Alternative Investments – Podcast #31
Podcast #31 Show Notes: Alternative Investments with Dr. Meadows
Our guest on this episode is Dr. Kenyon Meadows, a radiation oncologist who practices in Georgia. He recently wrote a book called Alternative Financial Medicine: High Yield Investments in a Low Yield World. In the book he discusses his ongoing experiences investing in stuff that isn’t stock and bond index funds. Now regular readers know that I also invest in “alternatives,” although only about 15% of my portfolio is invested in something besides index funds. So far it has been a pretty good experience. In this episode we get into both Dr. Meadow’s alternative investments and my own.
You can subscribe and download the podcast from ITunes, Overcast, Acast, Stitcher, or Google Play. Or listen to it right here on the blog or if you prefer, just read the transcript at the bottom. Enjoy!
Podcast # 31 Sponsor
[00:00:19] Today’s podcast is sponsored by Fundrise. Fundrise gives investors access to the exclusive benefits of private market real estate through a simple, online platform. That means, with Fundrise, you can invest in premium private real estate assets and earn up to 33% higher expected annual returns than those expected of traditional stocks and bonds. Experience all the benefits of the private market, plus the transparency of an online service and none of the hidden costs or mediocre returns inherent in the public market. You can get started today with an investment tailored to your portfolio goals, ranging from supplemental income to long-term growth. With Fundrise, anyone can finally invest in real estate like a billion dollar institution. To learn more, visit Fundrise.
Quote of the Day
[00:02:38] “Wealth is the ability to fully experience life.” – Henry David Thoreau
[00:01:24] I hope you’re also following us on Twitter. It turns out that’s actually the most up to speed way to keep up with me.
[00:01:40] March 1st through 3rd is the first White Coat Investor Con. We call it the Physician Wellness and Financial Literacy Conference and we hope you’re getting information about it, if you’re signed up, by email. If you’re not getting emails about the conference, please contact us so we can make sure you’re getting them.
[00:02:08] I’m working on an online course. By the time you read this it’ll probably be almost complete but I don’t expect to launch it until January. It’s going to be awesome. For someone who wants to become financially literate and have a written financial plan with as little pain and time spent as possible, it’s going to be perfect and a steal at the going price. There will be a special promotional period early on where you can get 100 bucks off. So watch for that in January.
[00:02:45] In today’s podcast we’re going to be talking a little bit about alternative investments. And we’ve got a special guest, Dr. Kenyon Meadows, author of Alternative Financial Medicine: High Yield Investments in a Low Yield World.
Alternative Investments discussed:
- [00:05:40] private mortgage lending, which is lending money to real estate professionals to flip houses.
- [00:07:51] Rental property of single family homes.
- [00:13:40] Tips to make this work more successfully like having a good property manager in place, having either a newer property, or a newer renovated property such that a lot of the capital expenditures and repairs and all that kind of stuff are kept at a minimum.
- [00:15:09]Loaning money to local entrepreneurs.
- [00:15:53] Real estate crowdfunding projects.
- [00:17:27] Partnering with house flippers
- [00:19:32] Turnkey rental properties
- [00:23:06] Peer to peer lending, like Lending Club and Prosper.
- [00:29:42] Real estate crowdfunding companies
- [00:33:23] Investing in a practice building where administrators work.
- [00:34:59] Fundrise’s new eREITS
- [00:39:15] Buying a share of your hospital
- [00:40:58] Buying into a surgery center
- [00:42:45] Business debt lending
Visit Dr. Meadow’s website at Alternative Financial Medicine and check out his book, Alternative Financial Medicine: High Yield Investments in a Low Yield World.
Intro: [00:00:00] 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. Dahle: [00:00:19] White Coat Investor Podcast #31, Alternative Investing with Dr. Meadows. Today’s podcast is sponsored by Fundrise. Fundrise gives investors access to the exclusive benefits of private market real estate through a simple online platform. That means with Fundrise you can invest in premium private real estate assets and earn up to 33 percent higher expected annual returns than those expected of traditional stocks and bonds. Experience all the benefits of the private market plus the transparency of an online service and none of the hidden costs or mediocre returns inherent in the public market. You can get started today with an investment tailored to your portfolio goals, ranging from supplemental income to long term growth. With Fundrise anyone can finally invest in real estate like a billion dollar institution. To learn more visit Fundrise.com/whitecoat.
Dr. Dahle: [00:01:05] A reminder to be sure to visit my other partners in the White Coat Investor network. Physician on Fire, which can be found at physicianonfire.com and Passive Income M.D, which can be found obviously at PassiveincomeMD.com. Next week in fact we’re going to have passive income M.D on the podcast here.
Dr. Dahle: [00:01:24] I hope you’re also following us on Twitter. It turns out that’s actually the most up to speed way to keep up with me. I post interesting stuff that I find on the Internet there and just a few minutes whereas you might be waiting weeks for the newsletter or this podcast and months for blog posts that I’m writing now.
Dr. Dahle: [00:01:40] The snow is falling here in Utah and the conference is coming. March 1st through 3rd is the first White Coat Investor Con. We call the physician wellness and financial literacy conference and we hope you’re getting information about it if you’re signed up by email. If you’re not getting emails about the conference, please contact us so we can make sure you’re getting them. Of course that conference is full so if you’re not on the wait list you’re probably not come in this time but hopefully it goes well and we end up being able to do it again.
