Looking for some direction

[PointsMD]

Hello everyone!

I'm a huge fan of the WCI network. I was hoping that you could help me decide if this plan is completely crazy or if I could justify it.

I'm a MS4 pursuing a competitive specialty. My SO and I have been extremely fortunate and I had some fantastic scholarships throughout medical school. I'll be graduating debt free and my SO and I have some money in our Roths (low cost indexes, no real estate).

A family member offered to loan us $40+, interest free to help us secure our financial future. I have been really interested in investing in real estate for a while now, but this desire was rekindled when I learned about turnkey properties through Roofstock or Homeunion. Is this completely crazy on a resident's salary and with the limited time of a resident? Would buying a rental property be a horrible idea? The idea of 1 property a year starting from residency is very enticing. This is obviously after filling our Roths, employer match etc.

Thank you!

 

These articles and WCI podcast #42 really increased my interest rental properties:

https://passiveincomemd.com/how-i-bought-an-out-of-state-investment-property-from-my-call-room/

https://passiveincomemd.com/how-i-bought-an-out-of-state-investment-property-from-my-call-room/

[Donnie]

Buying a rental property on a resident’s salary is a bad idea, especially when you would be borrowing from family to do so. Focus on your primary objective (becoming a better doctor) and don’t distract yourself with rental properties and other “side hustles” at this point in your career.

I couldn’t imagine borrowing money from my family except in an absolute emergency. It’s a terrible idea. Don’t do it. Be patient, take your time, and save a substantial portion of your income even as a resident. Wealth will come. You are already way ahead of most of your fellow graduates by being debt free.

[nolamd84]

I wouldn't do it. Not worth the dynamics. You don't need the money, just save some of your income, develop good habits, focus on your specialty and your relationship.

[AlexxT]

A resident should not be investing in real estate ( outside of REITS ).

1.   Owning real estate is a business, not an investment.  No, a resident won't have time to run a business.

2.  Real estate is almost always leveraged ( Down payment, with big mortgage. )  Leverage increases risk, and opens you up to bankruptcy/foreclosure.  You are planning to increase your leverage to 100% by borrowing the money to do this.  For a business you know nothing about.  Someone with less than zero time to devote to it.   That's beyond crazy.

3.  You are eager to risk your family's money because of an   ad  podcast you heard?  Really?  Not everything that you read about here is a good idea.  Not everyone who posts here has good ideas, or knows what they are talking about ( including me ).   Many of the investment ideas mentioned in blog posts on this site are later abandoned by the original poster.  Some guest posts are roundly criticized by regulars here.  This is a commercial site.  Caveat Emptor.  The same blogger you mentioned recommends getting involved in multi-level marketing schemes, which are essentially ponzi schemes. ( you make money not through sales, but through recruiting new sellers.  After a few levels, you would have exhausted the world population )

4.  The consensus here is that a resident should not buy a home to live in, and an attending should wait until they have practiced at least 3 years and made partner to buy a home.    You are suggesting buying an investment property as a resident.  Very very bad idea.

5.  Overall, real estate investing provides, on average, the same returns as index funds, but require much more time and more work.  Some say you can do better with real estate, but again, at the cost of a lot of time / work.   If you're experienced, you can probably do better than average.  But as the saying goes, to avoid mistakes, you need experience.  To get experience, you need to make mistakes.

The person selling you the property knows more about real estate than you do. Ergo, you are the sucker at the table.

6.  Many people I know have lost money in real estate.  Others have made money, but earned less than index fund returns, and are shocked to find out how much they could have earned that way.

7.  Here's a plan for you:   Fidelity or Vanguard total stock market index fund for the next 10 years, or until you have your first million.  Meanwhile, read some more.  Study some more.  Get a job and see what earning money and spending money feels like.   Then you can branch out into other index funds and investments.  Until then, chill out.

 

 

[Complete_newbie]

AlexxT wrote:

A resident should not be investing in real estate ( outside of REITS ).

1.   Owning real estate is a business, not an investment.  No, a resident won’t have time to run a business.

2.  Real estate is almost always leveraged ( Down payment, with big mortgage. )  Leverage increases risk, and opens you up to bankruptcy/foreclosure.  You are planning to increase your leverage to 100% by borrowing the money to do this.  For a business you know nothing about.  Someone with less than zero time to devote to it.   That’s beyond crazy.

3.  You are eager to risk your family’s money because of an   ad  podcast you heard?  Really?  Not everything that you read about here is a good idea.  Not everyone who posts here has good ideas, or knows what they are talking about ( including me ).   Many of the investment ideas mentioned in blog posts on this site are later abandoned by the original poster.  Some guest posts are roundly criticized by regulars here.  This is a commercial site.  Caveat Emptor.  The same blogger you mentioned recommends getting involved in multi-level marketing schemes, which are essentially ponzi schemes. ( you make money not through sales, but through recruiting new sellers.  After a few levels, you would have exhausted the world population )

4.  The consensus here is that a resident should not buy a home to live in, and an attending should wait until they have practiced at least 3 years and made partner to buy a home.    You are suggesting buying an investment property as a resident.  Very very bad idea.

