February 2022 – Your Financial Pharmacist

YFP 244: 6 Common Home Buying Debates

Posted on by yfpadmin

6 Common Home Buying Debates

Nate Hedrick, the Real Estate RPh, is back on the show discussing 6 common home buying debates.

Episode Summary

During today’s episode, Nate Hedrick, co-host of the YFP Real Estate Investing Podcast, joins Co-Founder & CEO, Tim Ulbrich, PharmD, allowing us to tap into his expertise as a real estate agent, helping plenty of pharmacists through the process of buying a home. We discuss six common home buying debates and talk through both sides. Sometimes we think of many aspects of the home buying process in black and white when there are many times when it depends. How you feel and choose to move forward with these decisions that ultimately impact your financial plan often depends on your financial situation, how you feel, other goals and priorities, and many other factors. We talk through the pros and cons of a 15-year mortgage versus a 30-year mortgage, debate why a 20% down payment on a home purchase sometimes makes the most sense and other times not, and consider how you can buy a home while paying off those pesky student loans. Listeners will be able to tap into the pros and cons of buying versus building a home and whether you should consider a starter home as your first home purchase or plan on saving for a forever home. You’ll also hear why renting is not a terrible decision, despite what we may hear about the need to build equity through buying a home.

Key Points From This Episode

An introduction to today’s guest, Nate Hedrick, co-host of the YFP Real Estate Investing Podcast.
Why home-buying decisions are not absolutes, but rather another aspect of the financial plan.
How there’s no wrong way to go about financial planning, it just matters what you care about.
Some of the pros and cons of 20% and why the most important question is what your capabilities are.
Nate’s thoughts on the opportunity cost of money that’s being tied up in low-interest rate debt.
Building versus buying and who each option is best suited to.
Buying property with and without student loans.
Weighing up buying a starter home versus buying a forever home.
Why the term ‘forever home’ is a bit of a misnomer.
The benefit of having multiple exit strategies.
Why renting is not necessarily a terrible financial choice.
The unforeseen costs of owning a home.

Highlights

“It feels to me like we sometimes treat home-buying decisions as absolutes, as black and white one solution for all. When in fact, it’s yet another area of the financial plan.” — Tim Ulbrich, PharmD [0:02:20]

“[For] the average American, something like 11.5 or 12 times is the number of times they move in their life. The concept of the forever home is actually a misnomer.” — Nate Hedrick, PharmD [0:18:50]

“It’s important to try to factor those pieces in when making that decision because it’s not as simple as comparing the mortgage to your monthly rent. There’s a lot more that goes into it.” — Nate Hedrick, PharmD [0:24:32]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[00:00:00] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to the YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week I had a chance to welcome back onto the show, Nate Hedrick, the Real Estate RPh. Now, many of you may know Nate as the co-host of the YFP Real Estate Investing Podcast. But today, we are talking home buying and tapping into his expertise as a real estate agent who has helped many pharmacists throughout the home buying process. On today’s episode, Nate and I talk through six common home buying debates, and have some fun playing both sides of these debates. Some of my favorite moments from the show include discussing the pros and cons of a 15-year versus 30-year mortgage, debating why 20% down sometimes does and does not make the most sense. How one can consider purchasing a home while paying down those pesky student loans, and why renting is not a terrible decision despite what we may hear about the need to build equity through buying a home.

Whether you are a first-time home buyer planning to move or looking for an investment property, get started today by scheduling a free call with Nate, by visiting yourfinancialpharmacist.com, and clicking on “Home Buying” at the top of the page and then selecting “Find an Agent.” From there, you can book a no obligation free call with Nate to see if his real estate concierge service is a good fit to help you walk through the process and to find an agent in your area that has your best interest in mind. Okay, let’s jump into my interview with Nate.

[INTERVIEW]

[00:01:26] TU: Nate, welcome back to the show.

[00:01:28] NH: Hey, Tim. Always great to be here.

[00:01:29] TU: How are things for you, for the family, for real estate? What’s new and exciting?

[00:01:33] NH: Everything’s good. We’re snowed in Cleveland, Ohio, but that’s nothing new. It will be like this until April, I’m sure. But yeah, we’re good. Real estate is cooking. We just finished up rehab on one project. Actually, it’s funny. On the day we refinance, the next day, we have closer back to the house for a new property that we’re purchasing. We’ve been busy. It’s been good.

[00:01:51] TU: Awesome. And it’s been a hot minute since we had you last on the podcast, episode 241, where I talked with you and David. You’re a co-host for the YFP Real Estate Investing Podcast. We talked about five common objections to getting started in real estate investing. But today, we aren’t talking real estate investing, but rather home buying and common home buying debates. As I mentioned to you Nate before we hit record, it feels to me like we sometimes treat home buying decisions as absolutes, as black and white one solution for all. When in fact, it’s a yet another area of the financial plan. Where if Tim Baker were here on the show today, he would say, “It depends. It depends on your financial situation. It depends on other goals and priorities. It depends on how you feel and many other factors as well.”

We’re going to have some fun today beating up common home buying debates, like 15 versus 30-year mortgage, whether or not somebody should put 20% down. Again, let’s keep in mind that there is no right answer, and certainly no one solution for all. All right Nate, you’re ready?

[00:02:51] NH: Yeah, let’s do it.

[00:02:51] TU: Number one on the list, and this I think hits home for you as you mentioned before we hit record. You’ve had experience in both sides of this debate. Number one, home buying debate is 15 versus a 30-year mortgage. Talk to us about your experience, and then some of the pros and cons of each approach.

[00:03:06] NH: Yeah, absolutely. As somebody who owns a home, I’ve actually gone through both types of mortgages and on this exact house. We bought it with a 30-year mortgage. Again, when we were purchasing our house, we’re scraping together whatever we could just to be able to afford it. So a lower payment and all the other things that go with that. A 30-year kind of made sense. As we got a little further down the road, a couple years into owning the house, we refinance. And at the time, there was a fantastic rate available for doing a 15-year. So we got – I think it was a full point more, or more actually as a reduction on our rate just by going down to a 15-year. We looked at our finances, said, “Yeah. We can actually afford the monthly costs on this, pay off the house faster.” We took it from wherever it was, like 26 years that we had left on the 30-year, refinance that down to 15.

Well then, more recently, we refinanced again, because the market has gone up, the value of the property has gone up and wanted to tap into HELOC. When we looked at rates, again, they were very much the same between 15 and 30-year rate at this point, so there wasn’t that advantage any longer. When I look at things like a home, where it’s very good debt, in my opinion, you’re looking at an interest rate that’s pretty comparable, why not spread that out over a longer period of time, knowing that I can always pay it faster if I want to, but I don’t have to, right. If one of us decides not to work for a while, we can take a step back and all of a sudden, I don’t have that larger payment looming. There’s advantages and disadvantages to both sides.

[00:04:31] TU: Yeah. I think for folks that haven’t really dug into actually looking at the amortization schedule, if they’re in this decision point, and as you mentioned, there’s some flexibility right as you looked at refinancing and other options going from the 30, to the 15, to the 30. I think that this is an area to me, Nate, where someone really has to take a step back and just like we talked about with student loans, it’s how do you feel plus the numbers, right? Here as well, I think for me emotionally, there’s one aspect, it’s like, “Man, I’d love to have a paid off home tomorrow if I could. It just would feel good. It’d be an asset that I could tap into potentially, in terms of equity and so forth.” But then there’s the more objective analytical side of me, that’s like, “Wait a minute! When you look at these rates, what else could I be doing with this cash flow, right, which gets to comfort level, other goals you’re trying to achieve?” I think your comment about the 30-year, you can pay it off faster, if need be, you’re going to have some flexibility to cash flow. But certainly, an individual decision that folks need to be thinking about.

[00:05:29] NH: Yeah, 100%. I think there’s no wrong way to go about it. It just matters about what you care about, right? That idea of a paid off house, while interesting to me, when I look at it as a broader piece of my financial picture. It doesn’t get me out of bed just to get that 3% rate washed away.

[00:05:44] TU: Yeah, and I think it’s worth, obviously, Nate, we’re talking about this in February 2022. Interest rates are historically low levels, right? That definitely matters. As we’re thinking about what else might I do with this money? Obviously, we’re doing that in the context of these rates being very, very low. If that were to change into the future, you know the discussion might be different.

[00:06:04] NH: 100%.

[00:06:05] TU: Okay. Number two home buying debate is 20% down versus something less than 20% down. Maybe that’s zero, we’ll talk about options there. Maybe it’s 5%,10% or 15%. But I think, 20% down for conventional loans is what folks may be used to hearing, that hey, you got to have 20% down to buy a home. But there are lots of options out there that don’t require 20% down. You look at VA loans, FHA loans, professional mortgage loan options. You talked to us about some of the pros and cons of 20% or something less than 20% down.

[00:06:37] NH: Yeah. There are a number of things that can factor into this. The biggest one to me though is, do you have the ability to save up for that amount, right? Twenty percent down in a market where the houses are $500,000 or more, that’s a totally different amount to save up versus a $200,000 starter home, for example. I think part of it is, what are your capabilities in terms of being able to save that money? And then once you start to look at that, trying to figure out how does this affect our budget, right? If we put 20% down versus 0% down, the payment we have every single month is going to be vastly different. Understanding how that affects your monthly budget can really be a big deal.

The other thing is that in a market like this, where housing prices are continuing to rise, and almost getting to the point where I think people are kind of getting nervous at how fast the prices have gone up. To me, it feels nice to have that 20% down that equity built in. Because if there’s a downturn, if things start to move in the wrong direction, I’ve built in some equity into that place. That if I do need to sell it for some reason, I’m not taking a bath going and selling that house for a loss. There’s advantages to that. The other thing, though, on the flip side is that I’ve seen people say, “Well, the market is crazy. I’m going to wait and build up my 20% down.” And in the meantime, the market has increased so much. The amount they’ve saved isn’t even enough to keep up with the appreciation of the market. They actually lost money by doing that, which is crazy to me. There’s again, both sides of the coin on this one.

[00:07:59] TU: Another example too of really taken a step back, Nate, what’s the opportunity cost of money that’s being tied up in low interest rate debt? How do you feel about the risks that are associated with having less equity versus having more equity in the home? I think that again, this gets back to, “Hey! What else is going on in the financial plan? Is there other high interest rate debt? Are we behind on investing or saving for the future? What is the importance of that cash flow? How do you feel about it? I think your comment about the instant equity in a market downturn is good, or the other thing I think about here, Nate is, if pharmacists maybe end up in a career transition that they didn’t anticipate, or perhaps worth thinking about, just the costs of being unable to sell that home, buy a new home, the transition, if there’s no equity in that home, then that’s going to be further expense into the future. Also thinking about what that equity might be used for into the future in the event of something like a home move that would happen.

[00:08:54] NH: One thing we didn’t mention too, with a 20% down, is that a lot of times, with those loans, you can’t avoid things like PMI, or even get a better interest rate. Factoring in all those costs of, if I do the 0% down, or if I do a low money down option, is there going to be built in PMI. Has the interest rate been impacted by that move? It’s not just that upfront financial decision, but it’s the long term as well.

[00:09:15] TU: I think one disclaimer, Nate we should make here. Is that, you have worked with pharmacists nationally helping them get placed with an agent that is a good fit for them and you’re very aware of what’s going on national trends. We got to Ohio guys here talking about real estate, and I recognize even, you’re in the Cleveland area, I’m in the Columbus area and we certainly seen significant appreciation. But this is not Washington DC, this is not New York City and this is not San Francisco, right? As we throw out numbers and we recognize that pharmacist’s salaries don’t necessarily correspond to home prices, right? Pharmacist in Columbus, pharmacist in San Fran, maybe there’s a little bit of income differences, but that housing difference is going to be massive and well surpass that income differences there.

Obviously, when we talk about down payments and things to your point about the feasibility of the down payment, someone’s looking at a $600, 000, $700,000 home because of the market. Do the math on that in terms of what it’s going to take $120,000, $140,000 to put 20% down. But one counter argument to that is, despite it taking so long to be able to build that up, is that, I do think a lesser down payment can sometimes open up the realm of what is possible in terms of home price that may or may not be within the realm of someone’s budget and long term financial goals. What I mean by that is, if you were to say, “Hey, Tim! You’ve got to put 20% down, whether I like it or not, that’s going to probably force me to really look at that overall purchase amount differently, because I’m going to part ways with a significant amount of cash upfront.” If I don’t put anything down, I’m not going to feel as much of that upfront. So just another reminder of like you as the individual, setting your budget, whether you put 20% down, 15%, 10%, whatever the number is and not letting the bank set that budget for you.

Number three home buying debate, buy versus build. We talked about this a little bit on episode 193, so we’ll link to that in the show notes. But Nate, I think this is a really timely question that I suspect folks might be thinking about, giving the market being what it is. It’s [inaudible 00:11:09] and that seems to not be stopping anytime soon. Folks might be looking at the bidding wars, the competition, all the thing that’s going on and be like, “Man, just forget about it, I’m just going to build a home. Talk to us about some of the considerations here. We’ll certainly point folks back to episode 193, as well, of what might be some of those nuances, and differences and things that people need to think about in the buy versus build debate.

[00:11:32] NH: Yeah. I’ve had multiple clients, have that exact same conversation with ourselves about, “Well, I can’t find a place that isn’t in a bidding war. Maybe I’ll just go build one, this will be a lot easier.”

[00:11:40] TU: I’m out. Yeah.

[00:11:42] NH: Yeah, I’m out. I’m going to do this in nine months, right? That really is an option for some folks, but it comes down to a couple of key things. The first is, the lending and financing on building versus buying, it’s very different, right? Especially if you’re talking about – and again, 193 goes into a lot more detail here. But especially, if we’re talking about purchasing raw land, and building on that specifically. A lot of times, even if you don’t purchase that way, where you’re buying a lot within the development, you still have to obtain a construction loan, which is very different than a typical end loan or a mortgage loan. There are a number of factors to consider in terms of the amount of down payment required, reserves that are required, and all the pieces that go with that. The second thing is timing.

Obviously, building a home takes time. In most cases, you’re looking at a 9 to 12-month window, but I have seen delays of over a year. In fact, I worked with a client that ran into a ton of delays and actually had to walk away from a deal a full – gosh, it was a full eight or nine months after it was supposed to be done and it wasn’t even halfway complete because of supply issues. The timing is definitely a factor. If you are on a strict timeline of any kind, I would recommend avoiding the build, right? You don’t want to be set to what has to be done by June because of X, Y and Z. That’s going to be a recipe for a mess.