Dr. Dahle: [00:02:08] Most are working right now on an online course. By the time you hear this it’ll probably be almost complete but I don’t expect to launch it until January. It’s going to be awesome though. It’s not going to be cheap though because I’ve literally spent every spare moment I had in the last two months making it and the information in it is super valuable. But for someone who wants to become financially literate and have a written financial plan with as little pain and time spent as possible, it’s going to be perfect and a steal at the going price. There will be a special promotional period early on where you can get 100 bucks off. So watch for that in January.
Dr. Dahle: [00:02:38] Today’s Quote of the day comes from Henry David Thoreau who said wealth is the ability to fully experience life.
Dr. Dahle: [00:02:45] In today’s podcast we’re going to be talking a little bit about alternative investments. And we’ve got a special guest here today. Dr. Kenyon Meadows. He’s a radiation oncologist who practices in Georgia. He recently wrote a book I reviewed on the blog called alternative financial medicine. It’s subtitled high yield investments in a low yield world.
Dr. Dahle: [00:03:04] In the book he discusses his ongoing experiences investing in stuff that isn’t stock and bond index funds. Now regular readers know that I also invest in alternatives, although only about 15 percent of my portfolio is invested in something besides index funds. And so far it’s been a pretty good experience. We’ll be getting into both Dr Meadow’s alternative investments and my own today and hopefully we’ll all come away a little bit smarter. But first let’s get to know Dr. Meadows a little better. Welcome to the show.
Dr. Meadows: [00:03:30] Thanks for having me Jim. Appreciate it.
Dr. Dahle: [00:03:32] It’s great to have you on. My readers or listeners I should say, prefer having something besides my voice on the podcast, so I try to indulge them and I think going forward we’re going to be doing a couple of interviews a month. And so that should be great. But first let’s start with you telling us a little bit about yourself both your clinical practice and how you ended up getting involved in teaching about investing.
Dr. Meadows: [00:03:55] So yeah. You mentioned I’m a practicing radiation oncologist here in southeast Georgia, practice full time and been out since 2006, and this journey into alternative investments. Well quite honestly it came out of dissatisfaction as you will with the returns and my experiences with investing in traditional stocks and bonds. I think everyone can remember the 2008 crash. And for those of us who have been out a little longer you know back in 2001. And so I recognize that the public markets they certainly deserve to be a big chunk of your investing portfolio. But I did begin to be interested in something else that wouldn’t be correlated with the markets. Wasn’t necessarily going to go down and lock stock when the market took a crash you know, something not correlated basically. So that got me interested initially.
Dr. Dahle: [00:04:59] Great. How long are you out of training?.
Dr. Meadows: [00:05:04] I finished in 2006.
Dr. Dahle: [00:05:06] 2006 so actually the same year I got out of residency. And. And your married, children?
Dr. Meadows: [00:05:13] Yeah. Married and two girls 10 and 9.
Dr. Dahle: [00:05:16] Cool. Very cool. And so I mean obviously at this point in your career you kind of approach in mid-career like I am and you’ve got your investments on the side and you’ve got your website and your book and also you have your clinical practice still so that’s that’s great to have all those sources of income. Tell us a little bit about the book, why you wrote it, and who should read it.
Dr. Meadows: [00:05:40] Well so I got into alternatives in a real meaningful way about 2012. And basically I started doing things we called private mortgage lending which was lending money to real estate professionals to flip houses. And that dovetailed into buying rental property and then also about that time the online lending really started to jump off in a meaningful way with things like peer to peer lending. The real estate crowdfunding and things of that nature. And so I happened to to delve into that. And after a while it became obvious that I was having a good experience with it. I was enjoying learning about it and in talking with my colleagues and I know we’ve all had the doctor’s lounge chatter, when I would bring up what I was doing. It just seemed to be so foreign and different from what most people were doing. And many people would ask me to talk at more length about it. And that got me thinking well you know why don’t I read a book and write it from the perspective of it to be sort of a primer as it will for a busy professional who is looking to learn about some alternative assets.
Dr. Meadows: [00:06:58] And from the perspective of somebody that was not biased meaning I didn’t have a financial product to sell them which of course most of your listeners will when they get financial advice it is coming from somebody who ultimately has something to sell them. So that would be a different and unique perspective.
Dr. Dahle: [00:07:16] Very cool. Yeah I’ve read the book it’s a quick read I think. I think it’s 96 pages is what Amazon’s telling me it is. And I got through it pretty quickly. The thing I liked about it is it was very personal. It was here’s where I’m at, Here’s what I’m doing. You know I did this, I did this, and it’s it’s really personable, feels like talking to somebody in the doctors lounge.
Dr. Meadows: [00:07:40] Well that’s where it was born out of a lot of conversations in the lounge for sure.
Dr. Dahle: [00:07:46] Now tell us about your asset allocation. What are you actually invested in?