5.  Overall, real estate investing provides, on average, the same returns as index funds, but require much more time and more work.  Some say you can do better with real estate, but again, at the cost of a lot of time / work.   If you’re experienced, you can probably do better than average.  But as the saying goes, to avoid mistakes, you need experience.  To get experience, you need to make mistakes.

The person selling you the property knows more about real estate than you do. Ergo, you are the sucker at the table.

6.  Many people I know have lost money in real estate.  Others have made money, but earned less than index fund returns, and are shocked to find out how much they could have earned that way.

7.  Here’s a plan for you:   Fidelity or Vanguard total stock market index fund for the next 10 years, or until you have your first million.  Meanwhile, read some more.  Study some more.  Get a job and see what earning money and spending money feels like.   Then you can branch out into other index funds and investments.  Until then, chill out.

 

 

Click to expand...

Thats gold Jerry! Gold!

 

Seriously. OP should listen to AlexxT - he is one of the most experienced posters here with balanced take.

Good summary. Realize I am deep in RE, but its not for a resident given time constraints and risks. Try to be a great doctor first.

[SerrateAndDominate]

You are already far ahead of your peers by graduating with no debt.  Keep putting money in your Roths and utilize any other retirement accounts your hospital will offer.  Your PGY-1 year will come with a steep learning curve so you need to focus on that.

 

Enjoy being in the black, and good luck with The Match!

[PointsMD]

AlexxT wrote:

A resident should not be investing in real estate ( outside of REITS ).

1.   Owning real estate is a business, not an investment.  No, a resident won’t have time to run a business.

2.  Real estate is almost always leveraged ( Down payment, with big mortgage. )  Leverage increases risk, and opens you up to bankruptcy/foreclosure.  You are planning to increase your leverage to 100% by borrowing the money to do this.  For a business you know nothing about.  Someone with less than zero time to devote to it.   That’s beyond crazy.

3.  You are eager to risk your family’s money because of an   ad  podcast you heard?  Really?  Not everything that you read about here is a good idea.  Not everyone who posts here has good ideas, or knows what they are talking about ( including me ).   Many of the investment ideas mentioned in blog posts on this site are later abandoned by the original poster.  Some guest posts are roundly criticized by regulars here.  This is a commercial site.  Caveat Emptor.  The same blogger you mentioned recommends getting involved in multi-level marketing schemes, which are essentially ponzi schemes. ( you make money not through sales, but through recruiting new sellers.  After a few levels, you would have exhausted the world population )

4.  The consensus here is that a resident should not buy a home to live in, and an attending should wait until they have practiced at least 3 years and made partner to buy a home.    You are suggesting buying an investment property as a resident.  Very very bad idea.

5.  Overall, real estate investing provides, on average, the same returns as index funds, but require much more time and more work.  Some say you can do better with real estate, but again, at the cost of a lot of time / work.   If you’re experienced, you can probably do better than average.  But as the saying goes, to avoid mistakes, you need experience.  To get experience, you need to make mistakes.

The person selling you the property knows more about real estate than you do. Ergo, you are the sucker at the table.

6.  Many people I know have lost money in real estate.  Others have made money, but earned less than index fund returns, and are shocked to find out how much they could have earned that way.

7.  Here’s a plan for you:   Fidelity or Vanguard total stock market index fund for the next 10 years, or until you have your first million.  Meanwhile, read some more.  Study some more.  Get a job and see what earning money and spending money feels like.   Then you can branch out into other index funds and investments.  Until then, chill out.

 

 

Click to expand...

Thank you all so much for your well thought out responses. I'll definitely dial the real-estate thing back.

Just some more background about myself and why I thought I would have time during residency: I enjoy airline/hotel miles and points and have accumulated/used/sold a few million throughout medical school. There was a steep learning curve with this process but once figured out, I was able to keep earning them pretty easily. This also resulted in a stellar credit score (~800). Given this hobby, I thought real estate was something I could learn about and maybe get involved in.

So now the question becomes what do I do with the loan money? Just stick it in indexes? This is money that is basically being thrown at me to invest. As in this family member would gain satisfaction by giving it to me and I will be accepting it (so I humbly ask that there is no further judgment on this issue). The question is what to do with it.

In short, I don't see myself jumping into real estate just yet, but still have some questions and am curious if anyone has any exceptions to the rule of "don't do real estate as a resident" (i.e. someone else is the primary investor etc.)

 

[SerrateAndDominate]

Not judging at all, but I can't help but ask:  If you are debt free, then why even take a loan from a family member?  If you were trying to bridge the lack of income between now and that first paycheck, I would get it, but from what you're saying, you're already ahead of the game.

