Wholesaling and Flipping Real Estate with Jamil Damji

Transcription – WCI – 319

 

INTRODUCTION

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.

Dr. Jim Dahle:
This is White Coat Investor podcast number 319 – Wholesaling and flipping real estate with Jamil Damji.

Today's episode is brought to us by SoFi, the folks who help you get your money right. They've got exclusive rates and offers to help medical professionals like you when it comes to refinancing your student loans that could end up saving you thousands of dollars.

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All right, I'm just coming back from a couple of trips. May is a crazy month for me and that's when we're recording this. I know you guys aren't listening to it until June, but we're recording this in May. And May, I've been looking forward to for a long time because we had three trips in May.

So all of my work for May, both my shifts and WCI work got compressed into basically one week of the month. And it's been a crazy week because I'm also trying to train for an upcoming trip to go climb Half Dome. Maybe I’m done with that by the time you listened to this.

I just got back from a great trip floating on the Salt River in Arizona. Really a gem of a river. Nobody knows about it. It only runs for a few months a year. Some years it really doesn't run big enough for rafts to go down at all. But this year with our great snow year in the west, it was spectacular. Also I had the experience of flipping my raft for the first time. That wasn't so awesome. But all's well that ends well. Next time I'll try to keep the rubber down.

After that, I had a canyoneering trip with friends and family. Got to take my daughter Whitney and show her some of the coolest places I know of on the planet. Whitney did another canyon that was first done in 2019 with a group of friends and I, and this was only the third time that Canyon has been descended. It was pretty cool to go back there and stand someplace that few have ever stood.

Upcoming trip with the kids. We're taking them across the pond. Actually we’re going to introduce them to the fantastic United Kingdom as well as France, the most widely visited by tourist country in the world. I’m looking forward to that right at the beginning of the summer. So, lots of great stuff going on in our lives. I hope you have some great plans for the summer as well.

 

QUOTE OF THE DAY

Our quote of the day today comes from Morgan Housel who said, “There's a saying that if you get public recognition for donating money, it's not charity – it's philanthropy. And if you demand recognition, it's not even charity – it's a business deal.” I like that quote.

By the way, if you are not aware of this, we have some partners that offer surveys. They want to pay you for your free time. The time you are commuting on a train or a bus or sitting around and waiting for patients, you can make money. You just sign up for these people who want your opinion and they pay you for their opinion.

If you go to whitecoatinvestor.com/paidsurveys, you can sign up with these companies. For some specialties, the surveys are more common, more lucrative than others, particularly if you prescribe expensive medications. If you're a neurologist, a rheumatologist, an oncologist, this is a particularly good deal for you. If you're an emergency doc, maybe not as much, but there's still stuff out there for you. It's still worth checking out. So, whitecoatinvestor.com/paidsurveys.

Hey, I need to say something about April Fool's Day because there's apparently a lot of White Coat Investors who don't know about April Fool's Day. I don’t know if it's because they grew up in a different country or a different culture, or maybe just don't pay attention to dates, I don't know.

But there's a tradition in the United States to have jokes and pranks and things like that on April Fool's Day. And occasionally on the White Coat Investor blog, we actually run posts on April Fool's Day. That's April 1st of each year that are not entirely truthful, believe it or not.

And so, for months after running these posts, I get emails from people asking about them. I've still got people asking me about my Tesla. I don't own a Tesla. That was an April Fool's Day post. Quit asking me about Teslas. Maybe I'll have a Tesla someday. I'm not against Teslas if you can afford them, but I do not own a Tesla, nor have we made payroll by shorting Ethereum here at whitecoatinvestor.com. Neither have I disinherited my kids despite what was written on a recent April Fool’s Day post.

It was a lot of fun to write. It was a lot of fun to have my kids read. I wonder if they took it as maybe a warning shot across the bow but I have not made steps to disinherit my kids. So, stop writing in and asking me to reconsider what I've done because I haven't actually done anything. It's just April Fool’s Day. It's a lot of fun but the joke is clearly on some of you that completely missed it.

Now, lots of people miss it until they get well into the post and that's just the sign of a well written April Fool’s Day post. But if you get to the end and you still don't know it's a joke, you're not reading very carefully.

All right, don't forget our sister podcast, Milestones to Millionaire. These drop every Monday and we've added a lot more content to them based on your feedback. A lot of, I don't know that we want to call them Basics or Finance 101 but I'm covering a lot of topics there.

And if you feel like everything on the main podcast is going over your head, listen to those because we're hitting a lot more of the basics there. Maybe stuff that we covered years ago on the White Coat Investor podcast. But we're getting into that along with the interviews that we've traditionally done on the milestones post. But a lot more information there to check out.

 

GUEST INTERVIEW

All right, I've clearly been gone a while because I had a lot to cover before we got into our interview today. Our interview today is super interesting. It's a fellow who invests in real estate, but in a very different way than most of you do. And I think most of you're going to listen to this podcast and go, “Maybe that's not for me.” But that's okay. There's probably a few of you out there for whom this method of investing sounds really interesting, really attractive. And so, let's talk about wholesaling. Let's talk about fixing and flipping and let's get Jamil Damji on the podcast.

Our guest today on the White Coat Investor podcast is Jamil Damji. He's a co-host of the BiggerPockets On The Market podcast and the author of How to Wholesale Real Estate: The No-Cash Strategy to Build a Scalable Business. He's a co-founder of Keyglee, which helps real estate investors find properties and the founder of Astroflipping. He's also hosted a TV show, Triple Digit Flip on A&E. 185,000 people follow Jamil on Instagram. Jamil, welcome to the White Coat Investor podcast.

Jamil Damji:
Thank you, Jim. It's a pleasure to be here. Thank you so much.

Dr. Jim Dahle:
All right. People don't know you that well, most likely, that are listening to this podcast. So, let them get to know you a little bit better. Let's start at the beginning. Tell us a little about your background growing up and how that affected your views on money.

Jamil Damji:
Oh, love it. So, I grew up in Calgary, Alberta. Well, born in Los Angeles, but at the age of five, my parents moved to Calgary, Alberta, Canada. They both worked very hard. They traded their time for money. My mom was a data entry operator. My dad worked at a truck stop that he actually owned with his brothers. But being self-employed, it was really difficult for them. They had lots of competitors from big multinational corporations who essentially put them out of business.

And so, I grew up in a very tight household when it came to money. And the mindset that my parents had about how I was going to gain financial freedom was a very traditional one.

I come from an East Indian background. And so I had two options in life. I was going to be a physician or I was going to be a physician. That was it. That was the only way that I was going to be able to make it out. And occasionally they allow you to be an engineer, but nothing else.

And so, this was what I had laid out in front of me and I gave it my best. I got a Bachelor's of Science and Physiology. I wrote or took the MCATs. You guys in America say “took”, but in Canada, we say “wrote.” I took the MCAT exam. I did fairly well on it, and I got an opportunity to have an interview at medical school. And I didn't get in. And it was devastating for me. I had put so much effort and time into trying. And so, the thing was they said, “Well, try again next year.”

But I thought I did everything I was supposed to do and another human being had the ability to decide my destiny. And that was the “aha” moment for me. That was the time where I said, “I've got to get myself into a situation where I make the decisions, I make the choices, I decide what's going to happen to me, not somebody else.”

And when I took that approach, it's what led me into being an entrepreneur. I devastated my family in telling them I wasn't going to pursue medicine any longer. I went completely in a tangent from where I had been from physiology to entrepreneurship. Now I'm in a media company trying to convince people in the early 2000s that they needed a website for their business.

And so, that's where I am. And it puts me in proximity to a real estate investor who I eavesdrop conversations and listen to what these guys are doing while I'm trying to hawk websites in my full-time gig.

And I find an opportunity in real estate. One day I interject into a conversation these guys are having about a duplex they're developing, that they're making $160,000 on. And for a guy like me who just doesn't understand money like that, I was all ears. “Tell me about it. What are you guys doing?”

