The Financial Me Part 2
The Financial me part 2.
In part 1 of the Financial Me, I spoke of my philosophy and financial goals. But before we go any further, I want to take you back to my humble beginnings. After all, every building starts with a single brick.
High School to Medical School:
During the summer after my senior year of high school, I worked as a cashier at the local copy store for minimum wage. At the time the $5.25/hr seemed like all the money in the world to me. I was so proud of myself when I received my first paycheck that I promptly blew it on music CDs. It was my first introduction to the world of money. Taxes, Social Security, Medicare- Oh my! I remember being shocked about how much of my earnings went to taxes.
After that summer, I went straight through college and medical school. For undergrad, I attended a public university so costs were reasonable. Between parental aid and scholarships, I was able to avoid taking any student loans there. In medical school, I took out federal student loans to pay for all of my tuition and the bulk of my living expenses (my parents covered a portion). I’m still paying back these loans today, though at a lower refinanced rate.
During medical residency, I finally started earning a small salary. I believe they called it a stipend. For the amount of hours I worked, the hourly rate was less than minimum wage. It was enough for me to live on as a young single male but not much went into savings. After finishing my fellowship, I landed a full time job as a private practice physician and my salary multiplied 6x overnight. On the first day of private practice, I had minimal savings and my net worth, including my student loans, was a big fat negative number.
Post Residency and First Job:
My number one financial priority was saving for a down payment on a house. Being in the Silicon Valley Bay Area, the cost of a home is significantly higher than in other parts of the country. My wife and I rented a home for several years and we scrimped and saved. After living as a student and resident for many years, it wasn’t too hard to not spend money. Student loan paydown took a backseat as we paid the minimum monthly payments. After four years, we purchased our forever home. Instead of buying a starter home and trading up later, we decided to really stretch and purchase a new construction home in a town with great schools. After moving so many times already, I didn’t want to move again. So again, our cash savings was depleted- but embedded in the equity of our house. This purchase occurred in the middle of the Great Recession so it was quite a scary time to buy a home. Writing the down payment check literally gave me palpitations -it was one of the biggest things I’ve done in my life.
Fast forward 10 years- The general economy has largely recovered. Real estate prices in Silicon Valley have gone through the roof and our home has appreciated tremendously. We’ve paid down most of our school loans, and our retirement savings are over $1 million. We continue to save in our retirement accounts through a profit sharing plan at my work and a self directed 401k from my side gig.
My Investing History:
I’ve always been interested in money and investing. During residency, I dabbled in some tech stocks and those investments ended badly. Over the next several years, I invested in more stocks and I mostly lost money or broke even. Remember WorldCom, Tyco, and Enron? Yeah, I invested in those. And in those rare times where the stock went up, the small gains were pitiful and I would quickly sell for fear of losing those profits. A $50 profit was a cause for dinner celebration- a profit that was quickly spent and then some. I came to the realization that I did not know what I was doing and the stock market was too volatile and unpredictable for me to pick individual stocks.
After doing some research, I discovered index fund investing to be the safest and most efficient investment for amateurs like me. Today, the bulk of my investments are in a mix of Vanguard stock and bond indexes. They’ve served me well and I plan to continue investing in them.
Evolution in Investing:
Several years ago, I began to study how institutions and high net worth families invest. If you look at the endowment model (Harvard and Yale), a decent proportion of the portfolio is allocated to alternative investments including real estate. Family offices (ultra high net worth individuals and families) also allocate a high proportion of their portfolio to real estate. Subsequently I began to study real estate in depth; one of the main reasons was to diversify my assets away from the stock market and all its volatility. I considered both out of state turnkeys for cash flow and in-state for appreciation. I eventually decided to invest close to home as this was my first investment property and we eventually purchased a single family rental home about an hour away. We hired a property manager and the property was rented shortly. Almost two years in, the property has appreciated and we have not had any major capital expenditure or tenant issues. Since this investment was predicated on long term appreciation and not positive cash flow, I knew this method was not scalable. I would have to wait many years to save enough cash to repeat this process. So how could I still invest in real estate passively? I had a good amount of funds in a retirement account but I could only invest in equities (stocks and bonds).
I do have an allocation in a REIT index fund, but that is an indirect investment in real estate. I wanted direct ownership in commercial properties. However, it is nearly impossible to invest in commercial real estate as an individual without expertise, time and capital. Around this time, the JOBS Act was passed in 2012. This allowed general solicitation and advertising of real estate deals and opened up commercial real estate investing to qualified accredited investors.
In 2016, I opened a self directed retirement account- in my case, a self directed 401K and tested the waters of commercial real estate through online crowdfunding platforms.
Future posts will delve into my experience with real estate crowdfunding and syndication.
Until next time,
Invest In Life