SmartMoneyMD | Smart Money MD

Author: SmartMoneyMD

How to make money in real estate

Posted on April 5, 2016April 3, 2016 by SmartMoneyMD

how to make money in real estate There is money to be made in real estate. My mother in law constantly informs us of great opportunities in real estate that we could sink our hard earned dollars into. The problem with real estate investing is that most of us normal people don’t spend every waking moment of our days trying to find ways to get rich. We really aren’t informed about most of our investments. Most doctors I know want to take care of patients, get compensated fairly during the process, and spend their free time with family, friends, or with their hobbies.

For those of us who have any potential interest in real estate as a means to supplement our income, this primer is my overview to those who want to learn some fundamentals. If you want a get-rich-quick strategy or real estate investing guide, look elsewhere. If I establish any clear tips from my own experience, I will post them in later entries.

[showads ad=responsive]

What are the ways in which I can make money from real estate?

Real estate usually does not involve quick flips like what you see on TV. If you ever get to that point, you’re likely to already have your own real estate business and probably aren’t going to be practicing medicine anymore. I have seen doctors and other professionals who love real estate so much that they do flip homes and make a pretty dime during the process. If that is you, then read no further. You’ve nothing new to learn here. Here is my take on residential properties:

Appreciation. One purpose that real estate serves is to provide you, the investor, a place to park your money. Think of it as a means to beat inflation. When you decide to sell your property after a decade or two, you hope that the land value has increased, the neighborhood has improved, and you will not lose anything to time. This is also one of the risks of real estate investing. Sure, if you’re investing in a metropolitan area where there is no more land to develop, your chances of having property appreciation will be higher. If you are in Lubbock, TX, you have to be more discriminating in what you buy. Remember, purchasing real estate to live in yourself is one thing, purchasing real estate for investment is another. Selling a house you purchased for $600,000 ten years ago for $625,000 probably means that you got lucky, and only lost out slightly to inflation. Looking at a ten-year period between 2005 and 2015, $600,000 in 2005 would need to grow to upwards beyond $720,000 in 2015 to have the equivalent buying power. If you lived in it the entire time, at least you had a roof over your head. If you used this property as a rental, you’d between have profited through other means.
Cash flow. If you have a property that is rented out, you are generating income. That is your cash flow. Subtract out your mortgage costs, maintenance, and expenses and you will get your net operating income (NOI). A more detailed analysis about how cash flow incorporates into profitability will be discussed in future entries. Essentially, you would hope that your rental income will cover at least your mortgage income so that you’re looking to make a profit.
Leverage. This principle works when you have multiple real estate properties that you manage. Typically one would take out a mortgage to purchase a rental property. The cash flow generated by the first property can also be used to purchase additional properties. In effect, you are leveraging your purchasing power to generate multiple streams of cash flow.
Tax benefits. Yes, you can have tax breaks on real estate properties. There are depreciation benefits with properties that you can use to offset your rental costs. It’s not the sole reason why you should own real estate, but it is one benefit from the U.S. tax system. Might as well use it.

That’s it: appreciation and cash flow. There is no magic involved. If you hold onto property for twenty years or flip it in 6 weeks, these are the only ways you’re only going to make money. This applies mostly to residential properties, but in some ways to commercial as well.

Stay tuned for further articles on real estate.

(Photo courtesy of Flickr)

What other basic principles of real estate should beginner investors be aware of?

Having insurance doesn’t mean healthcare is free

Posted on April 3, 2016April 1, 2016 by SmartMoneyMD

One of my pet peeves is simply the complex healthcare system that I knowingly work in. Hypocritical, yes. What is unfortunate and frustrating is that the majority of our patients don’t really understand how the system works, and assume that doctors are making a killing off of the healthcare system. Doctors, too, are mostly unaware of how the healthcare system works. If doctors knew exactly how the system worked and learned to save their earnings, then there wouldn’t be as much of a need for physician financial education. Case in point:

The bill that your insurance company mails you does not reflect your doctor’s income.

This is the number one deceit. Your patient sees you in the office, and the insurance company sends her a statement of performed procedures and charges made. The charges on the bill absolutely do NOT indicate the amount that your doctor receives from the insurance company. In fact, I have had instances where the insurance company actually denied my claims, sent my patient a billing statement of charges, and have a patient comment on “how much I made on her 25 minute patient visit”. Disgusting. I didn’t even get paid for taking care of a patient, and my patient thinks I got paid a ton for her visit. So much for altruism.