Now, of course, they said, “Well, if you got no credit, you have no money, you have no opportunity with us.” And then they go on complaining about how they can't find any of these lots that they're bulldozing to build these luxury duplexes on. So, I find an opportunity. I said, “Well, what if I can find you one of these lots?” And they're like, “Well, good. Bring it.” And so, again, now my mind is going, “The opportunity is there. I have a buyer now. I just got to have a product.”

I'm walking my dog the next day, and this is the best thing in the world. It's serendipity and synchronicity at its finest. I'm walking my dog the next day. And there was a house that I'd actually tried to rent three months earlier, but it was $200 a month out of my budget. Just to give you an idea of where I was financially. $200 decided where I lived. I called the number on the sign. She's still trying to rent the house. I asked her if she'd be interested in selling it instead of renting it. Her answer is, “Well, if the price is right. I said, “Well, what do you want? – $350,000.” Perfect. I run over to the office, I talked to the guy, “What would you buy this house for? – $400,000.”

Now I got a $50,000 problem to solve because I don't have $350,000. I can't buy the house. So, what do I do? I do what I know how to do, which is cold call. I start cold calling real estate attorneys. I get all the way to the letter S because the attorney who answered the phone, his name is David Steed. S-T-E-E-D is how his last name is spelled.

And so, I get to the letter S. I went hard. And he's so fresh out of law school, he doesn't have a secretary. He answers the phone and I tell him what I'm trying to accomplish. I said, “I want to buy a house and sell a house. I have no money. Is there a way to do this?” And he enlightens me into this thing that's called wholesale real estate.

Essentially, I'm able to get control of the property contractually and then sell my contractual rights to another individual and make a fee in the process. And he shows me exactly what I got to do, emails me the contracts in which to do them, and I get the deal done. A few weeks later, I pick up a $47,000 cashier’s check. And this guy who had been watching my parents suffer and work for that amount of money, got that done in a couple of weeks. And nothing was ever the same for me again.

Dr. Jim Dahle:
So, tell us a little bit about what you're doing professionally now. You've got a number of things you have your fingers in. Tell us a little bit about that.

Jamil Damji:
Well, the basis of it is exactly what I just said. It's still wholesale. I built a company now that does this nationally. We find and curate opportunities for developers, fix and flippers and other real estate professionals who are looking for deals, looking for equity, looking for opportunity.

That's what I find. I find the diamonds that you want, that you don't have the time to go look for. I'm the diamond hunter. And I'm going to make a little bit of money on the process that you're going to trade some of that potential to me because I'm doing the work.

And so, because I understand that, I built a company called Keyglee, which you had originally talked about. Now we're franchised in over 118 markets where I have got people who are out there pounding the pavement, looking for these deals and selling them to investors.

And so, my first business is that. The next business I have is where I show people how to do it. So, there's people who are like, “Hey, I don't want to work for you. I want to do this for myself.” Perfect. Okay, let me teach you. I have a mentorship program where I teach over 4,000 people how to do what I do. What's the process? Who are the prospects? How do I create the relationships? Where are the buyers? How do you find them? How do you put them together? How do you do this without needing a real estate license and money? So I teach all that.

And then because I gained quite a bit of attention by doing that, A&E came knocking and they put us on national television. And that's been a blessing and a huge opportunity in my life as well.

Right now I'm obviously a busy guy, but the beautiful thing about it is I get a lot of purpose. I have a lot of purpose because I'm watching people gain financial freedom. I have doctors in my community, I've got attorneys in my community, I've got engineers in my community, I've got law enforcement, I've got a chief of police. I've got a US Marshall. These are people who are learning from me how to do this business model. It's incredible.

To me, it's one of the most fulfilling things because I get to watch people who are essentially trading time for money, gain financial freedom by learning a skill and not have to take the risk. Because wholesale means I'm trading paper, I'm not buying houses where I'm subject to depreciation or a market collapse. I'm never in that risky situation.

Dr. Jim Dahle:
Well, let's talk for a minute because I think a lot of our audience probably doesn't understand the term “wholesaling” when it comes to real estate. Can you define that for us? Explain to us what that means to wholesale real estate.

Jamil Damji:
Yes, absolutely. In the clearest terms, I think wholesaling is where we sell potential. So, let's break that down. I have to find an opportunity where there's potential. And you guys can see this all the time in many neighborhoods.

Let's just say you're living in a gentrifying area, or say you live in a beautiful area, but there's that pimple on the block. There's that house that you drive by it every day and you say, “These people, they're not mowing their lawns, they're not taking care of the house. Something's going on there. They're vacant or boarded up.” Whatever it is. These things happen.

And there's typically about at any given point, at least 5 million of these opportunities available in the United States at any given day. 5 million of them. And so, that's what we do.

In any business model, there's a wholesale step up process. Let's just say you talk about hamburgers, for instance. McDonald's. You go to McDonald's, the patties, the buns, all of it. It started somewhere. Let's just take the patty. It started in a cow. From that situation, somebody had to raise the cow, they slaughtered the cow, they then transported it and packaged it and processed it and transported it again and transported it again. And then finally it gets to a restaurant. And every one of those step ups, there was value added and work done, and it got more and more expensive.

Well, that's exactly the same thing that happens in a house. You got a hoarder house, for instance. Let's just say this house has been sitting, it's vacant. There's squatters living in it. It's dangerous to the community. It's bringing down the property value. We find that opportunity and we sell it to somebody who's going to beautify it and make the community safer. And for the time and energy and effort that it takes us to do that, we get a healthy fee.

That's wholesaling real estate. I'm finding the houses that are problematic and then we are repositioning them or finding people who will reposition them and do something good with it.

Dr. Jim Dahle:
So, how does a wholesaler find these properties?

Jamil Damji:
A number of ways. There's some real grassroots ways like door knocking. You can drive around neighborhoods and look for overgrown weeds and mail stacking up and boarded up windows. But I love a different approach. There's other people who cold call. I'm sure your audience who have multiple properties because they may own real estate. You're getting these annoying phone calls from people. “Hey, you want to sell your house?” They text people and they call people all day. That's a way, people are doing it that way.

My favorite approach though is I work with relationships. I've mastered the skill of the referral. What I do is I will create relationships with real estate agents and other professionals, attorneys, others, bankruptcy people, divorce people, all the folks that deal with these sort of distress situations. And I offer them an opportunity of a solution.

Now, I may not be the best solution for every house in every situation, but what they'll do is present me. And so, let's just say for instance, you're a homeowner, you inherit a house. And this house needs a tremendous amount of work for it to be financeable. You can't just put it on the MLS and have somebody move in. It's going to need repairs. And it hasn't been updated in 30 years, so it's not going to get top dollar. You could get top dollar for it if you had the time, energy, money, resources and skills to renovate it and try. But that's also risky.

Let's just say you're a heart surgeon. You inherited a house, you don't really care. You're not going to go, you're not a designer. You're not trying to do a fix and flip right now. You just want to get rid of the house and get what you can for it. And so, like anything else, when you've traded in a car, you knew the guy you traded the car into is going to sell it and make money on it. But you still do it because it's convenient for you. Well, I'm literally that solution in a house.

I make relationships with real estate agents. They present me as the CarMax solution. You're going to trade your house to this guy, he's going to make some dollars on it, but you're going to be hands off. It's as is. They will pay you cash and close quick or you can go and fix it and try, or you can go and renovate it and try. Your choice.

Dr. Jim Dahle:
So, what does it pay to wholesale a property?

Jamil Damji:
On average, I'm making about $10,000 to $15,000 a house.

Dr. Jim Dahle:
And how much effort do you think you have to put in to do that?

Jamil Damji:
Well, it's compound. It starts off with a lot of effort because if you're starting in the beginning, you have no relationships, you have no people. You don't know what you're doing. And so, the learning curve can be time consuming.

Typically when a new person starts the business model, I would say it takes them typically 90 days to get a deal done in the beginning. But then because the way that I teach it and the way that I do it is a relationship based approach, those start to compound and then all of a sudden now the phone is ringing.

