The first and second installments in this 3 part series described the ideal attributes of my Second Act, and how (with one rare exception) every possibility I've pursued has been a total dud.
I remain an incorrigible dreamer, so in Part 3 I'll spell out my latest hare-brained idea for an encore career that might meet my needs once I'm ready to exit medicine.
Continuing Financial Education Resources
I've been reading up on real estate over the past year, and it seems to possess a lot of the characteristics that I'm looking for in my second act. My self-education book list has included:
- The Doctor's Guide to Real Estate Investing for Busy Professionals by Dr. Cory Fawcett (reviewed here)
- The Millionaire Real Estate Investor by Gary Keller
- Investing in Duplexes, Triplexes and Quads by Larry Loftis
- What Every Real Estate Investor Needs To Know About Cash Flow by Frank Gallinelli
I've attended the last two free online conferences offered by Dr. Peter Kim (a.k.a. Passive Income MD), following his blog in addition to that of the dual physician couple (now retired from medicine to pursue real estate full-time) behind Semi-Retired MD.
I joined the Bigger Pockets forum, but have honestly not participated beyond reading a few articles they send to my inbox on a regular basis.
A couple of nurses I work with are intent on building real estate empires, one by leveraging his own construction skills to upgrade properties locally when he's not at the hospital (not easy to do given property values in southern California!) and another managing an investment property remotely in Atlanta. We often pick each other's brains when on shift, and COVID has given us the time to talk investing once more.
Real Estate Syndicate Experience
I invested a modest sum through one of the WCI's affiliated syndicates with a reduced minimum investment to dip my toes in the real estate syndication water. As it turned out, the experience with my real estate syndicate sponsor was not very good.
To earn my trust, you need to do what you say you'll do when you say you'll do it. The sponsor regrettably failed to get their investor dashboard up and running in the time frame they'd announced. Adding insult to injury, my principal contact there was slow to reply to my concerns via email, and when his reply finally came it felt like a series of excuses instead of a candid assumption of accountability. Not the response I was hoping for.
Could I be misinterpreting things? Of course. I may be such a small potatoes investor that I was a low priority. Perhaps having the investor interface lag the investment process is a phenomenon seen across all syndicates, not just this one.
Savvier blogger friends like Millionaire Doc and Xrayvsn have significant portfolios tied up in syndicated real estate deals, so I'm more than willing to accept that it's a worthwhile investing option I simply have not figured out how to take advantage of properly. Alternately, maybe it does best with investors who don't ask questions, and I lack the constitution to do well as a silent partner.
I haven't given up on syndicates, but they are not my priority at the moment.
Direct Investment Property Ownership
I currently have a down payment set aside in cash awaiting the right opportunity. I'm looking for a cash-flowing multifamily property in a community within an hour's drive of my home.
I'm closely following eviction legislation, since both the state of California as well as many local governments have made provisions restricting tenant eviction in the time of COVID. I'm wary of buying a place with existing tenants whom I cannot evict for nonpayment of rent.
I have a couple of successful (non-medical) real estate investor friends in the area who are willing to mentor me. We've had several coffees, and one has offered to manage any properties I purchase through her property management company (she is seasoned in this space, and has developed a stable of reasonable and reliable contractors) if I opt not to self-manage.
The goal is for positive cashflow from investment properties to be offset by paper losses.
I have rough idea of how I'd like to proceed over the next couple of years:
- Purchase a total of 6-8 units over the next 2 years, placing each property in a separate LLC for asset protection purposes.
- Establish Real Estate Professional status.
- Perform a cost segregation analysis and take maximal bonus depreciation.
- Use bonus depreciation to offset taxable income and Roth convert some of our tax-deferred investments.
- After a few years, consider a cash out refinance and put funds toward another property purchase.
- 1031 exchange those previously depreciated properties into a larger property to avoid recapturing depreciation at time of sale.
- Cost segregate the new property and again take maximal bonus depreciation.
Seek Eventual Real Estate Professional Status
One interesting idea, which I'd likely attempt only after I own 6 or more units, would be to achieve Real Estate Professional status (REPS). This may or may not occur while I am still practicing medicine.
To qualify for REPS, I must claim that 1) real estate is my primary profession, 2) that I am materially involved in managing my real estate, and 3) that I spend a minimum of 750 hours per year on real estate associated activities.
Fortunately, I am able to scale my clinical commitments back such that I could work fewer hours in medicine than I do in real estate, fulfilling the first and third criteria.
I either need to manage my own units (or spend significant time managing my property manager) in order to exhibit material participation, but this prospect intrigues me more than it deters me. It would be interesting to acquaint myself with some of the DIY online management software that automates bookkeeping, accepts rental payment, receives repair requests and dispatches contractors to perform repairs.
In order to support my REPS claim, I'd need to log all hours spent on real estate related activities. I've found some helpful examples online courtesy of generous bloggers.
The benefits of REPS status come with the ability to apply passive losses without limit to offset taxable income, including active income such as W-2 and 1099 income. I opt to work minimally in medicine (or not), my wife runs her business, and significant passive losses from real estate offset our income and allow us to Roth convert our tax-deferred accounts. This would be the holy grail of parlor tricks.