[showads ad=responsive]

The copay also does not reflect how much a doctor is paid.

Another one of my patients commented that her copay went up to $50 per visit from last year, and that she hopes that “I am getting a good raise” now that I’ve raised my copayment charges. Score one for the insurance carriers. They’ve successfully convinced the public that higher copays equate to more money to the doctors.

Having health insurance doesn’t mean that you never have to pay for care.

A common patient complaint I receive is that they are upset that the insurance company did not pay for all of the care. That is the definition of a deductible! One of my colleagues complained to me that one of his patients basically received a free knee replacement because he refused to pay for any of the deductible for the surgery, and was not willing to pay for any of the postoperative medications. My colleague still had to see the patient for all of the postoperative care. It was okay, because the patient was sporting a new Apple Watch and iPad Pro in the waiting room.

You can still win the lifestyle and financial game even in medicine.

Despite the skepticism and cynicism with how broken our healthcare system is, we can still win the game. Remember, we entered this profession to care for patients. No matter how misguided our patients are with how the healthcare system works, we can still deliver great care to them and earn a decent living out of it. Here’s how to do it:

Win the lifestyle game. Find a way to carve out a four-day workweek. Maximize your productivity while you are at the hospital, and minimize the amount of work that you take home. Know your value, and grow your value. Prevent your obsolescence to avoid getting fired.
Win the financial game. Save more than you earn. Hustle to increase your income. Learn to become a successful doctor. Generate your income stream and work hard.

What other strategies have your implemented to win the financial and lifestyle game?

(Photo courtesy of Ubi Desperare Nescio)

The Daily Life of a Family Practitioner

Posted on March 31, 2016February 7, 2021 by SmartMoneyMD

daily life family practitioner The family practitioner represents the stereotypical doctor—a generalist who helps maintain the well-being of people. This includes well-patient visits to upset stomachs to respiratory illnesses. Classically, these doctors also performed in-house visits before offices existed.

Daily Clinical Lifestyle

Family medicine physicians typically train for three years of residency after medical school. Afterward, clinical practice typically involves outpatient care. Hours worked are relatively reasonable in the 9am-5pm range, or 8am to 5pm five days a week. A family practitioner typically sees approximately 15-25 patients per day. Many of these are well-patient visits to sick visits. Illnesses treated include hypercholesterolemia, hypertension, diabetes, upper respiratory illnesses, sinusitis, and musculoskeletal issues.

Stress levels are relatively low, except for the occasional hospital-bound sick patient. Even then, most family practitioners opt not to have hospital privileges. In these cases, Hospitalists take care of inpatients and offer a buffer to a more sanitary lifestyle of an outpatient based family practitioner.

Documentation and increasing requirements for patient volume tend to be the common stressors in this field. Overall, the lifestyle of a family medicine practitioner is very manageable in the spectrum of physician specialties.

Concierge Medicine

One of the advantages of a family medical practice is that equipment needs are relatively low. This allows the doctor to have increased flexibility to perform exams both in the office and even at the patient’s residence. One possible venue to combat against the ever increasing number of clinic patients as governed by insurance companies is to care for patients on a per subscription basis. This allows patients to have more exclusive access to their doctor while allowing the doctor to personalize care to a smaller number of patients. Does this translate to a higher income? Likely, but the compromise is that the stakes will be higher and the clientele will likely be more demanding. Expect to see more family medicine doctors transitioning to concierge medicine in the future.

Perils of being a family practitioner.

Healthcare will always continue to become more complex. Increasing regulations, increasing number of administrators, and increasing healthcare costs will continue to squeeze all doctors. “Physician extenders” have become a more common term these days to describe adjunct nursing staff to assist with healthcare. Some of these physician assistant and nursing positions have frighteningly similar daily tasks as a family practitioner. Will the role of a family practitioner be obviated in the future? Who knows, but I would assume that there should be distinguishing between someone with a medical degree and that of everyone else.

Are you a family practitioner? Are there other aspects of your field that you would like to add?

(Photo courtesy of Flickr).