Then the last thing is really the budget and the costs, right? Building a home is generally more expensive than buying an existing home. Of course, you can set your budget lower, and you can make that all work. But it’s very easy to sort of have these escalations take place where you walk into a place, and it’s $300,000 as the starting cost of the home. But once you start adding in all the things that you want, now you push it to 400 without even choosing your cabinet color. It can really get out of hand quickly. And if you’re not able to rein that in, you can easily overspend. I think going into it with that mindset of, “I know my budget. I’m going to stick to it and here are the sacrifices I’m willing to make on that budget.” That’s a healthy way to do it. But most people don’t, most people go in and get that eye candy of what can I grab? What can I add to this?

[00:13:38] TU: Great stuff, Nate. Number four on the homebuying debate is buying with or without student loans? What would a YFP episode be without talking something about student loans? This is a question I get all the time, which is, “Hey! I’m the average pharmacist that graduated within the last five or 10 years. I’ve got $150,000 to $200,000 in student loans. But I’m in the phase of life where I want to buy a home, and I recognize that I’ve got this gorilla of student loan debt and I’m potentially layering on another gorilla of debt in terms of the home. Largest purchase folks are typically going to make. What does that mean for my financial plan? Should I wait until I have my debt paid off? What are some considerations if I’m going to buy a home while I have student loans?”

You wrote a great blog post on this topic that we’ll link to in the show notes, Three Strategies for Buying a Home with Student Loans. Nate, what are some initial thoughts that folks need to be thinking about if they’re in the weeds of that situation, lots of student loan debt, actively looking for home or planning to look for a home in terms of how to balance that, as well as things like how is that debt is factored into the equation of the lending process?

[00:14:43] NH: Yeah. I think the very first thing you want to sit down and do is figure out what your debt payoff strategy is for your student loans, right? This is a totally different conversation if we’re talking about PSLF or some sort of forgiveness, versus actually attacking that debt yourself. For the sake of argument, I’ll assume we’re not going for PSLF on this one, and we’re just going to pay down the debt, right? We’ve got X hundred thousand dollars and we’re going to take care of it eventually. I can tell you that, looking at your budget, looking at what those monthly costs are, is a really great place to start. One of the reasons is, because you need to know how much you’ve got going out the door, one for yourself, to set your own budget. But two, how it’s going to factor into your debt-to-income ratio.

As we’ve talked about in the past, the bank is going to look at that loan as what the monthly payment is, and how that’s affecting your debt to income. We’ve seen pharmacists get priced out of their own market, because their student loan balance, the student loan monthly payment is actually pushing their DTI too high. Knowing those numbers, and really understanding what you’re getting yourself into in terms of those is a great place to start. From there, I think you really need to start asking yourself a few key questions. You can absolutely buy a home with student loan debt writing. I’ve done it. We invested in several other properties before we even paid off our student loan debt. It’s not undoable. But what you have to look at is, are those student loan debts causing me a lot of stress? Am I so hyper focused on that, that I can’t fathom the idea of creating extra debt until those are gone?

I think looking at something like that is a great place to start. And then also looking at some of the key pieces of your financial picture. Like, do I have an emergency fund? That absolutely essential before you get on any other road. And then, how will buying this home affect my other financial goals? Will it shoehorn me into 10 years of all I can do is pay back this debt and not quit my job? This is all I have. I think asking yourself those questions up front, before trying to figure out how can I do this. It’s, should I be doing this and how do I feel about it?

[00:16:35] TU: Yeah, Nate. As it relates to the question you brought forward, which is a really good one. Are my student loans and other debt causing significant stress? I have the opportunity to talk with lots and lots of pharmacists about this topic. Typically, we’ll ask them, “On the 1 to 10 student loan pain scale, which is ten is, these are keeping me up at night, causing me a lot anxiety. It’s the last thing I think of before I go to sleep. First thing I think in the morning.” Versus the one is like, “Nah! It is what it is. It will take care of itself. Where are you on that scale?” My follow up to them, which I think is significant here is how much of it is the dollar amount, and how much of is the lack of clarity on having a strategy and a plan. More often than not, when we can start to put together a plan, and that number isn’t going to change tomorrow, right? If you’ve got $200,000 of student loan debt, and today, we don’t have a plan. Tomorrow, we do have a plan. In fact, you might have more debt tomorrow, because of interest than you do today.

But the peace of mind that comes from hey, we’ve evaluated all these options. We’ve looked at forgiveness, we’ve looked at non-forgiveness, we’ve dissected the strategies, we understand what’s going to come out of pocket, we know how this is going to fit in with other parts of the plan. That is a game changer. I would say that here and encourage folks, if you’re in this position right now, really getting clarity as Nate mentioned, on the student loan repayment plan, because even though that number may not change, I think that certainly might change your mindset heading into the whole mind decision.

[00:18:01] NH: That’s a really good point. I mean, it’s something that again, we had Tim Baker sit down with Kristen and I to actually look at this stuff and feel like, once we got our head around the plan, the number itself didn’t matter as much. It was just about sticking to the plan and realizing how other things puzzle pieced into that. I agree that’s super important.

[00:18:19] TU: Number five in the home buying debate is buying a starter home versus a forever home, which obviously those terms are subjective in and of themselves. This is one, Nate that I recall my wife Jess and I talking about. Knowing that there are real costs in buying and selling of a home. And as we have seen with the market appreciation over the past few years, waiting might mean paying more. Why not just jump in your forever home right away, I think is the question that we often hear, and talk to us about some considerations here.

[00:18:47] NH: Yeah, it’s a great question and it’s a bit of a misnomer, the forever home. The average American, I think something like 11.5 or 12 times is the number of times they move in their life. The concept of the forever home is actually pretty misnomer. But anyway, if you’re looking at, what should I be doing first? Should I go for that big house right up front or should I start with something a little bit smaller that I can then progress from? It really comes down to what are your goals with that property? I think for me, looking back, when we bought our first house, we really looked at it like this is going to be a good “starter home”. Also, we can grow into it a little bit, right? It gives us flexibility. I really encourage that is you’re never going to know what your life’s going to look like in five years from now. Plan for the unexpected by giving yourself some of that grace and that flexibility. From there again, once you start to realize what you really like in the house or what your goals are with a property, that’s when you can start thinking that forever home type of deal.

Most people I would argue, for the starter home kind of being an upfront move, knowing that you’re getting yourself into the game, you’re starting to build equity. And then once you figure out what you like, once you figure out what your kind of stable life period looks like, then you can look at that more forever home. But again, there’s no wrong answer here. If you just want to jump right in, go right for the end line. I get that too.

[00:19:58] TU: Yeah. Comment about being a misnomer is a good point, right? I can speak to that firsthand. Jess, and I moved into our current home. Let’s see. That would have been October 2018 when we moved to Columbus. Our first home, which I think you’d consider kind of our starter home, in the booming metropolis of Rootstown, Ohio. We lived in for nine years, and just seeing kind of the jump in our expectations naturally. We didn’t have four boys, and now we do have four boys. So that’s real and that’s different. But even now, when we looked at this home in October 2018, we’re like, “Yeah. That’s our dream home.” It’s got everything and it’s been a fantastic home.

But human behavior, which is true for us, and is true for many others is, after a while, you’re like, “What about this? What about that?” What about this part of the home? Or could this be a little bit different?” I think really challenging on some level, that assumption of like, if you’re looking to make that move into the forever home, is that really the end point. And then again, thinking about that in the context of the rest of the financial goals that you’re trying to achieve.

[00:20:55] NH: And something else that I think is relevant here that David and I talk about on the YFPREI Podcast a lot is multiple exit strategies. Whenever we’re buying investment property, and I know, this is a little bit different. But when you’re buying an investment property, you want multiple exit plans, right? We can rent this out, we can sell it, we can flip it. But you kind of need the same thing with your own house, right? I think having multiple plans or multiple avenues to walk down, we could eventually rent this out or we could easily resell this because of X, Y and Z factors. Going in with that mindset, rather than just, I’m buying this asset, and hopefully it works out forever. Like that’s not the right plan. So go into those multiple exit strategy approach, and you’ll be set up for success.

[00:21:31] TU: Selling a child account is what an exit – no, I’m just kidding. I love you my four boys. Love you all. Number six, our final one here in the home buying debate is rent versus buy, perhaps saving the most contentious for last. When I suggest to folks Nate that renting isn’t all that bad, I get this look of like, “You said what?” I get it because it doesn’t support their narrative and desire that we often have to buy a home. I think that’s a big goal for many folks. That’s the dream that we have. How can one objectively evaluate this decision and not just blindly accept that all renting is bad and all homeownership is good?

[00:22:09] NH: Yeah. This is a question that comes up all the time. I know we’ve talked about it before in the past. I’ll give you a brief story that I think kind of shows some of the ways to think about this that’s maybe a little bit different. My brother actually lives out in San Francisco and has been looking at buying a house here for a little while. The houses out there, obviously, as everyone on this well knows are in the millions of dollars, at 1.1, 1.8. I’ve seen him looking at. It’s just absolutely outrageous. I can’t even fathom that amount. His argument for buying is that, well, I want to build equity, I want to not have my rent payment “thrown away” every single month. And arguably, he’s right. His rent payment is super high and I totally get it.

But if you took that same amount of money that would be required to buy that home in San Francisco, and you invested in several other properties that then paid you back, you could probably actually cover your own rent in whatever city you wanted to live in, while building equity with four other properties around the country. So this idea of, it’s always better to buy, it’s always better to build equity. It doesn’t always hold water. If you look at the areas you’re buying in, and you look at the factors that go into that right, how much am I putting down? What am I gaining by renting? For example, is there flexibility in that approach? Is there amenities that I wouldn’t be able to get if I were to buy a home like this, and all those factors have to come into play, and it’s not as easy as buying is always better, we should advocate for buying.

[00:23:27] TU: I think Nate, we talked about this a little bit on episode 113. We’ll link to that in the show notes, when we talked about exactly this topic, that American dream of owning a home. Is it for everyone that true costs, really evaluating the true costs of homeownership, when to consider the rent versus buy tips for knowing when the time might be right. But I would encourage folks, objectively evaluating the expenses. This is probably the most common thing I experienced myself back in 2008, 2009. My wife Jess and I were renting a condo. We’re paying by $1,100 a month. For folks that are living in higher cost living areas, I get it, the shock factor when you hear those numbers and we’re looking at a home that was principal and interest, about $1,100 a month. Naturally, I said, “Why are we renting? We should buy.” Then you start to really obviously dig into the other costs in terms of insurance, and property taxes and, “Oh, yeah. We’ve never lived in a home so we have all these things we need to buy to furnish the home, lawn mowers, equipments, other things, maintenance, upkeep, really objectively evaluating it from apples to apples or as close as you possibly can when one is making that decision.

[00:24:30] NH: Yeah. It’s tricky to do, obviously. You don’t know what you don’t know, but it’s important to try to factor those pieces in when making that decision because it’s not as simple as comparing the mortgage to your monthly rent. There’s a lot more that goes into it.

[00:24:42] TU: Great stuff as always, Nate. Love having you on the show and we know firsthand, you know firsthand, the community knows firsthand that buying or selling a home, it’s certainly an exciting journey but can quickly leave you feeling overwhelmed and confused throughout the process. And that’s why we have teamed up with Nate Hedrick featured here on this podcast. Nate, real estate RPH to provide a simple solution to jumpstart your home buying or selling process with a free concierge service that you can take the guesswork out one of the biggest purchases that you’re ever going to make.

As both a real estate agent and pharmacist, Nate has the insider’s view. He understands how busy your schedule can get and how difficult it is to interview and hire a real estate agent on your own. This free concierge service, Nate will take some time to learn about your budget, learn about your goals and connect you with a YFP real estate preferred local agent that he has vetted himself. They will then stick by your side even after closing in case you have questions or need an extra opinion along the way. If you’re ready to buy or sell a home, you can get started today by scheduling a free call with Nate by visiting yourfinancialpharmacist.com. You can click on home buying at the top of the page and then select find an agent. From there, you can book a no-obligation call with Nate to see if his real estate concierge service is a good fit to help walk through the process and to find an agent in your area that will have your best interest in mind.

Nate, continued to have appreciation for this collaboration. Love the perspective you bring on to the show. Appreciate the work that you’re doing on the real estate investing podcast. Thanks so much for joining today.

[00:26:10] NH: Yeah, happy to be here as always, Tim.

[OUTRO]

[00:26:12] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it’s not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding material should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archive, newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analyses expressed herein are solely those of your financial pharmacist, unless otherwise noted and constitute judgments as of the dates publish. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements.

For more information, please visit yourfinancialpharmacist.com/disclaimer. Thank you again for your support of the Your Financial Pharmacist podcast. Have a great rest of your week.

[END]

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YFP 243: A Non-Traditional Pharmacy Path From Pharmacist to Software Engineer to Entrepreneur

Posted on by yfpadmin

A Non-Traditional Pharmacy Path From Pharmacist to Software Engineer to Entrepreneur

Derek Borkowski, PharmD, founder and CEO of Cosmas Health and creator of the Pyrls app, talks about how and why he built the Pyrls app, what problem he was trying to solve, and some of the challenges he faced in the early days of being an entrepreneur.

About Today’s Guest

Derek Borkowski, PharmD is the Founder and CEO of Cosmas Health. His background includes experience in community pharmacy, digital health, and the pharmaceutical industry. He is a pharmacist and the software engineer of Pyrls.com, a drug information website and mobile application for clinicians and student-clinicians. Additionally, he continues to practice community pharmacy. Derek is a 2018 Doctor of Pharmacy graduate from the University of Minnesota.

Episode Summary

Community pharmacy and digital health are two spaces that are finally starting to intersect. Here to talk to us about his non-traditional path in pharmacy that provides this double expertise is Derek Borkowski, Founder and CEO of Cosmas Health and Creator of the Pyrls App, a drug information website and mobile application for clinicians and student clinicians. In this episode, Derek shares his pharmacy story and how he found himself in the interesting position of combining his pharmacy degree with technology to better serve the pharmacist community at large. Derek shares how and why he built the Pyrls app, what problem he was trying to solve, and how he was able to see that problem while working as a community pharmacist. You’ll also hear about some of the challenges he has experienced in his early days as a pharmacy entrepreneur. Derek shines a light on useful concepts for pharmacist entrepreneurs, like skills stacking and the regret minimization framework. Derek also has some advice for other would-be entrepreneurs on the need for pharmacists who can embrace programming skills like data analytics as well as opportunities available under the umbrella of digital healthcare. Derek shares the key to staying motivated when things are slow-moving.

Key Points From This Episode

Hear about the incredible support he’s received from the pharmacy community.
Introducing today’s guest, Derek Borkowski, and what drew him into this profession.
Hear about the moment he realized he wanted a more non-traditional path in pharmacy.
The opportunity he found and pursued that pushed him into the tech space.
Skill stacking and what can come out of an intersection of expertise.
Derek shares one of the opportunities available under the umbrella of digital healthcare.
How he first acquired and developed these skills and some advice from his experiences.
How his love of technology sparked his entrepreneurship goals.
About the regret minimization framework and taking the leap to start Cosmas Health.
Some of the struggles he overcame in the first year.
Finding the right lens to market to your audience.
What makes Pyrls really stand out from the crowd as a resource to invest in.

