and you can take advantage of someone that's kind of desperate to sell. Maybe the market's already the House has already been on the market for six or eight months by the time you come along to buy it. And you know you can make them a little bit of a lowball offer and get a better deal on the house. I'm surprised how little we negotiate something when it's such a big ticket item in our lives. Right? I mean saving $30,000 on, on buying your house might be the equivalent of working two extra months. Right. And if you can negotiate in an hour enough to make more money than you can make in a couple of months. Right. Of course you want to do that. So as far as your strategy with the mortgage, I think you're buying, you know, such a reasonable amount of house that you can do just about anything you want with a mortgage. I think most people in your situation that don't have a 20% down payment because they have a better use for their money like paying off their student loans or whatever you're doing that you need the extra cash flow for typically use a physician mortgage. Okay? So that means that you don't have to pay PMI private mortgage interest, that private mortgage insurance. That insurance you buy to protect your lender from you defaulting. You know, it doesn't do you any good. But if you put 20% down on a conventional, you can avoid buying that. Well, the other way you can do it is use a physician mortgage. Physician mortgages, docs who use those don't have to pay PMI. Plus you don't have to come up with 20% down payments. You can use the money to do something else. Plus you can usually buy it with just an employment contract in hand. It's sometimes a little harder. If you're an independent contractor, you often need two years of tax returns to qualify for that. But they also only look at your student loans. You're not going to have any by then. But they only look at your student loans based on the payments you have to make.
- [25:49]
C
Right?
- [25:50]
B
Which for a lot of people is close to zero because they've been in an IDR program, their income just barely went up. So a physician mortgage loan is definitely the way to go. If you're putting down less than 20% and you qualify for a physician mortgage, no doubt about that. And no doc should really ever pay pmi. Now as far as which physician mortgage you get, whether you get some sort of an ARM, an adjustable rate mortgage, or whether you get a 15 year fixed or a 30 year fixed, I don't know that I'm terribly, you know, care all that much about. If you get a 10 year arm, it's fixed for 10 years. If you know you're not going to be there for 10 years, there's no risk at all in taking that. If they'll give you an eighth of a point or quarter of a point less than they'd give you on a 30 year mortgage, great, take it. Right? If you know you're not going going to be there for 10 years, if you think you might be there longer than 10 years, you're taking on some risk, you're taking on some interest rate risk. Now it's not a lot of interest rate risk because it doesn't even show up for 10 years. Or if it's a 7,1 arm, it doesn't show up for 7 years or a 31 arm, it doesn't show up For 3 years. The 3 is how many years until the rate starts adjusting and the one is how often it adjusts. Right? The three one arm, it doesn't adjust for three years and it adjusts once a year after that. And if you can afford that interest rate risk, which you probably can given the ratios you've given us, that's totally reasonable to use an arm. But most people probably used a fixed mortgage if they want to be done with their debt relatively rapidly, like I suspect you do. Given how you're approaching all this, probably a 15 year is the way to go. I'm sure you'd be able to afford a 15 year mortgage on this and that's probably what I would do in your situation. But if you want to use a 10 year arm or 7 year arm, I think that's fine. Now you mentioned a 10, 6 arm. I'm not sure I've ever heard of a 10.6 arm. And when I Google that, let's see what comes up. Yeah, so apparently they're fairly common. It just means it adjusts every six months.
- [27:49]
C
Right?
