The Physician Philosopher Podcast
MMM 56: How to Create A Real Estate Empire Passively – Part 2
Today You’ll Learn
- How to create a passive income real estate empire!
- How to avoid cleaning toilets at 2am.
- What you need to know about real estate syndication!
- And more!
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Ryan Inman 0:03
So you probably listened last week and he said whom real estate sounds fun? Like, let's do this, but you'd maybe don't want to be a landlord getting calls about broken toilets at 2am. Yes, fortunate, my friend, there are more passive ways to invest in real estate. And that is what this show is all about. So stay tuned to learn some more. Welcome to the money meets medicine podcast where we talk all about personal finance topics you had wished you learn and medicine you wished you had learned in medical school? I'm your host, Ryan Inman. And here's your co host who tries to get eight hours of sleep every night that he can. Otherwise he turns into a more grumpy version of himself. Scary. Dr. Jimmy Turner.
Jimmy Turner 0:44
Come on, man. Not that bad, though.
Ryan Inman 0:48
I will give you this really quick before we jump in. I've greatly enjoyed hanging out with you on mmm and everything we're doing. You're really good guy. And it's fun to make fun of you. So I every chance I can
Jimmy Turner 1:00
let me know how much I pay afterwards. All right.
Ryan Inman 1:03
Jimmy Turner 1:05
Ryan Inman 1:06
Yeah, really bad. Dr. Evil? That's right.
Jimmy Turner 1:08
You know, that's actually a true story. So I try to get eight hours of sleep every single night. And if I don't absolutely get seven. And the reason why is because I mean, I just get so tired like it like I get this like sleep deficit. And I get, you know, just grumpy and cranky. I got a shorter temper and, man, so yeah, I'm all about sleep. And speaking of sleep, you know what I also like to do, I'm sleeping. I like to make money. I can make money.
Ryan Inman 1:35
I like money. I can
Jimmy Turner 1:37
make money while I'm sleeping though. I
Unknown Speaker 1:38
like passive income. And I'm excited because that's that's, you know, we're talking about. I was like gonna pay you to sleep. And I was like, how do I get that gig?
Jimmy Turner 1:48
Yeah, no, I still covers and stuff, apparently. So I'm probably not the best person that to do that. I mean, if you ask my wife, if you ask Kristen. Probably not the best guy. But, but I'm all about earning money while you sleep.
Ryan Inman 2:03
All right, before you put us all to sleep, Jimmy, let's mention today's sponsor, which is physician tax advisors. That is the tax practice that we just launched in June in June. Really excited to be partnering up with john McCarthy, who's a CPA and has decades of experience working with physicians, he actually has done my personal returns for the last six years. I've loved working with him and the team so much that we have officially partnered in launch this we have brought on. We've brought on additional CPAs to help everyone out is been fantastic to work with them, their full virtual firm, they specialize in working with physicians. And even Jimmy works with us now at physician tax advisors. So please check us out physician tax advisors calm, we charge just like we do at the financial planning firm. It is a fixed flat fee. To work with us. There's three different tiers based on what you have going on. But you will not be getting extra bills and hidden fees and all these other little things. So don't wait till the house is on fire. You can reach out to us at any time position tax advisors calm and just to be everyone's awake now. Probably not that's probably what brought them to sleep.
Jimmy Turner 3:24
You know, you know, when people come up to me first of all, just to be clear, I by working with physician tax advisers, Ryan means that I am a client there. So I recommend them. They're great, really good, really good experience that said, you know, money saving up all about them. Benjamins dolla dolla bills. So speaking asleep, you know, it's funny. This happens all the time, people come to me, or actually, they're usually in the bed, I come up to them, like, Hey, I'm Dr. Turner, I'm on the anesthesia doctors, and he'll take care of you today. And most patients will be like, Oh, so you're the one that just puts me to sleep. Like, minimize my job. They understand what I do. It's normally like I got a quick clip. I'll throw back out. I'm like, yeah.
Ryan Inman 4:03
Oh, yeah. You listen to the podcast, too. Yeah, that's right. Yeah,
Unknown Speaker 4:05
I make you fall asleep there, too.
Unknown Speaker 4:06
Jimmy Turner 4:07
normally tell him like, Oh, yeah, I'm also the one that helps make sure that you wake up. And they're like, oh,
Ryan Inman 4:13
Jimmy Turner 4:14
I'll be nice to you a whole lot more gravity just got brought to this conversation. But anyway, yeah. So
Ryan Inman 4:20
you're putting them to sleep on the podcast, and I'm waking them up on the podcast, boom, you got to support me, I'm splitting the job. There you go.
