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How to fit practice real estate into AA

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  • How to fit practice real estate into AA

    This may be a somewhat pedestrian question. Our practice has a real estate arm that is separate from the medical side, although included in the buy-in. I financed the buy-in amount, paying on it and looking at it much like a mortgage. I'm pretty sure this is the first time I've borrowed money for a presumably appreciating asset outside of our homes. How do I account for this on my asset allocation? Do I just count the equity that I am building up through payments, and watch the "real estate" slice of my AA pie grow? There are not routine distributions from this, so essentially it doesn't cash-flow enough to be a wash on a month-to-month basis, but long-term the buy-out amount (and buy-in by default) has only gone up. This seems on the surface much like those of you that crowd-fund (or whatever the term is) real estate purchases with larger groups.

    Or do I just not really worry about it?

  • #2


    Do I just count the equity that I am building up through payments
    Click to expand...


    that's what I do, net equity.


    Or do I just not really worry about it?
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    but there is something to be said for this.

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    • #3


      Or do I just not really worry about it?
      Click to expand...


      Humm, how much is it worth? ((Fair market value x your share) - loan balance)? or are there terms in the agreement that set the exit price (really a structured investment secured by real estate that FMV doesn't impact your exit price)?

      What are you using the AA for? If its adjusting portfolio allocations that's kind of silly because you won't change anything. Use whatever you like consistently. It's like your house, ultimately it has value but it is so locked in that worrying about it doesn't really change anything.

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      • #4
        Ignore it. Great screen name. I assume you’re ortho. Just pretend it doesn’t exist. Maybe one day when you retire it’ll pay off for you, and that’s bonus money, but I wouldn’t adjust my AA based on that. Maybe you could justify being underweight REITs but those pay distributions. I vote to ignore it fully for AA and use in net worth only equity (cost minus payments) and not adjust for potential appreciation. But it’s your money. Do as you see fit. ??

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        • #5
          I'd probably forget about it and treat it like a bonus when the time comes to cash out.

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          • #6
            @Tim, exit/cashing out would be the former, (fmv x share)-loan balance. I like the simplicity of the ignore it strategy.

            Would most attack this with same fervor that school loans are? Assume slightly smaller principal amount with tad higher rate, ~5 and change.

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            • #7
              I would view it more as a “practice buyin debt”. Total for practice + ancillary. Philosophically, not student loan and not residence. When do you want your partnership income debt free! Assumption, it’s not a 15/30 yr mortgage.

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