Where to Save $100K for Private Real Estate – Podcast #198

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Podcast #198 Show Notes: Where to Save $100K for Private Real Estate

The better real estate investments, at least the passive ones, are the private real estate funds. Unfortunately, they generally have higher minimum investments ranging from $50K to a million dollars. Obviously, if you have to spend time saving up for those investments you want to have a decent return on that savings. So where should you park that money in the meantime? A high yield savings account, other crowdfunding syndicator or platform opportunities with lower minimums, or a simple REIT fund? We discuss your options in this episode as well as whether it makes sense for you to add private real estate to your portfolio.

Don Wenner, CEO of DLP Capital, one of our advertising partners, joins us for a short segment in this episode, introducing the DLP funds, including the one we are investing in.

We also answer listener questions about what happens to margin debt when you die, smart financial habits for medical students, estate planning, William Bernstein’s deep risk of devastation, and the difference between the Fidelity Extended Market Index Fund and their Zero Extended Market Index Fund.

 

Real Estate Opportunities Email List

If you are interested in investing in real estate, make sure you are signed up for the White Coat Investor Real Estate Opportunities List.  You will receive emails about opportunities to invest in private real estate along with a monthly email newsletter with WCI real estate information and links to other information about real estate on the internet. You can sign up for that along with the regular WCI monthly newsletter.  If you already get email from us here at White Coat Investor, all you have to do is go to the bottom of one of those emails and click “add real estate opportunities” and you’ll start getting those emails as soon as they come out.  There is no cost to this. You can unsubscribe at any time, but we are going to be telling you about real estate opportunities and sponsors in that newsletter.

Quote of the Day

This one comes from our favorite physician investing guru, William Bernstein, MD. He said,

“The purpose of investing is not to simply optimize returns and make yourself rich. The purpose is to not die poor.”

We agree with that. Investing is a one-person game. It’s you against your goals. You don’t have to beat the market and you certainly don’t have to beat anyone else.

Fire Your Financial Advisor Course Upgrade Plus CME Option

Remember that the Fire Your Financial Advisor Course is now $799. Financial Wellness and Burnout Prevention for Medical Professionals with CME is $1,099. But for the next two weeks, from now through February 22nd, you can get $100 off using coupon code WELLNESS100.

Buy the New Fire Your Financial Advisor Course Today for $799 $699!

Buy Financial Wellness and Burnout Prevention for Medical Professionals Today for $1099 $999!

Milestones to Millionaire Podcast

If you missed our announcement about our new podcast on Monday, check it out here.  Send us feedback about what you like and what you don’t. If you would like to be a guest on the Milestones to Millionaire podcast, apply here.  Share your financial success story! There is no hard and fast definition of a “milestone” but several suggestions are given in the application.  If you have accomplished something, we want to congratulate you on that and use your story to inspire other listeners to do the same.  In particular, we are looking for a couple of people in the Salt Lake area for two very special episodes we will record live during WCICON21.  Let us know if you are local and would like to join us.

Episode#1 – High COLA Family Doc Slays $400K in Student Loans

Sponsored by:  Bob Bhayani at drdisabilityquotes.com, info@drdisabilityquotes.com, (973) 771-9100. 

Dr. Emily and her partner, both family doctors in a high cost of living area, paid off $400K+ in student loans in really only 4 years after deciding not to go for PSLF. Keys to their success? Refinancing to a lower rate and then budgeting together. By becoming more intentional in their spending and cost conscious in their travel, they were able to pay off their loans sooner than they planned. You can still do this in a high cost of living area. Be intentional. You’ve got this, and we can help. If you still need to refinance your student loans to a lower rate, check out our recommended student loan refinancing companies. 

 

Where to Save $100K for Private Real Estate

A listener recently asked about syndication deals.

“We recently invested in our first syndication and we’d like to do more in the future. However, with minimums in the $50,000 to $100,000 range, this is something we would need to save up for and then, of course, wait for the right deal. Any advice on where to save for this? It seems like a lot of money that would be stored in high interest savings accounts at 0.5% or so. We also need to be liquid and likely would use it over a year or so. Is it better to consider things like crowdfunding, as they typically have lower minimums?”

This is a question a lot of White Coat Investors wrestle with. It is a real dilemma. We think the better real estate investments, at least the passive ones, are the private real estate funds. They generally do have higher minimum investments, $50,000, $100,000, sometimes a lot, $250,000 or a million dollars.

Obviously if you have to spend years and years saving up for that sort of a thing, you want to get a decent return on that savings in the meantime, but also that probably tells you something about whether you ought to be investing into those assets. If it takes you three years to save up $100,000 to put into a private real estate fund, maybe that’s not the way you should be investing in real estate. Keep that in mind.

Now, you have two alternatives. One, you simply invest in publicly traded real estate, something like the Vanguard real estate investment trust index fund. That was our only real estate investment for years. There is no way we could have come up with a hundred thousand dollars in any sort of a short-term way to buy into a private real estate fund. Now, with more income, we can, but we fully recognize that there are many White Coat Investors that can’t do that.

So maybe they stick with publicly traded real estate. Maybe they look at some of these options that have lower investment minimums, things like the crowdfunded companies. A lot of times you can get into a syndication for just $5,000 or $10,000 with them. There are also some private REIT companies like RealtyMogul and Fundrise that you can get into their REITs, which is a diversified real estate investment. That is basically a bunch of crowdfunded investments put into one little REIT, and you can get into that for as low as $500.

There are also access funds that, for a price and an additional layer being removed from management, you get into a private real estate fund. There is still something like a $25,000 minimum, but it’s easier to come up with than $100,000. So those are your options.

If you decide you want to invest in private real estate funds, like the DLP ones, you probably need a reasonable plan to get there relatively quickly. If this takes you three years to save up the money, you probably shouldn’t be investing in something with $100,000 minimum. You’re just not at that level of wealth yet. Not to mention it will be difficult to diversify it because you’ll only have one fund at that point. It is not necessarily a great idea for you. Wait until you’re making more money. If you never make more money, go ahead and skip it. There are no called strikes in investing. It’s okay not to invest in something.

But if you can save up for it in a relatively short period of time, the only question is, how should you get a decent return on your money? We think there are two options. The one we usually prefer is just to leave it in cash. If it is only going to be one to five months, no big deal to have it in cash. Now you want to earn some money on your cash.

Right now, we are putting our short-term savings in Ally Bank. I think it’s paying 0.6%. Now 0.6% is not awesome, but you may have noticed that interest rates are really low right now, and that’s about as good as it gets. Vanguard money market funds are paying basically 0% right now. So not a lot of great options there for cash.

The other option is to invest it into publicly traded real estate. You can put it into the Vanguard REIT index fund. This is far more volatile than cash. There is no promise that that money is going to be available in three or six months. But, theoretically, if real estate is doing really well, that fund will do well. If real estate is doing poorly, that fund will do poorly. Theoretically, you’re already invested in real estate. You’re just moving it from one real estate investment to another. Those are the two schools of thought you can use to save up that $100,000 or whatever you need to get into a private real estate fund, if that’s the way you want to go with your investments.

DLP Funds

DLP Capital Partners, Dream Live Prosper is what it stands for, is one of our partners but also manages some of our money personally. Don Wenner, their CEO, joined us on the podcast for a short introduction to their funds. He sees a couple of significant benefits of investing in private investment funds.

  1. When you’re working with a private fund manager, if you’re working with a strong fund manager, you have the ability to buy assets at better pricing than large Wall Street institutions do. They are more nimble, more in touch with the markets, the buyers, the sellers, the brokers within the markets.  They are a directly integrated company doing their property management and construction management and all of the components of executing on their investment strategy so they are able to execute on driving value, keeping costs lower.
  2. When you buy a publicly traded REIT, there’s somewhere in the neighborhood of 10% to 12% of your investment that goes out to commissions and fees. How can you generate as strong of returns when 10% to 12% of your principal is being paid in commissions and fees? It’s hard to make up for that. DLP doesn’t have any commissions or fees that go out. That makes a tremendous difference in the overall returns, when you don’t have that front end load of expenses that are paid out to those who are selling the product.

DLP invests in workforce housing and has a focus on investing in workforce housing that is affordable for the local workforce. That is their big focus, and they believe and consider their funds to be impact funds. They invest in that strategy, this workforce housing asset class, basically in two ways, as a lender, lending money to other real estate operators and as an equity investor, as an operator investing equity and owning and managing the workforce housing communities that they buy.