Why most doctors aren’t rich – Fighting the mental game

Posted on March 25, 2016 by SmartMoneyMD

Most doctors or any other high-income professional really don’t have difficulty with the offense game. We all are capable of earning a relatively good income. Even if you live in a high cost of living area, you can still make out relatively well. For some reason, most of our still aren’t rich. Given that almost half of doctors don’t even fully contribute to their own 401k accounts, I doubt that this same portion of doctors will NEVER become rich.

Why does this happen?

UPBRINGING

Most of our childhoods weren’t filled with abject poverty. Most of us weren’t rich, but we had food on the table. I would get nice toys on my birthday, even though I had no idea how much of my dad’s paycheck went into the present. The new video game? Two day’s worth of salary. That new computer? Think AN ENTIRE MONTH’S PAYCHECK. You can’t blame your parents for it either. They wanted you to have a nicer childhood than they did. I have seen colleagues coming from Uber-rich families who have little clue about how to save money, and I have also seen Uber-rich penny-pinchers. Perhaps there is some correlation between financial awareness and parental wealth, but not always.

[showads ad=responsive]

Most money-conscious people I know have had certain experiences in their lives that directed their attention towards money. Many them have had early life work experiences like mowing lawns, babysitting, or working the fast food market. Perhaps the minimum wage environment led them to cherish every dollar. Whether it was having a minimum wage job early in life or having no money in college, these experiences left a mark on their psyche.

PUBLIC IMAGE

As a doctor, you are expected to have a nice German-branded car, wear luxury clothing items, and own a giant house. There is pressure to portray that image. You’ve spent a decade of your youth becoming a doctor. Some of you do brain surgery. Others save lives. There is no reason why you aren’t rich. How would your patient feel if he saw you at the local Hispanic discount shopping center buying oranges for 4lbs / $1? An openly frugal doctor conveys the notion of an unsuccessful doctor. Hell, if I were money conscious, I’d never expect to see my surgeon bargaining at a yard sale or buying discounted produce.

The premise goes back to The Millionaire Next Door, where a plumber with a similar salary as a lawyer would be more likely to have a higher net worth simply because the public persona influences how the professional should appear. One of the critical steps in becoming wealthy is to fight the convention of a wealthy persona. The most common type of rich person employs stealth wealth.

SELF PERCEPTION

You spent years of your life studying, followed by more years of low income. All of a sudden, you’re earning a six-figure salary. Who cares if you’re pulling in 60-70 hour weeks and risking liability every time you touch a single patient? You’ve never made so much money. You are rich!

News break, sucker. Nearly every single financial independent/early retirement blogger out there has more net worth that you, the highly educated doctor. That blogger might even be a decade your junior and still is more financially well-off than you are. Who’s educated now? It might take a physician another decade of hard work before she catches up financially with the equivalent financially savvy early retiree. At that point, the physician would still have to work to maintain growth in her finances.

As a physician or any highly compensated professional, you have high net worth potential. More accurately, you only have high earning potential. Your job is to remain a productive member of your profession (not disabled) and convert potential into substance. It will still take at least five years of hard work and high savings rate to generate a substantial amount of net worth assuming you don’t have educational debt.

Don’t consider yourself rich or wealthy until your bank accounts say so. It doesn’t matter if you crack brains open for a living or maintain IT servers at the local food pantry.

HOW TO WIN THE MENTAL FINANCE GAME

You can’t change your upbringing, but you sure can learn from it. If your parents were frugal and intelligent with their finances, figure out how they managed. If they weren’t, then remember what NOT to do. It will surely make you a better parent yourself. This isn’t a parenting blog, but it would be prudent to impart your hard-earned wisdom onto your little ones if you don’t want them to be knocking on your front door for a handout when you’re 70.

[showads ad=responsive]

You can control your public image, and you have to mold it into how you want to be presented to the world. If you are not concerned about running into your patients at the Sav-O-Lot store, then you have it easy. There are plenty of doctors, lawyers, and surgeons who share this belief, particularly in the Midwest and rural areas. The coasts have a completely different and more formal mindset. If I ran into my patient in Boston while I was shopping at Thrift Town, it would be an embarrassing moment. Likewise, you typically won’t see this scenario in San Francisco or New York City either. How can you avoid this encounter? Employ your spouse to make these purchases, or simply dress so that it would be unlikely for you to be recognized. Shop at less common hours, like early morning or late evenings. You will decrease the likelihood of running into your patients.