Highlights

“I would just say, anyone who thinks they might be interested in learning some technical skills, it’s just as approachable as any other domain. You’ll find out whether or not that resonates with you.” — Derek Borkowski, PharmD [0:13:06]

“I very much subscribe to the philosophy of double down on your strengths and collaborate for your weaknesses.” — Derek Borkowski, PharmD [0:13:46]

“I’d do anything for my customers. They could call me any time of day. I’ll come pick them up if they are stranded on the highway..” — Derek Borkowski, PharmD [0:29:13]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey, everybody. Tim Ulbrich here, and thank you for listening to The YFP Podcast where, each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to welcome on to the show Derek Borkowski, Founder and CEO of Cosmas Health and creator of the Pyrls app. His background includes experience in community pharmacy digital health and pharmaceutical industry. He’s a pharmacist and software engineer of Pyrls.com a drug information website and mobile application for clinicians and student clinicians.

Some of my favorite moments from this show include talking with Derek about how and why he built the Pyrls App, what problem he was trying to solve and how he was able to see that while working as a community pharmacist and some of the challenges he has experienced in the early days as a pharmacy entrepreneur.

Now, before we jump in to today’s show, let’s pause to acknowledge that we are in the midst of tax season. Those tax forms are piling up and it’s time to have your tax filing and planning top of mind. Now, tax strategy and planning is an undervalued but very important part of the financial plan and YFP Tax is working hard to help pharmacy professionals optimize their tax situation. YFP Tax is opening up its services to file 2021 taxes for 125 pharmacist households this year. These slots are filling up quickly so don’t wait too long. If you’re interest in working with a team of highly trained tax professionals, head on over to yourfinancialpharmacist.com/tax. Again, that’s yourfinancialpharmacist.com/tax.

Okay, let’s jump into my interview with Derek Borkowski, Founder and CEO of Cosmas Health.

[INTERVIEW]

[0:01:39.0] TU: Derek, thank you so much for coming on the show.

[0:01:40.2] DB: Yeah, I appreciate it and I’m really excited for this chance, Tim, thanks.

[0:01:43.3] TU: I too am excited to have you on, talk about your entrepreneur journey, your business, how and why you got into the tech space of pharmacy, so we’re going to talk through that on this episode. Before we jump in and do that thought, let’s go back to the beginning, where did you go to pharmacy school and what drew you into the profession?

[0:01:58.7] DB: Yes, I think my pharmacy journey actually starts a little earlier than most, even definitively so I can remember back in as early as eight grade saying, “I want to be a pharmacist.” That’s because my mom actually worked at a community pharmacy and so when I would go and visit my parent at work, I was like, “Oh, this seems really cool, the pharmacist you work with were really nice.” I knew I was already getting interested in science and medicine so I remember, as early as 8th grade saying, “I think I want to be a pharmacist.”

Of course, that changes, most people wanted to be something when they’re 8th grade but then they just got interested in new and other things. For me, every step along the way through high school and then undergrad just kept reinforcing my interest in pharmacy and so originally, community pharmacy is what drew me into the profession and so, I went to the University of Minnesota on the Duluth campus and graduated in 2018.

[0:02:46.1] TU: 2018, graduate of University of Minnesota, you mentioned interest in pharmacy since 8th grade. And we’re going to get into throughout this interview, I would say, you’re on a very nontraditional path in pharmacy, based on what you’re doing with running and starting the business, also in more of that tech space of pharmacy. With that initial interest in community pharmacy and the profession, tell me more about when you realized a more non-traditional path as a pharmacy graduate was going to be the path for you.

[0:03:14.3] DB: Yeah, another thing on that point is I would say, if I had nine lives to live simultaneously, I would want to be a community pharmacist in one of them, an AM care pharmacist in another, and then right away, when I started pharmacy school, I remember even first semester seeing all the different things people were doing with their pharmacy degree that you don’t necessarily have exposure to before pharmacy school. So I got really interested in some of the non-traditional opportunity that I saw right away when we had medical science liaisons from pharmaceutical companies come and speak to us, other pharmacists doing unique things with their degrees.

It was actually – I remember one summer, I was between years of pharmacy school, I was reading Steve Jobs biography and maybe like I don’t know, impressionable or naïve as it sounds, I was just blown away by this, I was like, by the story of Apple. “Oh my gosh, they built these revolutionary products that have changed our society. Are people still doing this? Are people still starting technology companies?”

At that point, I had no background or knowledge about startups or technology companies but I was like, “Wow, is there any way that I can combine my pharmacy degree with technology?” Healthcare seems like an area that needs disruption and so, I started, during my third-year pharmacy school, I did an internship at a digital health startup company here in Minneapolis and you know, I can get more into what I did next but that was the kind of the beginning of my interesting technology.

[0:04:33.5] TU: Derek, I want to spend another moment there because I think in my conversation with many – I’m calling specifically the pharmacy students I’ll talk with, they might be interested in a specific area, the profession or perhaps want to pursue something that’s more nontraditional but aren’t exactly sure what step to take to pursue that interest a little bit further and I would argue, pharmacy school is such a great time where you can really put yourself in those scenarios and situations, learn more, often for a condense period of time, obviously not a longer-term commitment.

That internship you mentioned at digital health, tell us more about how you pursued and found that opportunity?

[0:05:08.8] DB: Yeah, I remember, I got really interested in technology and startups. The phrase, Silicon Valley, that didn’t really mean anything to anyone where I’m from, right? I didn’t really know anyone technology growing up but that in particular, I got really interested in so I started just looking up like, are there any startups here in Minneapolis where I was going to be based for the summer and I found this company called MyMeds, which is a digital health startup that’s focused on medication adherence.

I remember I was just coming back from Pittsburg where I was doing an internship over the summer and I drove right to the address that I found on the website for MyMeds. I was like, “Oh, there might be mailing address or maybe it’s an office, I guess I’ll find out.” I drove up there and just went and knocked on the door and there’s a few people in the office and somebody answered and I said, “Hi, I’m Derek, I’m a pharmacy student. I think I’m interested in technology, is there anything I can help with around here?”

Fast forward a few weeks later, the CEO of the company called me and said, “Hey, I heard you stopped by and left your CV. Yeah, I think we could use the help of a pharmacy student, when could you stop in next?” And then it went from there. Some advice I would give and I can go more into this kind of – what we think might be interesting is, Mark Henry and I believe, he was maybe the person who I had heard give this advice first which – he’s a famous Internet entrepreneur who helped invent the web browser.

He talked about this concept of skill stacking, how there’s always something unique to be found at the intersection of two really deep domain expertise. And I think with healthcare, it’s very – healthcare domain expertise as a clinician is very hard to attain because of just the amount of time it makes to become a practiced clinician. Like we as pharmacists, in my mind, even know, a kind of tongue and cheek joke that I’m a five out of 10 pharmacist, and I’m a five out of 10-software engineer and what that allows me to do are things that somebody who is a 10 out of 10 pharmacist but is zero out of 10 software engineer couldn’t do. Or someone who is a 10 out of 10 software engineer but is zero out of 10 pharmacist wouldn’t be able to do.

[0:06:59.8] TU: I love that, and that connects with me, right? Derek, as I think about my career journey in pharmacy, I would maybe give myself a four or a five out of 10 in the pharmacy side as well but I think about combining that with some of the financial education, passion and work that we’re doing. You put those things together and you know, I think that’s a great example of a unique combination and I would add, I love the concept of skill stacking. The thing I also don’t want to overlook and gloss over is just the initiative, right?

I’m reading right now Warren Buffett’s biography and he was famous for stopping by companies, walking in the front door that he was looking at investing and just to talk with people and learn more. The fact that you stopped by that office, introduced yourself and specifically said, “Hey, is there anything I can help with here as a pharmacy student?” That type of initiative, I would argue is certainly not common and I think something that I’d recommend folks consider and making some of those bold moves if they’re looking at trying to get themselves out there about other opportunities that might be there.

Skills, for sure, have to be there, willingness to learn but also, you know, that initiative to seek those opportunities.

[0:08:02.7] TU: Derek, for pharmacists that are listening that maybe they’re considering a career move or practice student pharmacist that are listening, we’ve talked for a moment here about the intersection of healthcare and technology. Can you talk just at a high level about the types of opportunities that may be out there for a pharmacist that is interested in this intersection of healthcare and technology?

[0:08:23.8] DB: Yeah, I would just say, I’ll start by saying that it’s a giant umbrella of different opportunities and one thing I frequently hear is when I’ll meet another pharmacy store or someone at a conference and start to talk about what I’m doing, they’ll be like, “Oh, you’re an informatics pharmacist or you’re an IT pharmacist?” I’m like, “Eh, well, close enough” but truly, what I’m doing right now is I’m sort of a technology entrepreneur, and I do software development but it’s kind of different than, it’s very different than I should say like, typical informatics, which also I guess is another area that needs to be unpacked.

I’ll just speak to one sort of specific area that I have had purview in that I think would be worth pharmacists taking time to learn about, that’s data analytics. I actually do, when it comes to learning programming skills or technology skills, I actually do website and mobile app development which is a little different. But in an area that’s adjacent to it, what I notice a ton of demand for and need in is pharmacists who can embrace programming skills in the areas of data analytics like learning SQL or Python or R, because there’s so much data in healthcare.

There’s so much domain expertise required to understand what’s happening. This is just kind of a micro example to illustrate the issues. I remember hearing about a large analysis that was done on a patient population and technically, Gabapentin is a calcium channel blocker, it’s how it works. In some drug lexicons, it’s a calcium channel blocker.

Anyway, they were doing this study on hypertension patients and you know, the data analyst didn’t have a healthcare background. Basically, everyone on Gabapentin was coded into this hypertension analysis and it’s such a simple thing that a pharmacist with just some data analytics skills would have been able to contribute greatly to.

That was just a small example of – there’s tons of demand in my mind, well, or at least that we in budding demand for pharmacists who understand how to work with data and are willing to interface with that at their current work places or certainly, hopefully there’s going to be more future linear pass towards future opportunities for pharmacists to utilize those skills.

[0:10:24.3] TU: Derek, short of someone pursuing like – I know, there’s informatics residency programs and everything’s out there. In lieu of someone pursuing that formal training opportunity, when I hear you talk about things like SQL and Python which are foreign language to me, and obviously as we’ll get to here in a moment – the work that you’re doing and building your own business. The learning curve of that seems astronomical.

And I can tell you’re obviously a self-initiator, clearly, you have a desire and passion to want to learn but what does that look like in terms of how you’ve been able to acquire and develop these skills, has that all been self-taught, has it been mentors, has it been training programs, tell us more about how you’re able to overcome that learning curve of the work that you are doing now and obviously, the gap that was there from the traditional pharmacy degree.

[0:11:07.5] DB: I’m so glad you asked this because it’s actually one of my favorite. This is one of my favorite things to harp on when I’m allowed to say and it wasn’t intuitive to me at first which yeah, some background on my domains here. It was while I was in pharmacy school. Once I started that internship at MyMeds, a mentor there he said to me, “Hey Derek, you really love giving suggestions on what sorts of features we should be adding into our website and app. You know, if you’re curious, I think one way that you could help our engineers better understand the ideas you’re giving them is that if you were to start learning some programming too so that you could have some of their language under your notes, have some of their vernacular.”

I was like, I thought that seemed preposterous like I don’t have a computer science degree. It’s really funny, I did take his advice and started learning just some really basic website development on the academy was the first website. I started learning them. Software engineering or programming, just the aforementioned skills I mentioned, they’re just like any other domain but I think they seem to us as pharmacists. I think it seems uniquely like opaque of an area to learn.

You know, no one bats an eye at a pharmacist getting a duress doctor degree or an MBA or MPH or all these – that’s perfectly normal. Programming? I was the same way. It’s actually no different and actually, it’s in my mind, it’s easier to learn. As clinicians, one of the main things I was concerned about was you can’t learn to be a clinician without actually going to school for it because you need to be able to see patients and so you need a system that allows you to train your clinical knowledge with patients.

Website development, programming, that takes place on a computer and so, you can start learning on any computer you’re on. That being said, I don’t necessarily think anyone – it’s like any skill where, if it resonates with you, that’s going to help you learn more, just don’t tell anybody Tim or to anybody listening. I actually really don’t like the business aspect of my business.

The books and the bottom, all that stuff, like the MBA knowledge of running this business. I don’t find it very interesting but I love programming. I would just say, anyone who thinks they might be interested in learning some technical skills, it’s just as approachable as any other domain and you’ll find out whether or not that resonates with you.

[0:13:14.2] TU: Yeah and Derek, your differential advantage is obviously the skills you’ve acquired, plus your degree in background as a pharmacist, right? I think about you as a business owner. Sure, as you’re getting started, a lot of that stress and work is going to fall on you but as you grow, that stuff you hire out, you probably already are.

What you bring is your differential advantage as a business and I think naturally, if we fast forward five years, like Derek isn’t in the weeds of any of that because your time spent and the impact you’re going to have on your perspective customers is going to be bringing your unique skillset, right now, worrying about the books and other things.

[0:13:46.5] DB: A 100%, I very much subscribe to the philosophy of double down on your strengths and collaborate for your weaknesses and so yeah, that’s totally how I view this as well.

[0:13:57.0] TU: Were you working as you’re developing, acquiring these skills, and we’re going to bridge that to the work that you’re doing right now on building Cosmas Health. But were you working as a community pharmacist alongside of this journey so you’re essentially side-hustling your way into the beginning of the business, tell me more about that?

[0:14:11.9] DB: Yeah, totally. So that’s another interesting story I think just how – well, I’ll just say, so many, even guest you have in this show, Tim, and yourself, so many of these fall into our current position, backwards, sideways, you know, I have no idea what the – one thing we need to solve is in the pharmacist profession is how to create more linear paths to non-traditional careers. But what happened with my mind is, I would say, I was actually – one thing I remembered doing my first few years of pharmacy school was taking part of the NCPA business plan competition.

Entrepreneurship was something that I think I was interested in actually. My dad and grandfather and uncles and aunts, they own a small business but I was around it, and I wasn’t the kid who is selling candy out of my locker or anything.

Really, it was when I discovered my interest for technology startups that I started to consider, “You know, I think I do want to start my own business someday,” but once that idea hits me is when I’ll start working on it. Yeah, after graduation in 2018, I knew I wanted to work full-time at a startup and so, but MyMeds, it didn’t quite work yet for me to work full-time there.

I started working full-time as a pharmacist at Walgreens and in my nights and weekends, I would still help out at MyMeds as much as I could but then after about six months, I was sort of able to reverse the roles. This is about December after graduation, I was now full-time as a product manager at MyMeds but then I was still a market pharmacist, afloat pharmacist at Walgreens just actually up until this last summer.