  • DLP Housing Fund, which is a $1 billion evergreen private REIT that goes out and acquires rental communities, mainly multifamily communities, average rent of $800 and $900 a month, generally 200 to 1,000 unit communities. They improve through better management, through physical improvements to the assets, and through creating a better community, better experience for their residents. They target a 12% net return to investors, paid out monthly distributions of basically half a percent dividend monthly, or in other words, 6% annual. That distribution has actually paid out before they even earn a management fee. That investment is very tax efficient.
  • DLP Lending Fund, which is a $500 million evergreen private REIT. Its security, its assets, are loans backed by real estate. First position mortgage is backed by real estate and that fund, they’ve been running it for over six years now. They generated double digit returns to investors every single month since the fund has been opened, with two distributions paid out every month and with the fund being very liquid. You can redeem out of the fund at any time, with 90-day notice.
  • DLP Positive Note Fund, you’re actually lending money to the fund, and you’re going to get a 5% to a 10% fixed return on your money based on how much money you invest and how long you choose to commit your investment, anywhere from 90 days up to 5 years.

DLP pays out the preferred returns to the investors before taking any fees, which is very unique. Their focus has been first and foremost on no losses to investors ever and the second focus or principle of how they invest is consistent monthly returns, focusing on generating as high returns as they can without taking on risk of principal loss or without taking on risk of a volatility of not being able to hit consistent monthly returns that investors can count on.

Investors get their 6% to 10% preferred return and then they get one to one and a half percent management fee. Then they share in the profits above that preferred return. We have money invested in the Lending Fund for the last couple of years. What have they done for you? Normally DLP has a minimum investment of $250,000 to $500,000, which is a stretch for most White Coat Investors. It’s really difficult, not only to come up with that sort of cash, but to diversify your portfolio when that is the minimum investment.

They have lowered the minimum investment for anyone that says they heard about them from the White Coat Investor or goes through our link. The lower minimum investment is $100,000. $100,000 is still a ton of money, but it’s an amount that many White Coat Investors at least can reasonably come up with in a short period of time and reasonably diversify the rest of their portfolio with, particularly later in their career.

So, if you’re interested in real estate investing, if you like the concept of investing passively in private real estate funds, we think Don and his crew do a really nice job with it. We cannot guarantee you’re not going to lose money in this investment. What we can guarantee is that if you lose money, we will also be losing money alongside of you and so will Don.  If you’re interested in this sort of an investment, check out DLP.

If you’re not interested, that’s fine. These are totally optional. Even though Don sees it as the mainstay of your portfolio, you can retire just fine and reach financial independence and live happily ever after, without ever investing in anything but boring, old, low cost, broadly diversified stock and bond index funds. But if you’re interested in this sort of investment, that’s one to take a look at.

Recommended Reading:

Our Real Life Experience with Real Estate Investments

Private Real Estate – What Fees are Fair

 

Reader and Listener Q&As

Smart Financial Habits for Medical Students

“I’m a senior beginning my last semester of undergrad. I got my first acceptance in November. So now that I know I’m in, regardless of what happens with my remaining med schools, I want to focus on building smarter financial habits now so that I know what I’m doing in the future. What advice do you have? I am planning on making a monthly budget and putting some cash into a savings account each month and as well as an investment account for the future. I recently read your book and I started tuning into your podcast.”

One of the more important things to do during medical school is to educate yourself about your finances. You want to know how the financial world works, about how the business of medicine works, about how personal finance and investing works. The earlier you learn those lessons, to become financially literate, the better off you’re going to be.

To that end, we started giving away The White Coat Investor’s Guide for Students this year to all the first year medical and dental students in the United States.  You’re talking about saving and investing money. Now, maybe that’s the case for some medical students, about 27% of medical students graduate without any student loan debt at all.

But for most medical students, it’s really not about saving or investing during medical school. It’s about minimizing how much you borrow. So, rather than putting money in savings or trying to invest money, we would encourage you not to borrow money. Borrow as little as you can during medical school. Consider everything you don’t borrow to be an investment that’s literally compounding at 6% or 7% because that is what medical school loans tend to be.

Concentrate on that by reducing how much you’re spending. Think about all the stuff you buy during medical school. By the time you’ve paid for it, it might cost you three times as much as what you think the sticker price is. So, try to concentrate on living frugally. It’s good to live on a budget, even though it can be challenging to live on a budget as a medical student. But mostly the goal is not to rack up a whole bunch of extra debt as you go along.

The other big question, the big financial question that occurs during medical school, is actually your choice of specialty. We would not make this choice primarily based on financial considerations. In fact, the most important financial consideration when it comes to choosing a specialty is what specialty are you going to be happy practicing for the next 20 or 30 years? Because you’re far better off being a pediatrician for 30 years than you are being a spine surgeon for 8, if you burn out after 8 years in practice.

But if there are two specialties that you love equally, and one of them has a much better lifestyle and pays much better, keep in mind that, 10 years out of your training, you are going to care a whole lot more about your lifestyle and a whole lot more about how much money you make than you do as an MS3. That is just the way we work as people, so recognize that. It is okay to put a little bit of weight on lifestyle and financial considerations, even if it shouldn’t be the most important aspect of choosing a specialty. If all you focus on is how much the specialty makes, you will be miserable.

Those are the main smart financial habits you should have as a medical student. As you get into your fourth year, there’s a lot of things you can do to reduce the cost of medical school or residency applications and interviews. So, look into that sort of information. It’s all in the book, if you want to take a look at it.

Recommended Reading:

The White Coat Investor’s Guide for Students: A Review

What Happens to Margin Debt When You Die?

“What happens to margin debt when you die? Does the debt get paid off from the appreciated shares in a brokerage account in the estate, or is there a step up in basis on death such that long-term capital gains don’t have to be realized to pay off that margin debt, or does the margin debt not have to be paid off at death and can be passed on to heirs?”

A lot of people, when they get close to death, decide that they would rather pay interest than pay the taxes due by selling low basis shares and living off the proceeds. And that can be a totally reasonable decision, especially if you go get a low interest rate on your margin loan.

But you’re asking a very interesting question, which is does the estate have to pay taxes on those assets if they’re used to pay off the margin loan? We think the answer is yes, that the estate does. Certainly, the debt is not passed on to the heirs. That has to be all settled by the estate. That can be paid from something besides the securities. If you have cash somewhere else, your executor can use that to pay off your debts. Then securities don’t have to be liquidated by the estate.

But we believe if they are liquidated by the estate, then they are subject to income tax in that final year and your final income tax is paid, because the step-up in basis is for your heirs, not for your estate. Ideally you can pay that margin debt from somewhere else. If you end up having to liquidate those assets in order to pay it, well, you didn’t save yourself nearly as much taxes as you thought you were going to and you ended up paying some extra interest.

It doesn’t mean it still doesn’t work out well by delaying when those shares were sold, but maybe not quite as well as you thought it was going to be, if you can’t cover the debt from other sources of cash.

Estate Planning for a Widow

“I’ve been thinking about estate planning and I was thinking about the horrible scenario in which I might die and leave my wife and two kids alone. Specifically, I was thinking about what the worst part of this would clearly be, that my wife would have to pay more in taxes because she would no longer be able to file jointly with me. Do you know if there are any structured systems in which people who find themselves as single earners can find a way to be married, but, for legal purposes, somehow protect themselves from all liability of being married, but be able to file jointly and therefore get tax benefits?”

No, you cannot say you’re married when you’re no longer married. When your spouse has died, you are no longer married. Now they give you a little bit of leeway. The year your spouse dies, you still get to file as married, but after that, your filing is singly. I don’t know of any way around that.

The only other thing we could suggest is if you have a lot of assets and you think your taxes are really going to be terrible, once you go from being married to being single, you can pass a bunch of your assets to your kids at the time of death of the first spouse. Rather than having the remaining spouse inherit those assets, it can go directly to the kids. So that can give you some estate tax planning options. It can also potentially reduce some of the income tax you pay. If you have less assets, you’re going to pay less income tax from the income produced by those assets.

Obviously, you’re also going to have less income to live on. So that might not necessarily be a good thing, but it is an option. But as far as some scenario where you can continue filing married, just because your spouse has died, no, we don’t know anything like that, that would work.