The last mental hurdle in becoming rich is to know when you are rich, and when you aren’t. Look, as a doctor, you have the earning potential. Convert it into substance. A net worth of -$239,000 with an annual income of $250,000 doesn’t mean that you’re rich. A net worth of $79,000 with the same salary still doesn’t mean you’re rich. Not even $400,000. Most people on a $250,000 salary will lose about 25% to federal taxes, and maybe another 10% to state and local taxes in metropolitan areas. It is not easy to build up $1,000,000 in net worth, even with a six-figure salary. Don’t stop hustling until you get a substantial seven-figure net worth. You never know how long your working career will be, and the sooner you build up that nest egg, the easier you can flash your F-you money when the healthcare system cuts your salary by a half.

Break out of the cycle, and learn to become a rich doctor.

(Photo courtesy of Gaby Av)

What other mental strategies have you employed to build your wealth?

Physician Savings Rates are Atrocious

Posted on March 21, 2016March 20, 2016 by SmartMoneyMD

I recently read a summary on a study on physician savings published by Fidelity. One of the conclusions was that 45% of physician felt they were unable to maximize their workplace savings plans! This includes the typical 401k and 403b accounts. There was no mention whether any of these accounts included the profit sharing components.

[showads ad=responsive]

Assuming that these do not include profit-sharing, how almost half of doctors don’t/can’t contribute $18,000 per year in pre-tax earnings is beyond me. The Fidelity survey states that the mean salary for the doctors surveyed was $300,000. That’s actually more than what many internists, pediatricians, family practitioners make. This is also almost three times what many early retirement bloggers made each year before they retired at age 35! Surely by maximizing your 401k, you’ve already saved 6% of your income.

Fidelity states that the doctors they surveyed saved an average of 9% of their income! Again, this is shocking to guys like Mr. Tako Escapes, MMM, or [insert your favorite finance blogger]. Where does this money go? I’ll tell you where it goes:

House mortgage or rent. Times two. Doctors have to live in nice houses. Period. Nice houses are usually not cheap. Many doctors I know actually have two mortgages since they’ve moved onto a second job without being able to sell their first home. Ouch. In these situations, one whole paycheck could go towards two mortgages easily.
Food consumption. A busier lifestyle with meetings can translate into more restaurant meals. I have several coworkers who drop at least $1,000 a month on alcohol, bar tabs, and various restaurant expenditures. Many of my coworkers (and spouses) end up shopping at Whole Foods for their groceries. Organic health foods are not cheap.
Discretionary spending. This category is huge. Think about car leases, impulse purchases, subscription services, and repairs. The busier your main job is, the more likely you are going to drop money to solve your problems.
Student loans. I came out of my training with a solid six-figure debt. There are doctors who come out with $300,000 in debt. Many of us just pay the minimum amounts due, whether by choice or if you’re going after PSLF. If you are paying only the minimum amount, I hope that you either have a low interest rate or are waiting for Uncle Sam to write off your debt.
Divorce and alimony. While the dreaded D isn’t as common as multi-home mortgages, it can set you back financially a very long time (sometimes payments can last up to half the duration that you were married).

It is depressing to see many in my profession not save enough for retirement. It should never happen. Becoming a rich doctor is not a mystery, but you must have discipline. Grow your value, stay healthy, and hustle.

What percentage of your income are you saving?

A Strong Offense Will Make You Richer

Posted on March 19, 2016 by SmartMoneyMD

Sports metaphors are great if you understand the sport that is being referenced. Unfortunately I have limited understanding of many sports metaphors, but offense and defense are two terms that seem obvious enough to me.

I have been told by numerous finance-oriented people that a strong offense will definitely win over a strong defense. I agree with that statement. In general a higher income will help you overcome many frugality shortcomings.

[showads ad=responsive]

Case in point: extreme savers often promote their own incredibly high savings rate. Crazy numbers like 60%, 70%, or even 90% of their post-tax income. They argue that this has allowed them to retire by the time you were halfway through medical school. What is downplayed is that your savings rate becomes less impressive the greater your income becomes. It sure as hell easier to save 50% of a $250,000 income than 50% of a $50,000 income.

Increase your income.