Jimmy Turner 4:28
So but it does kind of beg the question, right? We're talking about you know, passive income and sleeping making dollars while we're sleeping, all that stuff kind of making light of it. But why consider passive, you know, passive investing in the first place? Like what what? Why not just do the active routes we talked about in the previous episode. And really, I mean, I think that when I've thought about doing this in the past, you know, some things that really jumped out at me involve like, less involvement, right? Like you don't have to have the the 2am phone call and even if you've got a management company, and I know you'll talk about this later, like you still are involved in actively in your active property. It's not like you get away with just having a management company and then you know, washing your hands and being done with it. So when it comes to passive investing in real estate, there is less involvement. Now you might notice that I'm not saying there's no involvement, because it's nothing as Ryan likes to say nothing is completely passive, you do have to do your due diligence upfront, you do have to invest the money. And then in an ideal world, then you get you know, money in your in your mailbox after that. That is, if things ever work, you know, if everything works out, well,
Ryan Inman 5:29
well, ideally, I'd like money just to be a CH into my account and not.
Jimmy Turner 5:34
You don't you like my analogies, you know, I'm talking like old old speak, you know, mailbox money. That's just it's a phrase, Ryan. Oh, I get it. It's a phrase, I'm just messing with you. I like a CH money too, by the way, you can send it to my bank account anytime you want. But yeah, it also has the benefit of once you do your due diligence, making money while you sleep, it is much more passive. There's still some tax benefits. So some of those some of those tax benefits do get passed down to you, depending on what type of passive real estate investing opportunity we're talking about. So there's not quite as probably as much as you know, the active side, depending on how you slice and dice that, but there's still some, and then you don't really have to deal with a lot of the the hoopla. And so like, this is one reason why it's appealing to me, because I hate getting stuck in the muck and mire of like details and weeds. And like having a big to do list with 1000 things on it like that just kind of stresses me out. I'm more of a big picture abstract thinking kind of guy. And one benefit to passive, most passive investing like reads and syndications, even crowdfunding is that like, you don't really have to deal directly with banks. Like you don't have to deal directly with the deal itself. I mean, you deal with the people that are making the deal that are offering that are providing the offering to you. But then they go and deal with the banks. So you know, a lot of that is left up to the experts on their side. And you don't have to go and do that yourself, which for people like me who like to delegate a lot of stuff, that's actually pretty appealing.
Ryan Inman 6:51
Yeah, so I will use an example that we I talked about last week, even that we did a refi on the property that we still have. And that took like four months. And it wasn't, you know, an issue of who I was working with or a bad bank. And there were some title things that we had to fix because we had moved into an LLC outside of our personal names, we had to move it back. And then we had to, you know, obviously tailor being the physician, I want to straddle her with as much debt as I possibly can. So because I have self employment income, and that to the banks is way riskier than a nice old doctor that's worn in a W two income with the government. So it's way easier for underwriting to push the debt to her may not sign on it just be on, on title. And of course, I'm helping Taylor, you know, I'm basically doing all of this stuff for her and getting it all aligned. But there's a lot of work and it takes months and months. And then, you know, with Coronavirus, just happening the world shutting down and then restarting and then shutting down again, like these are people to on the other side. So it just takes a lot of time. It's a lot of efforts, a lot of hassle. But as Jimmy said, Nothing is passive. Everything will take some sort of amount of energy from you. And the more things that you do that are more complicated or alternative for the sake of diversification, which I believe wholeheartedly in, it requires more time and effort. And I'm I'm even saying like simple stuff, hey, I'm gonna go and log into this platform. I'll give another example because I really like, you know, kind of relating these things back. I've invested with a company called acre trader, they invest in farmland, I'll talk about what they do, and how they how you can invest technically in farmland. And why that might be important or useful for diversification. But it's not as just simple as like, Oh, I log in, I'm like, here's my money and done. Well, you got to make sure that you like the property that they're looking at doing that there, you kind of give correct assessment that you want to own property in that specific state that you like. And it's like, hey, maybe I don't want to invest in this because it's not organic, right, I want to only do organic versus non organic, that's fine, too. Right. But then you've got to set up your your structure, you've got to provide all your info, they have to verify that you're accredited. If to transfer the money, if to make sure that all closes, you have to download all the statements, download your operating agreement, download all these things to make sure it's nice and safe and secure. If so make sure you're uploading this stuff to your CPA to make sure that they've got all the right information and your cost basis and what you've put in, there's a lot of work other than just