Dr. Meadows: [00:07:51] So all the different categories in the book are representing things.I had invested in. If I had to put it into general buckets. There’s some form of real estate and the other bucket would be some form of alternative lending. And so at the cornerstone of everything honestly is owning cash flow rental property, single family home. That’s that’s the thing that’s going to be the that’s the main thing that I’m allocated in. And then number two would be the private mortgage lending offline as it were. Because we’ve got we’ve got the online crowd funding nowadays. But those are the two biggies and the other things I would say they think they’re meaningful but they’re they’re smaller allocations. And then you want to know about my overall allocation and particularly, well how much do you invest in the traditional stock market. Well that’s still a big chunk of what of what I have because, as you recall up until 2012, that’s pretty much all I did. So any any discretionary money that I had you know after I funded my retirement account and took care of all my other obligations, I had a taxable account at Merrill Lynch and was very aggressive with that. It’s just that it’s tailed off considerably since I started doing the alternatives the last four years.
Dr. Dahle: [00:09:11] So. So do you have a written percentage that you try to keep a certain percentage in stocks of your portfolio, and a certain percentage in real estate and a certain percentage in hard money loans?
Dr. Meadows: [00:09:23] Not a firm percentage. I did look over my overall allocation in preparation for this podcast and I knew that was something that you wanted and as it turns out it’s about 60 percent alternatives and 40 percent stocks. But again that’s a big sea change for me the last few years where I’ve done pretty much just just do my work 401k. In terms of the stocks and everything else has been a lot of alternatives.
Dr. Dahle: [00:09:49] Do you expect that ratio to continue to grow? All the alternatives to you know stocks and bonds to grow?
Dr. Meadows: [00:09:58] I think that I think that ratio will continue to tilt more toward the alternatives. I mean I think that again I’m very very comfortable with with the ownership of the rental property. I’m very comfortable with the private lending partners that I’m with. And so yeah I think that that that definitely deserves to keep to keep growing. When it comes to the other things, the online lending, because ultimately you have you have a lot less control over that. Those percentages will be kind of kept you know where they’re where they’re at or they’re always be a more modest percentage of the portfolio. So I think that’s how it’s going to be going forward.
Dr. Dahle: [00:10:41] Very cool. So you’re still maxing out your retirement accounts then and that are available to you?
Dr. Meadows: [00:10:46] Yeah yeah. So you know I have the I’m an employed physician so you know I have the account there. And then from a prior job I did have a small IRA that I rolled over as a as a Roth actually and it’s actually the self-directed thing and so I actually do something like this with what a small self-directed account too.
Dr. Dahle: [00:11:09] That’s good to hear you know I’m surprised how many people I run into they’re interested in real estate or alternative kind of stuff. And then I find out they’re not even using you know a Roth IRA that’s available to them. And meanwhile they’re investing in very tax inefficient stuff just in a taxable account when they haven’t even maxed out their retirement accounts.
Dr. Meadows: [00:11:29] Right. From what I read I think only about 3 percent of people have a self-directed account. And so yes it’s not that common.
Dr. Dahle: [00:11:38] Yeah for sure there’s definitely an extra step of complexity in order to get a self-directed IRA. But I I’m just surprised that you know even people I think I listen to a podcast on bigger pockets which is a huge advocate for you know real estate investing and the person doing the podcast hadn’t even heard of a Roth IRA basically and I was just really surprised because there are so many ways that you can combine the benefits of the retirement account with still being able to invest in what are not necessarily traditional investments.
Dr. Dahle: [00:12:08] So what would you say to a doc that can’t max out his retirement accounts and invest in alternatives. He’s got to choose between the two what would you say to that doc?
Dr. Meadows: [00:12:21] Boy I had thought about that one. I would say that it would depend on what alternative he was going to get into if he was just going to do something relatively passive such as like a real estate No. Or something along those lines. I think you could kind of go either way. Now if you’re going to get something like, let’s say like a rental property. Right. I really think that between the cash flow, tax advantage, leverage, all that when it comes to rental property I think I actually would lean more towards that route assuming you could get comfortable with ownership and just learning about you know what it means to be a landlord. And and and owning the property and all that comes with it. And there’s you know there’s definitely it’s not totally passive. So if I had to choose between those two I would say they go with the rental property. To be honest with you.
Dr. Dahle: [00:13:17] Now what would you say to critics? Let’s take a hypothetical critic off the Bogle heads forum. I mean someone brings up real estate investing there and the first thing that happens is people scream that’s a second job you don’t want a second job do you? And what are you going to do when the toilet overflows. You know what what’s your response to those kinds of criticisms of investing in real estate?
Dr. Meadows: [00:13:40] Well that’s very much that very much could be a possibility. And I certainly wouldn’t advocate for any Doc practicing full time to try to be the first line manager or the person making the calls when you get the the toilet overflowing at 2:00 in the morning. So you’re having a good property manager in place, having either a newer property, or a newer renovated property such that a lot of the capital expenditures and repairs and all that kind of stuff are kept at a minimum.
Dr. Meadows: [00:14:16] So those are kind of things that I would say to make sure you have in place before you go doing it. But if you do that I can honestly say that owning well-managed rental property that’s in good shape can be relatively, emphasize relatively, passive meaning you’ll have to manage the manager. You know there be issues that come up, tenants unexpectedly move out, you know an eviction, that kind of thing. But you’re really making more executive type decisions in terms of telling them, OK yes do this, no do that. And having somebody really really managing the day to day the mechanics of it so it’s not that bad. It really isn’t.
