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The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Escheat
Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Contracts
Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017

Social Security
Issue #450, December 26, 2016

My Outlook for 2017: Part II of II
Issue #449, December 19, 2016

My Outlook for 2017: The Market
Issue #448, December 12, 2016

Medicine in 20 Years
Issue #447, December 05, 2016

Higher Interest Rates
Issue #446, November 28, 2016

Trump and the Markets: The Bad and Ugly
Issue #445A, November 23, 2016

Trump and the Markets: The Good
Issue #445, November 21, 2016

Negative Trends: The Suits aren’t Makin’ Steel
Issue #444, November 16, 2016

The New DOJ Fiduciary Rule
Issue #443, November 07, 2016

Barron’s Conference, Part IV of IV
Issue #442, October 31, 2016

Barron’s Conference, Part III of IV
Issue #Interim Bulletin #441A, October 26, 2016

Barron’s Conference, Part II of IV
Issue #441, October 24, 2016

Barron’s Conference, Part I of IV
Issue #440, October 20, 2016

This Newsletter
Issue #439A, October 12, 2016

Memoirs of US Grant: Vol II
Issue #439, October 10, 2016

More Points on Collecting, Investing and the Economy
Issue #Interim Bulletin #438A, October 05, 2016

Personal Memoirs of US Grant
Issue #438, October 03, 2016

Ideas for a High School Part-Time Job
Issue #Interim Bulletin #437A, September 29, 2016

Collecting, Investing, and the Economy
Issue #437, September 26, 2016

Free College
Issue #436A, September 22, 2016

A Military Commitment to Pay for Med School
Issue #436, September 19, 2016

When a CD isn’t a CD
Issue #435, September 12, 2016

I Made a Mistake
Issue #Interim Bulletin #434A, September 07, 2016

What is Your Spare Time Worth?
Issue #434, September 05, 2016

Credit Cards and Bonus/Loyalty Points
Issue #433, August 29, 2016

The Write-off of Student Loans
Issue #Interim Bulletin #432A, August 25, 2016

412 Retirement Plans
Issue #432, August 22, 2016

Join the Club
Issue #Interim Bulletin #431A, August 18, 2016

The Case for Precious Metals and Hard Assets
Issue #431, August 15, 2016

When the US went off the Silver Standard
Issue #430, August 08, 2016

Why NOT to Open a Restaurant
Issue #429, August 01, 2016

Some Tips on Life Insurance
Issue #428, July 25, 2016

More Observations on Negative Interest Rates
Issue #427, July 18, 2016

Embezzlement
Issue #426, July 11, 2016

Is a PhD Worth It? Part II of II
Issue #425, July 04, 2016

Is a PhD Worth It? Part I of II
Issue #424, June 27, 2016

Avoid Part-time real Estate Agents
Issue #423, June 20, 2016

The VIX
Issue #422, June 13, 2016

The Problem with Auction Reserves
Issue #421, June 06, 2016

Make Full Use of Your Capital Investments
Issue #420, May 30, 2016

The Fed’s Announcement
Issue #419, May 23, 2016

Quit While You’re Ahead: A True Story
Issue #418, May 16, 2016

The Precious Metals
Issue #417, May 09, 2016

Negative Secular Trends: Part Ii of II
Issue #416, May 02, 2016

Negative Secular Trends: Part I of II
Issue #415, April 25, 2016

Not Winning is not the same as not Losing
Issue #414, April 19, 2016

Behavioral Economics: Part II: Weaknesses
Issue #413, April 11, 2016

Behavioral Economics: Part I: Valid Points
Issue #412, April 04, 2016

The Most Important Books I’ve Read
Issue #411, March 28, 2016

Secret to Success: Take Risks and do Things Differently
Issue #410, March 21, 2016