The Risk of Devastation

“I wanted to thank you for turning me onto the books of William Bernstein. I think those books are amazing. My favorite book of his is “Deep Risk”, which I felt was really mind blowing. Of the risks that he discusses, I feel I’m prepared for inflation because I have a good amount of stocks in our portfolio. Deflation, because we have a good proportion of foreign stocks in our portfolio. Confiscation, I don’t think we can do that much about, but I’m curious about devastation. It seems like a lot of people are thinking about it this year. Gun sales are way up. I’m curious how you think about devastation and whether you have any prepper fantasies that you’ve indulged.”

Deep Risk” by William Bernstein is part of a series of four books. They’re relatively small books, little more than pamphlets really, that talk about topics appropriate for investing adults. He views his full-length books as for any investor, including investing children, if you will, people who don’t know anything about investing. But these books assume you have a knowledge of the basics of investing before you pick them up. Perhaps the best one is “Deep Risk”. He basically differentiates between shallow risk, which is volatility, and four deep risks, which are the real, true long-term risks to your portfolio.

These risks include inflation, deflation, confiscation, and devastation. The most common one of those and the one which your portfolio definitely needs to be built to withstand is inflation. Inflation happens all the time in many different societies, and we’re not talking about the 2% or 3% inflation we’re dealing with here in the United States. I’m talking about hyperinflation and long periods of excessive inflation like they had in the 1970s in the U.S.

The way you deal with that is from investments that outpace inflation such as stocks and real estate, as well as things like commodities and precious metals to generally keep up with inflation. In your bond portfolio, having some of your bonds be indexed to inflation, like TIPS – Treasury Inflation Protected Securities. That’s the way you deal with inflation.

Deflation is best dealt with bonds. When interest rates fall due to deflation and the economy cratering, things like treasury bonds, especially long-term treasury bonds, do very well. That is probably the best asset to deal with deflation. Those who owned long-term treasury bonds in the Great Depression actually did pretty well with them and were some of the few that had the cash available to buy stocks and real estate on a massive discount.

The third of those Deep Risks is confiscation, essentially what happened in Russia in 1918, when the government just kind of takes your stuff, takes your companies, takes your money, takes whatever. This does happen from time to time. I think it was Malta a few years ago where they just seized bank assets to pay off government debts. So, this sort of thing can happen.

Now, how do you deal with that? Well, keeping some assets out of the country can help at least protect it from your country’s government. Having some assets that the government can’t find might help.

But that brings us to Devastation. What should you do about it? Well, there’s not a lot you can do about your company getting creamed. When we’re talking about devastation, we’re talking about Germany in World War II. We’re talking about Hiroshima at the end of World War II. We’re talking about those sorts of devastation kind of scenarios. It is very difficult to maintain your assets in those sorts of situations.

Now, if it’s a local or regional devastation, maybe having your money invested in U.S. and foreign stocks and bonds can protect it from that sort of a devastation, but obviously if it’s a countrywide or worldwide devastation, that’s not going to help very much. You can, of course, prepare yourself for that sort of a post-apocalyptic world, by having some things that can be sold and/or used in that sort of a scenario, but that’s kind of where we get into the prepper stuff, right? And you can certainly get carried away with prepping.

But we don’t think it’s a bad idea. We have camping gear around, stuff that you can use in the event that something happens to your electricity, water, air conditioning and that sort of stuff. Keeping some gasoline around is not a bad idea, storing some water and some food. Some people store three months of food in their house, other people store a year or more of food.

Now if you want something that you can sell in that sort of a post-apocalyptic scenario, you have to think about the things that people are really desperate to buy in that sort of a situation. We’re talking about tobacco, alcohol, and ammunition. If you’re looking for something to use in some sort of a weird barter economy, you’re probably not going to be slicing off slivers of gold bars to do that. Maybe you want to keep some of that stuff that would be a little more useful in a bartering kind of situation.

But here we are going down a pretty weird little pathway that can really get to extremes in a hurry. So, there’s not a great way to protect yourself from devastation.

Fidelity Extended Market Funds vs Zero Fund

“I had purchased a Fidelity extended market fund, as opposed to some of their other index funds that charge small expense ratios. Looking at the performance compared to their normal fund, there is a wide discrepancy. Maybe you can clue me in on the reasoning. The Zero fund made 16.59% last year. Their regular expense ratio fund was 32.16%. The only thing I can see is the extended market Zero fund did not have Tesla stock in it. I want to see if there’s something else that you can see why there would be such a wide discrepancy, and it makes no sense apparently to buy the Zero fund when you’re going to lose half your money on return. Just looking to see what you think about it.”

Fidelity actually has kind of two sets of index funds. A couple of years ago, they came out with these new Zero index funds. Basically, they decided they were going to take this race to the bottom as far as expense ratios go. Vanguard has been lowering their expense ratios over years and Fidelity, Schwab,  and iShares have been trying to keep up with them. They kind of made them a loss leader, basically took it to an extreme and started not charging an expense ratio at all on these four new funds they came up with.

But when they came up with those, they didn’t lower the expense ratio on the index funds they already had. They started new funds, and they are Zero large cap index fund, a Zero total market index fund, a Zero extended market index fund and a Zero international index fund. Now they already had index funds that basically followed similar segments of the market, but these were new ones that they added in.

Don’t obsess about expense ratios. Once you get down below about 10 basis points, the expense ratio is not the most important aspect of choosing a fund. When you’re looking at index funds, you care about a couple of things. The first one is “What index does it follow?” And the second one is “How well does it follow that index?” The expense ratio plays into the second part of that, but it has nothing to do with the first part, which is what index does the fund follow? What is it trying to track? Obviously, you want them to be good at running an index fund.

That is one of the reasons why we wouldn’t necessarily bail out of Vanguard to Schwab or Fidelity because I think Vanguard is better at indexing than those other companies are, even if the expense ratio is a basis point or two higher. In general, if you look at the long-term performance, it’s equal to or better than what you’ll get at Fidelity and Schwab.

This is because Vanguard’s better at indexing, number one, and number two, when they loan out their shares to short sellers like people that want to short sell GameStop and American Airlines and Blackberry and those kinds of stocks, they get income from lending those out, and Vanguard passes more of that income along to you than Fidelity does. So that’s part of the reason why Vanguard does such a good job following the indices.

But the first part of that is “What index does it follow?” And the answer to your question of why one of these funds did so much better than the other fund comes down to the index it is following. Both of them did a fine job of following the index they were trying to follow, but despite both of them being extended market index funds, meaning the entire U.S. market minus the stocks in the S&P 500, they follow different indices. The first one, the one that charges an expense ratio, is FSMAX. This is a Fidelity extended market index fund.

If you look at its Morningstar X-Ray Box. Look up a fund and, looking at its portfolio, it will show you an X-Ray Box, which tells you where the fund sits on the scale between large cap and small cap and on the scale between value and growth. You can see if you look at that fund that the center of this fund is basically in the mid cap growth segment.

Now, if you look up the same information on the Fidelity Zero extended market index fund, you will see that it centers in the upper right-hand corner of the small cap blend segment of the market. Clearly, these two funds hold different stocks. It’s not just Tesla. It’s a bunch of different stocks.

The one that charges an expense ratio is growthier and larger on average than the one that doesn’t charge an expense ratio, which is smaller and more valued. So, you shouldn’t be surprised in a year in which large and growth stocks performed very well, like 2020, that the fund that is larger and growthier is going to have better returns. That is exactly what happened last year. Large growth outperformed, the fund that was larger and growthier had higher returns, and indeed it did.

Recommended Reading:

Don’t Obsess About Expense Ratios

Ending

If you are interested in investing in real estate, make sure you are signed up for the White Coat Investor Real Estate Opportunities List.

Full Transcription

Intro:
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011. Here’s your host, Dr. Jim Dahle.
Dr. Jim Dahle:
This is White Coat Investor podcast number 198 – Where to save a hundred thousand dollars to invest in real estate?
Dr. Jim Dahle:
We’re recording this on January 28th. I think it’s going to run on February 18th and it’s been quite a January. Lots of interesting stuff happening in the markets and certainly lots of interesting stuff happening in all of our personal and professional lives.
Dr. Jim Dahle:
Our sponsor today is our own White Coat Investor Real Estate Opportunities List. If you’re not on this email list, you might want to consider getting on it. Especially after listening to today’s podcast. You will get emails on it about opportunities that come up. These are opportunities to invest in private real estate. Also, we’re starting something new this year with it. We’re going to be sending out a monthly email with real estate information and some links to other cool information about real estate on the internet.
Dr. Jim Dahle:
So, if you haven’t signed up for the newsletter at all, go to whitecoatinvestor.com/newsletter, and you can sign up for that along with the regular WCI monthly newsletter in any of the blog posts you want to get. If you already are signed up for something and you’re getting by email from us here at White Coat Investor, all you have to do is go to the bottom of one of those emails and click add real estate opportunities and you’ll start getting those emails as soon as they start coming out.
Dr. Jim Dahle:
There is no cost to this. You can unsubscribe at any time, but we are going to be telling you about real estate opportunities and sponsors in that newsletter. So, it’s going to feel a little bit more like marketing than maybe most of the stuff we send out. So be aware of that.