Dr. Dahle: [00:14:57] Now I mean no nobody ever has all home runs when they step up to the plate. What are some of your worst alternative investments some some of the experiences that maybe maybe weren’t so good?
Dr. Meadows: [00:15:09] Yeah. Honestly loaning money to some some local entrepreneurs, that’s been not great. In terms of things that were covered in the book. I’ve done a lot of real estate crowdfunding projects. First Position debt on them so so loaning money on up on projects. And there have been a couple that have not worked out. OK. And the properties are in various stages of foreclosure and ultimately will be liquidated and the platforms are cautiously optimistic that they’ll will ultimately get our money back. But it’s you know it takes several months to go through that process. So that’s definitely been something that’s not worked out.
Dr. Dahle: [00:15:53] And what what percentage of the online crowdfunded hard money lending that you’ve done do you think has ended up in default?
Dr. Meadows: [00:16:03] Yeah. I’ve done like 42 projects and I currently have three that are in some level of default, and about 25-26 of them or so have actually completed and capital’s comeback and the others are performing as expected.
Dr. Dahle: [00:16:19] You know it’s interesting those percentages actually seem pretty high. When I look at their data what they cite I mean a lot of them are citing you know default rates of 1-2 percent whereas yours is closer to 6-7 it sounds like has been your experience.
Dr. Meadows: [00:16:35] It’s been my experience. Yeah. Three, three out of about 40. So again you know when it ultimately comes down to it that the three that are in default they had been paying all the way up until the time it was time to exit and everything I’ve been collecting interest in and and on least two of them. You know I feel pretty confident that they are going to be able to get us our money back. So we say an ultimate default. I may I think maybe one ultimately will default.
Dr. Dahle: [00:17:03] Maybe that’s a discrepancy between the percent. Right.
Dr. Meadows: [00:17:06] Exactly. I think they’re counting ones that they’ve gone through the foreclosure process and even still they weren’t able to salvage money. So I think that’s where it comes in.
Dr. Dahle: [00:17:17] Now tell us about your home runs. Tell us about your best experiences investing in alternatives the stuff that’s really got you jazzed about this and has you move in into doing more of it with your portfolio?
Dr. Meadows: [00:17:27] In terms of in terms of just raw returns, not talking about tax advantages or anything like that partnering with a rehabber or house flipper and participating in some of the upside on the profits would be a nice profit split, that that for sure from a pure return standpoint has been the best thing. Where you can, you know these guys they they they rehab dozens of houses a year they have multiple projects going at once and you can participate with the same money, like like twice a year say for instance, like two separate house flips and you can participate in the upside on the sale and everything. You can definitely get returns north of 30 percent been able to achieve some times. So that’s pretty nice.
Dr. Dahle: [00:18:15] That’s pretty exciting. Those are people you know locally or that’s a group you met online or who is that group?
Dr. Meadows: [00:18:23] In a couple of instances online. But then ultimately getting getting together in person and and they turn out to be regional even though my initial contact with them with was somebody online. So yeah these are these are folks kind of in the local regional circle as it were that I know. Yeah.
Dr. Dahle: [00:18:43] Any the other particularly great experiences you could share?
Dr. Meadows: [00:18:48] Well I mean I guess I would come back to the the rental property right. I was a little timid in terms of of delving into that being a landlord and everything. But again I’ve met up with. I did a lot of due diligence learned a lot about the space and found a great partner in that in that arena called turnkey rental investing.
Dr. Meadows: [00:19:10] And that has been basically a revelation for me in that you know you can own a portfolio and grow it and not be this thing that is a constant headache at all. And so that has been very very very very good. And and something I would definitely champion.
Dr. Dahle: [00:19:32] Now when you talk about a turnkey property you’re talking about a rental property in another city? Right? Not something you can drive by on your way home from the hospital?
Dr. Meadows: [00:19:40] It certainly can be that way and that you know for the returns to work out well in everything. There’s a lot of areas in the country where it’s very difficult to own a rental property and have it cash flow properly. So yes, you’ve got to get comfortable with potentially owning property well outside of your geographic Metro particularly if you live in a very expensive area.
Dr. Meadows: [00:20:05] Now as it winds up turning out my properties there are about an hour and a half away in Jacksonville Florida. So they’re not down the block. I can’t just walk to them but they’re not so so far away that I can’t go by and check on them every once in a while. But but but the point is I I’ve gotten comfortable enough that what a good provider and everything I would have no problem owning a property in another you know clear across the country. I would but you but you’ve got to do your homework on that.
Dr. Dahle: [00:20:34] Yeah I certainly had a rotten experience with across the country rental property. But the main problem I had was I could not find a decent property manager at any price.
Dr. Meadows: [00:20:44] Well here’s the thing with the whole turnkey model. The best situations are when the turnkey provider i.e. the person sourcing the property and rehabbing it and everything and getting it tenant ready if they stay on as the manager. A lot of people feel that that’s the best way to go because ultimately they’re more connected with you having a good experience because they ultimately want you to buy more turnkey properties off of them which is really where they make their most money. And the property management is just sort of a thing that they do. But when you turn things over to a third party property manager, you know property management is such a low margin business. Yeah it’s tough. It really requires people to know it can be kind of time intense and management intense and it’s very hard to find to find good ones. And I’ve talked to a lot of real estate pros have big big portfolios and they complain about it too. So yeah property management is difficult.