Saving money is fine and dandy, but wouldn’t it be even better if you could crank up your earning potential? There are financial bloggers out there approximately my age who have over twice my net worth but have jobs that generate less than half of my income as a physician. According to my calculations, it will take me about five more years to over take their net worth at my income rate and spending. Overall there are two learning points that I can glean from this comparison:

Compound interest is your friend. The sooner you can enter the workforce and start building your nest egg, the longer your money can work for you.
A high earning potential and rate can eventually compensate for the lack of compound interest.

Since most of my readers have spent a decade of our lives training to be in the medical field, there really isn’t much turning back.

What you can do for yourself is to figure out how to become a rich doctor and have that army of earnings work their compound interest magic. You’ve worked hard getting to where you are at, and it’s time to reap some benefits.

Have you considered how you can improve your financial offense?

Public Service Loan Forgiveness for Doctors

Posted on March 13, 2016 by SmartMoneyMD

Many professionals incur significant amounts of student loan debt. The average loan debt for my medical school was $133,000 this year, which actually seems low. I incurred approximately $190,000 of loan debt that I eventually paid off. I fortunately went into a career in medicine where I have relative job stability and earn potential, unlike many poor graduate students without funding who enter a career in art restoration.

One viable option for repayment includes the Public Service Loan Forgiveness Program (PSLF). Under PSLF, your loans are forgiven after 120 payments as long as you are working for a qualified public organization. These organizations include government facilities, non-profit organizations, and certain not-for-profit facilities. Many hospitals are considered non-profit entities.

Why is PSLF a good deal?

While 120 monthly payments seems like an eternity, most of our training occurs in non-profit hospitals. What this means is that if you are financially savvy early in your career, you can strategically select a residency that qualifies for PSLF. Since many of us inadvertently spend a good 5-7 years of our youth in some form of residency and fellowship, you might as well consider saving some money in the process.

[showads ad=responsive]

Take, for instance, someone who wants to be an electrophysiologist. This route typically includes three years of internal medicine residency, three years of cardiology fellowship, and another year of fellowship. That’s right. Seven years to put in a pacemaker! If you do all of your training at a qualified non-profit institution, you only have three more years of minimum payment before your student loans are forgiven by Uncle Sam! You’d have to consider truly how much debt you’d be saving by going through PSLF rather than paying it off outright. In this case, how much you’d owe depends on really how much you are capable of earning during your first three years after fellowship.

For most doctors, this depends whether you remain in academics or join a private group. In our hypothetical electrophysiologist who spent seven years training at a non-profit institution, the following may be how her income plays out afterward:

	Academic Cardiologist	Private Group Cardiologist	Academic for 3 years, then private
Year 1	$325,000	$300,000	$325,000
Year 2	$325,000	$400,000	$325,000
Year 3	$325,000	$425,000	$325,000
Year 4	$325,000	$450,000	$300,000
Year 5	$325,000	$600,000	$400,000
Total	$1,625,000	$2,175,000	$1,675,000

From a strictly financial perspective, a private practice doctor will earn more money than an academic doctor. However, PSLF may be a great financial move if you definitely will go into academic medicine. It will work even better if you have a high amount of student loan debt.

Doctors whose income falls in the low six-figures regardless of academic or private practice situation would benefit from PSLF. If you’re stuck with the same income no matter what institution you work for, you might as well work in one that offers you the potential to forgive your loan debt.

Why PSLF doesn’t work for many doctors

PSLF can fall apart in a few key scenarios:

If your residency is relatively short, like in family medicine or emergency medicine (EM). This case is most egregious in EM, where residency can be as short as three years, and starting income can fall in the $300’s the first year on the job in private practice. If you need twelve years of minimal payments at a non-profit institution and your residency is only three, you have to remain in a similar environment for at least 9 years. In these 9 years, you potentially forgo large amounts of income. This added income could have been used to help repay your student loans earlier.
If you are entering a high income specialty, PSLF loses its advantage. In most cases, you should be able to repay your student loans entirely within the first five years after you start your career. It won’t come automatically, but you can live like a resident initially so that you become debt-free sooner.
If the government gets rid of PSLF, you are screwed. There is no initial enrollment process that “locks” you into the program when you are repaying your loans. Going a decade with the possibility of losing this advantage is a risk you’d have to live with.

In my case, I was not even aware of PSLF when I finished medical school. I hustled during my residency to repay my loans and eliminated them after my first year on the job. Had I known about it, I’m still not sure if I would have gone through the process. Ten years is a long time to give the government to change the laws against your favor.

Loading ...