- [27:49]
B
So it doesn't adjust for 10 years, then it adjusts every six months after that rather than a 10, 1 arm, which would adjust every year after that. So I think a 10.6 is fine to use. I suspect you will refinance it. I wouldn't be surprised to see you refinancing it within just two or three years into a 15 year fixed or something like that. And I wouldn't be surprised to see you pay that down in seven years or something like that. That's about what we ended up doing with our 15 year mortgage when we bought the place we're in now is we paid it off in about seven. We're just not huge fans of debt. We don't like it, but I think you'll probably have an opportunity to refinance in the next 10 years. There is a risk you wouldn't be able to that interest rates go to 12%. They stay there for the next 20 years, but that risk probably isn't very high. If you do think you're going to be refinancing relatively soon, try not to pay a bunch of money in fees upfront, especially to buy down the rate. You don't want to buy down the rate and then turn around and refinance before you've even gotten the benefit of buying down the rate. So keep that in mind. But I think you're probably making it a little more complicated than it needs to be. But I'm confident you're going to do fine either way. We've got all kinds of great corrections. We're going to talk about all kinds of things that people have been emailing into me saying we got wrong or usually it's just you should have given more information on this topic. And I get that we can't put all the information on every topic in every episode. I get this response a lot on the podcast, actually, and people are like, you should have mentioned this. You should have linked to that. And sometimes they're right, and sometimes it's just like, I guess if you want every a blog post be 5000 words, we could do that. But I'm apparently not succinct enough to be able to get everything into every post. So we're going to go over a lot of kind of clarifications today. Don't worry, I've got plenty of questions, most of them about real estate and mortgages of yours to go through afterward. But in the meantime, let's move through some of these. I do like getting them, and the reason why is it tells me you're actually out there listening. You actually care that we get things as accurate as we can. In fact, one of these folks that wrote in for a correction I invited on the podcast, and he came on the podcast, he was a little bit nervous about it and wanted to have a disclaimer as well after talking to his advisors about that. So we did that. But I think it's worthwhile hearing it directly from his mouth. So we'll get to that in a little bit. All right, let's do our first correction. I get an email that says I did want to add a little clarification on using 529 money for K12 tuition in New York State. I'm not sure about others 529 withdrawals for K12 tuition will trigger a recap capture of prior state income tax deductions on contributions. I was excited about using the kids 529s for this, but losing the state tax benefit more or less defeats the purpose.
- [30:39]
F
Wow.
- [30:40]
B
Thank you, New York. If you need another reason to do some geographic arbitrage, there's another one. I don't know of any other states doing that. That's the first time I've ever heard anybody doing that. K12 is a legitimate way to use the 529. You don't pay taxes on any gains to the federal government via income taxes for doing that. But apparently that results in recapture of your state tax benefits in New York. You got to be a little bit careful. There are some states that will, if you move your $529 from their state 529 to another one, Utah or Nevada or Ohio or Michigan, whatever. The really good one of the year is then they actually do recapture those state tax benefits when you do that. But I had never heard about it for somebody using it for K12 tuition. So be aware of that, all of you New Yorkers. Okay, we have another one also about 529s. One more little hack I recently learned about regarding 529s. Alaska has a great deal. If you just put $25 into an Alaskan 529 for your kid, keep it there a year, they give you a free $250. Not going to move the needle, but better than a kick in the teeth. Maybe worth mentioning in your next 529 post. Well, we'll just mention it here on the podcast. This is great, because here's the deal. If you're an Alaskan, you might not choose to use the Alaskan 529. There's no state income tax, so there's no state income tax benefit, right? So if you're Alaskan, you're probably going, maybe I should open a Michigan plan or a Utah plan or a Nevada plan. But this is one reason to definitely use the Alaskan plan. Get your, you know, $250, you got four kids, that's a grand. You know, that's a nice little benefit to putting $100 into 529s for your four kids, right? And anybody can go do that, right? Maybe if you're going to open 3529s for your nieces and nephews, you should do it in Alaska and put 25 bucks a piece in there. That's a little more hassle than it's worth to me. But some people might choose that as a way to make a few bucks, right? I don't think there's anything keeping you from then transferring that 529 to Nevada. 