clicking a few buttons and be like, well, I'm invested. Right. And that is almost as turnkey as you're possibly going to get. And there's still a lot of work and effort and hassle to go through and do it. Now. I'm not saying it's not worth it. But I'm going and kind of giving some expectation that if you're working 7080 hours, and busting your butt, you know to go do this stuff. It's not just like three clicks and done in four minutes. It is there's still time that you're going to have to put together come tax time there's going to be more documents, more things, you're going to be getting k ones that are going to detail out how much you've made or lost in those investments. And so there's It's less involvement for sure. But there still is some level of involvement. And the interesting thing will then become as you start to do these things, and let's say that you are 100% in the camp of passive, you never want to own anything. Well, at some point, you're going to be looking at this relatively quickly on Well, now I got to rebalance my portfolio. Oh, wait, I now have other investments that are going to factor in it's not as simple as just looking at these statements and going, Oh, yep, 80%, stock 20% bond and out of my 80, it's, you know, this, this and this fund. Now you have to look at and go, Well, I've also got these, you know, rental properties, or the you know, that I've invested in or these crowdfunded investments that I have, or this farmland, or the syndication that I have right in the more away from stocks and bonds you get, it now starts to complicate your overall investment portfolio. Again, I'm not saying that it's not worth doing, because I think it is, I love diversification, I love real estate, I don't think it needs to be 80% of your portfolio, or 100% of your portfolio, like most people in real estate do. But I think that it could be a certain percentage of your real estate. And that's really going to be dependent on you and your situation.
Jimmy Turner 11:16
Yeah, and just just I really think it's really important to mention that really quickly, just that Ryan and I both believe in balance and diversification. And so, you know, there are people out there that literally will tell you that just put 100% of your investments in real estate, and I just want to I want to go we've done two shows in a row on real estate. And so I just wanted to be abundantly clear that that I am a huge fan of investing in, you know, typical retirement vehicles, and, you know, whatever, whatever vehicles are available to you, in a passively managed diversified index fund strategy. Like just because we're talking about real estate for these two shows doesn't mean like, we've abandoned, give good perspective. So
Ryan Inman 11:58
do you know how much you invest in I'm assuming it's through a real estate index or read, which we can discuss, but do you know, like, kind of ballpark what you target for your specific portfolio?
Jimmy Turner 12:08
Five to 10%? Right? Now, we may make an adjustment at some point, but right now it's five to 10%.
Ryan Inman 12:14
Okay, so let's just use that it's 10%. And let's just say that, and I'm throwing out numbers, these are not Jimmy's numbers that he had $100,000 actually invested across all his accounts. 10% is in real estate. And let's just say it was in, you know, some read index, or some just say, was in some real estate index that tracks overall, the real estate market. And I'm gonna say a specific company. That means a $10,000. A, Jimmy has invested in there. But if Jimmy decides that he wants to go do a crowd funded, syndication or, or that he wants to, I don't know, invest in farmland or whatever it is, that he should be reducing his exposure in from stocks and bonds to that from that read, or that that ETF that he had purchased by the approximate amount of whatever he invested in. So say he put $5,000 into fundrise is one of the companies or real to share, I mean, there's a dozen of them. That's right. And we're not endorsing any single one of those, by the way, I'm just throwing out a few names, please don't say Oh, Ryan said this name. Well, we're gonna go check it out. That's not what that was. I was wanting to delete that, but I'm not going to. Now he's got to go and take that $10,000 and cut that position to 5000. Because he went through and added 10,000 or $5,000 of exposure somewhere else, and he doesn't want to have overexposure in real estate. That would be silly, right? He wants 10%. That's his target. So as you're doing these things, you need to understand that, well, if you've given your whole investable portfolio, that $100,000 and allocation of 10% to real estate, then you shouldn't go over that just because it's not in your stock and you're in your brokerage account doesn't mean that it's not real estate, you're investing outside of the traditional market, and that it still has to be included. Well imagine if you were doing that with I don't know, I'm throwing it out cryptocurrency or other alternative investments or extra real estate pieces or businesses. Right. And now, you know, Jimmy's got the physician philosopher as part of his network that is inside of, you know, his his net worth is that business? Well, I hope that, you know, Jimmy is thought through and said, Okay, well, this business should not be more than X percent of my net worth. And if it is, then, you know, as we're investing, I should maybe take money and be investing in more stock or more real estate or whatever it is to offset having the you know, the business and there's only a certain piece with businesses that you can handle right, as the business grows, it might become more,
Jimmy Turner 14:44
that's kind of that's kind of that's that's kind of challenging at this point, because of the hockey stick that that the business is having. And so like, I can't keep up with my investments and stocks in terms of what the what the business is becoming.