[q-school]

SerrateAndDominate wrote:

Not judging at all, but I can’t help but ask:  If you are debt free, then why even take a loan from a family member?  If you were trying to bridge the lack of income between now and that first paycheck, I would get it, but from what you’re saying, you’re already ahead of the game.

Click to expand...

exactly.  what if you lose it all?  how would you feel every time you see the relative?  i get that they don't need the money, but there would be bad juju.

[Hank]

Thanksgiving dinner doesn't taste quite the same when you owe money to someone else at the table.

[White.Beard.Doc]

Perhaps read the post about the resident who bought a condo in Chicago and is now running it long distance from California, with all kinds of problems and a risk of losing everything, a possible 6 figure loss.

Real estate investing can work out great, or not.  So do what you think is right, but caveat emptor!

[Gas_Doc]

PointsMD wrote:

So now the question becomes what do I do with the loan money? Just stick it in indexes? This is money that is basically being thrown at me to invest. As in this family member would gain satisfaction by giving it to me and I will be accepting it (so I humbly ask that there is no further judgment on this issue). The question is what to do with it.

Click to expand...

I'm confused... why do you have to accept it? You will be a debt-free, newly-minded doctor DINK who has no idea what city you'll be in 1 year form now. What good is an interest-free loan? I can understand if a close family member wanted to gift you money toward a down payment (which you still shouldn't use until your training is finished, at a minimum), but a loan doesn't benefit you. It's basically a margin loan but with a familial connection, making it even worse.

Seriously, respectfully decline the offer. If you are worried about offending your family member, tell them you'll revisit the subject when you finish residency/fellowship.

[artemis]

PointsMD wrote:

So now the question becomes what do I do with the loan money? Just stick it in indexes? This is money that is basically being thrown at me to invest. As in this family member would gain satisfaction by giving it to me and I will be accepting it (so I humbly ask that there is no further judgment on this issue). The question is what to do with it.

Click to expand...

I suggest putting $5500/year into a Roth IRA (in index funds, of course) and the rest in a taxable account (again, in index funds).  You can't go too far wrong with that!  And down the road you'll really appreciate having jump-started your Roth savings.  (Ask your relative to give you the money over 4-5 years rather than in a lump sum; it will save money in taxes to do it that way.)

[adventure]

PointsMD wrote:

A family member offered to loan us $40+, interest free

Click to expand...

PointsMD wrote:

and I will be accepting it (so I humbly ask that there is no further judgment on this issue). The question is what to do with it.

Click to expand...

I'd agree that's the question. To me, that likely depends entirely on the repayment terms of the loan. When do you have to give the money back?! If this is a "loan" that you'll never really have to repay, you do need to consider @artemis' point, so you don't run afoul of gift taxes, etc. (As I understand it, uncle joe could give you 14k/yr, and your SO 14k/year, and aunt jane could give you each 14k/yr too, so it might not be an issue, but some paper to do it correctly might be worth your while).

If you're stuck cashing the check, your Investment Plan (How to...) ought to define the plans for the funds, and such plans depend on the repayment terms of the loan. I'd make sure the IPS considers that you have very little time over the next 3-7 years, then you'll have a bit more time, and +/- more interest in investment schemes, and ideally more cashflow for such investments to really secure your financial future. Here is where I'll interject the usual chorus (Do you have your Roths filled? do you have your 401ks matched and maxed? do you have other possible places to stock away funds? Is your car ok? Do you have a wedding to fund? Do you have all the life/disability/own occ insurance you need? Do you have $ saved for moving to PGY1? Do you have an emergency fund?)

If you can answer yes to all of those, then it's time to think about a taxable account, and I'd suggest considering some investments that take very little time. I know where I'd put most of it...(owing family money stinks, as others have said) but it also depends when the loan is due. That said, if you throw 10k into a house REIT, some other investment, or a hard money loan, and you lose it all... You'll probabaly survive life just fine.

[wideopenspaces]

I am not judging your accepting the loan but I am going to push back a little as to why :-) If you said you just really want to take the loan, then that is fine-it's your choice. But if you feel like you HAVE to accept the loan to keep the peace or what not, I'd urge you to spend some time rethinking your plan to take the money, as that will only reinforce these dysfunctional dynamics and make a bad outcome more likely. This money may not have an interest rate attached but it does have other strings attached. When is the loan due back? If it's less than 5 years, you should not be investing the money. Any funds that are needed in less than 5 years are best kept in a high interest rate savings account or a CD. So I guess if you want to you could take the money and park it in an Ally Bank account? But I'm not sure what purpose this serves other than to make this person giving you the money happy. If you invest it and the market crashes in 2 years, as it very well could, you would not be able to repay the loan easily. Then what? If this were a gift, that would be one thing. But a loan at this stage of the game doesn't really make much sense to me, to be honest. Good luck figuring out what to do, I think other posters have given good advice.