Dr. Dahle: [00:21:41] You know I think that was exactly the problem we had. You know I mean they just weren’t making that much off of us. I think our place rented for less than eleven hundred dollars or something like that. I can’t remember exactly what it was. So they were only getting 10 percent of that so for 110 bucks a month, I just couldn’t expect him to spend much attention on my property. You know they had 200 others they were trying to manage and that ended up giving us enough problems that we literally started managing it from all the way across the country. You know the property was in Virginia and we were in Utah at the time.
Dr. Dahle: [00:22:11] And you know I decided when the tenant was gone that was it, we were selling it. No way I was going to try to put a new tenant in there from Utah. It just didn’t make any sense.
Dr. Meadows: [00:22:20] Well yeah I don’t know how much time you spent maybe talking with a lot of the management companies current clients but that’s a big thing there because they certainly will tell you the truth. So that’s something I always do.
Dr. Dahle: [00:22:35] Yeah we we we I think we found every property manager in the in the in the city there in the county that could have done it. I mean we beat the bushes looking for a good property manager. So I agree. Maybe even before buying the property. The key is to have the property manager in place because that is certainly a big piece here. They can make or break it when they’re out of state.
Dr. Dahle: [00:22:57] All right. Well let’s talk about some of the issues I’ve had with some alternative investments and see what you think and get your opinion and just have a conversation about it for the rest of the podcast.
Dr. Dahle: [00:23:06] So in 2012 about the time you are getting into this stuff, I got into lending club as well. And you know read everything there was online about it and the returns looked promising and I invested in my returns were promising. You know I was getting 13 percent 12 percent that sort of thing and being fairly aggressive. But you know picking loans that showed promise at least in the retrospective data to do well going forward and I continued to have double digit returns up until about mid 2016. And then all of this revelation started coming out about lending club, some of the screwy things their CEO was doing, and he got canned. And since then I decided you know I had one night where I laid awake thinking about that investment and it was hard for me to add to it. You know I dedicated 5 percent of my portfolio at that point to a peer to peer loans and I decided that night that I wasn’t comfortable with it the next day I started liquidating. I’m still liquidating you know because as you know some of those notes are three year five year notes and if you can sell them on the secondary market which seems to be becoming harder and harder these days you’re really stuck with them for the long haul.
Dr. Dahle: [00:24:19] And so while I’ve you know I’ve cashed out 90 percent of my investment I think you know I’ve still got a little bit going forward there and my returns since mid 2015 haven’t been terrible by any means but not what I was seeing before. What are your thoughts on on these you know peer to peer lending in the lending clubs, the Prospers, some of the smaller ones and where you think they’re going whether you think they’re still worth investing in?
Dr. Meadows: [00:24:43] Well you know we have a lot of parallels with our experience there. I actually was able to meet the CEO, Laplante, at a conference I went to. There was a big online lending conference and happened to be out in San Francisco a couple of years ago and I happened to be out there so I went and had a chance to meet a lot of the the heads of a lot of these online platforms. Crowdfunding peer to peer and everything. And you’re right. You know I got into the peer to peer lending about that same time, about the same asset allocation in terms of the portfolio and everything. I was less aggressive than you were. I was aiming more towards 7-8 percent type returns and investing a lot of AB B-type loans. And when all that stuff came down last year with the CEO and everything on my returns didn’t didn’t slip very much a mild spike in some of the defaults and everything. But ultimately what was expected and what I actually got. You know they vary by like a half a percent or so. So now I did stop adding to my positions about a year ago and I’m slowly letting things cycle on out. And so I do think that the peer to peer you know conceptually and as an asset class I think it does have long term legs.
Dr. Meadows: [00:26:05] I just don’t know if lending club ultimately is going to be the company that’s going to mean they can right the ship but I’m down on them and I haven’t really transitioned into like Prosper which I think would be the other really big one in that space and haven’t paid much attention to some of the smaller players. So yeah I’m my enthusiasm for peer to peer is you know it has gone down even though my personal experience for the for the the the loan and credit quality I invested in the returns have been about what what was promised.
Dr. Dahle: [00:26:40] You know it’s interesting part of the issue I had with that was I looked at it and I said you know what I can make eight or nine percent and loan to people that are putting no collateral up whatsoever. You know they’re their interest rate might be 20. But you know I’m going to get eight or nine percent maybe and or I can lend to somebody and get eight or nine percent and have it backed up by a real property. Yeah. And that was one of the things that I just said you know what I’m going to start lending on you know hard money loans where there’s a property that I can foreclose on at least have a pretty good chance of getting most of my money back by liquidating the property. And that was kind of what pushed me out of the peer to peer lending in the end. You know I didn’t like the irregularities going on. I didn’t like the platform risk but mostly I just said why am I doing this if this is all I’m getting. You know if I’m getting 13 maybe it’s worth doing but if I’m getting eight it just didn’t seem to be worth. You know basically giving people signature loans.