Ryan Inman 14:56
Right. It's it's really tough as businesses move and evolve, but that's should still have some consideration for what it is. So let me use an example. If you were, let's say that Kristin was doing real estate, full time, real estate professional status and her business was booming, right, I would say was a proxy to real estate, I probably wouldn't hold as much real estate myself if her real estate if her business was derived in real estate. And that's how she was making money. Like, I wouldn't go own a whole crap ton of real estate and throw off this bounce, I would use some of that business valuation as some of your exposure to real estate, because that's the market that it's in Yeah, I can make the same argument for my financial planning business, some of the money that is derived from what we do, now we charge a fixed flat fee to work with people. But some of that is dealing with the stock market, right. And so as you know, I'm looking at my exposure, like I don't want to have 100% of my money in the stock market, and 100% of my income derived from, you know, things that are dealing with financial planning, and stocks are one of those things, I'd like to diversify out of that. That's kind of what I was kind of phrasing with, with those pieces that I mentioned, but there are several ways that you can own real estate. One of them we had mentioned is basically owning a real estate ETF, right, the index fund that basically tracks over all the broad market of real estate, that means that it would potentially own individual securities, it could own rates, it can own a number of things inside of it. But that is a very easy proxy to get exposure to real estate. The downside is, is most people are going to still treat that as stock, and that it will still have some correlation to the overall markets.
Jimmy Turner 16:47
Yeah, and so this right now, as of the time that we record, this is my only exposure into real estate, from a personal standpoint is through a real estate index fund. And, and it's interesting, because, you know, if you talk to particularly people that are really active in real estate, they'll just they call it a stock flavored real estate or real estate flavoured stocks. And, and so, but you know, that that's the that's the 5% that I consider part of my real estate. Now, as we make this decision now that Christmas separate from a job, we might we might change our, you know, our asset allocation a little bit decide to be a little more real estate than we previously have. But that said, you know, it's it's, it's interesting, because like, there's some there are definitely some detractors out there say, well, doesn't it just correlate with the stock market? Like what's even the point of having a real estate index fund if it you know, if the correlation is, you know, is so high, like, you know, what, what's the point
Ryan Inman 17:40
and and your underlying piece that what it's invested in is actual, like, let's take a read write, which is still a part of that major ETF, there's a, like 250 different type of reads out there. And they might be this might read might only invest in rush, like restaurants, buildings that are owned, like the restaurants. So this might only be self storage, or this might only be shopping centers, right? And then there's reads to do everything. But there might be very specific things you could say like, I think that this sector of the market, you know, retail, got smashed with Coronavirus, and you apparently think you're smarter than everyone else. So you're gonna go and invest into this specific read because they own a bunch of retail, I think a lot of pain is still coming for retail. But, again, my crystal ball is cloudy and broken. So I can't tell you exactly what's happening. But you can invest right there. Yes, it is potentially going to correlate a little bit more with the market than if you just went and bought a single family home. But there's still exposure to real estate, they still they earn all their money from real estate 75% of their holdings, or more have to be held in real estate in order to basically there's a couple things to say how do you qualify to be a real, that's one of them, the other is 90% of the income has to come out of there in order to be classified. And part of this becomes asset location, which I don't want to get too much into the weeds on but part of that distribution that they're giving out part of its ordinary income part of its return on capital. So part of is is and so as you're thinking this, like well, maybe I don't want to hold all this in my taxable account. And then you might hold it in your your tax deferred accounts, because it comes in as ordinary income. Right? There's so many factors at play, when you're looking at not only building out your portfolios, but location of where it is and then what you're investing in when you move outside the market. So now we're not talking about reeds. We're not talking about ETFs. I guess you could technically buy individual stocks. I should have stated that you can go buy. You know Lamar is a homebuilder. You could go buy them because they're building everything in your area and you think that you know, you've done your due diligence, they're a great company. Hate to burst your bubble. I wouldn't ever touch that with a 10 foot pole. But you can maybe think like, Oh, I'm gonna go buy this individual stocks. I think this is the right thing. There's a lot of exposure to real estate that you will get there without you having to go and become a homebuilder, right. But there are things that you can do outside of the market, but it complicates things. As you're going you could be the literal