Dr. Jim Dahle:
Thanks so much for what you do. I was looking at the coronavirus numbers yesterday, and we’re down about 50% from the peak a few weeks ago. I’m pretty excited about that. I don’t know the deaths and hospitalizations have necessarily turned down, but hopefully by the time you’re listening to this in a few weeks, that will be the case, but I’m hoping that we’re into the later innings here of the pandemic. So, congratulations to those of you who have kept yourself safe. And thank you for what you’ve done for your patients in this time period. It’s more challenging for all of us, whether we’re on the front lines or not.
Dr. Jim Dahle:
I want to make sure you know about two things we’re doing that are pretty new and cool. We’ve got the White Coat Investor conference. It’s coming up in just a couple more weeks, March 4th through 6th. This is a live conference. It’s virtual, yes, because of the pandemic, but it is live. This is not just an online course.
Dr. Jim Dahle:
So, if you want to sign up for that, you need to do it by the 4th when the conference starts and you can do that at whitecoatinvestor.com/conference. It’s going to be awesome. We got some great people coming out. We’ve got Christine Benz, we’ve got Mike Piper, we’ve got Alan Roth. We got like 50 plus hours of content in this. It’s going to be the biggest conference we’ve ever done. There are some really great advantages to doing it virtually, and we’re taking advantage of all of those.
Dr. Jim Dahle:
Next year we’ll probably go back to in-person conferences, but this is your chance to get a lot more value out of the conference for a lower price than what the conference normally costs.
Dr. Jim Dahle:
Also, as I’m recording this, I’m actually in the midst of recording a bunch of new videos for Fire Your Financial Advisor. We are upgrading the course this year. It’s been three years since we came out with Fire Your Financial Advisor. Remember this is the online course that helps you write your own financial plan. It takes you from zero to hero and really spoon feeds all the information that you could get from reading books and blogs and spending time on forums and gets it to you in just a little over an eight-hour course.
Dr. Jim Dahle:
But we’ve added some other people into the course that have spoken at our conferences in the past. People like Mike Piper and Bill Bernstein and Jonathan Clements are now part of the Fire Your Financial Advisor course.

Dr. Jim Dahle:
We actually have two Fire Your Financial Advisor courses now. There’s one option without CME, and you can pay a little bit more and get the option with CME. So, we haven’t offered CME for Fire Your Financial Advisor before, but now we can offer that. So, you can use your CME funds to pay for that or you can write it off as a business expense. And I hope that provides additional value to you with that course. You can learn more about that at whitecoatinvestor.com/fyfa.
A Dr. Jim Dahle:
All right. I also want to make sure you know about our new podcast. You’ve probably heard one or will soon hear one because they’re coming out on this same podcast feed that you normally get your podcasts on. Whether you get them from Apple podcasts or wherever.
Dr. Jim Dahle:
We are running these on Monday and they’re short podcasts. They’re basically just a quick interview with one of our listeners about something they’ve accomplished recently. We’re calling it “Milestones to Millionaire”, and it might be somebody that’s become a millionaire. It might be somebody that’s hit financial independence. It might be somebody that’s gotten back to broke. Maybe somebody that’s paid off their student loans or their mortgage. Maybe someone who’s received public service loan forgiveness.
Dr. Jim Dahle:
But if you have accomplished something, we want to congratulate you on that and use your story to inspire other listeners to do the same. So, if you’re interested in that, you can contact us and we will get you on that podcast as a guest. Otherwise just enjoy those podcasts. They’re coming out on Mondays. You can sign up for this at whitecoatinvestor.com/milestones.
Dr. Jim Dahle:
All right, let’s take some listener questions. Our first one comes from Michael. He wants to talk about smart financial habits for medical students.
Michael:
Hi, Dr. Dahle. My name is Michael and I’m a senior beginning of my last semester of undergrad. I got my first acceptance to an in November. So now that I know I’m in, regardless of what happens with my remaining med schools, I want to focus on building smarter financial habits now so that I know what I’m doing in the future.

Michael:
So, my question is, what advice do you have on planning on making a monthly budget and putting some cash into a savings account each month and as well as an investment account for the future? I recently read your book and I started tuning into your podcast. So, I want to thank you for all the information advices. It has really helped me focus on bettering myself for my future.
Dr. Jim Dahle:
Congratulations Michael on getting into medical school. It is not a small feat that you’ve done. In fact, in the entire pipeline, getting into college, getting into medical school, getting into residency, getting the fellowship, getting the job you want. I think getting into medical school is actually the most competitive, most difficult step. So, congratulations on that.
Dr. Jim Dahle:
And congratulations also for thinking about your finances in advance. Far too many of us when we went into medical school gave no thought whatsoever to finances, and that has led a lot of doctors to have some serious financial difficulties down the road. So, congratulations on that.
Dr. Jim Dahle:
One of the more important things to do during medical school is to educate yourself about your finances. You want to know how the financial world works about how the business of medicine works, about how personal finance and investing works. And the earlier you learn those lessons to become financially literate, the better off you’re going to be.
Dr. Jim Dahle:
To that end, we started giving away The White Coat Investor’s Guide for Students this year to all the first year medical and dental students in the United States. And we’ve got a whole bunch of class champions that are going to be passing those out to you if you’re a medical student in the first-year class or a dental student, coming up. So, we’re going to get those distributed as fast as we can. We obviously have to make sure people really are who they say they are and get those books shipped out. But we’re pretty excited about that to try to boost not only your financial literacy, Michael, but all of your peers as well.
Dr. Jim Dahle:
Other things you should concentrate on during medical school. You’re talking about saving money and you’re talking about investing money. Now, maybe that’s the case for some medical students, I guess about 27% of medical students graduate without any student loan debt at all.

Dr. Jim Dahle:
But for most medical students, it’s really not about saving or investing during medical school. It’s about minimizing how much you borrow. So, rather than putting money in savings or trying to invest money, I would encourage you not to borrow money. Borrow as little as you can during medical school. Consider everything you don’t borrow it to be an investment. That’s literally compounding at 6% or 7% because that’s what medical school interest rates tend to be.
Dr. Jim Dahle:
So, concentrate on that. And the way you do that is generally on just reducing how much you’re spending. Think about all the stuff you buy during medical school. By the time you’ve paid for it, it might cost you three times as much as what you think the sticker price is. So, try to concentrate on living frugally. It’s good to live on a budget, even though it can be challenging to live on a budget as a medical student. But mostly the goal is not to rack up a whole bunch of extra debt as you go along.
Dr. Jim Dahle:
The other big question, the big financial question that occurs during medical school is actually your choice of specialty. And I would not make this choice primarily based on financial considerations. In fact, the most important financial consideration when it comes to choosing a specialty is what specialty are you going to be happy practicing for the next 20 or 30 years? Because you’re far better off being a pediatrician for 30 years than you are being a spine surgeon for 8, if you burn out after 8 years in practice.
Dr. Jim Dahle:
And so, you really want to find something where not only can make your mark on the world, because life isn’t all about money, but also something you will be happy practicing for a long-term time.
Dr. Jim Dahle:
But if there are two specialties that you love equally, and one of them has a much better lifestyle and pays much better, keep in mind that 10 years out of your training, you are going to care a whole lot more about your lifestyle and a whole lot more on how much money you make than you do as an MS3. And that’s just the way we work as people. And so, recognize that. It’s okay to put a little bit of weight on to lifestyle and financial considerations even if it shouldn’t be the most important aspect of choosing a specialty. That’s a good way actually to get miserable if all you focus on is how much the specialty makes.