For me, after being in this for 20 years, I don't call anybody anymore. My phone's ringing all day long with opportunities. I've got agents sending me deals all day. And not only that, I've got so many now that my own reps have agents that are sending them deals all day.

And so, when you approach this from not a transactional approach, but a relationship approach, like the way we do it becomes a snowball effect of opportunity. And so, now the effort is not nearly as great as it was when you get started.

Dr. Jim Dahle:
What do you think you've gotten it down to? How many average hours of work do you put in on one property?

Jamil Damji:
Me, personally, right now, I typically see and will look at 10 opportunities a day of which I may personally contract one. And how long does that take me? I can comp a house in two minutes. I'm probably putting in an hour a day in that space. And that will generate about a $10,000 opportunity for the company.

Dr. Jim Dahle:
Pretty darn nice hourly rate.

Jamil Damji:
I'd say so.

Dr. Jim Dahle:
Yeah. All right. A lot of people talk about wholesaling real estate as kind of the way to break in to real estate. You don't have much money, kind of like your story in the beginning. And that seems like it's primary use.

I think for a lot of our listeners they look at real estate investing and find the hardest part is to find the property. And if they find a property, the last thing they want to do is turn around and give it to someone else. They want to keep it themselves. Why have you chosen to stay in this business of wholesaling rather than go that route?

Jamil Damji:
Well, I don't necessarily give everything up. I do fix and flip. I have a television show where I'm fixing and flipping houses. So I'm obviously developing, and I do have a healthy portfolio of rentals that I keep as well. But not every deal makes sense for me. I have to also look at my buyers and say, “What do they want?” I'm not going to keep deals that my buyers want because I want to feed them and keep the relationship going as well.

When you look at it from the point of view of cash flow, a buy and hold investor, for instance, they're going to buy a house, they're going to put 20% down, they're going to fix it up and then they're going to refinance it and they're going to pull some money out. Not all of it typically, but they're going to pull something out and then it's going to cash flow a few hundred dollars a month.

Say they do that and they add one every year. Okay, well that's cute. That's going to make you a couple of thousand dollars. By the time you're retired, you might have $5,000 or $7,000 a month in added revenue. With inflation the way it is right now, I don't know what that's going to do. You're going to have some mortgage pay down, which is also going to be good, but there's also going to be tenants who are going to destroy your house in the process.

There's going to be all kinds of headaches and problems that you're going to deal with. There's going to be vacancies, there's going to be things, there's going to be COVID, there's going to be black swans. There's going to be issues. Life is not without its problems.

The reason why I've stayed in this process is my company can generate tens of millions of dollars a year in cash flow. And I'm talking about money that I'd have to own thousands of doors to be able to create. But I'm doing it as a business. And here's the beautiful part about it, is one day my business can sell. So, I can get a gorgeous multiple for my company that has created this incredible cash flow machine. And I did it trading in real estate opportunity without having to deal with the headaches of owning real estate.

Dr. Jim Dahle:
Tell us a little bit about the contracts that you're buying these properties with. It sounds like you have options to buy is what we're talking about.

Jamil Damji:
Sometimes I do it with an option, sometimes I do it with a purchase contract. There's a number of instruments that you can use to do the deal. But let's just be simple. I had a residential purchase contract that a real estate agent sends me. First and foremost, I need to make sure that my contract is marketable.

There's a thing called equitable interest, and that's what I'm trading in. When I get a deal under contract, I now have equitable interest in that property and I can sell my equitable interest. Because of that, the fastest and easiest and most economical way for me to sell that is by assigning the contract. I need to have an assignable contract.

Now during my inspection period is where I'm making my decision. Am I going to keep it? Am I going to flip it? Am I going to rent it? Am I going to wholesale it? And I disclosed that on my contract. In fact, one of the most clear statements on my contract is the buyer as an LLC in the business of buying and selling real estate for a profit. Buyer may decide during their inspection period to fix and flip, buy and hold or wholesale property. That's it. And the disclosure is there, it's clear as day, and the person who's reading it understands what's going on. And I may wholesale the house.

And what was interesting is I thought this was just a hustle. In the early days, I'm like, “Ah it's only people who don't make money or don't have money or just trying to get started that are doing this.” It's not true. As I got more sophisticated and I did better deals and bigger deals, I started doing deals with big companies.

I got into a deal where I sold a property to DR Horton, America's home builder, publicly traded company assigned my deal. I made way more money than I did, and it was the right move for the shareholders. It was the right move for the organization.

So, knowing that, that this concept of assigning contracts, assigning interest, what do you think happens in a mortgage? You go to a company, you get a mortgage and you spend all this time showing them everything about you, opening up your underwear drawer, the whole nine. They know your pulse. Five months later, they don't own your mortgage, they wholesale it, it happens. It is a very common practice.

Dr. Jim Dahle:
Yeah. The way of the world.

Jamil Damji:
Sure.

Dr. Jim Dahle:
Let's switch now to flipping properties. Can you describe that process for our listeners who aren't familiar with the concept of fixing and flipping a property?

Jamil Damji:
Absolutely. Again, fixing and flipping is fully going vertical with an opportunity that you might get from a wholesaler. For me, I'm going to find a house that is going to have a good buyer pool. And where is there a demand for me to fix and flip a house? I don't want to fix a house and then have nobody want to buy it.

I'm going to go and do a little bit of research and I'm going to see is there migration here? Are there a lot of properties sitting on the market? Or do houses sell pretty quick once they get listed? What is the finish that people want in this specific area? What level of improvement do I need to have? What sort of design characteristics am I looking for? And if I see something that resonates with me, then I have the potential deal in my hand, I'll buy that house.

And then the process is of course, going through the renovation. Right now, luckily I partner with my sister who's my project manager, and she's a phenomenal human being who can orchestrate a renovation project with precision. Even then we go over budget, even then things cost more, take longer and all of the things that you could imagine going wrong happen because it's construction. It's never going to be an exact science. And you're doing your best to figure it out beforehand, but typically you learn as you go.

And so, fixing and flipping, it's a beautiful, fun, risky, very, very stressful business model. But again, you can make phenomenal profits. My show is called Triple Digit Flip because our goal is to try to make over $100,000 on a fix and flip. And so, does it happen all the time? No. Does it happen sometimes? Of course. And do we lose money? Yes, there's lots of risks. Our goal is to try to make way more money than we lose, but sometimes you pick a bad horse and things don't go the way that you want it.

And so, fix and flip is fun for those people that have the artistic and the patience and they also have the appetite for getting into a project where you have to make real decisions based off of not what you want, but what your potential buyer wants. And I think that's where a lot of people get it wrong because they first get into the business and they think what they like, and they put that into the house, and then they put that out to the world and then the world says, “No, that's not what we want.” So, you really got to look at trends.

Dr. Jim Dahle:
I'm curious if your parents are just as disappointed in your sisters as they are in you, for not being in medicine or engineering.

Jamil Damji:
Not at all. No. No. The thing about us is that my family, they really gave us and instilled in us this concept of unity. And my sister and I, we've been united since we were young. She raised me. I was a latchkey kid. My sister was the one who took care of me. My parents were working all day long. And so, I have a really close relationship with her.

But for her, because my culture, we're Indian, my sister's job was to get married. She was supposed to go to find a good husband. And I'm supposed to be able to be a guy who's going to be a good husband. We come from a culture where that was the expectation and both of us thumbed our nose at it. My sister was not going to be the one who was going to rely on a husband to make her life. My sister makes the life for her husband.

Dr. Jim Dahle:
All right. Well, let's talk a little bit more about this. You go in, there's this property, it needs help. How do you decide which improvements to do yourself versus pay someone else to do, particularly in the beginning?

Now, you're in a different place now in your life, but I imagine there was a time when you flipped a home and did some of the work yourself. How does one decide that? What to outsource versus what to do themselves?

Jamil Damji:
I'll tell you. The DIY approach. I'm not a handy guy. There was never for me authentically a time where I did any of it. I just never really got my hands dirty in it. I would rather have paid a person who's a professional to get it done. Now I know people who go and do it themselves. And so, that's not to say that I haven't seen it done.