bank for people. So what that is, is hard money loans, right? If Jimmy says, Hey, guys, I have now become a fixin flipper, Chris, and I, we, we see all this depressed homes that you know, need some rehab, we know we can we could do this and put this kind of money in and flip this out. Problem is, I don't have that much money. So I need someone to lend me the money. As in, you know, me over here going while I've got extra cash, Jimmy, happy to lend you the money all ended out at 10%. You know, annual rates. And every time you pull down from this line of credit that I'm going to give you I'll charge a point 1%. Right. Jimmy and I negotiate that that makes sense. Jimmy does this two times a year, and I'm making 10% in interest plus 1%, every time he pulls it, so I made 12% this year on my money, right? And I'm backed by the real estate that he's buying, because I come in as the bank, I'm charging a boatload of money because Jimmy needs money. And he needs money for rehab, there's a lot more risk involved. But I'm super hands off, all I had to do was look at what Jimmy was doing and vet him, I had to look at the property that he's doing and vet the property. And I just say what repairs and maintenance and everything that he's gonna have to put into it. And I bet that Well, after I've done that, I give him the money I am good. I mean, fails, right, I get the property at a extremely cheap price, because I'm probably lending to him at 50% loan to value or 60% loan to value. That means that let's say the house is worth $100,000, I give Jimmy a loan for 50,000. If Jimmy defaults, Jimmy doesn't pay, Jimmy can't get it done. Whatever it is, I get the house that is worth 100. And I only paid 50 k for it because I was the bank, it's the same thing. If you have your own primary residence, stop making your payment, right, the bank's gonna come take your property. And you know, maybe your house is worth 500, and he owed 400 on it, or the bank spread your equity is what they're looking at is like, well, now that's enough to get them to want to loan you the money. It's the same thing in this concept except for the rates are higher, and there's a lot more risk involved.
Jimmy Turner 22:30
I'll save you the due diligence, you definitely do not want me flipping houses for you. Just I
Ryan Inman 22:33
don't want you doing a lot of stuff for me. So that's just let's just add that one to the list. Okay.
Unknown Speaker 22:39
All right. That's fine.
Ryan Inman 22:41
Kristen, though, on the other hand, she might, who knows for sure, right. But you can be the bank. There's people out there and companies out there that offer turnkey properties. And what that means is they're going out, they're vetting the deals, they're sourcing the deals, they're buying the properties, they're rehabbing those properties, and they'll do the property management on those, you found a one stop shop. Sounds awesome. Sounds amazing. I can't believe it's out there. Right. But they're doing that because they can earn spreads the entire way. Right, they're earning from their rehab company they're earning from, you know, buying and selling real estate. Remember, as agents, you can make two and a half 3% every time we buy and sell something. So they're earning money, they're right there, they're having you come in and say, hey, look, whether you do no financing, or 50% out, whatever it is, doesn't matter, they're going to now do the property management, which they're going to make eight to 10% a month on gross rents off of you. And they provided all these pieces, well, they're also selling you the property. So they're likely gonna mark it up to top dollar. Because they just went and they bought it, they rehabbed it, they did all these things, they'll get it appraised, and they'll charge you top dollar for that. So they're making money, every little piece, does that mean that you will not make money? No, you will probably still make some, you will just make a lot less than if you had done it all yourself. Right? Because you sat on the sidelines, you let someone else do all the hard work, take all the risk. And you're coming at the very end and just buying it for cash flow that they're going to manage. But even with them managing this, it is not still passive, it's a lot more passive than you actually doing it yourself. But there's still you're keeping read books and records, you might still having to be negotiate pieces, and approving pieces of things that get fixed. You know, hey, your your dishwasher broke, it is $140 to repair or it's $300 to replace, right? And that's extremely cheap, but you get the idea. There'll be doing that with everything, you're still making decisions, you're still keeping track of the accounting, they don't do that for you, money's coming into their account, money's going out there taking obviously their fee, but you still have your accounting on your end of what's happening, what's occurring, and how that's gonna work. And then you got to obviously give all this in To your accountant and as their sound. Yeah, exactly. But it's cracked up and sold to be this passive stuff. And most people, they think, oh, that's easy. I can just get all this stuff to my accountant. Well, yeah, but what about the four hours that it probably took you to get all your books and records together and to set up your LLC to set up your bank and to set up the business credit card? And that's, that takes hours, hours of work to do that. Now, do you have to keep doing that for every single one? No, when you have it put together, it's fine. But again, it's not passive. There's other forms of passive investing, right? We talked a little bit about crowdfunding, where you