529 later if you want. But I guess it's possible that Alaska will recapture that if you do. I'm not sure about that little detail, but I know people have moved money around for less, right? I mean there's all kinds of people moving their money from one brokerage to another just to get a thousand dollar sign up bonus. This could be worth even more than that if you got a bunch of 529s. Okay, our next correction is about HSAs. This is a correction on your previous episode. The person writes, not sure about the episode number, but I remember you talking about the topic a couple of times previously and once with Tyler. On the HSA topic. You mentioned that when you have a high deductible HSA plan, you have to pay all of your health care and cost out of pocket until your deductible is met. We have a Blue Shield Bronze high deductible plan in California. And the way it works is that preventive care, including your annual visits, are covered and are not subject to your deductible. In other words, you do not have to meet your deductible before these preventive visits get covered. Just thought you should know. Not sure if this is true for all states. Well, I am aware of that. It is true in all states for those plans and they're now required to pay for those preventive visits. Now you got to be careful on those preventive visits because sometimes you'll do something else. You'll bring something else up that's not covered by the preventive care visit and then it gets billed out as a regular visit as well. And of course your deductible would apply to those, but the preventive stuff it does not. That is true and that's a fair point. Thank you for writing in to make sure we get that right. Okay, now let's do this interview with this dentist. I had said something about dental insurance and he felt like it was worth more of a discussion. I think the bottom line is that medical insurance is not exactly the same as dental insurance. They don't work the same way. And there are a lot of downsides for dentists that are taking dental insurance. And so a lot of them are starting to do things that we've heard about in the medical world, you know, with organization like Doctors for Patient Care, they're starting to do similar things in the dental world. But the bottom line is you need to be aware of how it works, especially if you're buying it for yourself or for your employees. Let's get them on the line. We'll have that discussion. Our guest today on the White Coat Investor podcast is Adam. Adam, welcome to the podcast.
- [34:53]
F
Hi, Jim, thanks for having me. Just before we get started on the topic, I just want to make a quick disclaimer that the views expressed in this podcast are my own and are provided by for general information purposes only. Any statements I make or information I provide in this podcast is general in nature and based on my professional experience in the dental field. Nothing that I state in this podcast constitutes professional, financial or legal advice, references to insurance products, plans, or carriers, and are not endorsements and listeners should consult their own legal and professional services on their specific circumstances. Thanks for having me. I appreciate you inviting me on.
- [35:32]
B
Yeah. So this is a good example of what happens if you send me too many emails about an episode we did or something I said on a podcast. You end up getting invited on the podcast because we needed more of a correction or clarification than I was going to be able to do myself on this topic. But our topic for this segment is dental insurance. And Adam, clue us in a little bit why we're having this conversation. What did I say about dental insurance that got you fired up enough to shoot off an email to me?
- [36:04]
F
Well, nothing that you said was wrong. I think that you made some good points. I just thought that we could clarify what dental insurance is and make sure that people understand what the limitations of dental insurance are and really know what you're getting when you buy dental insurance. Because it is not the same as medical insurance, as you know.
- [36:26]
B
Yeah, I've often said it's like the opposite of insurance, right? It pays for the cheap stuff and none of the expensive stuff, as opposed to vice versa, which is what you're typically looking for with medical insurance. Maybe that's too much of a generalization, but I tell you what, I saw a patient in the emergency department yesterday with dental pain, and I asked her, when's the last time you saw a dentist? It had been eight years. How come? I asked her and the answer was, well, I don't have insurance. So it was an interesting conversation. But tell us what you think White Coat investors ought to know about dental insurance.
- [36:58]
F
Well, kind of like you pointed out, Jim, dental insurance Is not, it's not insurance in the traditional sense. Dental insurance is more of a coupon more than anything else. And that's what I tell my patients. You know, when you buy medical insurance, it's for a drastic coverage. And most insurance is there for drastic coverage. You buy auto insurance in case you wreck your $60,000 vehicle or kill someone, God forbid, or, you know, medical insurance if you fall off a cliff, what have you. Dental insurance is different. You buy dental insurance so that when you go to the dentist you get a discounted rate.
- [37:32]
B
Basically the discount the insurance company has negotiated for you.
- [37:36]
F
Yes, exactly.
- [37:37]
B
But it covers some things. I mean, it'll, it'll cover your exam once or twice a year, it covers your cleanings, right?