Dr. Jim Dahle:
But those are the main smart financial habits you should have as a medical student. As you get into your fourth year, there’s a lot of things you can do to reduce the cost of medical school or residency applications and interviews. So, look into that sort of information. It’s all in the book if you want to take a look at it.
Dr. Jim Dahle:
All right, let’s do our quote of the day. This one comes from our favorite physician investing guru, William Bernstein MD. He said, “The purpose of investing is not to simply optimize returns and make yourself rich. The purpose is to not die poor”. And I agree with that. Investing is a one-person game. It’s you against your goals. You don’t have to beat the market and you certainly don’t have to beat anybody else. What’s interesting is once you give up on trying to beat everybody else, you usually end up investing much better and you end up beating them anyway.
Dr. Jim Dahle:
All right, we’re going to take a few calls today from Tim in San Francisco, who loves calling in the White Coat Investor show and we love hearing from him. But his first question is about margin debt.
Tim:
Hi Jim. It’s Tim in San Francisco. My question is what happens to margin debt when you die? Does the debt get paid off from the appreciated shares in a brokerage account in the estate, or is there a step up in basis on death such that long-term capital gains don’t have to be realized to pay off that margin debt or does the margin debt not have to be paid off at death and can be passed on to heirs? Thanks so much.
Dr. Jim Dahle:
That’s a great question, Tim. And I think it’s one that is well worth asking. You see a lot of people when they get close to death, decide that they would rather pay interest than pay the taxes due by selling low basis shares and living off the proceeds. And that can be a totally reasonable decision, especially if you go get a low interest rate on your margin loan.
Dr. Jim Dahle:
But you’re asking a very interesting question, which is does the state have to pay taxes on those assets if they’re used to pay off the margin loan? And as I think about it, I think the answer is yes, that the estate does. Certainly, the debt is not passed on to the heirs. That has to be all settled by the estate. And that can be paid from something besides the securities. If you have cash somewhere else, you can use that or your executor really can use that to off your debts. And then securities don’t have to be liquidated by the estate.
Dr. Jim Dahle:
But I believe if they are liquidated by the estate, then they are subject to income tax in that final year and your final income tax that is paid because the step-up in basis is for your heirs, not for your estate. And so, ideally you can pay that margin debt from somewhere else. If you end up having to liquidate those assets in order to pay it, well, you didn’t save yourself nearly as much taxes as you thought you were going to and you ended up paying some extra interest.
Dr. Jim Dahle:
It doesn’t mean it still doesn’t work out well by delaying when those shares were sold, but maybe not quite as well as you thought it was going to be if you can’t cover the debt from other sources of cash. Great question, Tim.
Dr. Jim Dahle:
All right, let’s take our next one. This one comes from an anonymous caller and is actually the one that we named the podcast episode after.
Travis:
Hi, my name is Travis from the Midwest. I have a question regarding for syndication deals. We recently invested in our first indication and we’d like to do more in the future. However, with minimums in the $50,000 to $100,000 range, this is something we would need to save up for and then of course wait for the right deal. Any advice on where to save for this? It seems like a lot of money that would be stored in high interest savings accounts at 0.5% or so. We also need to be liquidable and likely would use it over a year or so. Is it better to consider things like crowdfunding or AcreTrader as they typically have lower minimums? I appreciate your input in everything you do. Thank you.

Dr. Jim Dahle:
Okay. Maybe that question wasn’t so anonymous after all. It comes from Travis. That’s a great question, Travis, and one that I think a lot of White Coat Investors wrestle with. I mean, it’s really the dilemma. I think the better real estate investments, at least the passive ones are the private real estate funds. And they generally do have higher minimum investments, $50,000, $100,000, sometimes a lot, $250,000 or a million dollars.
Dr. Jim Dahle:
And obviously if you have to spend years and years and years saving up for that sort of a thing, you want to get a decent return on that savings in the meantime but also that probably tells you something about whether you ought to be investing into those assets. If it takes you three years to save up $100,000 to put into a private real estate fund, maybe that’s not the way you should be investing in real estate. So that’s something to keep in mind.
Dr. Jim Dahle:
Now you have two alternatives. One you simply invest in publicly traded real estate, something like the Vanguard real estate investment trust index fund. That was my only real estate investment for years and years and years and years. There’s no way I’d come up with a hundred thousand dollars in any sort of a short-term way to buy into a private real estate fund. And now I have some more money and I have some more income and I’m able to do that, but I fully recognize that there are many White Coat Investors that can’t do that.
Dr. Jim Dahle:
So maybe they just stick with publicly traded real estate. Maybe they look at some of these options that have lower investment minimums. Things like the crowdfunded companies. A lot of times you can get into a syndication for just $5,000 or $10,000 with them. There are also some private REITs companies like RealtyMogul and Fundrise that you can get into their REITs, which is a diversified real estate investment. That’s basically bunch of crowdfunded investments put into one little REIT and you can get into that for like $10,000 or $20,000.
Dr. Jim Dahle:
There are also access funds that for a price and an additional layer being removed from management, it’ll get you into a private real estate fund. That’s still something like a $25,000 minimum but it’s easier to come up with than $100,000. So those are kind of your options.
Dr. Jim Dahle:
And if your decision is that you want to invest in private real estate funds, like the one we’re going to talk about here in a minute, you probably need a reasonable plan to get there relatively quickly. If this takes you three years to save up the money, you probably shouldn’t be investing in something with $100,000 minimum. You’re just not at that level of wealth yet. Not to mention it will be difficult to diversify it because you’ll only have one fund at that point. And so, it’s not necessarily a great idea for you. I would wait until you’re making more money. And if you never make more money, go ahead and skip it. There are no called strikes in investing. It’s okay not to invest in something.
Dr. Jim Dahle:
But if you can save up for it in a relatively short period of time, the only question is how should you get a decent return on your money? And I think there’s two options. The one I usually prefer is just leave it in cash. And if there’s only going to be one, two, three, four, or five months, something like that, no big deal to have it in cash. Now you want to earn some money on your cash.

Dr. Jim Dahle:
Right now, I’m putting my short-term savings in Ally Bank. I think it’s paying 0.6%. Now 0.6% is not awesome, but you may have noticed that interest rates are really low right now and that’s about as good as it gets. I think Vanguard money market funds are paying basically 0% right now. So not a lot of great options there for cash.
Dr. Jim Dahle:
The other option you can do is you can invest it into publicly traded real estate. You can put it into the Vanguard REIT index fund. For instance, now this is far more volatile than cash. And so, there’s no promise that that money is going to be available in three or six months, or whenever you’re going to do this real estate investment to go into the real estate.
Dr. Jim Dahle:
But theoretically, if real estate is doing really well, that fund will do well. If real estate is doing poorly, that fund will do poorly. And so theoretically, you’re already invested in real estate. You’re just moving it from one real estate investment to another. And so, I think those are the two schools of thought you can use to save up that $100,000 or whatever you need to get into a private real estate fund if that’s the way you want to go with your investments.
Dr. Jim Dahle:
Speaking of private real estate funds, I wanted to bring on a guest here, and this is a sponsor. We’ve got lots of sponsors here at the White Coat Investor. We’re running a for-profit business, remember? But this is a sponsor. It’s also somebody who manages some money for me personally. The company is called DLP Capital Partners. Dream Live Prosper is what it stands for. And I’m going to bring on their CEO, their president and CEO, who is Don Wenner. He’s a relatively young guy, I think he’s 36 this year but has accomplished a great deal – 15,000 real estate transactions for $3 billion worth of assets.
Dr. Jim Dahle:
I think they’ve currently got something like $900 million in assets under management. That’s probably an old figure. It’s probably a little bit more than that at this point. But they run several real estate funds. I’m going to let him tell you about in a short segment that we’re going to do with him. I think this is about 10 minutes and let’s bring them onto the podcast now.
Dr. Jim Dahle:
Okay, Don. Welcome to the white coat investor podcast.

