Today's Milestones to Millionaire podcast

[familydocPA]

Extremely impressive story - really a superwoman type of person.

That said, I think she downplays the risk involved in leverage - with a 20% market gain her NW will double, but with a crash she could be bankrupt overnight. I would personally be looking to deleverage risk now that her NW is so high - it's not the same as taking on leverage risk when your NW is under a million. But I guess that's why my NW is 1.5 million with no debt and hers is 5x mine at the same age

Anyhow, very neat story and unusual to say the least.

[Molar Mechanic]

100% agree. Having 80% across the portfolio is high, especially when her only income is from the real estate. Purchasing with a low down payment is great, but as equity grows along with net worth, there is no need to take out that much. Dropping that to 70 or even 75% could make a huge difference, especially as she is getting into bigger commercial deals.

That said, she's built it this far...

[Shant]

It's really an all-in bet on property markets rising. It's easy to convince yourself the win was skill when it was chance.

[ObgynMD]

She took a gamble and won. Others did the same with BTC. Hers took more work. Good for her!!! Sounds like she worked hard, even with a gamble, and has earned her success!

[White.Beard.Doc]

Yes, Elaine uses leverage to purchase real estate. And leverage does have the potential to add risk, but…

Those of you not in the know don’t know her investment approach. She is so careful and disciplined with what she buys, and her properties all cash flow extremely well. They are all residential properties. In a downturn, will people still need a place to live? I think so. And while her net worth won’t grow that much and can decline during a downturn, the cash flow is her insurance policy. Her portfolio has been stress tested. The high cash flow will decrease somewhat, but it will carry her through a downturn like 2008 with no sweat. She has vetted every aspect of real estate purchasing, financing, and property management, and she has optimized each and every aspect with the discipline of a cardiac surgeon working inside a patient’s chest. I don’t know the exact numbers, but I would guess that she has about 500k in annual cash flow after expenses, despite all that leverage, and even if that cash flow were cut in half due to decreasing rents and increased vacancy during an extremely severe downturn, she will be absolutely fine.

Her strategy leads to average annual growth of around 30%, in good years that growth can be well over 50%, in bad years with falling real estate values she may lose a lot of net worth, but there is so much cash flow built in as insurance that she will easily ride out a significant recession, and there is so much growth in the good years that it won’t hurt them in the long run.

The biggest risk to her strategy, and this would cancel out the growth of her net worth, would be long term, persistent deflation in the overall economy over a decade. How likely is it that the US would face long term deflation? It would likely be if we were to have long term declining population, low birth rates, low immigration, and a persistently terrible economy for years running.

[familydocPA]

And while her net worth won’t grow that much and can decline during a downturn, the cash flow is her insurance policy. Her portfolio has been stress tested. The high cash flow will decrease somewhat, but it will carry her through a downturn like 2008 with no sweat.

Respectfully disagree with this sentiment; I think a 2008 type downturn would mean bankruptcy for her. Properties under water and tenants not paying rent can only last so long.

To be sure, I am extremely impressed with her success. I just would not feel comfortable at 80% leverage at this stage of the game, 65 would give a lot more margin for safety. But she's the one crushing it and I'm just SGOTI whose opinion is worth what she paid for it

[Zaphod]

She had amazing timing and covid actually kicked it into high gear. This is definitely a high work risky business model. I honestly cant imagine dealing with so many tenants, etc...just insane.

She uses a ton of leverage but thats pretty normal in RE and isnt exactly callable instantaneously when markets get scared. People are still paying rent, etc...foreclosures take a ton of time and arent done for issues with valuations.

There is def risk there, but at this point there is also a glidepath depending on how they want to live, etc...1 or 2 years they could dramatically decrease risk, and we're coming into peak millenial housing formation years for years on end.

Not for me, wish it was.

[Anne]

I would think her biggest risk would be something happing to Mayo in Rochester MN as that is by far the biggest employer there. (Sounds like most of her homes are either in Rochester or OKC). If Mayo goes, nobody is going to live there. But that is unlikely.

[White.Beard.Doc]

Respectfully disagree with this sentiment; I think a 2008 type downturn would mean bankruptcy for her. Properties under water and tenants not paying rent can only last so long.

To be sure, I am extremely impressed with her success. I just would not feel comfortable at 80% leverage at this stage of the game, 65 would give a lot more margin for safety. But she's the one crushing it and I'm just SGOTI whose opinion is worth what she paid for it

Again, they have stress tested their portfolio. I agree that many highly leveraged people can and will get into trouble in a downturn. And I further agree that if a substantially large percentage of her tenants stopped paying rent in a downturn, then she could be in trouble. But how likely is it that a large percentage of the nurses and residents at Mayo are all going to stop paying their rent in the next downturn? Those Mayo Clinic health care workers are a large part of her tenant pool. I just don't see any likely scenario where a substantial percentage of primarily white collar workers stop paying rent in a downturn. In the Covid situation over the past 2 years, she likely had perhaps 1 to 2% of her tenant population struggle to pay rent and she didn't skip a beat.

[White.Beard.Doc]

I would think her biggest risk would be something happing to Mayo in Rochester MN as that is by far the biggest employer there. (Sounds like most of her homes are either in Rochester or OKC). If Mayo goes, nobody is going to live there. But that is unlikely.

Yes, if Mayo Clinic goes under, the Rochester MN real estate market would take a massive hit. If Mayo goes under, they would lose the shirt off their back. But betting that Mayo Clinic will be around for the foreseeable future seems like taking a reasonable risk. What is your opinion on the odds that Mayo will disappear?

[Anne]

Yes, if Mayo Clinic goes under, the Rochester MN real estate market would take a massive hit. If Mayo goes under, they would lose the shirt off their back. But betting that Mayo Clinic will be around for the foreseeable future seems like a reasonable risk. What is your opinion on the odds that Mayo will disappear?

Very low. That would truly be a black swan event for Rochester. And what would they do with all that marble if it did?

[Kamban]

Is there a transcript or a cliff notes version of this podcast?

[Turf Doc]

Does she not have any money in retirement accounts? I would have been interested in asking her thoughts on the more WCI/boglehead path of index funds and retirement accounts. Also, does she take advantage of REPS?

Also seems strange to me to buy a house at 24...

[CordMcNally]

This is definitely a high work risky business model. I honestly cant imagine dealing with so many tenants, etc...just insane.

I've learned many valuable lessons in medicine. One of the bigger ones is that I've found I tend to enjoy things more if I don't have to deal with the general public.

[White.Beard.Doc]

Does she not have any money in retirement accounts? I would have been interested in asking her thoughts on the more WCI/boglehead path of index funds and retirement accounts. Also, does she take advantage of REPS?

Also seems strange to me to buy a house at 24...

It is my understanding that they are all in on real estate, meaning all of their eggs are in that one basket. But just the same, she and her husband have devoted 100% of their energy to mastering everything real estate. So their personal advantage over others in the market is based on deep knowledge combined with unfathomable commitment. They are able to generate massive returns in real estate that they could not achieve investing in the stock market.

Elaine bought a cheap house in Oklahoma City when she was a very young adult. It was cheaper than renting, and she simply did what she did as a young single person. She had no intention of becoming a real estate entrepreneur at that time, but that ended up being the path that her life took. She still owns that house today, and it is occupied by her tenant.

Elaine is a friend, and she is one impressive young doctor/entrepreneur.