Dr. Meadows: [00:27:44] I see. Yeah. And when you look at it in that perspective you’re absolutely right. Because you know when a loan goes bad on there you know you pretty much you know a platform even tells you you know don’t count on those collecting on it. Whereas on the real estate side of things you know I’ve got a few a couple of loans that have gone bad and I feel pretty good actually about getting getting my money back so I totally get it. I think you know that was peer to peer with one of the very first things I got into the peer to peer predated the real estate crowd funding. You know they’ve been around since about 2007, the real estate crowdfunding only been around since like the very first platform were in 2012 tail in. So for a while you didn’t really have a choice really. But now now to the real estate crowd funding has emerged I think because it’s secure. That’s a much much more enticing proposition. Although I can tell you from having been on the crowdfunding platform in the very beginning you know the interest rates offered on them. They’ve they’ve come down considerably as I think more and more people are getting into that asset class and they don’t have to offer quite as attractive rates. I’ve been on there long enough where I’ve gotten you know 14-13 percent debt first position debt loans and now pretty much everything’s maybe like 9 percent or so. But I had to cut out a couple of years there were I was getting in the teens all the time.
Dr. Dahle: [00:29:10] Well you know it’s even worse than that. I’ve been watching Peerstreet this last month. And they send me an e-mail most days about noon that they got a new you know property available free loan on. And literally it fills at 9 percent in an hour. You know if you want to investment you got to basically be sitting on your e-mail when it comes in. I think the demand’s really going out for these investments and I suspect that will push rates down.
Dr. Meadows: [00:29:38] Yes absolutely. As people have gotten comfortable with it. Yeah.
Dr. Dahle: [00:29:42] You know speaking of that you know this crowdfunding real estate stuff. Now there’s probably 120 companies online doing this now. How does somebody go about picking the good platforms out of that. I mean what do you recommend when someone wants to do this.
Dr. Meadows: [00:30:00] Well you know my perspective being an early adapter. And I was on the platforms where I mean literally like you asked in a property and you’d get an e-mail or a call or whatever from one of the principals on the platform you know to to talk with you and all that kind of stuff. And so you know I had a chance to learn a little bit about the industry from some of the insiders to everything. And as it turns out I happened to be on a lot of the platforms from pure size from a pure size standpoint which I think does matter I would view them as safer because they had several properties cycled through. They’ve gotten to work with several sponsors that they call them the people who the actual real estate entrepreneurs during the work and in the end there’s a track record there. And so I would certainly stick with some of the bigger more established platforms that have been around since 2012. I think you you from an operations standpoint and from the quality of sponsors they work with that have a track record I think you’ll do better than some of the newer ones as a very general guide.
Dr. Dahle: [00:31:10] Now let’s name a few names here. When you say the big guys who are you talking about I mean just assume someone listen to this podcast has never even you know googled crowdfunded lenders before.
Dr. Meadows: [00:31:20] I would say realty shares is certainly one of the biggest, realty mogul, and patch of land. Those are three platforms that I know have been around since 2012. I think the first year and have been in the game you know pretty much from the beginning and I think I pretty much made mention of those in my post on your site about my experience in crowdfunding. So I would start there not to say that some of the newer guys can’t be good as well but I do think there is some value in going with some of the established and bigger players. I think they have less, They have less incentive to list more questionable deals just to have enough volume on their platform you know which is which is a real issue I think with some of the newer players out there.
Dr. Dahle: [00:32:12] So for sure the volume is an issue. It’s interesting how difficult it is to find a deal. Do you do you keep cash sitting around to wait for a deal. I mean it hasn’t been my habit investing over the years to keep a bunch of cash sitting around. I basically invested when I got paid. But with these deals I’ve found that sometimes you have to wait a few weeks or you know for a syndicator in particular maybe a few months. Do you find yourself carrying a lot of cash waiting for an attractive deal?
Dr. Meadows: [00:32:43] I do. So there is that there is a component of cash drag as they say on the portfolio but I think in terms of its ability allow me to you know sort of cherry pick or you know get a deal that I think from the terms on it, if it’s a repeat sponsor know something pretty attractive about it. I think it’s worth it to for me and not just feeling pressure to just sort of invest as soon as they have you know any particular deal up there. So yeah I do keep a little bit. But fortunately as you know the amounts to invest can be you know pretty modest per deal. Right. So at least it’s not not not a ton.
Dr. Dahle: [00:33:23] Exactly. So let me tell you about another experience I’ve had in alternative investing and get your thoughts on that. So I’m in a partnership now I think there’s 150 docs in it or so and we have a practice building you know where our administrators work out of and there’s a separate company that you know docs in the partnership are allowed to buy into that owns the practice building which is basically leased to the partnership. And you know and it’s some years it’s had a really good return and some years it hasn’t. This year the return was surprisingly low when real estate in Salt Lake had been doing very well and so I kind of balked a little bit at it and I said what in the world why did we have no return this year? And as I dove into it I realized you know there’s nobody really managing the store all that well on this investment. You know we’ve got our practice administrators and we’ve got the docs that are busy practicing medicine. But you know it turns out that there’s maybe a few things that we probably ought to look a little more carefully at in how we operate and actually go a little bit more by the book with that. But what are your thoughts on owning the building you practice in and those sorts of investments?
Dr. Meadows: [00:34:31] Well you know I can’t really comment in depth on that. I’m part of that breed of of you know Doctors of this younger generation where I’ve been employed the whole time. I’ve had some ownership of some equipment associated with our practice but in terms of the building itself I haven’t personally. Generally speaking it seems like that’s a good thing to be involved in but I can’t really comment too much in depth on that.