become basically an equity partner in a deal with a lot of other people that you have no idea who they are, which is okay, you're going onto a platform. And it's Oh, hey, there's this high rise apartment building that we could buy for $8 million. And they take as low as $5,000 of investment. So 5000 divided by 8 million, you're a very, very small owner. In that piece, you're a limited partner, you have no say in how things go. But you still had to do some due diligence and vet this the basically the general partner, or GP, or the deal sponsor, whatever you want to call it, to make sure that that institution isn't going to steal your money to you have to vet the property, and go, Hmm, do I really want to own a beachfront condo? For $8 million dollars in, you know, South Miami, or whatever? I don't know, maybe, maybe you do. Maybe you don't, right. Maybe you hate Florida, maybe you love Florida, maybe you have too much already exposure to Florida and you want to invest somewhere else. Any anything can happen, right? As you're building out your portfolios, and you're trying to do things. But you're still having to go through and vet everything, you still have to go sign up for the piece, you still have to keep track of all the books and records, and all of that. So as you're investing into different forms of real estate that are not tied to the market, the effort goes up exponentially as you're doing and the more things you do, the harder it is to remember what you're doing, the more you have to track, the more you have to write down, the harder it is to rebalance things. Again, I'm not saying that's not possible, right. I actually like the idea of this.
But crowdfunding is essentially investing mostly in commercial real estate, there's a company that's doing single family, but most of the time, it's commercial real estate, without really doing any of the work. And in return, you're going to get cash flow, and dividends from that. And then when they exit the property, you will get hopefully, some piece of the profit in a pro rata distribution on how much you own of it. So if you're, you know, putting 5000 into an $8 million project, you're going to get a very, very small percentage of the overall profit. But you'll still in turn, hopefully make eight 910 12% on your money for year over year, internal rate of return.
Jimmy Turner 28:02
Yeah. And it's interesting, because from an outside perspective, you know, the term crowdfunding and syndication in my mind. They're not synonymous, obviously. But they they they go, the lines are blurred. Let's just say that, you know, I know crowdfunding is a is a method of raising funds as opposed to syndications which is, you know, like the actual relationship between you and the deal sponsor. But I think that those two terms are often considered by people that aren't really active inside the space to be almost anonymous, which is just kind of interesting. And I've done some research on this before and actually found that like, that's not just because I don't know a ton about real estate. It's actually because they are a little blurred there. So you know, how do you in your mind Ryan, distinguish what you just described crowdfunding from syndications? Because I feel like those are the two most common things that people hear about.
Ryan Inman 28:56
Yeah, with a syndication the piece that I like a lot about a syndication is that it is usually the syndicator, or the general partner that is trying to find money for a specific deal. And they're not churning out a deal over deal doing hundreds of potential deals a year. They're going through, they're vetting, specific deals, maybe they looked at 200 different deals, to have this one deal that came through and then they are going out and getting to know their investors and reaching out and talking to them, and explaining what it is and how it works. crowdfunding is really simple. It's honestly, potentially too simple. For people to get invested without actually understanding the risks involved with it. The crowdfunding sites, don't they put the onus on everyone else to say, Well, okay, it's up to you to figure out if this is too risky or not. Whereas I have found that the people I talked to that are good in this space, are talking through, well, is this deal right for you? Is this deal something that you should potentially invest in and there talk through. So there is some relationship built there. And I like to be able to vet that person a lot more. And it's a lot easier to vet, one, you know, or potentially one company, and who's operating this and is the general partner, you can see what they've been up to, versus getting, hey, there's 15 deals on our platform, pick and choose what you want, it's, it's really hard to vet a deal correctly, in the first place and to have companies just throw a whole bunch at you. I think the the, the unexperienced investor can get chopped up into pictures and, you know, a big targeted return without really understanding like, what are the underlying risks? How are they modeling this out and being able to talk to a GP or syndicator and say, Hey, you guys are projecting that I'm going to make a 7%, you know, preferred return. And you know, that I would get equity on the back end, and that I'd probably make, you know, estimated about 14%. On on my money. How, how are you conservative marketing? COVID? What is changed there? Like, are you marketing and rental growth? Are you marketing potential vacancies? Like, how would you handle this? You can ask them questions and get to understand their thought process. You can't do that with a crowdfunded platform. You're just taking it for what it is, and hope it's right.