The Over-Priced Food Presentation Hustle
Issue #409, March 14, 2016

The War on Cash
Issue #408, March 07, 2016

Precious Metals: Don’t Jump in Yet
Issue #407, February 29, 2016

The Bear is Growling
Issue #406, February 22, 2016

The Importance of Showing Respect
Issue #405, February 15, 2016

The 80-20 Rule of Thumb Pareto Principle
Issue #404, February 08, 2016

Some Tips on Commercial Real Estate
Issue #403, February 01, 2016

Economic Outlook for 2016
Issue #402, January 25, 2016

Selling Short: Part II of II
Issue #401, January 18, 2016

Short-Selling. Part I. How it Works
Issue #400, January 11, 2016

Who Can You Trust, and How to Spot a Con Man
Issue #399, January 04, 2016

Outlook for 2016: Part II of II
Issue #398, December 28, 2015

My Outlook for 2016, Part I of II
Issue #397, December 21, 2015

Want to Live a Long Time?
Issue #396, December 14, 2015

Some Tips on Retirement
Issue #395, December 04, 2015

Negative Interest Rates
Issue #394, November 30, 2015

What if the US Dollar Breaks to New Highs
Issue #393, November 23, 2015

How to Decrease Student Debt by 25%
Issue #392, November 16, 2015

The Importance of Buying Life Insurance when you are Young
Issue #391, November 09, 2015

Barron’s Conference, Part II of II
Issue #390, November 02, 2015

THE PHYSICIAN INVESTOR NEWSLETTER

HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.

Some Tips on Commercial Real Estate

Issue #403, February 01, 2016

    First I’m going to discuss a 1031 Exchange, which allows you to use the proceeds from the sale of an appreciated asset to buy a similar type of asset and defer paying taxes until the second asset is sold.
    1) The assets must be similar. You can’t use the proceeds from the sale of art to buy a rental property and qualify for the tax deferral.
    2) You have 45 days from the sale of the first property to identify up to 3 properties.
    3) You have 180 days to close. It makes no difference if day 180 is a weekend or a holiday.
    4) You need a good attorney well-versed in the process. The IRS allows no mistakes. If not done exactly by the book, you lose all potential tax advantages.
    5) After the sale of the first property, the money is held by a fiduciary, usually the Title company (RMD comment: During the financial meltdown of 2008, where there was the issue of hypothecation, there were examples of money lost by fiduciaries).
    6) It is common sense to look for potential purchases and line up financing before the sale of the first property, but some people don’t.
    7) Some people become too obsessed with avoiding taxes, causing poor decisions. Consider this: be happy you have profits. Flip Uncle Sam his dime and go on. If you want to get out of real estate, why buy another property just to avoid taxes? Even Warren Buffett said he should have sold his Coca Cola and some other positions in 1999, but knew there would be a huge tax bill.
    This provides some background to discuss Single Tenant Net Leased Commercial Properties. David Swensen noted in Unconventional Success (reviewed in Issue #6, 12/18/06) that real estate shares features with stocks in that it tracks inflation fairly well, and a bond, in that it pays a dividend = rent. Not surprisingly, its return in midway between the two. A reasonable investment portfolio would be 60% stocks, 25% bonds, and 15% real estate. (RMD comment: I personally suggest 5-10% of your wealth be portable, in the form of art, jewelry and precious metals. On CNBC on Friday, Cramer said that given the current financial situation, he suggests a 10% position in gold. Baron Mayer Rothschild recommended 1/3 stocks, 1/3 real estate, and 1/3 art).
    Single occupant commercial properties occupied by a National Credit Tenant, such as Walgreens, Dollar General, banks, restaurants, Best Buy, etc., are becoming more popular. The lease is usually triple net (the tenant is responsible for all expenses, including insurance, taxes, maintenance, utilities, etc.). In a Double Net Lease, the tenant is not responsible for the roof and structure and possibly HVAC and parking lot. Bond Net Leases are the strongest leases in the landlord’s favor.
    Such properties could be considered by physicians who are approaching retirement. Ex: At age 65, you purchase a $1.5M property for cash that has a capitalization rate (ie, rental return) of 6%, a return far above a CD at the bank. You will receive a check for $7,500 every month (typically with inflation escalators) for the next 15 years. Or make the purchase at age 60 with 50% down, use the rents and kick in any difference so that the property is paid off at age 65.
    General points:
    1) Just like a bond, the higher the credit quality of the company, the lower the rent it will pay.
    2) Set this up as an LLC, and have an umbrella insurance policy (RMD comment: all physicians should have a personal umbrella policy. They are not expensive). There is no SS tax on rent and royalties, but there is if you take a salary from the LLC.
    3) The owner has minimal responsibility, good for a busy physician and for someone with minimal experience in maintaining rentals. Just think of this as an investment, similar to a bond.
    4) There is the added bonus of depreciation. But note it is a general principle that structures can be depreciated but land can’t.
    5) Look for states with no income tax (AK, FL, NV, SD, TX, WA, WY. TN and NH don’t tax income, but do tax dividends and interest). Also note that some states impose a surcharge to out-of-state owners.
    6) Fast-food properties can be tricky: trends change and they remodel every 7 years.
    This is a very superficial discussion. My intent is merely to introduce the subject. There are real estate agents that specialize in such properties. Probably the best place to get started is to talk with a physician or businessman friend that has made an investment.
     