Here's the thing. People notice quality. And you may think you can paint, you may think you can lay floor, you may think that you can lay tile, but the professional does it straight, right, with the appropriate lines in it. I've seen a lot of DIY projects just get hammered in on the market because people, they don't respect the quality.

Dr. Jim Dahle:
So you think you're better off right from the beginning.

Jamil Damji:
I think if you're going to do this business, be a professional at it and hire somebody from the first job.

Dr. Jim Dahle:
That's not the place to make the profit.

Jamil Damji:
No.

Dr. Jim Dahle:
Okay. Let's talk about upgrades now. When you go in there, obviously there's lots of things you can do to a house. Which ones provide the biggest bang for their buck?

Jamil Damji:
Oh, I love this question. There's a lot of small things. For instance, I love a feature wall. There's these feature walls that we've been putting in some of our houses that are a very Norwegian sort of design feature. They're very inexpensive. We can put them in for a couple thousand dollars. And I have one in my house that costs $25,000. I have this big fin wall in my house. I have a huge house, but when I got it appraised, the appraiser gave me a value on that wall, just the wall of $150,000. I put $25,000 in cost into it.

And the buyer perception, the person who walks through my house, they're like, “I need this house. I love that wall.” I'm always looking at really, really inexpensive, but high ROI features. These feature walls are incredible, looking at the landscaping in the backyard and paying attention to “Could I put a little putting green in here? Is that going to attract a buyer? And what's that going to cost?”

My goal is, if I'm going to spend a buck, I want $3 back for it. If I can find a nice, inexpensive thing that's going to set me apart from every other piece of product in the market right now, and I can get that done for a third of what I'm going to be able to get in terms of ROI I will put that in. And I pay attention.

Here's one of the ways that I do it. Every year we take a trip to Los Angeles and we look at what some of the multimillion dollar mansions have in design quality in the house. And then we see how we can create something similar for a 10th or much less than what this house is presenting right now.

And we take those million dollar design features in elements and we put them in our standard remodels. And it makes people's eyes light up. They walk into like, “I can't believe that this is in this house. Wow, I can't believe I'm buying this house for $430,000. This is insane.” It pays. It pays to pay a little bit more attention.

Have you ever walked into a bathroom where they did a renovation and they stopped the tile job right where the shower head is and they leave like a foot and a half above of just drywall?

Dr. Jim Dahle:
It looks terrible.

Jamil Damji:
It's terrible. Why wouldn't you tile all the way to the ceiling?

Dr. Jim Dahle:
So people talk about doing improvements in their homes and they're happy when they can get 80% or 90% of the money they got back. That's what you get in a kitchen or bathroom remodel or maybe some things that improve the curb appeal. You're talking about 300% though. What about those bathrooms, those kitchens, those tile floors, that carpet, that sort of stuff? You have to do that when you flip a house, don't you?

Jamil Damji:
Absolutely. And here's the other piece. When people are renovating their house, they also do it at different times. They'll renovate one bathroom and then five years later they'd renovate another one and then they renovate the kitchen and then everything's been done at a different time. And then all the materials and all of the design is hodgepodge. You got a 2008 bathroom, you got a 2010 bathroom, you got a 2015 kitchen, and now it's 2020 and nobody wants any of it.

And so, that's problematic. I see a lot of homeowners that have that house. They describe it as remodeled. They say, “We've remodeled the home.” And then you go and you look at it, you're like, “Yeah, you did in three different decades” And so, this is the problem with it. Yes, it's upgraded to you, you love it, but the person who's going to now look at this and say, “I'm going to live here”, they want it fresh, they want it brand new. They want it today's style. And so, that doesn't ROI for people.

The second thing is, people are going to retail contractors when they do these renovations. They're paying an inflated price for this stuff. I can get a kitchen done in $7,000. You can't unless you're in my business.

Dr. Jim Dahle:
Unless you're doing 50 of them a year.

Jamil Damji:
Yeah, exactly. And most people go to a big box store and even they're paying $25,000 to do a kitchen and it's like the lowest grade cabinet that they've got. So, there's economies of scale, there's being in the business, there's having connections and relationships and being able to buy stuff at prices that you can't get unless you do this at a volume scale.

Dr. Jim Dahle:
So, how much can you pay for a property and still make a reasonable profit flipping it? If we're talking about a percentage of the final sales price, how much can you pay? You got to be getting these for 60%, 70%, 80%. What can you pay and still actually do okay?

Jamil Damji:
That's a phenomenal question. It depends on the market. I would say a great rule of thumb is to say 75% of the after repair value. So, you look at the comps and you say, “What would this house sell for?” Then you take 75% of that minus repairs and minus other costs.

Okay. So, what are repairs? Right now, cosmetically repairs are costing about $40 a square foot. If you go full gut, $60 a square foot. That's just back of the napkin math. Then my selling costs, they're going to be about 10%. I got to pay two real estate agents, title escrow, seller policy, all that. So, I'm going to subtract that.

If I take 75% of it, minus all my expenses, that's my maximum allowable offer. And if you're going to package all that up and put that into a general percentage, somewhere between 50 to 60% of ARV.

Dr. Jim Dahle:
Wow, that would feel like a low ball offer to a lot of people selling their houses.

Jamil Damji:
Well, the thing is, it's ARV, not equity. That's an as is value. Because this house isn't worth that without $100,000 in expense and risk. So, you can do that. Homeowner, I mean listen, if you've got the money, you've got the resources and you've got the people to do that job, by all means do it. I think that's the question a lot of realtors ask their client, “Do you have the stomach and do you have the resources to do this? Or are you going to let somebody else do it?” Because you can, the options are always available, but it's not a low ball because the equity doesn't exist until the risk is taken.

Dr. Jim Dahle:
Is there a difference in what makes a property good for wholesaling versus flipping?

Jamil Damji:
I think that they both fall into the same bucket. A wholesale opportunity has to have potential and a fixed and flip property has to have potential. They're the same property. In fact, I'm wholesaling fix and flips. I think it's the same deal, but there has to be a little bit of opportunity for you to be able to make money in the wholesale deal.

Now, again, as a wholesaler, I don't take my profit from the seller. I take my profit from the potential. I do my best to give a seller the top dollar because I'm competing against other people in the business. I'm competing against fix and flippers. I'm competing against other cash buyers. So, I've got to be aggressive with my number and my offer is typically higher than my competitors. Because I have bigger buyers, I can do this at a greater scale. I'm trying to give 100% of as is value and take my profit from the potential.

Dr. Jim Dahle:
Some critics of flipping suggests that it isn't possible to do it ethically. That the only way to make money is to either steal the property from the seller at a ridiculously low price or to do upgrades that are so cheap that they're really only superficial improvements hiding the real problems. What's your response to that criticism?

Jamil Damji:
I've seen both. I've seen both things happen. I've seen people go and make some ridiculously low offers to sellers who are unsophisticated and don't understand what they're doing and take advantage of people. I think it's terrible. I've seen fix and flippers go and buy a property and do shoddy work and really, really leave a product that is going to be problematic for a homeowner in a couple of years when all the paint peels off and everything that you hid is uncovered.

I think this is a game of longevity and I think your reputation will precede you everywhere you go. And so, for me, again, I'm not for every seller. My situation doesn't work in 95% of the situations. It's not. If your house is going to be too nice, I'm not going to be able to offer on it. It doesn't make sense for me to buy this house because you've already done a lot of work here and you should go to the market and get top dollar.

My solution works for people who just don't want to bother with it. There's some people who will trade the opportunity for the convenience. They're aware. They're aware that they don't want to renovate the house. They don't want to do any repairs, they just want to sell it as is and move on. And that's when I come in.

And so, the matter of what we're talking about with respect to ethics, because if we're going to say that making money is unethical, then we shouldn't be in the country. Because we live in a capitalist country where we make money on everything we do. Everything becomes a product. Even the news we watch, everything is revenueized.

If you are going to make money and you're going to do this, everybody who goes to work today is trading their time for money. Every business is out there buying something lower and selling it for more. That is the purpose of a capitalist economy. That's what we do.