Dr. Dahle: [00:34:59] Yeah for sure. Every deal is different. I had another interesting experience in Salt Lake actually this year with our sponsor of this episode, Fundrise I got involved in a, it was kind of a preferred equity deal with the property they were developing here in Salt Lake and I think it basically promised us a 14 percent a year return as the investor and after about two and a half years of getting these checks like clockwork once a quarter 14 percent they decided they were going to move the property into their ereit, which I’ve got a post coming up on on the blog.
Dr. Dahle: [00:35:36] But basically I got my capital back but I no longer had this 14 percent investment because they’d moved it into this model they’re moving to now. What are you what are your thoughts on these new kind of ereits that both Fundrise and you know a related product that realty mogul is putting out there a mogul reits?
Dr. Meadows: [00:35:56] Yeah. You know I it’s interesting I’ve heard some of the heads of the platform say that they’ve gotten the feedback that a lot of the people on the platform you know they don’t. Number one you mention sometimes an availability issue where it’s tough to get in on a particular deal because it fills so quickly and then number two they have gotten feedback that some people you know they don’t like the relatively small amount of work it takes took to click through an individual deal. Look over the memorandum, look at the deal terms, and sign up on an individual deal basis whereas I don’t mind doing that.
Dr. Meadows: [00:36:41] And so I think these eREITS are a response to those two measures. And so I definitely think that for some investors out there it’s going to work out pretty well. Personally I haven’t done it. I still have stuck to the per deal individual thing. Looking it over. So it’s not necessarily for me because I figure if you’re going to do that you’re only a half step removed from just you know getting a publicly traded reit. You know so what’s the what’s the big difference on the crowdfunding platform? And that’s my view at least.
Dr. Dahle: [00:37:15] You know as I’ve looked at it more carefully I think there is a little bit of a difference there and I think the main difference is what they put in the reit. For example you know I mean like a fundrise one this is basically the deals being brought to them which a lot of times are a little small apartment building or a single family home that sort of thing and they put a dozen of them in there. That seems like a far cry from you know a Simon Reit that owns 350 shopping centers across the U.S. you know it just seems like they’re investing in different types of properties.
Dr. Meadows: [00:37:47] Yeah I will I certainly on from a scale standpoint Yeah but I’m saying like sort of fundamentally like the whole genesis of the crowdfunding thing or what was supposed to be the appeal of it was you could get the experience as it were of investing in a particular project in a particular geography. And you be you know beyond that one particular deal if you wanted it you know. So to do the reit thing and any in any to any degree it just seems a little antithetical to what was supposed to be the appeal of it. But but obviously some people want that.
Dr. Dahle: [00:38:23] Yeah for sure. You know it’s it’s interesting though I think at the end of the day there’s a large percentage of people that want the returns with the least amount of hassle possible. Right. And you know and that’s a beautiful thing about you know a broadly diversified mix of stock and bond index funds. You know it’s a very automatic I mean, I manage my parent’s portfolio of stock and around index funds including a reit index fund in a literally an hour a year. That’s all it takes to manage it. You know we rebalance it once a year. We take our RMD. That’s it. And so I think there’s a lot of appeal to that sort of thing. Some people are hobbyists like you and I are interested in looking at the individual deals but the vast majority of investors are are all for making it as painless as possible as long as the investment still turns out good. And and maybe that’s what they’re trying to appeal to with those you know ereit type structures.
Dr. Dahle: [00:39:15] I’ve had a couple other interesting deals that mean neither one of which has actually worked out well for me. My hospital at the partnership that I joined here in Salt Lake is actually syndicated. The docs can actually buy a piece of the hospital. Unfortunately just the way it’s worked out I’ve never actually been able to buy a share in seven years that I’ve been there and it’s now you know we’ve changed management. There’s different group owning the hospital now and they’re not nearly as keen on this idea.
Dr. Dahle: [00:39:44] And it turns out that if I want to buy shares I have to buy them at twice the price of what they can be sold back to the hospital for. And so you know I mean everybody looks at that and nobody is really buying them. But certainly there’s lots of interesting deals that get offered to doctors out there. Absolutely. Sometimes the returns are great and sometimes they aren’t like in the first few years of the syndication deal people were making. Twenty five percent was great but those returns haven’t been there the last few years although they’re still positive. And the problem for me has been I’ve never been able to buy them.
Dr. Dahle: [00:40:18] When we’ve built another hospital recently and they made an offer that we could buy the real estate that essentially the hospital corporation would be renting from us if we wanted to you know basically do a syndicated deal on the real estate. And it was interesting with a lot of the other docs you know I put a little bit of money into that. And after their lawyers got done looking at it in the end they decided it wasn’t such a great deal and they just paid our money back a couple of weeks later with interest and and closed the deal so it’s it’s interesting. There’s lots of options out there that will be brought to you as a doc. Oh that doesn’t work that well and sometimes they don’t. One question I frequently get is about surgery centers.
Dr. Dahle: [00:40:58] Most surgeons at some point or another seem to be offered the opportunity to buy into a surgery center and they always ask me how do I evaluate this deal how do I know if this is a good deal or not what do you say to that surgeon they’re interested in buying?