                                                                RMD
    My first of my 5 Commentaries on “Negative Secular Trends in Medicine” appeared in the January issue of the American Journal of Medicine”. The subject is Student Debt. Your hospital or medical school librarian can download the article for you. Please give it a look. I would appreciate your feedback. Amer J Med. vol. 129, #1, p 8-10, Jan, 2016. http://dx.doi.org/10.1016/j.amjmed.2015.07.014.
    Cousin Tony’s PPT (Plunge Protection Team) came to the (temporary) rescue. Our market had difficulty making much headway from the lows of 2 weeks ago, but overnight Thursday the Bank of Japan took interest rates negative. Our market was up almost 400 points.
    RMD comment:
    1) Do not get drawn in. This is just a pop in a bear market. In fact, this may be one of your last chances to sell and lighten up.
    2) These negative interest rates are uncharted territory. When I was growing up in the 50s and 60s, you received 4% interest on a passbook account: you could walk into the bank and get all of your money any time you wanted it. With negative interest rates, you pay the bank to hold your money. Savers are being crushed. The central banks want to produce inflation, but the low and negative rates seem to be having the opposite effect, of producing deflation. QE has not worked, but will be tried again.
    The World Health Organization said the Zika virus is spreading “explosively” in the Americas. Mothers infected during pregnancy have a high incidence of babies with microcephaly, a terrible, incurable and usually fatal brain deformity.
    RMD comment: break out the DDT. I don’t care what environmental effects it might have, we’re talking about human lives.
    I have subscribed to The Economist for years. I consider it, and Smithsonian Magazine, to be of the highest intellectual quality. I received several renewal notices that said make the check payable to xxxxx Magazine Billing. It just didn’t seem right, so I called The Economist. They said those people are not authorized to take subscriptions.
    RMD comment: be suspicious when things just don’t seem right. I am sensitive to this because I subscribed to The Sporting News for many years. In about 1979, when I was in Boston at the MGH, someone stole TSN’s subscription list, and I got gyped. If there is a legitimate mistake, the problem will be immediately apparent. If not, your suspicions are usually well founded.
    I highly recommend Thomas Jefferson and the Tripoli Pirates: The Forgotten War that Changed American History (Kilmeade, Yaeger, Sentinel Books). Edward Preble, Stephen Decatur, Isaac Hull and Presley O’Bannon are heroes worthy of our admiration. The book also shows clearly that tyrants understand only resolution and force.
    Dan French edited the first edition of my book The Physicians Guide to Investing. John Howe has replaced Dan as Chmn. of the Dept. of Finance here at the U. of Mo. John noted that I mentioned the 80/20 principle, which is more properly called the Pareto principle, after Italian economist Vilfredo Pareto. I will make it the subject of next week’s letter.   

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