IRA investments

Ever wonder why, for years, you have always invested in stocks and bonds and mutual funds with your IRA money?  Did it ever occur to you that you were missing out on a significant part of the market that a truly diversified portfolio would have in a well balanced retirement plan - - namely real estate.  Or other things for that matter, like start up businesses, partnerships, LLCs, joint ventures, etc.   

.  According to the law, you can use your IRA money to invest in just about anything, except collectibles (art, stamps, wine collection), insurance products and stock in a subchapter S corporation.  That has been the law since the IRA was created in 1974 as part of ERISA (Employee Retirement Income Security Act).  So much for transparency. . . 

Well, obviously, more and more people are realizing this is a potential source of funds to diversify their investments.  In fact, a recent 2010 Morningstar Advisor poll found that 58% of investment advisors feel that alternative investments “will become as important or more important than traditional investments in the next five years”. Fortunately, the financial advisors that I work with assisting my clients realize this and have incorporated this concept into their financial purview.

     At this most opportune time, there is a compelling argument to incorporate the right real estate investments in the typical physician’s investment portfolio.  The analysis should be done in cooperation with your financial advisor, if you choose to use one.  For instance, for those physicians nearing retirement age, a more stable income producing property acquired at the bottom of the real estate market NOW can serve a similar function as bonds might in a more traditional portfolio.  One such example is rental property built just 3 years ago that can produce a cash-on-cash return (unleveraged purchase) of 6-7% with the potential with appreciation, after the market corrects, to offer a total return of 14%.  The total returns increase if the buyer wants to leverage his or her position.

      With today’s CD and Money Market returns at an all time low, these annual cash-on-cash returns look quite attractive.   My job is to carefully guide the investor through the various steps of this process, understanding the realities of leverage, the benefits and risks of rental property, carefully showing you how to analyze and investigate potential pitfalls of a property, the judicious use of management companies for the out of town owner, and developing a disposition strategy that meets your needs. . .

Further Progress in Health Care Reform does not bode well for Physicians

Well, last time I spoke about the real estate “craze” in the last 6 years that has now finally corrected itself.  I am not going to imply that we did not get “bitten” at all by this craze in the last 6 years.  Anyone who tells you that they were unscathed by it is, most likely, lying to you.  What I CAN tell you is that we were fortunate enough to hold off on some projects and limit our exposure.  Not eliminate completely, but limit it.  In that time, however, there has been an amazing learning curve which, I think, any physician is capable of mastering.  The world of construction and real estate development is multi faceted and never ceases to amaze me.  Financial analysis, marketing, strategic forecasting, land use design, and interior design, legal issues, banking relationships, investor relationships - - all of these and many more components seem to flow and interdigitate through one’s brain as one gets more comfortable with the profession.  Thankfully, my surgical career that involved planning, quick decision making, and outcome analysis was helpful.

Why is it, though, that most physicians are so busy in their medical practices (not necessarily in patient care, but more likely in running the business), that they hand over their financial matters to other professionals without regard to watching their own finances themselves, at least peripherally being involved?  Trust me, I am not against the value of financial advisors.  In fact, both of my brothers are Certified Financial Planners.  Yet they themselves are always perplexed at how disinterested clients are in their financial decision making.  That is, until we have the major correction like the past 12 months!!!  Then everyone is frustrated because they were “misled” by their financial advisor and ALL of the financial gurus in the industry. But that is an entirely different story.

So, the REAL health care crisis is how physicians need to prepare themselves for the ongoing and upcoming changes in the business of health care. Many physicians will not be accustomed to having the “employee” status with no real decision making and choices to be made.   We all know that the bureaucrats “changed the rules” from what they were back in the 90’s.  Let’s be smart and more efficient and work smarter, not harder!

After investing in real estate for the past 20 years and managing a real estate construction and development company for the past 10 of those years, I have searched for a way to integrate my passion for teaching (left over from my medical years) with the knowledge I have acquired in the business world.  I specifically aim to enlighten fellow physicians about how they can empower themselves and stabilize their financial security.  Would it not be fantastic for each and every one of us to be able to gradually “ease out” of the everyday grind of the current medical profession, knowing that they have invested intelligently and can rely on these investments as a stable source of income?  There might be no need to rely on the financial “gurus” who, by the way, were also unable  to forecast the current stock market and financial catastrophe. 