Dr. Meadows: [00:41:12] And another thing that I can only speak in very general terms to you know our hospital system here. They had a very keen eye on buying the surgery centers in town. And so I knew that they were you know they were pretty profitable. And so in general from talking with people it’s been a very good investment for surgeons. So but in terms of any specifics. Yeah I can’t I can’t offer you much more than that to be honest.
Dr. Dahle: [00:41:43] I’ve always caution be really careful about their due diligence have them look it over or have your accountant look it over. You know if you’re using a financial adviser have them look it over but then realize that I think those kinds of risks are good risk to take in your career and in your investments because they do pay off a lot of times especially when you can have an effect on the investment.
Dr. Dahle: [00:42:03] And a lot of ways it’s like what Warren Buffet does where he comes in buys a big chunk of a company puts himself on the board uses his expertise to make it better. You know in a lot of ways that’s kind of what I’m doing with this white coat investor network where I buy a piece of these other blogs and I’m able to use you know the trust I have with readers and the contacts with advertisers and with you know other people in this space and be able to help them cut 2 years off their learning curve and help them be successful and then I get to own a piece of it. And so I think when you’re looking at a surgery center a lot of times that’s your opportunity not only may it be a good investment but there are things you can actively do to make it a better investment.
Dr. Meadows: [00:42:45] Quick question for you Jim you mentioned how you’ve done the peer to peer lending and you’ve done that real estate Crowdfunding. Have you done the other sort of main category of online lending that I’ve come across which would be the business lending the business debt lending. Have you done that?
Dr. Dahle: [00:43:04] I haven’t done much of that and I think the thing that scared me off on it is it just reminded me too much of the peer to peer lending. You know it just seemed like it wasn’t a real asset behind it and as you know a lot of ways it was a signature loan and so that scared me off a little bit. When I was on the peer to peer lending platforms. I remember when I looked at the data and it’s been several years since I did this but those were not the notes that performed well. And so I avoided those when I was doing you know even the lending club, prosper, kind of stuff, almost all the loans I did were people trying to consolidate their credit card debt.
Dr. Meadows: [00:43:41] Yeah. Well you know I have had a pretty a pretty good experience on a peer to business lending site in terms of its layout and everything it’s very similar to to lending club called Funding Circle. And you know been on it going on close to three years of some of these loans are starting to come due and everything. And that’s actually worked out pretty well with returns in the teens to businesses. Now the thing about them versus I think a Lending Club platform, I mean these guys are, from underwriting standpoint, They’re very focused on just business debt and usually service based businesses. So I think there’s definitely more expertise there as opposed to like on a Lending Club. So that’s been something that’s worked out pretty well. But like you said you know you get these personal guarantees from the business owners and they make sure the person has some assets and in some cases there can be some collateral put up too. So I think it’s a little bit better than a lending club type situation. But again a fairly small allocation but that’s worked out pretty well.
Dr. Dahle: [00:44:47] Yeah I guess the other concern I’d have with that is you know when I look at a single family home, the economics of it, the business, I understand, I can look at and say well there’s no expenses they’re going to have. This is the source of income they’re going to have. And I feel like I can look at that and kind of evaluate it when I’m looking at somebody’s business that’s not a business that’s in a field I’m involved with in any way I feel like maybe don’t have the expertise to do the due diligence. And so I think that’s kept me back from that sort of an investment in the past as well.
Dr. Meadows: [00:45:20] Understand.
Dr. Dahle: [00:45:21] You know what other what other words of wisdom do you have for our readers as they consider maybe adding some of these alternatives to their portfolio? Would you give him guidelines on what percentage of a portfolio they ought to consider adding or how to just start with it?
Dr. Meadows: [00:45:37] Well not to be a shameless plug but you know I do. I do think my book is a decent starting point in terms of just getting some of the language down, what the categories are for that experience, what the risks are and what types of returns you can expect. And yeah there are some due diligence to do. But the main thing you’ve got to learn I mean is you know if you know anything you get you invest in you’ve got to try to understand the asset class with a decent degree before you go putting any money into it. So I certainly spent a lot of time learning about this before I committed $1 to it. So that’s my main thing is learn make sure you understand.
Dr. Dahle: [00:46:24] Sure. So for those who aren’t aware his book is alternative financial medicine: high yield investing in a low yield world. That’s by Kenyan Meadow’s M.D. You can buy it on Amazon. It’s easy to find it’s not expensive. You can even download a free sample chapter on his Web site which is alternativefinancialmedicine.com.
Dr. Dahle: [00:46:41] I really thank Dr. Meadows for being on the podcast today.
Dr. Dahle: [00:46:46] Today’s podcast is sponsored by Fundrise. Fundrise gives investors access to the exclusive benefits of private market real estate through a simple online platform. That means with Fundrise you can invest in premium private real estate assets and earn up to 33 percent higher expected annual returns and those expected of traditional stocks and bonds. Experience all the benefits of the private market plus the transparency of an online service and none of the hidden costs or mediocre returns inherent in the public market. You can get started today with an investment tailored to your portfolio or goals ranging from supplemental income to long term growth. With Fundrise anyone can finally invest in real estate like a billion dollar institution. To learn more visit. Fundrise.com/whitecoat.
Dr. Dahle: [00:47:26] Thanks for joining in. Be sure to give us a five star rating and tell your friends all about the podcast. Check out Dr. Meadow’s book and we’ll see you next time on the White Coat Investor podcast.