- [37:44]
F
Yes, it does cover your exams, and yes, it does cover cleanings. But there should be a little bit of clarification there. So as far as exams go, yes, it does cover exams to an extent, for the most part. So usually your dental insurance will cover two exams per year. Sometimes they will cover an additional limited exam per year. But let's say you have tooth pain in March and then a tooth breaks in August and then something pops up again in December. Dental insurance is not going to cover every one of those exams. There's going to be limitations on how many times you can be seen at the dentist. And the same thing with cleanings. So for example, if you have a patient that is a periodontal patient has, is prone to gum disease, bone loss, what have you, our standard of care is they get cleanings after they get their deep cleaning. They get cleanings four times a year, every three months, three to four months, depending on what the dentist recommends. So if the dental insurance company only covers two cleans per year, but your dentist recommends, you know, three or four cleans per year, that falls outside of the standard of care. Just receiving those two cleanings per year. And the same thing with the exams, you know, some insurances will only cover X rays once a year, or I've seen it where the insurance will only cover X rays once every two years. For some patients that's okay, but for patients that are high caries risk, that's a disservice to the patient not getting the X rays on a shorter time interval to be able to catch those cavities before they become problematic and leading to root canals, crowns and having.
- [39:14]
B
Because it's sending them the message they don't need them.
- [39:18]
F
Correct. And that's a big misconception is that dental insurance tells me when I desert my cleanings When I need my cleanings, when I need my X rays, and that's just not the case. For example, most insurances won't do panoramic X rays between three and five years.
- [39:34]
B
And what's the standard of care for panoramics? Should you get them every year or what, what does, you know, the ADA recommend?
- [39:40]
F
In reality, you should be getting them one to two years depending on, on your risk level. You know, panoramics can be great images that can show metastatic cancer, ameloblastomas, odontogenic karatus, a lot of different malignant things that, that don't present as symptoms of pain, that sort of thing.
- [39:58]
B
Now, I've run into this before. I talked to my dentist and they recommend an X ray that's not covered by my insurance or a fluoride treatment that's not covered by my insurance. How successful are you in talking patients into buying items like that, preventive care kind of items that their insurance doesn't cover. Does this mean that 98% of people never buy it or do a lot of people just pay cash?
- [40:22]
F
I think it depends on the patient. You know, we really try to educate patients at my office about what is important. And I've had a lot of discussions with patients about what my standard of care is and a lot of times that falls outside of what their dental insurance covers. And I think that's one of the big shortfalls of dental insurance, which is why, you know, a lot of colleagues are getting away from dental insurance because they feel like the dental insurance companies are demonizing dentists or pitting dentists versus patients because, you know, the insurance is only going to cover this many X rays or these sorts of treatments. Whereas my dentist is recommending this and I'm being told I shouldn't have an out of pocket expense. And so the patient is upset because they owe more. But if we didn't take the X ray or didn't do the treatment, then the patient is not getting the quality of care that they frankly deserve.
- [41:12]
B
Are there a lot of dentists? I mean, people are doing this on the medical side part, particularly for primary care. Right. They call it doctors for patient care or sometimes it's some sort of a concierge label where they're literally we're not going to do insurance. And there's a lot of benefits of that. You often get a little better access to the doctor. Sometimes the doctors, you know, does CBCs in, in the office for $3. Right. There can be all kinds of really cool benefits of doing it. What percentage of dentists are basically saying we don't, we don't deal with insurance anymore.
- [41:42]
F
There's a lot of dental offices that are getting away from doing dental insurance altogether, mainly private practices. The larger DSOs and corporate companies, they still will take a lot of the different insurances. But the hard part is that dental insurance maximums have not increased since, you know, the 70s and 80s, which was before I was alive.
- [42:03]
B
You mean, you mean what they're paying the doc?
- [42:05]
F
Yeah, what they're paying the dock. And also it doesn't allow me as a provider to treat patient the way I need to. So the way that a lot of membership plans work, it's not insurance. But the membership plan at an office like mine includes your two cleanings, your exams, and all X rays that you need. So, you know, it's one global fee. It doesn't piecemeal everything together. And it allows me to be able to treat patients the way that they need to be treated, because not every patient should be treated the exact same way. Whereas, you know, dental insurance tries to fit people into this cookie cutter mold, which I think is where it falls short in a lot of ways.