Throughout the course of 2019 is when I actually started to – in my nights and weekends program, the concept I had for Pyrls, which is the primary product that our business builds and what I’m working on today and so that was the beginnings of that transition.

[0:15:45.3] TU: That’s one of the reasons why I ask the question there because that’s one of the things I love about pharmacy, is the profession for those that maybe have an idea that they’re itching to pursue – there’s very few jobs out there that you can potentially work PRN and flex that maybe it’s full-time to start, maybe it’s eventually 30, 20, 15 hours, especially if you’re a great pharmacist, you have good relationship with your district manager in your stores, performing all that.

It can be a really good bridge and a darn good paying bridge as you’re looking at exploring other opportunities. You mentioned working full-time in the pharmacy, kind of part time nights and weekends on some of the business ideas and stuff and then obviously over time, they had flips. I think that’s a great example for others to consider.

Now, it’s one thing, Derek, to pursue a non-traditional career path and be willing to take that leap of faith in both learning and belief in yourself and to do that, hopefully as an employee where you earn a good wage. It’s a whole other thing to say I’m going to pursue this non-traditional career path and I’m going to own my own business, right?

I think that hurdle, for many people, it’s a big hurdle to get over for a variety of reasons. Tell us about what happened in 2019 that you said, “Hey, I’m going to start this company” Cosmas Health and how you were able to get over that hurdle to get started?

[0:17:00.9] DB: Yeah, it actually – as I mentioned, I had been sort of learning some programming skills as early as during the middle of pharmacy school but towards the end of pharmacy school, especially in my 4th year, just like learning programming, like website and app element became like an obsession. I remember very vividly going to rotations from seven to three or eight to four, coming home, taking a nap and then like coding for like four hours because it was the most fun thing I could ever think of doing.

By the time I graduated, I was a relatively competent web developer. In 2019, when I was still sort of thinking about ideas for starting my own business, I created Cosmas Health which is, you know, just as in Minnesota LLC, so I could do freelance web development work out of which I know you’ve talked to many other pharmacists on here who started their own. I recommend a new one as soon as you have any sort of thing you may want to do, form a business around it just to get yourself started, if other factors make sense regarding it.

I started, I created my own business that I was doing some freelance work out of but then I started building my own projects within that. Pyrls, which is the primary product that I build today is, it’s essentially like a digital version of those top 400 drug study cards, plus some other features we’re working towards building some sort of next generation drug information reference. Like the ones that we rely on today in practice.

And so the idea for it started, I was thinking about it while I was on fourth year. It was building a better reference for me to use there and so it was one of the projects I just started, just sort of hacking on in my nights and weekends as I mentioned and anyway, I started to get some traction with it to the point where – this was in the fall of 2019, I was pretty much like, “I need to go all in on this.” And so I basically planned where I still kept my position at Walgreens that I was one or two weekends a month, but then I can pick up shifts as needed if available.

In January of 2020, yeah, I just sort of – you know, I had some money saved up but you know, still had some huge student loans and you know big thanks to the support of now wife, kind of jumped out of the airplane without a parachute in January 2020, we had – I’d love to talk about some of the struggles of that especially in that first year with trying to build and grow curls but it was what I sort of use –

Again, anything, any quote that you attribute to anybody, I am sure was said by somebody else too but the person I saw mention this was Jeff Bezos. He talks a lot about this regret minimization framework he has where he is trying to make a decision, he says, “Am I going to regret, on my death bed, what am I going to think of this decision?” And so for me, it was like, “Can I picture myself at age 40 having not yet taken the leap to start my business?”

It’s like, “No, nope. No matter where I’m at with everything, you know I am young right now, I have some money saved up, I have some runway here.” And so in January 2020 is when I said, “All right, let’s do it, I’m going to go full-time on this business.” And so while still, as you mentioned, having the comfort of I am so grateful for the role I was able to have as a pharmacist at Walgreens while I was growing my business towards a place to be sustainable fully full-time.

[0:19:53.1] TU: I’m glad you mentioned, I have never heard that terminology, the regret minimization framework. Tim Ferriss talks about that concept, essentially the essence of that that was really critical for me and my own journey as well. He talks about a lot in terms of yes, what might you think looking backwards but also really trying to objectively call the fears that you have, and through that process you realize that many of the fears that you might have are not rational, right?

That’s really part of the process of really trying to put those onto paper and really looking at them as objective as you can. But Derek, my question is that you still made that leap. You eluded to savings but many pharmacists, even if they have savings, if they are looking at big student loan debt, perhaps there’s a family, you know, “I’ve got safer retirement, I feel all these competing pressures.”

You know, there is this known thing of a good six figure income and there is this unknown thing which has risk but also upside in a business. I want to dig a layer deeper of, even with a little bit of savings, how are you able to lean into that and feel comfortable and as you said, kind of flying out of the plane without a parachute?

[0:20:54.2] DB: Yeah, you know I think that for better and for worse, I’m a major optimist but also I tend to sort of think and plan for my life in really short-term terms. I was, you know, when I started full-time like I said in January 2020, I was like, “Well, we’ll see how this goes and we’ll re-evaluate it in three months and then I can make a decision from there.” And so like I mentioned, this is certainly a very personal decision but for me, there was no better time.

It was only going to get harder to make a riskier decision. The more savings saved up or the more I climbed the corporate ladder, it is was only going to get harder to risk or if they have children, it is only going to get harder to risk that and so that combined with as I mentioned, I was very lucky to be and to have a very supportive partner who actually kind of structured things financially was either through my business and/or working extra pharmacy shifts.

I had to make sure that I could cover half of all of our expenses and if I couldn’t do that, then I need to stop. And so that was sort of the rules of the game or for myself or the bounds of the risk I could take and so having a plan like that I think helps with the decision as well because you all right, have made this decision that we are going to play with these rules and then we’re going act next based upon what happens.

[0:22:10.4] TU: I really like that, having some ground rules, having some structure. My follow up here is you eluded to a struggle in that first year and I think any new business is going to have some growing pains in the first year financially as well as just kind of what you’re trying to build in the operations of the business. But this is an area we don’t talk a whole lot about in entrepreneurship. I think there is so much, maybe overqualification to some degree, of people who make this jump, right?

Other people are like, “Oh man, I want to do that.” But we don’t hear as much and we probably don’t share as much of like it’s really hard to build something not only in terms of the time and the sweat and the energy but also some of the financial struggles and challenges that can come. It takes some real mental fortitude and I think belief in yourself and what you are trying to build to really be able to overcome some of those fears and challenges in the first year.

Tell me more about, for you, Derek, and for Cosmas Health, and perhaps more specifically your primary product and Pyrls, what some of those struggles were in that first year?

[0:23:02.0] DB: Oh my god, I’m just smiling over here as you are saying all of that because yeah, I remember before launching the first version of Pyrls, which again for the reference for the audience, so Pyrls is a drug information tool for pharmacist, for pharmacy students. It is not for patients, it’s for in deck clinicians and so I remember thinking like, “Oh this is going to be so easy.”

Tim, we’re going to launch this and like actually want 10,000 people to pay a $100 a year and that’s a million dollars, you know there is over 300,000 pharmacist so like, that’s just a tiny percentage of them. So I am just going to launch this and then everyone is going to be like, “Wow, this is super cool!” and sign up, and “Wow, you know it is going to go great.” Nobody cares about what you are doing, you know?

That is one of the hardest things to learn with businesses, you can be super excited about what you’re doing but nobody else has to be. And so I remember the first – let’s just go back to January 2020 when I went full-time on this, that is actually when Pyrls was officially launched to the public as well, and I remember getting ready to launch this new feature in February and we had a pretty good Instagram following at the time.

We have an Instagram account where we share medication facts, and so we ended having a few thousand followers at a point and so I remember getting ready to – and we are reasonably sure it was mostly pharmacy students, pharmacist, you know our target audience and so one of the strategies we use for a number of reasons is we have a free tier, which people would just sign up for free.

I remember getting ready to launch this feature and all of the text around the promotion was, “Just sign up for free and check this all out,” And we were launching it on Instagram, you know, we made a post, we made the stories were there, and I am sure we made stories, and I remember 24 hours went by and not a single person even signed up let alone a sale.

[0:24:35.5] TU: You’re like, “It’s free, come on.”

[0:24:37.3] DB: Yeah and I remember just being like, “Wow, this is going to be…” you know? Honestly, I don’t know how I wasn’t more discouraged. I think what I am most happy about nowadays and sorry, I don’t mean to take us in a different direction but I am so happy that two years into this, I am actually more excited about what I am doing now than I was when I started and that’s really important.

You know, I could have found that the business could be doing ten times better than it is now but I wouldn’t be happy if I wasn’t enjoying it, that would be hard. It would be hard to wake up and dread my day. And so, I think that was a really obviously, a really critical part of starting something new when you don’t know if you have traction. You don’t know if the business is going to work, is you’d be loving it, and so I certainly was loving it and yeah, so it was all of 2020 was a slow –

You know, the growth – I don’t know if it is the combination of – I think with any new business, I think there is some – actually you might know Tim, I don’t know if this is – again, this is maybe something I am pulling out of my head, but I remember seeing like a marketing rule of thumb that was, like, people don’t respond to your ad until the sixth time they see something. I don’t know if it is just a factor of being around long enough to start getting the compounding growth and or obviously as you build your business you are going to learn what people actually find valuable and double down on that.

[0:25:46.7] TU: Yeah and Derek to that point, you now there can be a lot of head trash, at least I am speaking for myself and other pharmacy entrepreneurs I’ve talked in a regular basis, that we tend to look at our audience and what they want through our own lens and our passion and how we’re sending content out and marketing materials and other things. And that is not how they’re looking at it, right?

If I think about your avatar client Derek, of what I know of your business, they have a million things going on in the day, right? With their work, with family, with other things and so when they see that Instagram story, they are seeing ad for a free Pyrls app, you’re looking at it through lends of like, “Yeah, this is a home run. I know the value, I’ve built this. I know how it competes with everything out there.”

The same thing with our end on financial services piece of content, whatever it be like that’s one small snippet of their day, it is everything in my day of what I am passionate about and working on. And so I think that we may tend to under promote our content out of fear of like, “Am I being annoying? Am I sending out too much content?” But really seeing some of that data, and Grant Cardone talks about this stuff like you know, most folks from a business standpoint have enough security problem that people don’t know who they are.

They may think that people know who they are and you know, it’s finding that balance of course of what you’re comfortable with but you know I think that resonates with me of what you shared in terms of the number of times that people might have seen something.

[0:27:02.2] DB: I am going to share one more thing in that Tim too. I remember or this is something I will tell, I have one employee now and a few interns and this is something like when I am onboarding people, I will talk to them about how because I learned this for myself. It is such a miracle anytime somebody pays for your product because as I said, a lot of users of Pyrls, they’ll find us on, let’s just say, Instagram is honestly really the place for them to find us.

I was like, all right, picture in, I would say most of our customers are like fourth year pharmacy students or first year new practitioners and so I was like, picture our users. They’re in New York riding the subway to school and they may be looking at Instagram and they see a post Pyrls makes and they click on our profile and then they’re about to go to our website and buy but then they got to their subway stop –

[0:27:43.8] TU: That’s exactly right, yeah.

[0:27:46.2] DB: But let’s say that they even signed up. Okay, and they’re at the checkout page. Say, they even think to themselves, “This is the coolest thing I’ve ever seen in my life. It costs $40, why would I even pay a $100 for this?” But their dog starts barking and then they forget about it because they have to go take care of their dog. The process of building a business is, there’s so many factors and just putting in the work is ultimately how you get the full cycle going and I just encourage people not to be discouraged by any one little thing.

[0:28:13.6] TU: You are so spot on. I mean, the subway example is so good, right? Because I often say, “Hey man, there are 330,000 pharmacist out there and I am so confident in the solution that we have.” But what you shared is like, I hope we never lose that appreciation and admiration and gratitude for someone that not only follows us and engages with the community but ultimately makes that decision to trust us to provide a service or a product that we offer.

I never want to take that for granted because you know what it takes of 330,000 people to actually get your content out in front of eyes. You are already kind of working down the funnel there, those that then take action on it are able to invest the time to read your content, follow your content and ultimately make that decision approaches and you know to me as a business owner, that is the ultimate vote of confidence in what your doing is to raise their hand and to purchase something, they’d trust you with a product or a service and I am just hopeful as I can tell in your voice and gratitude, I am hopeful to never lose that as a business owner because it is so special, it really is.

[0:29:13.5] DB: I’d do anything for my customers. They could call me any time of day, I’ll come pick them up if they are stranded on the highway. Yes, I share your sentiment of gratitude so deeply.

[0:29:20.8] TU: Derek, I am curious, and we are going to link too in the show notes and I hope folks will check it out if they haven’t already, Derek you have mentioned Cosmas Health, we’ll link to that, cosmashealth.com in the show notes. That really was the LLC that you created to start freelance work, Pyrls, which is pyrls.com, we’ll link to that as well as the Instagram @pyrls.app you mentioned in the show notes so folks can check that out.

As I look at the work that you’re doing, I ask this of any business owner that I talk to, which is, what differentiates your product from what is out there in the market. Now, it’s been some time for me since I’ve been in a pharmacy working with a patient or an inventory cures thing but I think about traditional tools that I trained with, right? Whether that’s Lexicomp, Micromatics, up to date other tools, what really differentiates the Pyrls product and what problem is Pyrls really trying to solve that again, we are hoping to entrust folks support that they invest in this resource among others that are out there?

[0:30:12.3] DB: Yes, so as I mentioned the original idea, you know drug information references, that these has been around since stone tablets I’m sure but the rendition that we are building now, my original inspiration started while I was on rotations. I was, in particular, as a fourth year, interested in a faster reference for counseling points and/or clinical pearls, you know, hence the pun there.

The two or three most common things that differentiates Pyrls are now is number one, the counseling points. You know, we have a custom set of curated counseling points for all medications and that’s by far the most common feature that our users love, is they look up a drug and go check out the counseling points. Whether they are studying or on site, and it actually was really fun in the early days of Pyrls of getting to use, like I’d be at the drive through on the phone with a patient counseling them. In my hand I’d have Pyrls like looking down on it, and yeah, take it with food.

And so the counseling points. And then the next piece is helping decide – we have a really popular section for most medications called place in therapy where “Hey, you are looking at this [Ason Edgar 0:31:10.7]. Well yeah, that’s for hypertension.” But like where does it – when is this used versus another first line [inaudible 0:31:16.4]

We have nice summaries of guidelines for chronic conditions. There is about 2,000 drugs or so that actually matter, and right now Pyrls only covers about 400 of them. And so we covered the – for the most part the most commonly prescribed medications. So that is the area that we’re focused on like if you are an orthopedic surgeon, Pyrls doesn’t have much utility for you now and so how we’re thinking about expanding this.

