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The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

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

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

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


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.
    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.
    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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