I feel that physicians have an urgent need to align themselves with a prudent financial plan, in which real estate is included, in order to weather the upcoming tumultuous days of healthcare reform.  Depending on each individual’s risk tolerance, this can include income producing rental properties bought now with an added benefit of a great potential for price appreciation in a carefully selected market.  It can also include more speculative, long term land banking that requires a more contrarian attitude in these times.  Or something in the middle?  And what about using your IRA to jump start your retirement savings?  I would like to show you how!

The Real Health Care Crisis: A Case for Physicians to take Control of their Financial Future

SO…..are you asking yourself…. What is a blog about the health care crisis doing on a real estate website? Let me explain. . .

All physicians in this country are familiar with the slow trend over the past 20 years of increasing bureaucracy, spiraling costs, and diminishing receipts. Not to mention the rising demands for overhead to keep up with the electronic age. How many thousands of dollars have we spent on new electronic medical record systems, updating computer systems, financial recordkeeping all in the name of progress (at least, for someone, it is progress!!).

In a never ending attempt at staying ahead of the curve, physicians have added physician extenders, entered into joint venture agreements with laboratories and hospitals, and added diagnostic and out patient surgical centers simply because that is the only way to maintain a reasonable level of income production in the current health care system.

Does anyone anticipate that this system will improve? Hardly a “yes” in the crowd, I suspect. Hence, the new cry for health care reform, after the Clintons’ unsuccessful attempt back in the 80’s. But then again, does anyone expect that when the government bureaucrats get involved we will have a system that is MORE efficient that what we have now? The general consensus is that “anything” is better than what we have now, but is it really? I am not going to comment on whether a national health system would be better or worse, but simply that there are precedents set in Europe, Australia, Canada and other nations, that can give us some insight into this question.

Suffice is to say that a bureaucratic, inefficient system with rising overhead, diminishing physician income EASILY describes both where we are headed with our current system AS WELL AS where we will end up with a nationalized health system.

By all reports, this might happen sooner rather than later. The Obama administration, apparently, is committed to pushing debate on this topic in Congress which started debate in June 2009 so that an overhaul healthcare reform bill can be finished by the fall and on the president’s desk by Thanksgiving 2009!! As Rahm Emanuel has noted, “Why waste a crisis?” i.e. let’s get through as much of our agenda in the first year of office (under the ruse that everything is “urgent” because of the unrelated financial and credit crisis).

Nevertheless, the healthcare system continues in its quagmire. . . which brings me to MY  STORY.

About 10-12 years ago, I joined the many physicians becoming disenchanted with medicine. Not because we did not love to take care of patients - - this is a most gratifying experience that I still miss to this day. Unfortunately, though, medical practice has switched from 85% patient care and 15% business to an unfortunate ratio of 85% business and 15% patient care! Naturally, medical education has not been formatted to provide the necessary business and financial acumen requisite for running a medical practice. Hence, more of these management roles are subcontracted out to CPAs, practice administrators, etc who, needless to say, do a fantastic job keeping up with the multitude of regulations and changes thrown at physicians on a monthly basis. Of course, this continues to raise the overhead costs for the medical practice. As a result, more and more physicians have resigned themselves to the fact that they cannot keep up with all of these nuances and are relegated to becoming employee physicians of an HMO, physician recruitment company, or some other such similar arrangement. Ultimately, the Obama administration would want ALL physicians to become government employees, no doubt. Maybe not a bad idea if the country’s distribution for adequate health care to its citizens is improved.

Living in Northwest Florida, I was fortunate enough to become acquainted with the beautiful coastal areas around Destin, Panama City and neighboring Walton County Florida. In 1990, I decided to dabble in the real estate market (on a personal level). Eventually, in 1999, I made the commitment to take control of my financial future by starting a luxury home construction business. Having the government telling me how to treat my patients and what is best and what is not was becoming disturbing to all of us, including my colleagues. The timing was quite fortuitous in that the real estate boom in this market was beginning. Of course, we are now dealing with the significant market correction. But, then again, those are the times when opportunity knocks at your door!!  More Later. . .