And so, when a fix and flipper makes a profit on a house, they are feeding their families, they are feeding a group of people in the process. There's so many folks that make money and are paid in the whole economy of a flip. I don't think there's anything ethically wrong with making money. It's just people all of a sudden say, “You can't make money on that. You can't make money on that. You can make money over here. You can't make money over here. You can make money over here.” And then we get into this whole craziness of, “What are we really talking about here?”

The facts are, is that it's a business. An LLC is formed to make money. And if it's not, then we shouldn't be calling ourselves business people and we should figure out how we can all just live on the same dollar. Why did you become a doctor instead of a nurse? Or why did you become a doctor instead of the custodian? Yeah, they all get paid differently. They work in the same building.

Dr. Jim Dahle:
As I drive around, I see these signs, we buy houses and a phone number and somebody takes them down every few days and they're back up a few days later. What do you think of that marketing approach to finding houses?

Jamil Damji:
Well, it's called a bandit sign and it's illegal. And so, that's why they take them down because the bylaw enforcement comes and takes them down and then people come and put it back up and they in fact annoy me because they make the corners ugly. I think that they're litter. The only people who get away with it legally are politicians. And even then, I don't like them.

For me, bandit signs, it’s not my favorite approach. They call them bandit signs for a reason. Because you're a bandit when you do it. Again, the way that I do this, and especially the approach that I take by working with real estate agents, a real estate agent is a fiduciary. Their job is to do and present the best case scenario and the best option to their client.

When I am in the deal, the real estate agent has looked at it, they've talked to their client, they've explained all of the other opportunities and ways that this deal can get done. And when they select me, their fiduciary has helped them make that choice.

And so, I put myself in a very good situation because how I handle this business and how I handle my transactions, I don't use predatory contracts. I use licensed professionals in all of my renovations. I work through licensed brokers who have ethics and codes of standards that they adhere to. My own staff hold real estate licenses when we don't need to. We do it because we want to also operate with fairness and through the standards of practice and ethics that are out there.

And so, I've set myself up to do this in a way that doesn't have the stigma of unethics or predatory approaches. Again, I'm not for everybody. I'm for the people who see the convenient solution as the way they want to go. And that's just business.

Dr. Jim Dahle:
There's a promotional quote from one of your website, reads something like this. “Someone who just six months ago was sitting in my room playing Fortnite, 10 hours a day, $30 in my bank account, lost in life with no idea of what I wanted to do. Defining the niche of wholesale real estate from 14 year old in a TikTok video shows anything is possible. $21,000 might not be a whole lot for some of you, but for me, this is only a start to a dream come true.”

Now, this is a very different situation from most of our listeners, some of which have money and some don't, but all of which are busy. Are wholesaling and flipping really good methods of real estate investing for our audience?

Jamil Damji:
They are, if you are interested in doing deals. You've got to really enjoy the art of the deal, to want to be involved as a wholesaler or a fix and flipper. You've got to want to have to do this. It's not something passive. This is not a passive approach to real estate.

And again, when you're wholesaling, I wouldn't necessarily even call it investing. We're trading. We trade. And even fix and flippers are trading, just on a longer time scale. Investing in wholesaling and fix and flipping, I think they're in different buckets.

An investment is I'm going to park money here and I'm going to watch it appreciate and I'm going to take some cash flow from it and it's going to grow. Wholesaling is, I'm going to create an opportunity and I'm going to sell the opportunity and make some money and I'm going to do it again and I'm going to do it again. And it's my business.

And so, there's going to be people, and again, why have I attracted physicians into my world? Why have I attracted dentists and engineers and law enforcement and all these folks that come in here and do this business with me? Why? Because the thing that they're doing right now isn't interesting to them anymore. They maybe did it for the wrong reasons but they have a lifestyle.

I have a physician in my community who was making hundreds of thousands of dollars a year. And after the stress of what happened in the pandemic, she was done. She just didn't have the same love for the role any longer.

And to her, she had always been interested in real estate, but she wanted to get in in a way where she understood how to find opportunities and how to really do this at a way where she could spot the deal. She recognized that learning how to wholesale was going to be her path to being able to do more and actually make more in all of her investing.

So, she's using wholesale as, “Hey, I'm going to find my deals. I'm going to cherry pick the best deals. I'm going to learn how to wholesale, I'm going to sell the other ones off, then I'm going to do five to six projects a year, and I'm going to triple the income I made as a physician as a wholesaler and real estate investor, and some of these I'm going to keep for my portfolio.” And I think it's a phenomenal approach.

But again, for the person who is passive that's looking at this, I'm not for you. You're not going to passively wholesale anything. But if you're looking at this situation and you're like, “Yeah, that makes sense to me, but I don't want to give up my $40,000 a month lifestyle”, I'm probably the guy you should talk to.

Dr. Jim Dahle:
Yeah. In some ways, maybe viewing it more as a side gig than an investment would be appropriate.

Jamil Damji:
Of course. It starts as a side gig for a lot of people. Then they get obsessed and then they get a taste of it. They do a few deals and they're like, “Gosh, I can't make money like this in my W2.”

Dr. Jim Dahle:
Yeah. All right. Well, our time is running short. But by the time this is all said and done and everybody's listening to this podcast, 30,000 or 40,000 high income professionals out there are going to have listened to this. What have we not talked about already that you think they should know?

Jamil Damji:
I think that a lot of people get starry-eyed watching their home renovation shows, mine included. And I've seen a lot of professionals get involved and they make these grave mistakes in doing it.

I would say that it's probably not the greatest thing to try to get into real estate and start flipping houses if it's not what you're really passionate about. And if you don't have a pedigree in doing it, you don't have people, you don't have professionals that you can rely on to help you make decisions and choices.

I would caution. I would caution the people who are watching the programming, who are getting interested in real estate, but have limited knowledge on how to do it correctly. Be careful. Be careful about what you're doing. Find people to partner with, find good professionals, trustworthy professionals that are doing this at a high level, and partner with them and figure out this whole world before you dive in and get involved in a situation that could literally take away your 401(k).

I think there should be caution in this, and I think that a lot of people have taken the HGTV and the A&E and all the things that we show you guys on television, and it's simplified. We got to show you how to do this in 42 minutes, but let me tell you what. This house didn't take 42 minutes to flip. It took seven, eight months and a lot of sweat and a lot of heartache, and a lot of money, and a lot of risk.

So, understand that we can't tell you the story of a house in 42 minutes. We can only give you the Cliff Notes version and you didn't pass medical school reading the Cliff Notes version of your organic chemistry textbook.

Dr. Jim Dahle:
Yeah, for sure. All right. Well, we've been talking with Jamil Damji. You can get his book, How to Wholesale Real Estate: The No-Cash Strategy to Build a Scalable Business. You can listen to his podcast, it's the BiggerPockets On The Market podcast. You can check out his businesses at keyglee.com, astroflipping.com, and you can follow him on Instagram, TikTok, YouTube. He's all over the place. You can even go to his personal website at jdamji.com.

Thanks so much, Jamil, for coming on the White Coat Investor podcast and explaining the world of wholesaling and flipping to us.

Jamil Damji:
I appreciate it. And thank you guys for listening today. Have a wonderful, wonderful day. God bless you.

Dr. Jim Dahle:
All right. I hope you enjoyed that interview as much as I do. He's well-spoken and puts out some great material. You can tell he loves teaching and mentoring and so that's why he’s got a business doing that.

I love seeing people that have been successful, especially people who have had maybe a hard time growing up, maybe had some rejection in their life. He mentioned at the beginning he didn't get into medical school. And for lots of people, rejections like that can have a significant impact on the course of their life. And in his, it sounds like it was mostly a positive impact. And so, I think that is a beautiful thing.

But I hope you learned something today about wholesaling, about fixing and flipping. I know I did and that it was useful. Now, am I planning to go out there and become a fix and flipper? Absolutely not. My life is way too busy as it is. But for some of you, maybe that is your best method of investing in real estate.