- [42:44]
B
So does a membership plan typically cost more than insurance, less than insurance? How does it compare?
- [42:49]
F
It depends, Jim. It depends on how you want to look at it from a price perspective. A lot of people get their dental insurance through their employer, so they're not technically paying for it. And I recognize that, you know, there's a benefit to having an employer that will cover dental insurance if they cover it 100% or what have you. If you're paying for dental insurance out of pocket, it kind of varies based on, you know, the terms of the policy. You know, there's a lot of dental insurance plans that have waiting periods or co insurances or downgrades. And so those are things that need to be taken into consideration. You know, for example, a downgrade amalgam fillings, the silver fillings, a great material when they first came out. They're not used very often nowadays, but it's a less expensive type of filling than a white filling. Most people want to get white fillings done when they go to the dentist, but if your insurance company has a downgrade, you're going to pay the difference from the silver filling to the white filling. And that's not something that's always clearly disclosed to the patient. Same thing with crowns. You know, the dental insurance company may down code it to a metal crown and most people want a white crown. So, you know, the patient is one who's responsible financially for replacing that gap from the metal crown to the white crown. And that's where there's a little bit of discrepancy there.
- [44:16]
B
Okay, so there's a white coat investor out there listening to this podcast. Should he or she buy dental insurance? Their employer's not providing it or self employed or whatever. Should they buy dental insurance or should they go find their dentist and just pay cash or see if they have a subscription plan or what would you recommend?
- [44:36]
F
I think that honestly, Jim, you should find a dentist that you like, is close to you, does great work and have a conversation if they do a membership plan or what have you. The hard part about getting dental insurance is that it can pigeonhole you into dentists that you can go to. Now most dental insurance plan have out of network benefits. And so that's one thing that we work on educating patients at our office with. Just because you have private insurance that's out of network with a dentist that you like, it doesn't mean that I can't see you and doesn't mean that your insurance company won't pay on that. It just means that the dental insurance company is going to pay less on that. I would tell you, Jim, if I was a person on the street and knowing what I know now, I tell patients now, there's really not an insurance company that I recommend, Jim, you know,
- [45:29]
B
so you wouldn't, you'd pass. I mean, if you weren't a dentist, you'd pass on insurance?
- [45:33]
F
I would, you know, and the reason is because, you know, knowing what I know about standards of care and all the things that can go wrong and the shortfalls that private insurance places on patients and dentists. I'm confident that I will receive better care for a comparable price finding a dentist that I know I trust and that I can pay a either monthly membership plan or some of them do lump sums by the year or what have you. There's a lot of variations, but then it creates a lot more transparency, Jim, on the cost of treatment, what the treatment is going to look like and frankly provides better outcomes overall.
- [46:14]
B
Okay, related question now. Now we're talking to an employer, right? This is a doc with four or five employees or somebody like me, a white coat investor, right? 19 of us are working here. Is it a benefit I should offer my employees or should they get something else instead? More salary instead. Do you think it's something that people find attractive about a job to get, get some of their dental care covered by the employer via dental insurance?
- [46:42]
F
It's tough Right. Because dental insurance from an employer standpoint can be a nice benefit to attract employees, that sort of thing. I think the hard part is if I sent you over a dental insurance contract, reading through the entire thing and being able to understand really what was a good plan for all your employees, it's tough to know what's good and what's not.
- [47:05]
B
I guess my worry is I think there's a lot of people out there that would be like this lady I saw in the ER yesterday, right. That no insurance, she just doesn't go at all. And I think there's a certain amount of feeling like, I've got insurance, my cleaning's covered, so I'm going to go get my cleaning. I think there's probably some behavioral benefit to that, don't you think?