Jimmy Turner 31:19
So it sounds like the two biggest differences are the well and honestly there. This kind of ties into several things. But because of the number of investors that a crowdfunding site is usually looking for, because they are they have a lower threshold to invest, like $5,000 is a lot different than the 25 or 50, that's required to invest in syndications. And so syndications are going to need theoretically less investors if they're investing in the same deal. For example, crowdfunding offers, you know, a variety of choices, but you don't have as intimate of a relationship with them, compared to So in a way, it's like crowdfunding, you're vetting individual deals, and with syndications, you really the most important vetting process that you're going to do is with the sponsor, or the person that's offering the deal, that company that's offering the deal. Now, that's not to say you don't have to do your due diligence on the deal itself. But once you invest with one syndicator, and kind of have an idea of their track, record how they operate, and you don't have to redo that every single time.
Ryan Inman 32:12
Yeah, that piece of the vetting for the syndicator piece like that's why I won't work with a dozen syndicators. I don't want to go do all that investment, or all that background and history and getting to know more people like I like people I just don't want to get to know like have to go through and vet 12 different syndicators and GPS and figure out what they're doing. I like the two that I work with. I've done that, and I've, you know, invested back to back deals with them when I had cash flow to be able to do that. But from a crowdfunding standpoint, one, it's untested in the market currently. And what I mean by that is it hasn't experienced the downturn yet. Right. And even in a in an upward bull market, the largest one had already gone under. So to me, that's a giant red flag. Now, when we experienced the decline, and whatever surviving comes out ahead and everything works out, I will be a much bigger cheerleader for that I am currently I'm warming up to it. But I'm not cheerleading it, because I want to see how this all plays out when we have a 30 or 40% hiccup in the real estate market specifically. The second piece, though, is it's really hard to vet, a GP and a deal sponsor on a on a crowdfunding platform, at least for me to do that adequately to where I'm comfortable, I can't just call up, they'll tell you the name, they'll tell you their backgrounds and give you a nice little pretty bio of it. That doesn't do enough for me to get excited and go like Oh, okay. Right. Oh, I trust that. I want to talk to them. And I want to understand like, are they? Are they cool? Are they crazy? Like, are they super aggressive? Are they really conservative? Like, what do i do i gel with that that thought process? Right of what they're doing, how they're doing? I don't expect a GP to talk to me for four hours and multiple times. And no, but I think a half hour conversation, our conversation about their thought process, what they do, how they would view things, when they're underwriting a specific deal. I want to be able to get on a conference call and go Hey, I've got a question. Right? How did you do this? Why did you do this? What was your thought process around vacancy? What was your thought process on adding more revenue to the to the project, right? Is coin laundry really gonna work or just stick a unit and everyone's you know, stick a washer dryer, stick a
Jimmy Turner 34:37
Ryan Inman 34:38
a pusher? Stick a washer and a dryer in everyone's unit versus the laundry mat? Right? Is does that increase capital expenditures a ton, but then do we get that offset Like what? What's your thought process? Right? And I'm not looking to micromanage. I'm looking to understand how they would tackle a problem. right because when those occur and that will occur on a Every single deal going forward, something will come up. And I want to know, how are they going to tackle it? And I'm a small fish, right? I might be investing 50 k in that deal, right when they've got family offices investing a million or 2 million in the deal. But I feel like I'm just as important. And I want them to feel like, I'm just as important. And you don't get any of that on a crowdfunded platform.
Jimmy Turner 35:22
Yeah, it's super interesting to figure out and I think that goes to, you know, what, what are you looking for? And, you know, but I think that all of these are really interesting ways for passive investing in real estate, you know, compared to the active side where you're actively involved all the time. A lot of these involve a lot of work due diligence upfront. But then once that process is done, that's a lot less active after that. So I think that, you know, really, the separation between the two is super active and stays active, and super active, but gets passive.