 

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Keep your head up, your shoulders back, you've got this, and we can help. We'll see you next time on either the White Coat Investor podcast or the Milestones to Millionaire podcast.

 

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Transcription – MtoM – 122

 

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 122 – A $4 million net worth in mid-career.

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Welcome back to the Milestones to Millionaire podcast. This is where we bring on somebody that has achieved a financial milestone, some modicum of success, whatever that milestone might be. It might be getting back to broke, it might be becoming financially independent and everything in between.

We love to bring these folks on to use them to inspire you to reach the same or similar milestones, whatever your goals may be. The fun thing about personal finance and investing is that it's a single player game. It is you against your goals. You're not competing against anybody else, but whatever your goals might be, we want to help you to reach them.

So, if you'd like to come on the podcast, you can apply at whitecoatinvestor.com/milestones and maybe I'll have to bring you on and use your experience to inspire others to do the same.

 

GUEST INTERVIEW

Our guest today has been very successful, both income wise and net worth wise. Let's get him on the line and talk about what he's accomplished. But stay tuned afterward. We're going to be talking a little bit about taxes after the interview.

Our guest on the Milestone to Millionaire podcast today is going to remain anonymous, but welcome to the podcast.

Speaker:
It’s great to be here. Thank you for what you do.

Dr. Jim Dahle:
We are celebrating a pretty impressive milestone for you. You've hit a net worth of $4 million. Congratulations on that.

Speaker:
Thank you. Thank you.

Dr. Jim Dahle:
Let's tell them a little bit about you, what you do for a living and more or less what part of the country you're in, as well as how far you're out of training.

Speaker:
Okay. I'm in a subspecialty of orthopedic surgery. I'm in the New York metro area and I'm about 13 years out of training right now.

Dr. Jim Dahle:
Okay. So, 13 years is not that long. Now in general, orthopedists tend to make pretty good money, but 13 years is not that long to be not just a multimillionaire, but worth $4 million. How in the world did you do that?

Speaker:
I hate to say it but 13 years to me sounds like forever. Kind of a journey of several moves and job changes. But basically, I started in the military. I had no loans from medical school because I joined the Navy HPSP program. They paid for private medical school. So that helped.

I had no undergraduate loans because I took an academic scholarship. So I started medical school with no debt. I started residency with maybe $30,000 in savings. Then I did a five year orthopedic residency in the New York area. And then once I got out in 2010, then I started four years of attendinghood in the Navy.

Dr. Jim Dahle:
And what did the Navy pay you to be an orthopedist?

Speaker:
All told it was about $120,000 per year, but then I moonlighted and I also did IEMs and insurance reviews as a side hustle. And I also subleased out the basement of the house I was in even though I was renting it myself to somebody else. So I paid almost zero rent as well. So, a lot of different strategies I used.

Dr. Jim Dahle:
So, if you added all that up, what do you think you were making during those years you were in the military?

Speaker:
Probably about $200,000, something like that.

Dr. Jim Dahle:
Okay. Then you had to face the decision, a decision that every military doc faces as their commitment comes up for HPSP students, that's usually four years in. Do you stay or do you go and what influenced that decision for you?

Speaker:
As much as I enjoyed the military and serving with the group of people in my department, financially it wasn't worth it. And I just come back to my deployment and that's a big thing that gets a lot of the orthopedic guys is that you serve a deployment and when I was in, I was doing ACL, shoulder surgery, elective things.

And then almost for one year I didn't operate at all. I went to Afghanistan, I was in role III and we took occasional casualties and washouts but almost nothing for one year. I’d then had come back in and resume and do high level orthopedics. And then I just didn't want that experience again where I have a lull of several months to even longer where my skills didn't develop.

So, it was a pretty easy decision. And I knew a lot of my friends were getting out and I had watched several waves of people get out years before this as well. But mainly the deployment issue.

Dr. Jim Dahle:
You mentioned something earlier, we'll take a step back here, that you came into residency with $30,000 in savings.

Speaker:
Correct.

Dr. Jim Dahle:
Was there some other source of income in medical school or was it just the HPSP scholarship? Because that feels like you saved half of what they paid you.

Speaker:
Yes. So, it's a long story, but I lived in a very low cost place in Philadelphia where I was at. My rent per month was $200. I lived in a house with 16 other people. We each had our own group, big brownstone, but rent was about $200. And at the time the HPSP was giving me $1,100 a month stipend, and covering all the books.

The house I lived in, we had a communal, let's say beer budget and utilities and things like that. So, I was probably spending only $500 a month. I was making about $600 a month in school. Then two weeks per year we had active duty pay. We had orders to stay either at school or take the boards or even rotate to the hospitals during our third and fourth year. That was a couple extra thousand dollars.

I had some savings from when I was younger, putting money in a savings account. And then in college, this is kind of one of the reasons why I started listening to your podcast and others like it, is I had an e-trade account. Junior and senior year of college, I got into day trading, which was the 90s, late 90s, early two 2,000s where everyone was making money.

I thought I had the formula. I put $1,000 in or something like that. And then next week I had $1,200. And unfortunately I had a massive issue and I put everything in one stock and lost essentially $18,000 in two days. So, that led me to begin saving again, et cetera. Now I lead a much different lifestyle with my investments.

Dr. Jim Dahle:
Is it just you or are you married, kids, anything?

Speaker:
I'm married. My wife is a teacher and we have four kids. 10, 8, 5, and one is about to be 2.

Dr. Jim Dahle:
Okay, very cool. All right. About what was your net worth when you came out of the military in 2014?

Speaker:
Out of the military I probably had $200,000.

Dr. Jim Dahle:
So, over the last nine years, your net worth has gone from $200,000 to $4 million. Tell us how that happened.

Speaker:
Well, step one, my wife is very frugal.

Dr. Jim Dahle:
This is coming from the guy who had 15 roommates.

Speaker:
True, true. I don't mind living like that in those conditions. My wife is a little bit, obviously more deserving of things. We don’t live a very lavish lifestyle. When I started, I think the number one key was moving into a high cost area.

Our house that we bought was $800,000, but essentially I'd have to put 20% down typically. But we used a physician's loan, so we put zero down, paid no PMI on it. I think we put $25,000 or $30,000. Very minimal, no PMI.

My wife had a car that was paid off at least like a non-orthopedic attending type car. And I said, “Listen, I'll do this for three years, I'll deal with it. It's new, it has a good sound system”, et cetera. And then we just started saving.

And I always just assumed that although I signed a very nice contract to start, I always assumed it would just disappear one day. Because I always hear people saying, “Well, it's changing. Medicine is changing.” So, you never know what to believe. I just assumed that I had an initial four year contract that was really good and it was incentive based.

So I put my head down and I just tried to save 50%, 60% of my money. I paid the mortgage. At that time I had two children. I just had my second child. We don't go on very lavish vacations and at that age there's not much to do anyways. I have family that lives about a mile away, my mother-in-law, so we have family nearby to babysit. So, we don't really spend a lot of money and we save and invest.

Dr. Jim Dahle:
So, what do you think your earnings have averaged over the last nine years? Household income, all in, everything.

Speaker:
So post military and post fellowship, it's been between $800,000 and $1.6 million.

Dr. Jim Dahle:
Ok. So you're making a great income.

Speaker:
Again, I just think it's going to disappear. Like that'll not be an option two, three years from now. The pandemic showed us that also, that affected things a little bit.

Dr. Jim Dahle:
Yeah. How much did you see your caseload drop in the spring of 2020?

Speaker:
Well yeah, they stopped elective cases in June. I did, I think zero cases, because that's all I do is elective surgery. So from March till June, I think I did one or two cases that were needed to get done. But I did zero essentially. Not ideal.

Dr. Jim Dahle:
And that's what your income went to as well, I assume?

Speaker:
Yeah. For me it's kind of a lucky situation. That was at the time where I switched over from one hospital system to the other. For my first year I had a guarantee. So, I had a guaranteed base that was constant for that whole year. Then the next year I took a little bit of a pay cut because I earned zero. And you draw a percentage of what they paid you the year before. It's one of those systems. But it could have been a lot worse. But I think that was just luck and that's why I don't like to leave things to chance like that.