Whereas traditional references is sort of organized information kind of just like a book would or it’s like a table of contents. We sort of organize information around workflows like counseling of patient or you know, you need to decide prescribing or reviewing, essentially, you need to understand those place and therapy concepts so that’s what differentiates us now as the information for a specific workflows, and where we’re headed is building that out for more drugs and for more workflows.

[0:32:03.2] TU: Love it and I can see as I look at your website, just an opportunity to continue to expand upon the awesome work that you’ve done. Derek, my question for you as I hear you talk about your journey, from idea to obviously getting the product out there that you use yourself when you are working at Walgreens, to now having an employee and obviously having some interns and the growth that you have, the plan going forward is, what support or infrastructure support have you had as a business owner?

Has this been all learn-as-you-go? Obviously beyond the tech side, I am thinking about as I look at your website, there is of course the web design to be able to take purchases, looking at your pricing tiers and structures as a marketing aspect, there is a strategy piece, there is a business development portion, there is an HR piece as you are hiring, are you going at this alone? Do you have a group of entrepreneurs or an incubator or something that is supporting you along the way? Tell us more about the support you have as a business owner.

[0:32:58.4] DB: Yes, so well, you know other people have certainly mentors, like most people, mentors have been just – I can’t even put into words how influential and responsible for any success that Pyrls has had so far. Pretty much everything that you just mentioned, you know, marketing, finding customers, solving problems, learning through the experiences of entrepreneurs who went through it or further along has been so huge for me.

Yeah, Pyrls has been fortunately working in 2021. So we went through an accelerator out in San Francisco over the summer, which connected myself personally with tons of other founders in the technology industry. And so that from the business growing side of things has been very beneficial but honestly the support of the pharmacy community has been probably the main thing for Pyrls success thus far.

The most important thing in my mind is the integrity of our content and I think the trust in the information is probably the most – that is the most important pillar of the house we are building and so talking to other leaders of medical information companies who are entrusted with a similar responsibility of their product has been the most I would say, that’s why I think it was just people.

[0:34:04.6] TU: Yeah, I love it. I love what you’ve built Derek, I love the passion you have behind the work that you are doing. Also just my business partner, Tim Baker and I often talked about like we love the puzzle of business. We just love the challenge opportunity to build products and services that hopefully meet the needs of the community and I can tell you’ve got that passion as well.

I am excited to see where this builds out in the next several years, hopefully we can have you back on the podcast and share some of that growth with the community. We will link to the Pyrls website, the Instagram account. For folks that are already aware, they can check that out and share the good news. Beyond that, Derek, what is the best place that folks can go to learn more about you and to follow the journey?

[0:34:40.2] DB: Yeah, well really any pharmacists who is either interested in a business idea they have or talking to other pharmacists and non-traditional roles or interested in, honestly like I said, if I had nine lives to live most of them would be in a different pharmacy role. So if you are somebody who thinks that we could have something interesting to talk about, please connect with me on LinkedIn.

I am the only Derek Borkowski, PharmD, and so we’d love to connect there as well as, yeah, please if you – to whatever degree of interest anybody has, follow our Instagram, @pyrls.app. And Tim, thank you for everything you are doing bringing voices like mine on your show and all the other inspirational and super important advice and information that Your Financial Pharmacist puts out into the world.

[0:35:21.6] TU: My pleasure, Derek, thank you so much for taking time to come on the show and I am so glad our paths have crossed, so thank you again.

[0:35:26.5] DB: Likewise. Thanks, Tim.

[END OF INTERVIEW]

[0:35:28.2] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of your financial pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 242: Social Security 101: History, How it Works, and Why it Matters for Your Financial Plan

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Social Security 101: History, How it Works, and Why it Matters for Your Financial Plan

YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP® talks about social security retirement benefits, how they are funded, how to determine eligibility and considerations for receiving benefits.

Episode Summary

It’s time to talk about the elephant in the room that most people ignore for as long as possible: social security retirement benefits. Whether retirement is decades or just years away, it is something you should be talking about sooner rather than later. This week Tim Ulbrich sits down with YFP Co-Founder & Director of Financial Planning, Tim Baker, CFP®, RLP® to do a deep dive into the history of social security, how it came to be, and what it was and was not intended to do. Tim Baker covers how social security benefits are funded, the credit concept, what number of credits are needed to be eligible for benefits, and how those credits are determined. You’ll also hear some golden nuggets from Tim on the power of being protected against inflation, as well as reminders on striking a balance in the financial plan around happiness and physical and mental health. Finally, Tim and Tim touch on how the amount of benefit paid out is determined and considerations for when someone elects to receive their benefits in early, full, or delayed retirement. This episode helps establish a great foundational understanding of social security benefits and how they fit into a broader financial plan.

Key Points From This Episode

An introduction to today’s topic and a reminder that we can help you with your tax.
Addressing why people aren’t having enough conversations about social security retirement benefits.
Hear some intense statistics about retirement and working longer that will blow your mind.
Talking about the history of social security and the difference between that and a 401(k).
Being protected against inflation by being inflation-adjusted.
Tim talks us through some annuities and numbers in a basic scenario.
Discussing our huge year next year from an inflation perspective.
How retirement is not just a money decision, it’s an emotional decision.
Tim digs a little into the different ways scarcity fear can arise during retirement.
Looking at your pay stub: explaining credit and payroll taxes.
The outcomes of the three ages of retirement: early, full, and delayed.
Touching on some of the nuances around health and spousal benefits.

Highlights

“How you approach social security is one of the most important retirement income decisions you’ll make.” — Tim Baker, CFP®, RLP® [0:05:33]

“We’re just not great savers, we don’t think that far ahead. Social security forces that issue and, by law, makes you kind of set that money aside for that future benefit.” — Tim Baker, CFP®, RLP® [0:10:00]

“This is not just a ones and zeroes decision. It’s not just a money decision, it’s very much emotional.” — Tim Baker, CFP®, RLP® [0:15:44]

“At the end of the day, you’re really trying to manage and plan for the unknown and that makes it really difficult. I think it goes back to, you just want to be intentional.” — Tim Baker, CFP®, RLP® [0:31:44]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU: Hey everybody, Tim Ulbrich here and thank you for listening to The YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

This week, I had a chance to sit down with YFP co-founder, co-owner and Director of Financial Planning, Tim Baker, to talk through social security retirement benefits. During the interview, Tim and I discuss the history of social security, how it came to be and what it was and was not intended to do, how the benefits are funded. We also discuss what number of credit is needed to be eligible for benefits and how those credits are determined and finally, how the amount of benefit paid out is determined and considerations for when one elects to receive their benefits.

The team at YFP tax isn’t focused on just completing your tax return, instead, they provide value, care and attention to you and your taxes. Because YFP tax works specifically with pharmacists, they’re familiar with aspects of your financial plan to have an impact on your taxes. The 125 slots are filling up quickly so don’t wait too long. I5f you’re interested in working with a team of highly trained tax professionals, head on over to yourfinancialpharmacist.com/tax to sign up. Again, that’s yourfinancialpharmacist.com/tax.

[INTERVIEW]

[0:01:47.9] TU: Tim, welcome back to the show.

[0:01:49.1] TB: Yeah, good to be back, love these deep dives, these full episodes.

[0:01:52.9] TU: Good stuff, looking forward to doing more of that in 2022. And we’re now 240 plus episodes into the podcast, I think we’ve laid a really good foundation on so many topics that are front of mind for pharmacists and those in the YFP community. I think we’re itching to really take it to the next level and today, we’re going to do that by providing a primer on social security benefits and what pharmacists should be thinking about in terms of how social security benefits fit into the broader financial plan. And on future episodes, we’re going to discuss some common social security mistakes and strategies. So today, we’ll make sure to establish a good foundation that we can build upon going forward.

Whether you’re listening and you’re approaching retirement in the middle of your career, just getting started, you know our hope is that you’ll walk away with a social security nugget or two that you can consider and evaluate as a part of your own plan. Today, as we talk about social security benefits, we’re going to use that term interchangeably with social security retirement benefits. We’re not going to be including and discussing this social security disability benefits.

Tim, I was looking at a recent Wall Street Journal article and I know you’ve got some other stats as well that we’ll draw out throughout the episode but that article, which we’ll link to in the show notes references some work that was done by Boston Colleges Center for Retirement Research. They say that for the typical American household aged 55 to 64, the present value of social security’s represent about 60% of their retirement assets. And with that in mind, even if that number is half, let’s say, 30% for those that are listening to the podcast because they’ve been diligent in setting up their own savings plan, why aren’t we talking more about such a big part of one’s retirement assets?

[0:03:39.4] TB: Yeah and it is crazy Tim, because there is the tenure out there that, “Social security won’t be there for me in the future, I can’t trust it. I have to go do this all myself.” I don’t think that’s necessarily true. I think that social security will be a program that will endure and it might take tweaks and pushing for retirement age out and payroll taxes and things like that. I think there could be things that happen along the way that make it more enduring.

I think that for that sense of the fold, it would be catastrophic because, to your point and your stat, so many people rely on this for their ability to survive in later stages of life. I read a stat that a third of retirees, 90% of their income comes from social security, think about that. I think it goes to show, it’s like, we’re not great at kind of transporting ourselves into the future and saying like, “Hey, I really could use this nest egg of dollars” because we just disassociate ourselves from things that are 20, 30, 40 years out and it’s such an important thing to kind of breakdown and look at because it’s one of those things that you wake up and you’re like, “All right, I’m 50, I’m 60, I’m looking at retirement and what do I have?” And it’s not enough.

Social security, we’re going to go into the some of the background and everything but it is a major piece of this Rubik’s Cube that is, “Okay, once I stop working, how can I convert or how can I build this retirement paycheck that I’ve been really working my whole life for?” Social security is going to be a big part of that, with the stats support that. How you approach social security is one of the most important retirement income decisions you’ll make. I would say, most of the retirement, one of your most important retirement decisions, not even income decisions.

To me, yeah, we haven’t talked about this enough. I think it’s really important because it is going to be a major piece of the pie when we’re breaking down, “Okay, we need X amount of dollars per year, this percent is going to come from social security, this percent’s going to come from your 401(k) IRA, this percent is going to come from here.” That’s really important to break it down and I read a stat Tim, this will blow your mind, we’re talking about – with some clients, the power of working longer.

[0:06:14.5] TU: Yeah.

[0:06:14.8] TB: The stat is that, delay in retirement by three to six months is equivalent to saving 1% more for 30 years.

[0:06:22.2] TU: Wow.

[0:06:23.2] TB: That’s insane. Then, to break it down a little bit more, defer retirement by one month is equivalent to 1% more savings for the 10 final years before retirement. What’s going on here, there’s lots of different variables. When you work longer, you are earning and typically, you earn at the top end and we’ll talk about that with social security, you’re making the most in your career towards the latter part of your career.

You’re also not – that’s one last month or year that you’re digging into your 401(k), 403(b). It’s one less year that if you live to age 90 that you’re drawing on that. Social security is a big part of that in terms of delay and deference, so there’s just a lot going on that really is important to understand. And again, social security is going to be a big part of that and that’s why I’m eager to kind of dive in with you and kind of crack the nut, so to speak, in a very important topic.

[0:07:19.9] TU: Well, thanks Tim, for dashing my hopes of early retirement. No, I’m just kidding. Let’s start with the history of social security. I think it’s important, your comment earlier was a good one, right? I think for many of us, myself included that it’s easy to disassociate with something that’s 20 to 30 years out. I think even more so, there’s been such negative talking points around social security that I think especially for us that maybe are on the early or mid-part of our careers where it’s kind of been not a big thing that we’re thinking about. Which on one hand, you could argue as a blessing because that means hopefully we’re building our own retirement paycheck and social security might be a bonus. But on the other hand, I think as we’re going to expose today, that probably means we’re not thinking enough about it.

[0:08:03.1] TB: Right.

[0:08:04.1] TU: You mentioned, it’s an important part of the Rubik’s Cube. Understanding the history and what it was intended to do and not intended to not do, I think, is a good segue into understanding some of the benefits and credits in how we determine how we’re going to approach the strategies for withdrawal. Talk to us about the history of social security starting with the social security act of 1935?

[0:08:24.0] TB: Yeah, this was an act that was signed in the law by FDR, President Franklin Delano Roosevelt in August of 1935 and really, what it was the main effort here was, it created a social security administration and thus, the social insurance program designed to pay retired workers at retirement, age 65 or older and to continue throughout retirement until death.

It was really meant to kind of look at the problem of economic security for those in old age by setting up this system, which you contribute as a worker throughout the course of your career into this huge fund and it’s not – it’s different. We just had a question about, “I’m maxing out my 401(k), what should I do from here?”

In that case, when you put money into a 401(k), that is your own individual account. Every dollar that you put in, again, dependent on your investment selections like you’re going to get that back. Social security is not the same, it’s a big pool that then pays benefits as you kind of hit those retirement ages.

You’re funded. And when you look at your pay stub, Tim, you’re going to see a big line for social security and you’re going to see that money’s coming out each paycheck and how much you contributed for the year, but it’s really meant to kind of be based on the fund and based on the payroll tax contributions that you make during the course of your working life.

I think around this time, you got to think. I think there are lots of measures that kind of protect the worker, not just in this in terms of economic security but I think even safety and things like that and I think the data shows that even today. And maybe it’s because of this, but we’re just not great savers. We don’t think that far ahead and social security kind of forces that issue and, by law, makes you kind of set that money aside for that future benefit.

But social security, from the outset Tim, was never ever meant to be, to meet 100% of the needs of retirees. Although, like we said in some of these stats, for some people, it comes pretty darn close. Again, to me, depending on where you’re at in the income scale, if you’re lower income, it could be 100%.

If you’re a higher income, it could be a very much smaller percentage of the overall need but it is one of those incomes for life that is inflation protected which you just can’t find anywhere. Even if you were to say, “Hey, I have a three million dollar portfolio and I’m going to drop $500,000 or a million dollars into an annuity that I’m going to buy,” it’s not going to be as good or as beneficial to you as what social security is going to provide.

Like you said Tim, the history – I think this just comes with different amendments but it was really also meant to protect disabled workers and also, families where the working spouse or parent died. It is a monumental piece of legislation and I think really paved the way for people to have a benefit that they can lean on in older age and not really work for the entirety of their life.

[0:11:26.5] TU: Tim, when you say it’s inflation protected, just to clarify there for folks that are diving into some of this, perhaps the first or second time, that’s because the benefit itself is inflation adjusted, right? I remember talking with folks this year that our drawing social security benefits because we’re inflation and they saw a significant bump in that benefit heading into 2022 and to your point, that’s just really hard to find that type of benefit and we think about traditional kind of retirement planning, 401(k), Roth IRAs and other types of things, you’re having to account for that yourself, right? As you’re building that portfolio.