Don Wenner:
Awesome. Thank you for having me, Jim.
Dr. Jim Dahle:
I just wanted to talk to you for a few minutes about some of your investment options as well as real estate investing in general. Why do you think it makes sense to add real estate to your portfolio?
Don Wenner:
Yeah, I think it’s an interesting question. I was talking to a gentleman who works in the wealth management industry yesterday actually. And we had an interesting conversation, how in the world of wealth management, they call real estate and alternative investment. And my whole point to him was real estate is not alternative, real estate is the staple investment. The most wealthy families in America and around the world have built a large amount of their wealth from real estate.
Don Wenner:
For many wealthy families, majority of wealthy families I know real estate is the number one allocation bucket over public securities over bonds over any other asset class for a lot of really good reasons from the tax advantage nature, the limited amount of volatility, if invested in the right asset classes to the ability to generate consistent cash flow. It can be a great asset class for anybody to look at for exposure.
Dr. Jim Dahle:
Now your company, DLP Capital basically runs some private real estate funds. They’re not publicly traded, they’re private funds. What do you see as the benefit of using that method to invest over other methods of investing in real estate?
Don Wenner:
Exactly. We run private REITs, private investment funds. You’re not going to find them through the public markets. And I say there’s a couple of significant benefits. Number one, when you’re working with a private fund manager, if you’re working with a strong fund manager, you have the ability to buy assets at better pricing simply then large Wall Street institutions do. We are more nimble, more in touch with the markets, the buyers, the sellers, the brokers within the markets we’re buying.
Don Wenner:
And in return, we’re able to buy better because we’re directly integrated company doing our property management and construction management and all of the components of executing on our investment strategy we’re able to execute on driving value, keep our costs lower.

Don Wenner:
And then I think along the same lines a pretty important point is when you buy a publicly traded REIT, there’s somewhere in the neighborhood of 10% to 12% of your investment that goes out to commissions and fees. So, if you think about that, how can you generate as strong of returns when 10% to 12% of your principal is being paid in commissions and fees? It’s hard to make up for that.
Don Wenner:
Even putting aside, the fact that I just mentioned, we’re buying at a better basis and being able to execute better. We don’t have any commissions or fees that go out. And that makes a tremendous difference when you don’t have that front end load of expenses that are paid out to those who are selling the product makes a big difference in the overall returns.
Don Wenner:
But at end of the day, I think what is really critical is whether you’re making investment that is public or private, you’re really investing in the management team and the manager and their ability to execute on that investment strategy. And I’m confident we, and a number of other private fund managers are the best at executing on their investment strategies above and beyond the large Wall Street institutions.

Dr. Jim Dahle:
Let’s talk for a minute about the investments that you have available. You have basically three investments open right now. Can you give us the basics on all three of those?
Don Wenner:
Absolutely. So, here at DLP, we invest in workforce housing and we have a focus on investing in workforce housing that is affordable for the local workforce. That’s our big focus and we believe and consider our funds to be impact funds. And then we make a tremendous impact on this crisis here in America, as we see it. But we invest in that strategy, this workforce, housing asset class basically in two ways. We do so as a lender, lending money to other real estate operators. And we do so as an equity investor, as an operator investing equity and owning and managing the workforce housing communities that we buy.
Don Wenner:
So, we have different investment funds that focus on either as being a lender or as being the owner and operator. So we have the DLP Housing Fund, which is a $1 billion evergreen private REIT that goes out and acquires rental communities, mainly multifamily communities, average rent of $800 and $900 a month, generally 200 to a 1,000 unit communities that we go in. We improve through better management, through physical improvements to the assets and through creating a better community, better experience for our residents.
Don Wenner:
And in that fund, we target a 12% return net to investors. We pay out monthly distributions of basically half a percent dividend monthly, or in other words, 6% annual. That distribution has actually paid out before we even earn a management fee. And that investment is very, very, very tax efficient.
Don Wenner:
And the other side of our business, where we’re a lender, we have two funds available. We have one which is called the DLP Lending Fund, which is a $500 million evergreen private REIT. Its security, its assets are loans backed by real estate. First position mortgage is backed by real estate and that fund, we’ve been running it for over six years now.
Don Wenner:
We’ve generated double digit returns to investors every single month since the fund has been opened. The average return over the past six years actually has been over 13%, but we’ve hit over 11% annual returns every single month with two distributions paid out every month and with the fund being very liquid. You can redeem out of the fund at any time, which is 90-day notice.
Don Wenner:
And then we have another fund where you can invest in our lending side. You say, “Hey, this is great, but I want to get a fixed return on my investment. I want to be in the absolute lowest risk profile of anything DLP offers. And I’d like to get a fixed return on my investment”. You can invest in our DLP Positive Note Fund where you’re actually lending money to the fund, and you’re going to get a 5% to a 10% fixed return on your money based on how much money you invest and how long you choose to commit your investment anywhere from 90 days up to 5 years.

Dr. Jim Dahle:
Now, you’ve talked about the target returns for each of these funds, as well as past returns. What would you say would be a reasonable expectation for returns from each of the three investments for somebody going forward from here? What should an investor expect? What range of returns?
Don Wenner:
In both the DLP Lending Fund and the DLP Housing Fund, which are both funds where you’d be investing as a limited partner, as a passive limited partner within these funds. In short, what I would tell you to expect is double digit annual returns with monthly distributions.
Don Wenner:
Both funds have historically exceeded their return targets. The Housing Fund has a 12% annual return target, and the Lending Fund has a 10% target, but for really simple terms, expect double digit returns with monthly distributions.
Don Wenner:
And then our Positive Note Fund, it’s actually a fixed return. So, you’ll know exactly what your return is going to be when you make your investment ranging from 5% to 10%, depending on if you invest in the smallest scale of a $100,000 up to a larger amount depending if you commit just for 90 days or commit as long as 5 years, there’s a scale of 5% to 10% fixed returns that you’ll lock in it.
Don Wenner:
All of these funds provide great flexibility actually that you can take monthly distributions and all the returns I’m talking about are assuming you’re taking monthly distributions, or you can let the returns compound and grow and then you’ll actually get a compounded return, which would be an even higher yield.

Dr. Jim Dahle:
Now you do something unique, which has really impressed me actually, after having talked to a lot of people that run funds like you do. You actually pay out your preferred returns to the investors before taking any fees whatsoever. Now, why did you choose to run your company that way?
Don Wenner:
When we started many years ago now, I was in my twenties and I was a young fund manager, I had no long track record we could show. And we were determined that even though we were going out as this young fund manager saying, “Hey, we’re going to hit these really great returns and we’re really confident our ability to do so” we had a mindset from the very beginning that we were running this business, we’re growing our investment management business for the long-term. Like this isn’t something we’re doing for 5 years or 10 years or 20 years. I’m planning to run these funds and grow this business for decades ahead.
Don Wenner:
And as we set out on this path of taking on the responsibility, taking on our core value of stewardship here and taking on other people’s capital, we knew that, and we were confident the way we invest and the way we execute our investments, we’ve been confident from the very beginning we could generate above market level returns and generate really what some people can be life-changing kind of consistent returns.
Don Wenner:
But from the very beginning, our principles and our focus has been first and foremost on no losses to investors ever. We’ve known that’s been the most critical component of our long-term success and really for the success of our investors is not having the volatility of losses. So, we set out with a focus first and foremost of no losses to investors ever.
Don Wenner:
And then our second focus or principle of how we invest is consistent monthly returns. We focus on generating as high returns as we can without taking on risk of principal loss or without taking on risk of a volatility of not being able to hit consistent monthly returns that investors can count on.
Don Wenner:
So, with that being our principles, our mindset, and putting investors first, making sure they’re never in a position where they’re jeopardizing losing money or in a position where they’re not getting the consistent returns, they’ve grown to expect. We decided early on to put our money where our mouth was and do something that I don’t know of any other fund manager who does this, I’m not saying there aren’t any, which is that we set up our funds that our preferred returns depending on the fund, range from 6% to 10% preferred returns are paid out before we earn any fees.
Don Wenner:
For most funds, the manager gets a 2% management fee and then investors get a return after that. We set up our funds that our investors get their 6% to 10% preferred return and then we get our one to one and a half percent management fee. And then after that, we get to share in the profits above that preferred return. So, we’re proud to say after eight funds we’ve run over the past decade or so, many, many, many months of distributions across all these funds we’ve never had a single month where we’ve missed our preferred return to investors. So, we’ve been able to make sure investors achieve that targeted monthly return every single month in all of our funds.

Dr. Jim Dahle:
Don Wenner, CEO of DLP Capital, thank you so much for coming on the White Coat Investor podcast.
Don Wenner:
Thank you so much for having me.