Dr. Jim Dahle:
How's it feel to pay taxes on a seven figure income?

Speaker:
Not great. Not great. Again, I'm always looking for legal means to lower tax burden. That's kind of the next thing that I'm looking towards doing.

Dr. Jim Dahle:
A lot of your story is income. You played great offense. Obviously there's some frugal things you mentioned, the 15 roommates and this sort of stuff, saving half your scholarship essentially in medical school. But at every step you've done things to boost your income. What tips do you have for others who'd like to see their income be higher?

Speaker:
Yeah, I think you just need your goal. You have to look at income and you have to look at time. So if there's a way to boost your income that's not going to draw from your personal life, just look at that. There's plenty of opportunities. When I was in the military, I did locums, so I'd fly out of state. I think I used to go Yuma, Arizona for five, six days cover ER call. And in that five or six days I would make three months of my military pay. I was trying to generate 1099 income so I could deduct off my salary.

You can look for side hustle, but again look at what's the ceiling in your profession, in your specialty. And there's a lot of risk. If you're trying to make seven figures plus and you join private groups and try to get ancillary services, there's a lot of risk that comes along with that just like any business. If your partners buy into a surgery center that doesn't do well or the ancillaries are not making the revenue that they expect, then it’s going to suck a little bit, at least in my opinion.

I wouldn't go for the dollar end all be all, but just find a lifestyle that suits you, budget and take it from there.

Dr. Jim Dahle:
When do you think you became financially literate and how did you do it?

Speaker:
Okay, there's two things in mind. Number one, when I was in college, I day traded 1999-2000-ish when anyone who put money into E-trade made money. So, I had a deal where I bought, once, my brother who was three years older and worked in finance and he had a hot tip, et cetera. And I had a diversified portfolio, I sold it all and I put it in one stock and I was like, “Okay, cool. If I put $20,000 in this one stock and it goes up 20% this week, I'm going to buy a car.” And the stock literally just went down. I lost 80% on that stock in like two weeks.

And I said, “All right, something's got to change.” So, I started learning more. I stopped investing in individual stocks. When I was in the military, I used to trade a little bit with my Roth IRA because that was a little bit less risky. And then if I made $100, then I made $100. I don't know if that's a great strategy to recommend to people, but it was a nice way to get my feet wet. A couple hundred here, a couple hundred there. Because my Roth wasn't very valuable at the time.

The other thing came when I was deployed. That's when I learned my main lesson. It was a very savvy anesthesiologist who was like 10 years older than me, and he seemed to know everything about finance. And as you know, when you're deployed, you're just sitting around much of the time. So, we had of campfires, a lot of chats over investing.

And when I was in Afghanistan, actually the Boston Marathon bombing occurred and I thought I was going to be so smart. I was like, “Oh man, the market is going to crash.” So, in my tent in Afghanistan, I logged into the internet and I took all my TSP money and I transferred into the G fund and I was like, “Ah, good. You’re safe.”

And then at that point I was reading books, I read a couple books on deployment about finance. I was trying to get literate that way. And then I forgot about that G fund thing and the market never tanked. And then when I was getting at, I'm looking at this thing and I looked at and I was like, I was making 1% or less and the market went on to 18 or 20 something percent that year thereabout. And man, I have do something better besides guess or figure out myself.

Then I wound up getting a financial advisor temporarily and that wasn't what I was looking for. And long story short, I now have a financial advisor, but that was recommended to me by somebody who I trust, who is a plastic surgeon nearby. And this guy probably interviewed like 30 people.

Now I have a trusted person whose put me on a mathematical model, no trading, everything is balanced portfolio, that kind of thing. Really an organized plan, guided by professionals if you can't trust yourself.

Dr. Jim Dahle:
Yeah. So, what do you invest in now?

Speaker:
Now I have mainly Vanguard. I have a brokerage account that's managed by my financial guy. I have VTAIX, VVIAX, VIGIX, VSIAX and VSGAX. That's in aggressive portion. When I transferred the money over, I also had stock, which I bought a bunch of Amazon in the beginning. I have 1,500 shares in Amazon and I have money in the money market. So that's pretty much it.

The only individual stocks I have are Amazon. My wife had some Pfizer and AstraZeneca from when she was in high school. That obviously appreciated. So, that's separate.

Fortunately I have a whole life policy. I know we're not keen on that, but that in 2010 at the time was $500 a month and I was like “All right, this is $500 that’s going to be year marked towards going to something investing wise.” So, that's now $70,000 of cash. Yeah, that's pretty much it. I have some Bitcoin. I bought some Bitcoin. I put a couple hundred bucks a month into that just to see and play with.

Dr. Jim Dahle:
Very cool. All right. Well, you've been very successful both income-wise and net worth wise. What advice do you have for someone that's maybe like you 10 or 15 years ago and wants to build that sort of a net worth? What advice do you have for them?

Speaker:
A couple things. One is again, identify your goals. Where do you want to live? For me, this is the area where I'm living, area where we want to live. So, it's important to find a nice job in that area.

For me it was really about keeping my expenses low because I really feel like when you get out of residency and you're working 80 hours a week, et cetera, and you're making maybe $65,000. If you get a job making $700,000, $800,000 let's say as a starting ortho salary someplace, if you're lucky enough to do that, that's a massive leap.

For me, it was helpful to have a stutter step in the military where I was making maybe $120,000, $130,000. Then a year in fellowship where I was at seventies and then I came out. So I realized that I lived just fine in the military with that salary and I didn't need to make this dramatic change in lifestyle even though my salary increased.

I always tell people, everyone says “Don't keep up with the Joneses.” The key to doing that is don't hang out with the Joneses. Most of my friends are military guys, cops in the area, law enforcement. I don't join any country clubs because not that I wouldn't, but I just feel like there are people in this area that have tens of millions of dollars that they inherited or from hedge funds or whatever.

And if you're hanging out with those people, you're going to feel like you're not doing well. And it's hard to keep that in perspective, but it's easier when you're hanging out with people that don't have as high income because you realize “Hey, my life is pretty good. I don't need a Porsche 911 Turbo or something like that.”

Dr. Jim Dahle:
Well, congratulations on your success and thank you so much for coming on the Milestones podcast to share what you've learned and inspire others to do the same.

Speaker:
Great. Thanks. I hope it was helpful. Thanks for all you do. You've definitely inspired me.

Dr. Jim Dahle:
All right, I hope you enjoyed that interview as much as I did. It's always great to talk to somebody that's been successful. This podcast occasionally gets criticized for only bringing on people that have these major high incomes, a major high net worth. And this is kind of an example of that.

We've had people that are making $100,000 a year and we've had people that are making seven figures a year and it's obviously much easier to build wealth when you're making more money.

And the fun thing about income, particularly among physicians is that the intra-specialty variation dwarfs the inter-specialty variation. If you look at the average orthopedist in salary surveys, they're making closer to half a million, not $800,000, certainly not $1.6 million. And it's the same way with every specialty.

Sure, the average pediatrician might be making $225,000 but there are plenty that are making more. Half of them actually. And I've met pediatricians that are making seven figures.

And so, obviously it's going to be easier in some specialties than others, but in whatever specialty you're in, boosting income is not impossible. And I think most people dramatically overestimate the difficulty of doubling their income.

 

FINANCE 101: TAXES

All right, I promised you we were going to talk about taxes. The interesting thing when you don't know much about taxes is you're convinced that there is this list of secret deductions out there that if you just knew about or if you just found the right person to prepare your taxes, that you would pay dramatically less in taxes. And of course, tax preparation firms, tax advising firms like to keep this ideal alive. They're just soliciting business though.

There are no secret tax deductions out there. Yes, you do have to learn a little bit about the tax code, but for the most part, the way you lower your tax bill is by changing your financial life. You got to be careful though. The goal is probably, if you think about it not really to just lower your tax bill, the goal is usually to maximize your after tax income.