[0:12:01.4] TB: Yeah, exactly. That’s why when we talk about, “Hey, you can’t just stuff the mattress full of dollar bills and hope that in 30 years, your purchasing power is going to be there.” In social security, that’s built in for you. I think it’s by law so every year, they set the COL, the cost of living and then they adjust the benefit accordingly. I think recently, it’s been lower, I think I saw a number, it was like 1.7 but next year, it will be a lot higher because we’re seeing rates start to tick up. But that benefit alone, Tim, is not to be underestimated.

Because again, if you go on to the marketplace, either an annuity – when I say annuity, essentially, what I’m saying here is – that’s all really social security is, in the sense that – an annuity is, you put money in either in like a lump sum over time and then sometime in the future, you annuitize it so you basically start to draw on that benefit and they say, “Okay, based on the amount of money that you put in and our ability to invest on your behalf, we think that we can pay you a benefit of $2,000 per month.”

What a lot of people do is, they’ll take some of that nest egg, some of that defined contribution like a 401(k) and they’ll peel that off so they’ll say, “Okay, if I need a paycheck…” Kind of tangent here but I think worth going down.

[0:13:21.9] TU: Yup.

[0:13:22.5] TB: “If I need a paycheck of $5,000 per month and $2,000 is going to come from social security and I know that for me to keep the lights on, housing, food, kind of the basic necessities, I need $3,000.” Basically, what I would do is, I have $2,000 from social security, I’m going to purchase an annuity that’s going to give me an additional thousand dollars per month so I’m going to take, I’m going to make up a number, I’m going to take from my portfolio of half a million dollars and basically buy that annuity that it will give me a thousand dollars per month.

There’s lots of different ways to go, you can have a joint rider where you can have a term certain, there’s lots of different ways to do this on how it’s invested and things like that. Essentially, what you’re doing is you’re creating a floor. You’re saying, for me to keep the lights on, it’s $3,000 per month, social security is going to cover two, I’m going to purchase the one.

[0:14:15.4] TU: The one, yup.

[0:14:16.9] TB: Then the other two is more like discretionary where I might be traveling and spoiling grandkids or that type of thing. That’s all this is and again, that’s one of the beautiful things about – to go back to the annuity thing, for you to find that same type of inflation protection, it either doesn’t exist or it’s capped.

If we have a huge year next year from inflation perspective and it’s 4%, 5%, 6%, 7%, the annuity might say, “You’re capped at whatever, 3%, three and a half percent.” Then, what happens and really in that year is that your purchasing power is diminished. That’s one of the things is like, the social security – and it’s backed by the full faith and credit of the US government, the tax payer, which you can argue, “Okay, that’s good.” But from an investment perspective, it’s about as safe as you can get in the world.

Yeah, that’s important. It is really important to understand that, in terms of the context of where those dollars – we can get into this a little bit more but just like everything we talk about this with different parts of the financial plan, Tim, this is such an emotional thing. And you see, we’ll get into the decision to claim, to claim or not to claim when you do that and what age.

It’s really important and people stress out about, “Oh if I wait the claim and then I die and I don’t get all those dollars, what a waste.” The other thing Tim, to really consider in this whole conversation is, it’s really so true for the rest of the financial planning is that, this is not just a ones and zeroes decision. It’s not just a money decision, it’s very much emotional.

This decision on social security and when to claim, when not to claim, and there’s lots of different approaches out there in terms of total benefit of social security versus the break even analysis. And the idea is like, “If I wait to claim,” there’s so many retirees that say, “If I wait to claim at 70 and then I die at 75, I left a lot of money on the table.”

[0:16:12.9] TU: Yup.

[0:16:12.6] TB: There’s a lot of different pieces of that to consider but I think the other – so there’s lots of stress and uncertainty there but I think the other thing to kind of mention in this discussion is that if I kind of invoked the example that I’ve said, “Okay, if we’re looking at $5,000 paycheck, two is going to come from social security, we bought another one.” In that $3,000 total, out of the five is just what we need to keep the lights on. It’s for living, food and all that kind of stuff.

The emotional part of that is palpable, it’s really important to understand that because, you know, just like there’s stress and emotion around when to claim, there’s also this feeling of, you know, if you don’t create that floor and you’re dipping into your three million dollar portfolio as an example and your every month or every quarter or whatever it is, you’re deducting from that, there’s this feeling of scarcity too.

Sometimes, you know, you want a little bit of column A and a little bit of column B. Sometimes, people don’t create that floor because they want that investment to really thrive and the idea of taking a big chunk out of that to create income is scary. But from a scarcity abundance mindset, a lot more people either by delaying social security or creating that floor through social security and annuity, really allow that abundance to thrive.

I always joke, like I joked when we bought the motorhome. I look at their red shade and I was like, “Well, you know we can completely crash and burn, lose our jobs, lose our house and we can always rely on the motorhome to have a place to live.” I think that’s just a micro-chasm of what we’re talking about here, because a lot of people – the questions for retirement is, “Am I going to have enough? Will the money run out?”

That is really important when we’re talking about things like social security and where that plays in the grand scheme of things.

[0:18:11.5] TU: Tim, I want to come back to this decision on when somebody takes money out and what it means to defer, we’ll come back to that later episodes and more on the strategy side. But taking a step back into the how it works, thinking about the funding of it and the credits, you mentioned before, this is something that folks likely have already noticed on their pay stub. Tell us more about how this comes out to payroll taxes and what they can be expecting there?

[0:18:35.3] TB: Yeah, so the two main payroll taxes out there is Medicare and Social Security. Social Security is basically tax at a rate of 6.2% and sometimes you see it together at 7.65%, which is Delta, it’s the Medicare tax rate. Every year this changes, so the maximum social security contribution in 2022 is $9,114 and that’s based on what’s called the wage base or the taxable wage base.

For 2022, the taxable social security wage base is $147,000. If you multiply that by 6.2% that’s where you get the $9,114. What essentially that means in layman’s terms is, if I am a pharmacist out there and I am making $147,000 or I am Elon Musk and I am making billions, from Social Security you’re still treated as the same. Any dollar above that is not necessarily taxed from a social security perspective.

The wage basis and the maximum amount of earned income that employees must pay social security taxes on. Now, I think Medicare is uncapped, so you’ll pay a percent throughout the higher earnings so to speak. With the funding in mind and again, you’re setting aside that – those dollars, not necessarily directly for you but for the pool that you will one day dip into. Basically you are trade in those dollars for credits.

As you work, you build credits and for you to become eligible for Social Security, you need 10 years or 40 quarters, 40 credits that makes you eligible for retirement benefits. In 2022, you earn one Social Security or Medicare credit for every $1,510 in covered earnings each year and you must earn just over $6,000, $6,040 to get the maximum four credits for the year. The idea is that you’re building credits, building credits and then depending on when you actually start to draw on your benefit, you kind of convert those credits to what that benefit is and then there is also some things called like delayed credit.

For me and you Tim, and it is different depending on when you’re born but for anyone born after 1960, full retirement age for you and I, anybody born after 1960 is going to be 67 years old. For my dad who was born in the 1940s, he’s the old man in the group here so his for-retirement age is 66. But if you or I or really anybody decide to delay your retirement, so delayed retirement, the maximum you can delay it to would be 70 years old, you would receive delayed retirement credits, which are used to increase the amount of your kind of older age benefit credit.

You would earn additional dollars and it’s about 8% per year that you delay. If my for-retirement age is 67 and I decide to retire at 68, my benefit would increase by 8%, which if you think about that is very powerful. Not everybody gets 8% raises every year and then the other thing that’s important to just remind everyone out there is that it’s inflation protected. Again, this goes back, we’re going to talk about this more on a strategy perspective but it’s just very powerful in terms of how you approach this decision.

[0:21:53.4] TU: Tim, you mentioned that the delayed component, so you know, you mentioned 67 and essentially up to 70 depending on when somebody is born, but there is also the other side of it, right? If somebody decided to take it sooner than that, talk to us about that.

[0:22:06.7] TB: Yeah, great question or great point. Yeah, you’re looking at, you’re really looking at and what we’re really kind of breaking down here is how you determine your benefit. To back up on the credits, which we should have mentioned is that the credits are based on your highest 35 years of earning. You know, it looks at the top 35 and it goes back to that question of if you delay you’re later years, you’re probably going to be substituting like a year.

A year where you are making six figures from where you made tens of thousands because you’re a resident or something like that so yeah, that’s huge. Really, the three I guess phases or ages are going to be kind of the early retirement for everyone at 62. But what happens is that your benefit is based on for-retirement age. You have your early retirement, you have full retirement age, FRA, and then you have delayed retirement and that’s to 70.

For you and I Tim, our early retirement is 62 years old, our full retirement is 67 and then our delayed retirement is 70. Now, depending on where you’re at from a birthdate perspective, if you were born between 1934 or 1943 and 1954, then 66 is your for-retirement age not 67. If you are born in 1955, it’s 66 and two months, 1956, 56 and four months, I don’t know why they complicate these things like this but yeah, so that’s the big change.

Again, there could be legislation in the future that they’re going to say, “Hey Tim, just kidding. People are living longer, your full retirement age is not 67. It’s 68” that could happen or the earliest that you could retire from an early retirement is 63 not 62. It’s you’re early for us, it’s 62. It’s for your full retirement for us is 67 and for delayed retirement it’s 70 and again, those could change in the future but dependent on how you choose to then claim, so the example is if you begin taking your social security at 62 you reduce your benefit by essentially half a percent each month to your full retirement age.

If you take it 24 months, two years, every month you’re reducing it by half a percent, which can definitely add up. A lot of people they’ll say, “Hey, my job is not great.” Or sometimes I’m forced out of retirement, for a lot of people there’s just this misnomer that, “I am going to control when I retire.” That’s not necessarily the case. It’s something like 40% of people are either forced out of their job or because of a health issue of themselves or a loved one.

That’s also something to kind of take into consideration but it’s all based on this credit. And again, when I was prepping for this podcast, I went to my socialsecurity.gov and I put out my own social security statement and it outlines eligibility and earnings. It says, “You have the 40 work credits” so to receive benefits, it kind of told me what I earned last year but then you can click in and review your full earnings record now.

It goes back really from 2021 back to, I think for me, 1998 I earned in social security’s eyes like $351 but eventually that number will fall off in the calculation because I’m going to have, you know, I have 24 or 25 years of work and those lower numbers will knock off and then I’ll get a bit of benefit but the cool thing to see is, you know I can see the dollar amount of my benefit for early, full and delayed.

Right now and I can share it, so this is at for me it’s saying if I retire at 62, I wouldn’t be on track to earn a benefit of $1,603 per month. If I wait for 67, which is my full retirement age it’s $2,341 per month and then if I delay it to 70, it jumps to $2,902. And again, these are inflation protected, that’s really important to understand. That is basically the way that the credits work and how that kind of translates to a benefit.

Again, it’s something that I think and we could probably have a full episode of like how people kind of mismanage these decision of it’s, “Hey, my brother did it at this age” or my spouse or these are what people are doing in the workplace and X, Y and Z. And it’s really just like different parts of the financial plan, it’s really important that you take a look at this very intentionally because it can have major consequences in terms of your overall outlook for your retirement picture.

[0:26:39.6] TU: Yeah and I like what you said earlier is that, how you approach social security is the most important retirement income decision you’re going to make, right? Again, one of the reasons we want to do this episode followed up with other content, if folks haven’t yet checked out their social security account, I would encourage you to do so. It is really neat to kind of see and log in and start to dig into this deeper, you can go to ssa.gov/myaccount.

Tim, I was looking back too at my earnings record, it was fun going back like starting when I used to work for the family business, Ulbrich’s Tree Farm, back in my cashier days working at a top grocery store in Western New York, so fun just to see some of those earnings history and see where things are at in terms of that really full and delayed phases. Tim, the other thought that comes to mind and we’re not going to go down the Medicare pathway right now but if you think about that early benefit and you mentioned someone begins taking it at the age of 62, they reduce their benefit by 0.5% each month.

They’re also then is that potential gap of age eligibility for Medicare benefits, so you’ve got some other considerations also with just the intersection of this and the healthcare cost as well.

[0:27:45.5] TB: Yeah, I mean it’s so much. It’s so true like when we’re talking about the financial plan, it’s kind of like you can’t just treat one system of the body like you’re looking at the entire picture and it is so true in this kind of question as well as that there is so many – I mean, just even the overlay of the taxes and like, “Okay, what’s the best way to build that retirement paycheck from a tax perspective?” And then also you invoke things like Medicare and even like gifting strategies, if you are trying to minimize tax there.

There is just an array of questions that you have to answer and a lot of them are really less about the numbers and more about, “Okay, what does this look like for you?” And so many retirees go into retirement thinking like, “Hey, I’m just so done with work and I just want you to know” but then they all often return to work sometimes because of the money but sometimes because of like the – they don’t have the social infrastructure to kind of carry on in terms of like having a passion or a meaningful life.

It’s so funny because some of the similarities with the different phases of life in terms of like, “Okay, what’s a wealthy life for you?” And answering that question in your 30s and 40s and saying, “Okay, we can’t just stock away money and not live today.” But there is a balance to that but also when you reach the end of your work in life, what’s a wealthy life to you? That question still stands and a lot of people either don’t ask themselves that question or they struggle to answer it because for a lot of us unfortunately, a lot of us we really define ourselves by our career, our role, our professional roles.

It’s important to slow down and ask the question of, “Okay, what do I actually want to do? What do I want to get out of my 60, 70, 80s and beyond?” And then execute to that. It’s a common thread no matter where you’re at in the financial journey.

[0:29:51.1] TU: Yeah, I think this too is another good reminder as you are talking about this range from, I’ll just use 62 to 70, right? The early to then the full to the delayed benefits, obviously we can see the negative impact of financially just numerically speaking, if we pull the benefit early whereas if we’re able to delay that, that number goes up. And just another reminder that for folks that are able, to build up those savings outside of social security throughout their career, you take some of that pressure off, of getting into those early retirement years.

Tim, I know we’re going to come and do a lot more detail on some of the breakeven analysis and factors that go into, that but I know that a lot of pharmacists are listening to this and I know there’s a lot of math nerds that are just looking at some of the numbers of like, “Man, it seems so obvious that if you wait, you’re going to have more.” If you defer, you’re going to see that benefit go up but there’s really more behind that.

You know, you start to think about what is someone’s health situation look like, what are other savings that they have in place and I think that that is one of those areas. And you gave and commented on this just a moment ago, this is not one of those areas you say like, “My friend Gerald John is doing this and so therefore I’m going to do that as well” right?

[0:31:02.9] TB: Yeah, no and even with the health stuff there are again, we’ll get into this later but when you look at that and you’re like, all right, there is a history in your family where people will pass away in their 70s or 80s or whatever, so that might press the decision. But also sometimes depending on what the spousal benefit is, you might even decide to delay that because if that person has a greater benefit, the spouse takes over that benefit in the surviving, you know, the surviving spouse takes it.