- [47:27]
F
Sure. I think one of the things that needs to be discussed is dentistry as a whole has become a very expensive profession. You know, not only from a, from a patient perspective, but a provider perspective. You know, I spent half a million dollars going to undergrad and then a dental school. But I think the cost of training for dentists is part of the issue. You know, frankly, I think that if it wasn't so darn expensive, it'd be easier for dental providers, dentists, practice owners, to be able to charge a more fair rate and run a successful business that is prosperous, but also able to provide care to patients that is less expensive.
- [48:11]
B
Yeah, for sure, that high upfront cost. And the problem for most dentists, especially if you're interested in private practice, is it doesn't end with the student loans. Right. Then you need to borrow half a million or a million dollars to build out the practice and you probably want to buy a house about the same time. So there you go with another, you know, half a million or million dollar mortgage and it just gets to be this huge debt burden at the beginning of the career for sure.
- [48:34]
F
And it's scary. You know, I, I graduated dental school in 2021 and I purchased a practice about a year after that. And you know, when I look at my balance sheet, it is not great. And myself and you know, most of my colleagues got into dentistry just like yourself, to treat patients and improve the quality of life of our communities. If I am forced to take on such a high debt burden, you want to return on your investment at some point. And you know, I tell my patients all the time, I just want to be able to take my family on a nice vacation once a year and retire at 60. And I think that's reasonable. I'm not trying to make a billion dollars. You know, I just want to make a decent living for myself and my family.
- [49:17]
B
All right, well, anything else you think white coat investors ought to know about dental insurance?
- [49:22]
F
The hard part is that dental insurance places a lot of restrictions on the patient as far as what it covers, and the dentist as far as, like, what the payouts would be. And that lack of transparency, I think, is where private dental insurance falls short.
- [49:40]
B
So it sounds like the bottom line is recognize that your dental insurance is different from your medical insurance. Consider going bare. Consider using a subscription plan, you know, and have, have discussion with your employees if you're in a small practice or some other sort of small business about how much they value. Would value that type of a, of a benefit versus, you know, paying for it themselves.
- [50:04]
F
Yes, exactly.
- [50:06]
B
All right, well, thank you so much for being willing to come on the podcast and explain a little bit more about how it works behind the scenes.
- [50:12]
F
Well, Jim, thanks for having me. I really appreciate all the work that you do and for having me on the podcast.
- [50:19]
C
Okay.
- [50:20]
B
I hope you enjoyed that as much as I did. He was pretty nervous to come on. You might be able to tell. But I think he was able to provide a lot of valuable information to help you with your decision about whether you're buying dental insurance if you're a dentist, whether you're going to take dental insurance, and maybe some of the other options out there. As I mentioned at the beginning of the podcast, SOFI could help medical residents like you save thousands of dollars with exclusive rates and flexible terms for refinancing your student loans. 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 student loans are originated by SOFI bank and a member FDIC. Additional terms and conditions apply. NMLS 696891 all right, don't forget to fill out the white code investor survey. You can get that@WhiteCodeInvestor.com WCISurvey we'll bribe you to take it with a chance to win some swag or even an online course. You could take that no hype real estate investing course. That is one of those that if you want it, that's what we'll give you if you win this prize from the survey. Thanks for leaving us five star reviews by the way. We do appreciate it. It helps others to learn about the podcast. This last one came in from Gobbledygook number of letters but said amazing knowledge. All docs, high earners or just typical income optimizers should listen. Thank you all for what you do. Thumbs up five stars. Thank you for that. Even if you don't give us your name, it still helps others to find the podcast. Thank you for spreading the word about the White Coat Investor over the last 15 years. I know some of you do it a lot. You buy books, you pass it out to your students, to your residents. You tell your colleagues about it. You come to the conference and you bring people with you. We're very thankful for it. We know that your trust is our most valuable asset and we don't plan to do anything that would cause you to not be able to continue to have that trust in us. Keep your head up, shoulders back. You've got this. We're here to help. We'll see you next time on the White Coat Investor Podcast.
- [52:18]
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 principle. You should consult the appropriate professional for specific advice relating to your situation.
- [52:35]
D
Patient.