And those are very different things because the easiest way to lower your tax bill is stop making money. You don't make any money, you don't pay any taxes. In fact, you're probably getting money back the way our tax system works. And so, make sure you're not doing things just to lower your taxes. You don't want to poke yourself in the eye just to stick it to the man.

But when it comes to doctors, here are some of the tax deductions you ought to be thinking about and ought to know about and probably be using. The number one, probably the biggest tax deduction for most doctors is their tax deferred retirement plans. Whether these are 401(k)s, 403(b)s, 457(b)s, cash balance plans, whatever, HSAs I'd even throw in there.

But these retirement plans basically take money off the top. So, if you put $50,000 into a tax deferred retirement plan and you are making $300,000, now you're only paying taxes on $250,000. So, that might have been in whatever bracket that's in 33%, 35%, whatever it is. But you just save that.

So, if you put $50,000 in and you're in the 33% tax bracket, that's your marginal tax rate. One third of that, $17,000 or something just came off your tax bill. So yes, you'll have to pay taxes on that money later, but if you're like most docs, you'll be taking that out, maybe even in the 0% tax bracket, probably some of it in the 10% and 12% tax bracket. There's a big difference there. Plus it grows for all those years in a tax protected way, further reducing your tax bill.

So, your tax deferred retirement plans, if you are in your peak earnings years, max those things out, that's your biggest tax deduction. Not only does it reduce your taxes, but you still have the money. It's the best tax deduction ever.

All right, here's another one. The backdoor Roth IRA. And this doesn't reduce your tax bill this year, but it reduces the taxes on your investments, both for you and for your heirs. By putting money into a Roth IRA in your 20s or 30s, you might have 60, 70, 80, 90 years counting your heirs of that money growing in a tax protected way, and that reduces your taxes.

So, most savvy White Coat Investors, assuming their employer isn't offering them a SEP or a simple IRA, are also doing a backdoor Roth IRA and they can do it for their spouse as well.

If you've never heard of this, check out our tutorial. Just Google “Backdoor Roth IRA tutorial.” Maybe throw a “White Coat Investor” into your search, it'll pop right up. It'll take you through every step and how to avoid all the mistakes that people make every year with it. It's not that complicated, but somehow people manage to screw it up every year and you can do your backdoor Roth each year.

Another big tax deduction is healthcare. Healthcare is really expensive, no doubt about it. But the truth is, you can pretty much pay for it with pre-tax dollars. When your employer is paying for your healthcare, and for most of you that are employees, they're paying a significant chunk of it, probably 80% or so of your insurance premiums. That's all pre-tax. If you're your own employer, that's pre-tax to you.

Likewise, if you have a health savings account, you can spend pre-tax dollars on your healthcare. And so, that can be a big deduction. Even if you're self-employed, you can put a line on there, on your taxes. I think it's Schedule 1, that allows you to pay for that using pre-tax dollars. So, a big tax deduction there.

Another big tax deduction is business expenses. And for this you generally have to be self-employed at least for some of your income. Any business expense is paid for before you pay tax. And so, if you are self-employed, anything you need to run your business, might be a computer, might be cell phone, might be scrubs, might be CME expenses, licensing and DEA costs, credentialing costs, whatever. That's all pre-tax dollars. And so, that's a pretty significant deduction as well for many doctors.

If you have a specified service business or whatever it is, like medicine or law or something like that, you may also benefit from what's our biggest deduction here at the White Coat Investor, which is the 199A deduction.

Now this one only goes through 2025, but if you own a business, you should know about the 199A deduction. This is an ordinary business income deduction. It's basically a deduction that was put in place back in 2018 in order to allow S corps and partnerships and sole proprietorships to be on even ground against C corporations when the corporate tax rate was cut to 21%. So, you ought to know what that is if you're self-employed.

A lot of doctors aren't allowed to take that because they have a specified service business and they make too much money, but you look into it and see if you're allowed to be taking that deduction. It's a big deal if you are.

Okay, here's another one. Buying a home. I mentioned if you change the way you live your financial life, you may find that you have a lot more deductions. And one of those things is buying a home. And the reason why is mortgage interest is deductible. And given that interest rates are significantly higher now than they were a year or two ago, you might be paying a lot of mortgage interest.

Now, it's not necessarily a good idea to pay a dollar to get a 33 cent deduction, but if you're going to buy the house anyway, you might as well deduct that mortgage interest. And so, that can be a significant deduction.

Another one is giving money to charity. Again, this is changing the way you live your financial life, but every dollar you give to charity, assuming you itemize, and if you don't, even if you don't itemize for small amounts, every dollar you give to charity, you're not paying taxes on. And so, that can be a pretty awesome deduction.

It's even better if you're donating appreciated shares because then neither you nor the charity pay the capital gains on that, yet you still get the entire value of what you donated for a charitable deduction, assuming you've owned the shares of whatever it was for at least a year.

Another one that many doctors use or don't know to use is tax loss harvesting. And if you have a taxable investing account and you've lost money, you ought to sell what you lost money on and buy something that's pretty similar to it. And that way you haven't changed your overall investment strategy, but you have harvested that tax loss. And those are very useful.

You can use $3,000 a year of it against your ordinary income and you can use an unlimited amount of it against any capital gains. And so, that can be a useful tax deduction as well.

But there's not this list of super-secret tax deductions out there. And when you start looking for those and talking to people that think they're finding them, a lot of the times you're committing fraud. You're evading taxes, not just avoiding taxes. And so, you got to be careful with that. I can't tell you how many doctors I've run into who think they have a legitimate tax deduction and they really don't. For example, they're deducting some lease that they're just using to commute with and it's totally non-legit. If they ever got audited on it, they'd be hosed. So, keep that in mind.

All right. Well, I hope you are having a good day. I hope I have a good day. I'm feeling a little stressed today. This is the least stressful thing I'm doing recording this podcast today. My daughter has somehow talked me into jumping out of an airplane later today. And so, we'll see how that goes. But that's what she wanted for her birthday. So, here we go. Jumping out of a plane today. If this is the last podcast I ever record, you'll know why. But wish me luck.

 

SPONSOR

All right, our sponsor today is the White Coat Investor Insurance page. And the truth is that getting high quality disability and life insurance is a big deal for doctors. If you're not financially independent, you need disability insurance. If anybody else depends on your income, you need term life insurance. This is not like a “maybe”, this is not optional. Go get it. Doctors die all the time and not just those who jump out of airplanes. Doctors get disabled all the time, and most docs don't have the ideal policy for their gender, specialty, state or health status.

If you do not have these policies in place, if you're not sure you have the right one, you need to talk to somebody on our list. And the way you find that is you go to whitecoatinvestor.com/insurance or you can go to the main website and just go to the recommended tab and go down to insurance agents.

These are people we've been working with, some of them for more than a decade. They're not going to hose you. They're doing fine financially. They don't need to sell you a policy that you don't need. They know that by doing the right thing for you, you'll send more business their way. Instead, they do the right thing. It's extremely rare that we get any sort of a complaint about them. And if you come to us early on, we'll fix it. Trust me, they want the business from the White Coat Investor.

And so, they will treat you well or they will not be on that list. You can trust these folks. They're good insurance agents. Yes, they're agents, they're commissioned, they want to sell you stuff. If you go in there and go, “How much insurance should I get?” They're going to tell you a lot. So you probably ought to decide how much you want before you go in, but they're good people and they'll help make sure you get the right policy. That's at whitecoatinvestor.com/insurance.

All right, I won't be recording for a few weeks. After I’m jumping out of an airplane, we've got a couple of trips coming up and so, it'll be a while before I record again. By the time you hear this, I think those trips are actually mostly over. But wish me luck. It should be a good little time in our family's life and we look forward to chatting with you again.

If you would like to come on the podcast, whitecoatinvestor.com/milestones. We'd love to have you. Until then, keep your head up, shoulders back, you've got this and we can help. Good luck with both your career and your finances.

 

DISCLAIMER
The hosts of the White Coat Investor podcast are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.