There’s just a lot of nuance there that you know again, there’s breakeven, there’s the total benefit, all that analysis that goes into play here but you know at the end of the day, you’re really trying to manage and plan for the unknown and that makes it really difficult. I think it goes back to, you just want to be intentional. Like you said, it’s like don’t necessarily go with the herd mentality and have this question answered way in advance.

Sometimes there are pressures like the employment and like your outlook on employment, your overall happiness factor that really presses the issue. But at the end of the day, what we’re really trying to do is come up with a plan where again, you’re living a wealthy life and the money doesn’t run out. That’s paramount.

[0:32:25.3] TU: Great stuff Tim. Again, the hope for this episode is we’re going to lay a foundation around social security to talk about some of the history of social security, the funding of the benefits, the credit concept, how the benefit is determined, what are the different points of beginning to draw on that benefit. We’re going to come back in later episodes talk in more depth on the strategy side as well as common mistakes that folks might make in social security.

As we wrap up, I want to remind folks that we’re now approaching mid-February, which means we’re in the midst of tax season. Those tax forms are likely piling up on your desk, it’s time to have that tax filing and planning for the year top of mind and we’re excited at YFP tax that we’re opening up our tax planning services to an additional 125 pharmacists households. We do taxes as a part of the comprehensive financial planning for those that our clients of YFP Planning.

We are opening the doors to an additional 125 pharmacists households. Really proud of the team at YFP tax and what they have been building. I really believe that that team is not just focused on getting the return done, rather providing value care and attention that you and your taxes currently deserve. Those 125 spots are filling up quickly so don’t wait too long. If you’re interested in working with YFP Tax, head on over to yourfinancialpharmacist.com/tax to sign up. Again, that’s yourfinancialpharmacist.com/tax.

[END OF INTERVIEW]

[0:33:48.1] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END]

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YFP 241: The Top 5 Objections to Investing in Real Estate

Posted on by yfpadmin

The Top 5 Objections to Investing in Real Estate

David Bright and Nate Hedrick talk through five common objections to getting started in real estate investing.

Episode Summary

If you’re interested in learning more about real estate investing but have yet to take the first steps, today’s episode is for you. During today’s conversation, Tim Ulbrich speaks with David Bright and Nate Hedrick, hosts of the Your Financial Pharmacist Real Estate Investing Podcast, highlighting five of the most common objections and fears that pharmacists have when considering getting started in real estate investing. Nate and David further explain how they have overcome those common concerns about real estate investing. They dig into ways to overcome not having the time or expertise and ways to combat the potential to become overwhelmed with the commitment of owning additional properties. They talk through fears about the current state of the real estate market and when the right time to invest is. They also address feeling like investment goals may be too far out of reach and not knowing how to build a solid real estate investing team. David and Nate reveal why investing in real estate doesn’t have to demand too much of your time. They also share tips on how to learn from other pharmacist investors and share their experience of finding the right team to help you get the ball rolling and achieve those real estate investing goals.

Key Points From This Episode

An introduction to today’s guests, hosts of the YFP Real Estate Investing Podcast, David Bright and Nate Hedrick.
Addressing Objection number 1: I don’t have enough time!
Why hiring a property manager saves you money and saves you time.
The second common objection: not knowing where to get started.
What David’s strategy has been at the forefront of his plan.
Responding to the objection that managing just one property is already overwhelming.
Answering the objection that the market is volatile.
How there is no way to time the market and the best call is to make sure the numbers work no matter what.
David’s response to the objection that folks don’t know how to build a real estate team.
How connecting with a real estate agent can be the first step to putting together the team you need.
Why they launched the YFP Real Estate Concierge: to help you find investor-friendly agents.
Nate’s biggest takeaway from hosting the podcast: the interesting ways that pharmacists are investing.
What David has learned through hosting the podcast: getting out of his own head and into the community with others is critical.
What listeners can expect from the YFP Real Estate Investing Podcast going forward including the None to One Group Coaching program.

Highlights

“What got me over this hurdle personally was understanding that it didn’t have to be me to do all those things! I just had to make sure that there was someone that could do those things. There were people that could be hired to do them.” — David Bright, PharmD [0:03:18]

“I was trying to rent out a property, trying to be my own property manager, trying to do it all and I was unsuccessful at doing it, a property manager came in, had the place rented out super-fast, and was able to rent it out so much more per month.” — David Bright, PharmD [0:03:50]

“I think the trick is that no one has a crystal ball, there is no way to time the market and so waiting for it to do what you want just means that you end up waiting.” — Nate Hedrick, PharmD [0:16:24]

“My story started with finding a great real estate agent that was then able to introduce me to other people around that could be a great team.” — David Bright, PharmD [0:20:22]

Links Mentioned in Today’s Episode

Episode Transcript

[INTRODUCTION]

This week, I had a chance to welcome back on to the show, David Bright and Nate Hedrick, cohost of the YFP Real Estate Investing Podcast. During the interview, David, Nate, and I talked through five common objections to getting started in real estate investing. Now, if you’ve been interested in learning more about real estate investing and have yet to pull the trigger to take that first step, this episode is for you.

Some of my favorite moments from the show include hearing David and Nate talk about why investing in real estate doesn’t have to be a huge demand on your time, how to learn and benefit from other pharmacist investors without getting paralyzed by the comparison gain, and how to get the ball rolling with the team to support you and achieving your real estate investing goals.

Now, before we jump into the show, I recognize that many listeners may not be aware of what the team at YFP planning does in working one-on-one with more than 240 households in 40 plus states. YFP planning offers free only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.

Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. Okay, let’s jump into my interview with David and Nate.

[INTERVIEW]

[0:01:35.6] TU: David and Nate, welcome back to the show.

[0:01:37.8] NH: Hey, thanks for having us.

[0:01:39.5] DB: Thank you.

[0:01:40.4] TU: You guys have been busy with the YFP Real Estate Investing Podcast and other happenings geared toward pharmacists on their real estate investing journey, we’re going to get an update from you guys on those efforts towards the end of the show but I want to jump right into today’s topic, which is some main objections to investing in real estate. I continue to hear from many pharmacists that are interested in exploring real estate investing further, many folks that say, “Hey, I want to get involved. I understand how this can help me achieve my long-term goals, diversify my investing plan but…” there are reasons, objections, things that are getting in the way of them moving from that step of learning to actually taking action with that first property so we’re going to talk through some of those common objections today on the show.

David, one of the most common things that I hear, I suspect you guys hear all the time, we’ll call this objection number one is, “I don’t want to unclog toilets at 2 AM” or if we broaden this out a little bit further, “Maybe I don’t have the time” and to some degree, the expertise to be in the weeds on actually overseeing and managing properties but I realize the potential that’s there as an investment and as I mentioned before, potentially diversifying my portfolio. Talk to us about this common objection and fear of really being in the weeds on these properties and the time that it can consume?

[0:03:01.7] DB: Yeah, it’s a super common objection and I think that it was one of the things that almost scared me off as well because I am not handy enough to handle most things in my own house, let alone to be responsible for another house if I’m the one that has to go out there and be handy with those things. For me, I think what got me over this hurdle personally was understanding that it didn’t have to be me to do all those things, that I just had to make sure that there was someone that could do those things and there were people that could be hired to do those things.

I know one of the things that we talked about, Tim, you and I back at YFP episode 167 of the podcast was that hiring a property manager was just huge for me, taking 95% of the work off my plate in that process. At that point, I was trying to rent out a property, trying to be my own property manager, trying to do it all and I was unsuccessful at doing it, a property manager came in, had the place rented out super-fast and was able to rent it out so much more per month than I thought was possible in that the property manager’s fee was entirely covered just in that spread of what I wasn’t even able to get.

Ended up saving me money and saving me time. It’s just one of the best decisions that I’ve made when it comes to real estate investing and then by doing that, the property manager handles any 2 AM toilet clog or the furnace is out or the roof is leaking or any of the really scary things like that no longer becomes my responsibility to take that call and to figure out what to do and again, that has just been a huge help.

[0:04:43.1] TU: Nate, I know you have property local to you and then you have property not local to you. I think that this gets into a little bit of maybe some of the value as well as challenges of more that distance real estate investing but you know, even as you look at your property local to you where maybe there’s that urge in temptation of, “Hey, I could just go take care of this, right? I don’t have to pay eight, nine or 10%” that option’s not even on the table, right? When you look at properties that are not near to you and that even forces the hand further in having a model that depends upon property management here we’re talking about but also just a larger system in place to manage your properties.

[0:05:20.5] NH: It’s been a really nice way for me to build a business and a portfolio because you’re right, it lets me see both perspectives and both sides. It’s funny, we’re actually in the middle of buying another property here locally and my challenge for myself and more importantly, my challenge from Christine is to not go over there and do stuff.

I can paint a room, I can change a light fixture, I can do some of the basic stuff that I know, if I hire it out, it’ll get done better and faster but it cost 200 bucks or it cost 500 bucks. The challenge for me is going to be to not do that stuff and I’ve shown myself with the – on estate investing that it can be done and it can be done profitably, you just have to set it up that way from the beginning.

I completely agree, this is a challenge I hear all the time or objection I hear all the time but you can do that as much or as little as you’d like to.

[0:06:09.9] TU: Yeah, I think it goes back to what are some of the goals that folks have around their potential portfolio into the future, how involved do they want to be and I think both of you have done a great job. I’m thinking of several webinars that you’ve done with pharmacists and certainly have talked about your own show as well of really building out your model and even the financial model and even the financial model too from jump street, account for property management fees, to account for some of these other things that realizing your time is valuable, right?

We have many busy pharmacy professionals that again, maybe have an interest in real estate but don’t want to be unclogging toilets at 2 AM. By the way, who came up with that saying, right? Because I feel like, that has been the reason probably why so many people have never gotten started and involved, the 2 AM toilet clogs, I’d be curious to know how often that actually even happens?

[0:06:56.0] NH: It never happened at my house, so I don’t know. Now I’m just jinxing myself though.

[0:06:59.6] TU: Yeah, tonight, right? It’s going to be a thing.

[0:07:01.2] DB: Exactly.

[0:07:02.0] TU: Nate, the second common objection I think about is, especially if someone’s able to get past the, “Hey, I could never be responsible for another home” or that 2 AM toilet clog issue is, “I just don’t know where to get started” right? It’s so overwhelming, there’s so many different options, even if I listen to the YFP Real Estate Investing Podcast, my gosh, there’s a ton of different ways to get going and I just don’t know where and how to get started. Talk to us through this.

[0:07:30.7] NH: Yeah, I mean, especially with all of the different promotions from individuals in the community right now between vacation rentals, long-term rentals, people that do college flipping or college housing, then there’s just general flipping like we see on TV or commercial properties and self-storage and house hacking, the list goes on and on, it’s just crazy and so to say, “I want to invest in real estate” and not have an idea of what that looks like, I completely understand how that’s overwhelming.

That’s why we really try to encourage on the podcast and I’ve talked to a lot of individuals where you just go for that lick and the least glamorous, most boring approach and that’s the long-term rental. And I am not saying this is a fit for everyone but it’s a really great way to just kind of get in there and try real estate investing and figure out how to set and forget it. Let the property manager handle it or build up your system to handle it and just let things kind of progress from there.

Now, again, that’ snot a fit for everybody but what I encourage you to do is to learn a little bit about each different option, see the pros and cons and then once you dial into one, just learn that, stick with it for a while before you start branching out because it’s super easy to try to evaluate everything and get completely lost in the weeds.

[0:08:42.1] TU: David, talk to us more about – for your individual, Nate alluded to this as well of the approach towards the long-term rentals, kind of the buy and hold strategy and that certainly is one of many different pathways that folks may go, you’ve been at this for a while, why has that strategy really been at the forefront of your plan?

[0:08:59.8] DB: Yeah, I think for us, one of these values that we had is that we didn’t want real estate investing to feel like it was taking over our world and became our everything and sucked every last minute out of every last corner of life. That made the long-term buy and hold with the property manager managing things with me not out there painting and doing whatever else, that made that a really good fit.

There’s certainly other things that are enticing like vacation rentals and self-storage and other things like that but it was just a much simpler start in the long-term rental space. I think, the other thing that’s nice about that though is that early on, when there was a little bit more time and sweat equity was something that we were able and willing to throw in there, earlier on, that was a great fit and I was able to go out and paint and do things and help that process move a little further forward but the long-term rentals have a disability for you to do some of that if and when you want to and then back off of that if and when you want to.

Just from lifestyle and all of that really helps that to be a fit for us and then to Nate’s point too, once you get started in that space and you start to get good at it, the second and the third and the fourth becomes so much easier for acquiring those rentals or whatever that is because it’s getting that first property that’s the hardest step.

[0:10:25.3] TU: That’s why I love it and we’ll come back to this here in a little while. I love what you guys are doing with the one-on-one coaching program, right? Because from my experience and I think certainly from your guys’ experience, working with other pharmacists, investors, many folks that, “Hey, this is top of mind but I just can’t get over some of the hurdles” some of these objections that we’re talking about here today. Obviously, once you start to align what strategy of real estate investing fits best with you individually as well as your financial plan, getting over that first hump and then obviously, building the confidence to continue to snowball further.

I think if you guys have done an awesome job on the show, kudos to you guys of really featuring pharmacists that are doing lots of different types of investing and I think that can help people get an idea of, “Yeah, I hadn’t thought about that” or some of the pros of this strategy and cons of that strategy as well which takes me to my third objection, David, which is I heard so and so on the YFP Real Estate Investing Podcast and that’s awesome for them but that feels so far out of reach of what I think I can do.

I heard Jarred or I heard the pharmacist investor talk about the portfolio that had been building and all of the processes and systems and teams that he has in place and I’m just trying to get started with my first one and it feels really overwhelming and maybe this whole real estate investing thing just isn’t for me, talk us through this common objection?

[0:11:44.9] DB: Yeah, there’s a real pro and con to hearing some of those major success stories because on one hand, we hope and one of the things that we say on all the podcast is we hope that we’re after some education and some inspiration for people to take that jump and to get into their first property or to try that on for size and see if it’s for them, if that’s what they want to do.

Then, yeah, when you hear some of these killer success stories of someone that made $100,000 on a flip or where they bought 20 houses in a year, something like that, those kind of things then start to get intimidating too and you start to think, “Well, I don’t know that I can make $100,000 in a flip, I’ve never flipped a house before” so that intimidation can set in.

I think you’re right, there’s something about backing off of that. Understanding that folks that share their beset win of every game that they’ve played on a podcast that isn’t necessarily reflective of their first deal, their average deal, their mediocre still win out there and so setting aside some of those comparison things can be helpful to make sure that it’s not delaying someone’s start.