Dr. Jim Dahle:
All right. I wanted to bring Don on the podcast, not only because he’s a sponsor of the White Coat Investor, right? They pay us money for us to advertise for them, in case that’s not abundantly clear, but also because he manages money for me. I have money invested in that Lending Fund. I’ve had some money invested in it through a third-party access fund for the last couple of years. And then I recently invested some money directly with him simply because I was able to number one, and number two, you save the additional layer of fees that you pay the access fund when you do that.
Dr. Jim Dahle:
And I was glad to do that. I anticipate investing some more money there in the future and may even get involved into their Housing Fund, which is the equity fund. But they’ve got three great options there. They’ve got the Housing Fund, they’ve got the Lending Fund, and they’ve got these Notes, which are basically a fixed return anywhere between 5% and 10% basically backed in the same way that the Lending Fund is backed.
Dr. Jim Dahle:
Now, I like the Lending Fund because I figured if I’m going to lend money backed by real estate, I want to get the 10%, 11%, 12% returns rather than the 5% to 10% returns. But that’s just me.
Dr. Jim Dahle:
What have they done for you? Well, these guys normally have minimum investments of $250,000 to $500,000, which is a stretch for most White Coat Investors. It’s really difficult, not only to come up with that sort of cash, but to diversify your portfolio when that’s the minimum investment.
Dr. Jim Dahle:
So, what they have done for us as they’ve come on board and sponsored us is that they have lowered the minimum investment for anybody that says they heard about them from the White Coat Investor or anybody that goes to them through our links. They’ve lowered that minimum investment to $100.000. A $100,000 is still a ton of money, don’t get me wrong. But it’s an amount that many White Coat Investors at least can reasonably come up with in a short period of time and reasonably diversify the rest of their portfolio with, particularly later in their career.
Dr. Jim Dahle:
So, if you’re interested in real estate investing, if you like the concept of investing passively in private real estate funds, I think Don and his crew do a really nice job doing it. I feel like they really put investors first. I cannot guarantee you’re not going to lose money in this investment. What I can guarantee is that if you lose money, I will also be losing money alongside of you and so will Don. The management team also invest about 5% of the proceeds of the fund. That’s their money in there. So, they’re investing alongside you. I’m investing alongside you. If you’re interested in this sort of an investment, go ahead and check that out. You can find that at whitecoatinvestor.com/dlp and I’ll be talking about that I’m sure in the future.
Dr. Jim Dahle:
If you are subscribed to our real estate opportunities newsletter, you’ve already heard about DLP. If you want to hear about the next ones that come along, I’m not putting all of them on the podcast. That’s the newsletter you need to be signed up to if you’re interested in this sort of an investment.
Dr. Jim Dahle:
If you’re not interested, that’s fine. These are totally optional. Now, even though Don sees it as the mainstay of your portfolio, you can retire just fine and reach financial independence and live happily ever after, without ever investing in anything but boring, old, low cost, broadly diversified stock and bond index funds. But if you’re interested in this sort of investment, that’s one to take a look at.
Dr. Jim Dahle:
All right, let’s take another question. Let’s take this question from Tim again. Tim in San Francisco about estate planning and a widow filing as married. Man, I don’t know what’s happened in your life, Tim, but I worry a little bit about you with these questions you’re asking with all these people dying in your questions. I hope everything is okay and these are all hypothetical.
Tim:
Hi Jim. This is Tim in San Francisco. I’ve been thinking about estate planning and I was thinking about the horrible scenario in which I might die and leave my wife and two kids alone. Specifically, I was thinking about what the worst part of this would clearly be that my wife would have to pay more in taxes because she would no longer be able to file jointly with me. Do you know if there are any structured systems in which people who find themselves as single earners can find a way to be married, but for legal purposes, somehow protect themselves from all liability of being married, but be able to file jointly and therefore get tax benefits? Thanks.

Dr. Jim Dahle:
No, Tim, you cannot say you’re married when you’re no longer married. And when your spouse has died, you are no longer married. Now they give you a little bit of leeway. The year your spouse dies you still get a file as married, but after that, your filing is singly. I don’t know of any way around that.

Dr. Jim Dahle:
The only other thing I could suggest is if you have a lot of assets and you think your taxes are really going to be terrible, once you go from being married to being single, you can pass a bunch of your assets to your kids at the time of death of the first spouse. Rather than having the remaining spouse inherit those assets, it can go directly to the kids. So that can give you some estate tax planning options. It can also potentially reduce some of the income tax you pay. If you have less than assets, you’re going to pay less than income tax from the income produced by those assets.
Dr. Jim Dahle:
Obviously, you’re also going to have less income to live on. So that might not necessarily be a good thing, but it is an option. But as far as some scenario where you can continue filing married, just because your spouse has died, nope, I don’t know anything like that, that would work.
Dr. Jim Dahle:
All right. Thanks to those of you who have been leaving us a five-star review. Don’t turn the podcast off. We’re not ending the podcast. I thought I’d moved this up in the podcast. But I appreciate those of you who are telling your friends about the podcast and leaving us reviews.
Dr. Jim Dahle:
Our most recent one came from a DrBStew who says “Not an MD but great info on the show! I’m a private practice physical therapist clinic director and partner. I appreciate all the financial advice! I have paid off student loans and I’m working towards building a reasonable FI number. Thanks for what you do!” Five stars.
Dr. Jim Dahle:
Thank you very much for the great five-star review. That does help us spread the word about the podcast.
Dr. Jim Dahle:
All right, Tim, we’re going to take your last question here too.
Tim:
Hi Jim. This is Tim in San Francisco. I wanted to thank you for turning me onto the books of William Bernstein. I think those books are amazing. My favorite book of his is “Deep Risk”, which I felt was really mind blowing. Of the risks that he discusses I feel I’m prepared for inflation because I have a good amount of stocks in our portfolio. Deflation, because we have a good proportion of foreign stocks in our portfolio. Confiscation, I don’t think we can do that much about, but I’m curious about devastation. It seems like a lot of people are thinking about it this year. Gun sales are way up. I’m curious how you think about devastation and whether you have any prepper fantasies that you’ve indulged. Thanks.
Dr. Jim Dahle:
For those of you who don’t know, Tim is referring to a book called “Deep Risk” by William Bernstein. It is part of a series of four books. They’re relatively small books, little more than pamphlets really, that talk about topics appropriate for investing adults.
Dr. Jim Dahle:
He views his full-length books as for any investor including investing children if you will, people who don’t know anything about investing. But these books assume you have a knowledge of the basics of investing before you pick them up. One of them is skating where the puck is or where the puck’s going to be, or don’t skate where the puck was or whatever it is. Perhaps the best one in there is “Deep Risk”. And he basically differentiates between shallow risk, which has volatility and four deep risks, which are the real true long-term risks to your portfolio.
Dr. Jim Dahle:
These risks include inflation, deflation, confiscation, and devastation. The most common one of those and the one which your portfolio definitely needs to be built to withstand is inflation. Inflation happens all the time in many different societies, and we’re not talking about the 2% or 3% inflation we’re dealing with here in the United States. I’m talking about hyperinflation and long periods of excessive inflation like they had in the 1970s in the U.S.
Dr. Jim Dahle:
The way you deal with that is from investments that outpace inflation such as stocks and real estate, as well as things like commodities and precious metals to generally keep up with inflation. And in your bond portfolio, having some of your bonds be indexed to inflation, like TIPS – Treasury Inflation Protected Securities. That’s the way you deal with inflation.
Dr. Jim Dahle:
Deflation is best dealt with bonds. When interest rates fall due to deflation and the economy cratering, things like treasury bonds, especially long-term treasury bonds do very well. And so that’s probably the best asset to deal with deflation. Those who owned long-term treasury bonds in the Great Depression actually did pretty well with them and were some of the few that had the cash available to buy stocks and real estate on a massive discount.
Dr. Jim Dahle:
Really interesting book about that period of time, it’s a journal of an attorney that lived through the great depression and talked about the prices of stocks and the prices of the real estate around him and how much he wished he had some money, so he could buy some of them. And what was obviously a massive, massive discount.
Dr. Jim Dahle:
The third of those Deep Risks is confiscation. Essentially what happened in Russia in 1918, when the government just kind of takes your stuff, takes your companies, takes your money, it takes whatever. And this does happen from time to time. I think it was Malta a few years ago where they just seized bank assets to pay off government debts. So, this sort of thing can happen.
Dr. Jim Dahle:
Now, how do you deal with that? Well, keeping some assets out of the country can help at least protect it from your country’s government. Having some assets that the government can’t find might help. This is why a lot of people buy stuff like cryptocurrency. They keep it on a little thumb drive that they can keep hidden from the government. The government doesn’t know they have it. Now, the government asks on your tax forms if you bought or sold cryptocurrency this year, but I’m sure there’s a lot of people that aren’t completely honest about that question.
Dr. Jim Dahle:
But that brings us to the question that you’re asking about Tim. Devastation. What should you do about it? Well, there’s not a lot you can do about your company getting creamed, right? When we’re talking about devastation, we’re talking about Germany in World War II. We’re talking about Hiroshima at the end of World War II. We’re talking about those sorts of devastation kind of scenarios. And it’s very difficult to maintain your assets in those sorts of situations.
Dr. Jim Dahle:
Now, if it’s a local or regional, maybe having your money invested in a U.S. and foreign stocks and bonds can protect it from that sort of a devastation, but obviously if it’s a countrywide or worldwide devastation, that’s not going to help very much. You can, of course, prepare yourself for that sort of a post-apocalyptic world, by having some things that can be sold and or used in that sort of a scenario, but that’s kind of where we get into the prepper stuff, right? And you can certainly get carried away with prepping.
Dr. Jim Dahle:
But I don’t think it’s a bad idea. I have some what I call camping gear around, stuff that you can use to bug out, stuff that you can use to live outside of your home, stuff that you can use in the event that something happens to your electricity and your water and your air conditioning and that sort of stuff. I use it for camping anyway. So, it’s no big deal for me to have that sort of stuff. Keeping some gasoline around is not a bad idea, storing some water and some food. Some people store three months of food in their house, other people’s store a year or more of food.
Dr. Jim Dahle:
Now if you want something that you can sell and that sort of a post-apocalyptic scenario, you got to think about the things that people are really desperate to buy in that sort of a situation. We’re talking about tobacco, we’re talking about alcohol, we’re talking about ammunition. If you’re looking for something to use in some sort of a weird barter economy, you’re probably not going to be slicing off slivers of gold bars to do that. And maybe you want to keep some of that stuff that would be a little more useful in a bartering kind of situation.
Dr. Jim Dahle:
But here we are going down a pretty weird little pathway that can really get to extremes in a hurry. So, there’s not a great way to protect yourself from devastation, Tim, but those are some of my thoughts on it.
Dr. Jim Dahle:
All right. Our next question is not from Tim. This one’s from Kevin. Let’s take a listen.
Kevin:
Hello, Dr. Dahle. My name is Kevin. I am a 45-year-old nurse anesthetist and very appreciative of everything that you’re doing in finances for the medical community. I do have a question regarding index funds. I had purchased a Fidelity extended market fund, as opposed to some of their other index funds that charge small expense ratios. And looking at the performance compared to their normal fund, there is a wide discrepancy. Maybe you can clue me in on the reasoning.
Kevin:
The Zero fund made 16.59% last year 2020. Their regular expense ratio fund was 32.16%. The only thing I can see is the extended market Zero fund did not have Tesla stock in it. I want to see if there’s something else that you can see why there would be such a wide discrepancy, and it makes no sense apparently to buy the Zero fund when you’re going to lose half your money on return. Just looking to see what you think about it. Thank you.