Ryan Inman 35:54
Yep. And, and everyone is different right. Now, most of these that I've talked through today, I've done personally, right, I've owned ETFs, I've owned Reed's I've been the bank for someone. I've done that I didn't like that at all. Like at all. I haven't done turnkey. But I know of two friends of mine that do turnkey properties. And I know how lucrative it is for them and that their investors still make good money. But they can make money and a lot of different ways. And personally, I'm just not cool with that. I've invested in farmland I've invested in syndications. Like, there's things that I've done. And I've invested in active property, right, we own six houses, and I own one. But I've taken that active role. And I've moved into a more passive role. Because to me, I'd rather be working with clients and recording with Jimmy and doing other things than keeping track of the houses and the pay
Jimmy Turner 36:51
rate. Did you just say,
Ryan Inman 36:53
Ah, yeah, I did. Gosh, man. Oh, that's. But you know, I'd rather be doing those things and helping people out and giving my putting my time did my highest and best use, right. And that That, to me was more important. And I just didn't like the headache. So I ended up stopping doing a lot, can I make more money and active? Yeah, I've made a lot of money in active real estate. But it to me, I can also make good money, and enjoy life more if I was doing passive real estate, and having it be a portion of my portfolio. And then I was doing all this stuff I'm really passionate about.
Unknown Speaker 37:35
Sounds reasonable to me.
Ryan Inman 37:37
So hopefully, this was helpful to all of you guys out there and gals out there. We like nerding out on personal finance, of course and you're gonna get pitched a lot of things over your careers. In real estate is one of those, you know, super sexy topics. That sounds so fun. When you start to unlearn and peel back the onion, you're gonna realize there is a lot of pieces that go into this. And I would like you to take away from this show. And even last show, is if you are looking to add real estate to your portfolio, which based on the hundreds of physicians that we work with, that's probably 90% of you, right. But most of you are not cut out to be landlords, most of you're not cut out to be active real estate investors. Some of you are not cut out to be passive, right, you need to be on the active side, you need to control everything. Because you can't give up control on certain things or drive me crazy. That's okay, too, right? But what I want you guys to take away from this is figure out what side of the fence you're on end if you can't explain exactly what would make you happy and why you're going to do it. And what you're about to go do to someone who has no idea what real estate is, other than why I own my own house or I rent this house from someone if you can't turn around and explain it perfectly. Please don't invest until you can.
Jimmy Turner 38:55
Always good advice not to invest in things that you don't understand. I like that.
Ryan Inman 39:00
Well, this episode is sponsored by physician tax advisors, is the firm that I co founded with john McCarthy, and also my partner Casey Kress, who works with us at physician wall services as well. We help physicians all across the country with their taxes, it's a fixed flat fee. And even Jimmy works with us and we've saved him some money and helped him organize some of his finances as well. So we encourage you to reach out. If you're one of the more simpler cases where you've got some 1099 income or just some w two income or even some real estate, the prospect we do a free prospect call with everyone and that is with me. If you own your own practice or have employees or whatever, you'll probably be speaking with john, who is the CPA, one of our CPAs but he's also the co founder. Check us out at physician tax advisors calm. Thank you so much for being here. We really appreciate you guys. Please share the show with other people with other physicians in there. Families. It's really fun talking to some of you in our community, when we have perspective calls, whether it's from the tax side or the planning side and knowing how the show has helped you. And we want more people to get that same exact help. Whether they work with us or not, does not matter. Just the idea that we're helping you increase physician literacy, that financial literacy, and increasing your financial achaeans documents and helping you work through your goals and just thinking about finances in a different way. So hopefully, this has been helpful for you guys. Thank you so much. And let's make sure we get Jimmy's little girl paid by hearing that important disclaimer.
Unknown Speaker 40:38
Hit it, Grace.
My dad Dr. Jimmy Turner is a practicing anesthesiologist. Mr. Aiman is a fee only financial planner, you should know that this show is not personalized financial advice free. In fact, this show only for your general education and entertainment purposes. So keep listening to learn how to become a three yourself Angel guru, or go find a great fee only financial planner like Mr. Edmund to create a personalized financial plan.
Jimmy Turner 40:42
Alright, everyone, thanks for listening. We appreciate you hanging around with us and let me make fun of Ryan. That's my favorite thing to do. So we will see in the next episode, and next time it will not be about real estate. So stay tuned in got more to come. See you next time
Ryan Inman 40:55
on me for I guess. Oh, see ya. Bye
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