[0:12:58.3] TU: Yeah, you’ve really got to hold this line, right? I remember several years ago, I started listening to the bigger pockets podcast which shout out to you know, the great content they have in the platform community built and I would feel the highs and lows of those emotions, right? You’d feel the high of the education, the examples of stories, it was like those lightbulbs going off of I had no idea about this or that opportunity and then right behind that would be the fear of my gosh, where do I start? That seems so overwhelming.

I think that’s where the community, that’s where the accountability, that’s where that focus on the first property can be so valuable and as you mentioned, David, some of the pros and cons that can come from certainly, sharing some of the stories from other individuals. Nate, real estate investing to David’s comment, we often see some of the glamorous things, there’s certainly lots of YouTube stars that are out there, right? that are doing this that can further worsen this. What’s your advice for how we hold this line?

[0:13:54.6] NH: Yeah, I think something to keep in perspective is just like what Dave was eluding to is that the norm is not to have a ton of these properties and really, one of the things we try to advocate forward during our podcast episodes is, you don’t have to leave pharmacy and just do real estate full-time, you don’t have to be a millionaire real estate investor.

If you look at just a couple of stats here for you from roofstock.com, 16.7 million properties in the United States are owned by mom-and-pop landlords with one or two properties each. Meaning, this is just somebody adding extra rental property in their portfolio, maybe too that they’re using that to supplement their long-term retirement plans, right? You’re buying a property, you’re doing that early in your 30s, maybe even in your 40s, you’re sticking a 30-year mortgage on that and then you’ve got a paid off property in retirement, right?

That’s kind of what a lot of people are doing actually. It’s not these huge takeovers of real estate portfolios. Don’t compare yourself to those people that are doing that if that’s not your goal. Really taking that into perspective and trying to reset that expectation can be helpful.

[0:14:58.6] TU: That’s a really good reminder and I’m glad you shared that stat, Nate because I think it does feel, that surprises me when I hear that number because it does feel through listening to podcasts, reading books, reading real estate blogs, it feels like that would be the minority, not the majority in terms of folks that only own one or two properties and have that long-term strategy in mind so that’s a good reminder, you know, I think of really taking a step back and what is truly the market out there of how folks are investing.

Nate, number four, objection number four, market’s red hot, you know this all too well as an agent and the work that you’re doing with clients in that capacity. “The market’s red hot and I’m worried about buying at the peak, you know what? Maybe I should just wait and kind of let this be a thing into the future.” Talk to us about really trying to invest in real estate and this issue of timing based on what’s going on in the market.

[0:15:48.8] NH: Yeah, it’s super tough. I mean, the real estate market is still up. I think I was just looking at stats the other day and it was something like 17% increase in home prices year over year already and that’s on top of what we saw in 2020. I mean, we are seeing huge, huge increases in home prices, things are still flying off the shelves in multiple markets around the country.

I just heard of an agent yesterday that there was a property listed on the market, it was by all accounts about falling down and it had five offers by the second afternoon of it being on the market, so it’s a tough time to jump in. I think the trick is that no one has a crystal ball, there is no way to time the market and so waiting for it to do what you want just means that you end up waiting.

I think the better play and again, we’re not trying to convince anybody to do anything either direction, is to make sure the numbers work no matter what. And if you can do that, it doesn’t matter what the market is doing, right? If it goes down but you’ve built in that cushion and that base, you’ll be fine. If it goes up, fantastic news. The goal is not to try to time the market, right? I don’t buy a property and think, “Oh man, if I buy this now, it will be in good shape but about in six months I’ll…” you know, no one can figure that out.

If you can go in and look at it from a very objective perspective and say, “The numbers work, the numbers work even if there is a small downturn and the numbers work even better if there is an upturn” then you just commit to it and go for it.

[0:17:13.5] TU: David, as someone has been at this for longer than a decade, you’d seen certainly the dips and where many folks were jumping in and buying properties that have obviously appreciated significantly and then you’re in the midst right now as an active investor trying to navigate this hot, hot market. Talk to us about it from your perspective.

[0:17:32.2] DB: Yeah, I think what’s wild about that is that, you know, we bought our first house as a live in flip a little more than a decade ago but we still have it really see, like we have a person who lived through a down market because it’s been that long, which then I think a lot of people are saying like that’s probably overdue and if you ask people that live through that 2006, ’07, ’08, they probably still feel those scars of where the market really turned.

I think that that’s a reality of investing in general is that you know, the stock market as an example has some average returns that are positive if you look at big enough ranges but at any given year, that’s not necessarily guaranteed. I think real estate is a little different still because it is not quite as liquid. It is not like I could just go into an app somewhere and sell some index funds and five minutes later it’s done, right?

You definitely can’t do that with a house, so I think if your goals are to buy that property and hold it for 20 or 30 years, that’s a much different conversation than if you want to buy a rental, I want to try for six months, I want to sell it particularly when you think about the cost of transacting real estate, so taxes, fees, realtor commissions, all those kind of things. I think there is definitely some downside that we all need to keep in mind if there are thoughts of a market decline.

I don’t know what anyone’s crystal is saying this week, you know, we may see that or we may not but one of the things that I keep thinking in this market is that saying that I have heard lately of when is the best time to buy a rental property 20 years ago. When is the second best time? Today, you know, if you really have that long-term perspective if owning rental property, if you are buying right today still, maybe a good time to do that.

[0:19:20.8] TU: That’s great stuff and the reason I brought this one forward is I think especially for folks that, you know, are feeling overwhelmed by some of the other objections we’ve already talked about, you know, looking at a market like we’re in right now can be an easy opt out, right? Like, “Well, there is all these things but also the market’s where it’s at, so I am just kind of hold off” and I think David, what you shared there is a good reminder of what’s the long-term horizon that we might have involved or in mind as we look at our investing goals and plan.

David, objection number five is, “I don’t know how to build a real estate team” so you know, what I am referring to here is often what I would hear other pharmacist investors or other investors at large talk about their experiences, you know, people talk about connections and relationships they have with realtors that are investor-friendly agents and contractors that they are comfortable working with and that they vetted.

Perhaps lawyers, relationships with lenders, right? They are a phone call away for many of these folks and for those that are just getting started, “I don’t know where to start and I don’t know necessarily how to build the team and to build these relationships.” Talk to us through that.

[0:20:21.7] DB: For me, my story started with finding a great real estate agent that was then able to introduce me to other people around that could be a great team and I know there is definitely that perspective out there where like, “I need to have three contractors and backup contractors and two lawyers” and all these people lined up before I even go walk a first house for the first time and I certainly understand particularly from the personality of the pharmacist that wants to dot all the I’s and cross all the T’s very carefully and very methodically.

I definitely get that and particularly, if you are taking on a really risky scenario like if you are jumping into a house with a major rehab need, I can definitely see some hesitation in that but for us, we found comfort in just buying a more standard house that didn’t really need a ton of work, not trying to get in over our heads on our first transaction and just finding a great realtor that could recommend great people and then from there, kind of learning that network too.

Talking with that contractor to meet other contractors, talking with the lender that our realtor introduced us to, to find even contractors from there. Networking with the local real estate investors association that we were then introduced to and meeting accountants and attorneys and other lenders and other contractors, other wholesalers and so just getting to know a bunch of people kind of methodically and jus that organic growth process rather than going out there and feeling like, “If I don’t have 20 people that I can call in a first name basis and text a really quick response, I can’t jump into any of these” but no, just starting off with who is that realtor that I know can help me build that team.

[0:22:07.8] TU: Yeah and this is one example why I’m so excited about what you guys have built in the Facebook group, the YFP Real Estate Investing Facebook group and the community at large focused and interested in this topic is we’re seeing a lot of, “Hey, I’m an investor in Buffalo and I see you’re a pharmacist investor there as well, would you happen to know so and so?” right? They can build those relationships through referrals.

You mentioned the value and power of networking and I think it becomes a lot more comfortable when I can connect with another pharmacist who has worked with somebody or another investor that I know and trust that has worked with somebody and built those relationships for those referrals. Nate, David mentioned a couple of times the value in starting with a good realtor who really could then help shepherd some of those other relationships. You wouldn’t happen to know one would you by any chance?

[0:22:51.9] NH: Hey, if you’re in Cleveland, Ohio, give me a call. No, really this is why we launched the YFP home buying concierge and then eventually, the real estate investor concierge where you can go and get an investor-friendly agent because we found so much value for everyone that we’ve talked to, that that’s where it all starts from. If you don’t know how to build a team, that’s okay.

Take one step forward and a lot of times that one step is a really good real estate agent because they are going to be that Rolodex of people that you need to tap into different avenues. Again, if you go to yftrealestate.com, you can tap on, find an investor-friendly agent, connect with me and we’ll actually get somebody local in your area and again, the cool thing about working with an agent is that especially if you are a buyer or an investor, there is no cost to doing it.

It is a free person basically to walk you through all the steps that you need to understand, give you access to the resources that you need and be someone that can give you some advice along the way. Again, really advocate for that, that’s exactly why we have the service available because that’s a really great starting point for a lot of people.

[0:23:54.3] TU: Yeah, we will link to that in the show notes for folks that want to connect with Nate to learn more and have some further discussion. I would highly recommend looking at that further. Those are five common objections that certainly are things that I thought about. I suspect many other pharmacists might be thinking about it, “I’m embarrassed to get started.” I want to shift gears here and talk about some of the takeaways that you guys have had now.

That your 40 plus episodes into the YFP Real Estate Investing Podcast, you have interviewed many pharmacists, investors, connected with others beyond that. I suspect there has been some positive takeaways not only for you guys individually but also in seeing some of the wins of that community and growth of this niche of pharmacists that are interested in real estate investing.

Nate, I’ll start with you, as you guys are now more than 40 episodes in back to April 2021 when the podcast started, what have been some of your takeaways from the podcast and the launch of some of the YFP Real Estate Investing initiatives?

[0:24:51.6] NH: Yeah, I think the biggest thing for me as I look back is all of the really interesting ways that pharmacists are doing this. I think when David and I started developing the concept of this podcast and what it was going to look like, I think in my head it was going to be a bunch of people coming on talking about their long-term rental they have down the street and it’s like their one piece of it but there are pharmacists doing things from commercial to mortgage lending to –

We’re going to have a little spoiler down the road, we’re going to have somebody on the podcast here a little bit who bought a motel and what that looked like. I mean, there is all these really cool stories of pharmacists doing things that I never would have expected and it’s just been so great talking to them and hearing their stories and how they got there because it is all a little bit different but all remarkably the same in terms of, “You know, I had this problem. I started looking into it and here’s how I solved it and here’s what my life looks like right now.”

That’s just been so fun for me to see how those people do that and connect with the community that shares one thing in common but ultimately shares much more than that.

[0:25:48.6] TU: David, what about for you?

[0:25:50.0] DB: One of the things that I’ve found is getting out of my own head and getting into community with others is just so critical whether that’s real estate investing or even all of our shared experience in pharmacy school. We probably all had that like walking in a group from class to class and things like that, finding people to study together and that just helps to kind of keep you grounded and keep you focused on what’s important.

There’s so much that I think can be overwhelming, whether it’s pharmacy school, whether it’s real estate investing, whatever you’re trying to learn and that community is helpful and not just a community of people that are interested in that topic but a community of people with some shared experiences, so it’s just been so fun to hear pharmacists on this podcast. Pharmacists, they’re all wired similarly in terms of personalities.

Pharmacists that all value their career that they have invested heavily in, where they aren’t really trying to quit their jobs to be full-time investors like I think is common in a lot of other channels out there but pharmacists that just want to reimagine what life could be if they had additional income streams or more diversified retirement plan. It just seemed that diversity of pharmacists and non-pharmacist guests as well has just been a lot of fun to see that community grow.

I think if I could sneak a second takeaway that I’ve had in there is that and I think we alluded to this earlier but there is no value statement on goals. I think we have seen some really unique goals the pharmacists have brought. I think that talking with Blake and Zach early on and how they’re buying house after house after house and in kind of a rapid speed as they are trying to grow something there is a very different experience than when Eric Geyer came on and talked about what he’s doing with real estate investing a small number of deals, something that he doesn’t have to spend a lot of time on.

It’s you know, having one rental house can be a great goal, two could be a great goal, a hundred could be a great goal that there’s not necessarily a value statement in one goal is good or a goal is bad but just seeing pharmacists set those goals and achieve those goals has just been a lot of fun and really inspiring.

[0:28:04.5] TU: Kudos to you guys for bringing those guests on, asking good questions, right? Which allows folks to really tell and share their story and some of the motivational why behind what they are doing and certainly recognition of the time that goes into doing those episodes, planning for those episodes and I certainly think it’s adding a ton of value to the YFP community at large, so thank you very much to you guys for that.

Nate, 2022, again, we’re 40 plus episodes in. Obviously, I feel like we’re just kind of scratching the surface to some of the opportunity and education in this area. What can we expect, what’s ahead for 2022 when it comes to the real estate investing podcast and some of those efforts for the community?

[0:28:43.4] NH: Yeah, I think we’ve got a lot planned and pretty excited about. I think the biggest thing on my mind right now is we’re about to launch is our one-on-one coaching program. If you have seen anything about this in the Facebook group or heard about it on a podcast, the goal here is basically to say, “How can we take our community who is right on that edge?” right?

They are pretty ready to buy a house, they just need that motivation to kind of get to the finish like or to answer a couple of questions and so how do we take them from none, no real estate investing at all to that first house and so we launched this coaching program as sort of a beta test with a small cohort of individuals. We just had our kind of final applications due and acceptances go out and really excited to see where that takes us.

If we can get everybody over that line and actually buying their first rental property that would be really fun to see.

[0:29:29.1] TU: I am really looking forward to hearing some of the output and I suspect some of the success stories that are going to come from that group not only going from none to one but perhaps even some of the future growth that will come for those individuals and I sense the motivation we’ll provide for the rest of the community as well. I really appreciate you guys and the efforts that you’ve provided.

As we wrap up here, I would point folks in a few directions. If you’re not yet listening to the YFP Real Estate Investing Podcast, I hope you will tune in each and every Saturday. Nate and David are bringing you new episodes and if you are not also yet a part of the YFP Real Estate Investing Facebook group, I hope you’ll take a moment to join that community and we will link to that and both of these in the show notes.

Finally, David and Nate put together a great guide just about a year ago as these initiatives were started, The Pharmacist’s Guide to Real Estate Investing, we have that available for download for free at yfprealestate.com. David and Nate, thank you guys so much for joining and looking forward to an awesome 2022.

[0:30:24.8] NH: Thanks Tim.

[0:30:25.7] DB: Thanks so much.

[END OF INTERVIEW]

[0:30:26.7] ANNOUNCER: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

Furthermore, the information contained in our archived newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of your financial pharmacist unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward-looking statements, which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer.

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

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