Dr. Jim Dahle:
That’s a great question. For those who don’t know what he’s talking about, Fidelity actually has kind of two sets of index funds. A couple of years ago, they came out with these new Zero index funds. I think there’s three or four of them. Yeah, there’s four of them. Basically, they decided they were going to take this race to the bottom as far as expense ratios go to the maximum. Vanguard has been lowering their expense ratios over a years and Fidelity and Schwabs and iShares have been trying to keep up with them. And they often kind of make them a loss leader even in charge of one basis point less than Vanguard does for instance. For those who think one basis point of expense ratio matters, which it doesn’t of course. But they basically took it to an extreme and started not charging an expense ratio at all on these four new funds they came up with.
Dr. Jim Dahle:
But when they came up with those, they didn’t lower the expense ratio on the index funds they already had. They started new funds and they are Zero large cap index fund, a Zero total market index fund, a Zero extended market index fund and a Zero international index fund. Now they already had index funds that basically followed similar segments of the market, but these were new ones that they added in.
Dr. Jim Dahle:
And I think it’s worthwhile talking about that concept, for a minute. I wrote a post at the time. This was back in 2018. I titled it “Don’t Obsess About Expense Ratios”. And what I meant by that is that once you get down below about 10 basis points, the expense ratio is not the most important aspect of choosing a fund.
Dr. Jim Dahle:
When you’re looking at index funds, you care about a couple of things. The first one is “What index does it follow?” And the second one is “How well does it follow that index?” And the expense ratio plays into the second part of that, but it has nothing to do with the first part, which is what index does the fund to follow? What is it trying to track? And obviously you want them to be good at running an index fund.
Dr. Jim Dahle:
That’s one of the reasons why I wouldn’t necessarily bail out a Vanguard to Schwab or Fidelity because I think Vanguard’s better at indexing than those other companies are even if the expense ratio is a basis point or two higher. In general, if you look at the long-term performance, it’s equal to or better than what you’ll get at Fidelity and Schwab.
Dr. Jim Dahle:
And I think that’s just because Vanguard’s better at indexing number one, and number two, when they loan out their shares to short sellers like people that want to short sell GameStop and American Airlines and Blackberry, and those kinds of stocks, they get income from lending those out. And Vanguard passes more of that income along to you than Fidelity does. So that’s part of the reason why Vanguard does such a good job following the indices. But the first part of that is “What index does it follow?”
Dr. Jim Dahle:
And the answer to your question of why one of these funds did so much better than the other fund comes down to the index it is following. Both of them did a fine job of following the index they were trying to follow, but despite both of them being extended market index funds, meaning the entire U.S. market minus the stocks in the S&P 500, they follow different indices. The first one, the one that charges an expense ratio is FSMAX. This is a Fidelity extended market index fund.
Dr. Jim Dahle:
And if you look at its Morningstar X-Ray Box, which I’ve talked about a lot on the blog, I don’t know how much I’ve talked about it on the podcast, but if you go to Morningstar and look up a fund and looking at its portfolio, it’ll show you an X-Ray Box, which tells you where the fund sits on the scale between large cap and small cap and on the scale between value and growth. And you can see if you look at that fund that the center of this fund is basically in the mid cap growth segment.
Dr. Jim Dahle:
Now, if you look up the same information on the Fidelity Zero extended market index fund, you will see that it centers in the upper right-hand corner of the small cap blend segment of the market. Clearly these two funds hold different stocks. It’s not just Tesla. It’s a bunch of different stocks.
Dr. Jim Dahle:
The one that charges an expense ratio is growthier and larger on average than the one that doesn’t charge an expense ratio, which is smaller and more valued. So, you shouldn’t be surprised in a year in which large and growth stocks performed very well, like 2020, that the fund that is larger and growthier is going to have better returns. And that’s exactly what happened last year. Large growth outperformed, the fund that was larger and growthier had higher returns and indeed it did.
Dr. Jim Dahle:
The first thing I checked when you left this question was, I made sure you were actually accurate and you were accurate. It turns out that the performance on each of these funds, I think it was on the one that charges and expense ratio FSMAX, I think it was 35% in 2020. So, it was a really good year for them, 32.16%, sorry. And on the Zero extended market fund, it was not that. It was actually a 16.59%. So, significantly less. Why was that less? Not nearly as much large growth in it. It turned out owning Tesla in 2020 was really good for your mutual fund.
Dr. Jim Dahle:
All right. I hope that was helpful to you. Remember, our advertiser this time is the White Coat Investor Real Estate Opportunities List. So, subscribe to that at whitecoatinvestor.com/newsletter if you were interested in learning more about real estate investing or just letting opportunities to invest in real estate come into your email box, like the DLP opportunity that we had earlier on the podcast.

Dr. Jim Dahle:
If you are interested in getting on the Milestones to Millionaires podcast, you can sign up for that at whitecoatinvestor.com/milestones. If you want to come to the White Coat Investor conference, March 4th through 6th live conference, it’s going to be great. You can sign up for that at whitecoatinvestor.com/conference. If you’re interested in finally getting a written financial plan together with or without CME, you can sign up for that at whitecoatinvestor.com/fyfa.
Dr. Jim Dahle:
Keep your head up, keep your shoulders back. You’ve got this and we can help. We’ll see you next time on the White Coat Investor podcast.

Disclaimer:
My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He’s not a licensed accountant, attorney or financial advisor. So, this podcast is for your entertainment and information only and should not be considered official personalized financial advice.

The post Where to Save $100K for Private Real Estate – Podcast #198 appeared first on The White Coat Investor – Investing & Personal Finance for Doctors.

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